Interim Joint Committee on State Government


Minutes of the<MeetNo1> 4th Meeting

of the 2011 Interim


<MeetMDY1> September 28, 2011


Call to Order and Roll Call

The<MeetNo2> fourth meeting of the Interim Joint Committee on State Government was held on<Day> Wednesday,<MeetMDY2> September 28, 2011, at<MeetTime> 1:00 PM, in<Room> Room 154 of the Capitol Annex. Senator Damon Thayer, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Damon Thayer, Co-Chair; Representative Mike Cherry, Co-Chair; Senators Walter Blevins Jr., Jimmy Higdon, and Alice Forgy Kerr; Representatives Dwight Butler, Larry Clark, Leslie Combs, Will Coursey, Joseph Fischer, Danny Ford, Derrick Graham, Mike Harmon, Melvin Henley, Martha Jane King, Jimmie Lee, Mary Lou Marzian, Brad Montell, Lonnie Napier, Darryl Owens, Tanya Pullin, Tom Riner, Carl Rollins II, Steven Rudy, John Will Stacy, Tommy Thompson, John Tilley, Tommy Turner, Jim Wayne, and Brent Yonts.


Guests: Representative Arnold Simpson; Anthony Wilhoit and John Schaaf, Kentucky Legislative Ethics Commission; Fred Nelson, Joe Cowles, and Dinah Bevington, Personnel Cabinet; William Thielen, Kentucky Retirement Systems; and Travis Powell, Finance and Administration Cabinet.


LRC Staff: Judy Fritz, Bill VanArsdall, Alisha Miller, Karen Powell, Brad Gross, Kevin Devlin, and Peggy Sciantarelli.


Approval of Minutes

The minutes of the August 24 meeting were approved without objection, upon motion by Representative Rudy.


Recognition of Fallen Firefighters

Representative Pullin said she had attended a service today at the Kentucky Fallen Firefighter Memorial in Frankfort. She encouraged her colleagues to attend next year and then read the names of firefighters who had given their lives in the line of duty this year in Kentucky.


Recommended Changes to the Kentucky Code of Legislative Ethics

Anthony Wilhoit, Executive Director, Kentucky Legislative Ethics Commission, and John Schaaf, Counsel, presented the Commission’s recommended changes to the Kentucky Code of Legislative Ethics, as reported to the Legislative Research Commission on August 16, 2011. As indicated in the cover letter included in the report, the recommendations were first submitted to the LRC in October 2009.


When Senator Thayer asked how Kentucky’s legislative ethics law compares with other states, Judge Wilhoit said that Kentucky is nationally recognized as having one of the best ethics laws in the country. The ethics legislation introduced in the U. S. Senate by then-Senator Obama was modeled on Kentucky’s law. It was also used as a model when the House Office of Congressional Ethics was created. He said he was called to testify in both instances. Later in the meeting, he said that the Commission could not be happier with the cooperation it receives from the leadership and members of the Kentucky General Assembly, which helps make Kentucky’s law as good as it is.


Senator Thayer noted that the Executive Branch Ethics Commission was invited to attend today but declined. It is not ready to present recommendations but may possibly be on the agenda for the Committee’s October meeting.


The recommendations of the Legislative Ethics Commission and key discussion, if any, are summarized as follows.


Recommendation #1 – Repeal the provision allowing each lobbyist and employer to spend up to $100 annually on food and beverages for each legislator and his or her immediate family. Judge Wilhoit said that in 17 years employers of lobbyists have spent $5,327.00 for food and beverages for individual legislators; the total spent by lobbyists in 17 years was $1,518.00. This provision has caused administrative problems because employers/lobbyists often fail to provide legislators with the required 10-day notice of the spending. Poor public perception is an issue to consider.


Recommendation #2 Prohibit lobbyists and their employers from paying for out-of-state travel, food, or lodging expenses for members of the General Assembly or candidates. As stated in the report, current law permits an individual legislator, with the approval of the Senate President or House Speaker, to accept transportation, food, beverages, and lodging for an out-of-state event. Judge Wilhoit said this provision is not often utilized but has the potential to cause problems.


Representative Clark questioned whether this recommendation may go too far, since legislators are often invited as guest speakers at conferences of out-of-state private sector organizations. Judge Wilhoit said it would not apply to organizations such as the Southern Legislative Conference, National Conference of State Legislatures, or the American Legislative Exchange Council. The Commission is making the recommendation for the sake of appearances and to prevent problems from occurring in the future. Senator Thayer suggested that the required reporting for this type of activity serves as a “self-policing” agent which may preclude the necessity to change the law.


When asked by Representative Harmon, Judge Wilhoit said the proposed prohibition would not apply to reimbursement of out-of-state travel expenses related to an individual’s duties as an employee of a company that employs lobbyists.


Answering a question from Representative Lee, Judge Wilhoit said the recommendation would not prohibit payment of out-of-state travel expenses for the purpose of accepting a national award from an organization that does not employ lobbyists even though some of its members do employ lobbyists.


Recommendation #3 – Define the term “in-state” so that areas contiguous to Kentucky, such as Cincinnati, are included in the definition. Judge Wilhoit explained that legislators must have permission from either the House Speaker or Senate President to attend functions outside the Kentucky border and that this recommendation would cut down on paperwork.


Recommendation #4 – Treat candidates in the same manner as legislators by limiting the interaction between lobbyists and candidates who have filed to run for election to the Kentucky General Assembly.


Recommendation #5 – Prohibit employers of lobbyists and political action committees from making a campaign contribution to a legislative candidate or a legislator during a regular session of the General Assembly. Mr. Schaaf said this measure is designed mainly to protect members of the General Assembly from poor public perception and the type of legal problems that have occurred in other states as a result of the close proximity between contributions and casting of votes during a legislative session. Upon conclusion of a session and for the remainder of the campaign season there would be no prohibition, except on lobbyists. During a regular session there is no prohibition on raising campaign money from anyone else other than a PAC or employer of a lobbyist.


When asked by Representative Pullin later in the meeting, Judge Wilhoit confirmed that this recommendation is intended to address only regular and not special sessions.


Representative Marzian expressed concern about public perception with regard to contributions received immediately before a legislative session begins. Judge Wilhoit said the Commission had looked at that issue but decided to limit the recommendation to “during a regular session” because of uncertainty about the appropriate number of pre-session days to specify.


Recommendation #6 – Prohibit lobbyists from directly soliciting contributions for an election campaign of a legislator or legislative candidate. Mr. Schaaf said this appears to have been intended in the original 1993 ethics law, but the language was tied to a campaign finance statute which has changed since then and appears to no longer apply to legislative campaigns. Lobbyists are already prohibited from bringing their own or someone else’s contribution.


When asked by Representative Wayne, Mr. Schaaf said this recommendation would not apply to caucus PACs, which are actually caucus campaign committees that are created separately in the law. Representative Wayne suggested that, since funding and influence of these groups is growing, the Commission should examine this area and issue guidelines regarding use of caucus campaign funds. Mr. Schaaf agreed that this is worth looking into. He noted, too, that the Commission rendered an opinion a few years ago that a lobbyist should not contribute to a caucus campaign committee.


Recommendation #7 – Prohibit the spouse of a legislator from being employed as a lobbyist. Mr. Schaaf said the Commission thought this an opportune time to raise this issue in order to prevent it from becoming a problem in the future.


Recommendation #8 – Amend KRS 6.807, governing the filing of updated registration forms by lobbyists and their employers, to add that a form sent through the U. S. Postal Service or another recognized mail carrier shall be timely filed if it is postmarked by the mail carrier by the last day for filing with the Commission. Mr. Schaaf noted that Recommendations 8, 9, 10, and 11 are “housekeeping” measures.


Recommendation #9 – Delete the language in KRS 6.821 that requires a lobbyist to list expenditures “whether or not reimbursed” by an employer.


Recommendation #10 – Delete the language in KRS 6.611(22)(a)2. referring to “a legislative liaison.”


Recommendation #11 – Clarify the definition of “employer” in KRS 6.611(12) to ensure that the proper employer of a lobbyist registers with the Commission.


Recommendation #12 – Prohibit any mass mailing by a legislator at public expense for 60 days prior to an election, as provided in the Commission’s guidelines for use of official legislative stationery. Mr. Schaaf suggested that if this recommendation is drafted in a bill, it should specify “60 days prior to a general election.” He said most regular sessions end less than 60 days prior to a primary election, and legislators usually want to send out updates to constituents at the end of a regular session.


Recommendation #13 – Require ethics training for legislative staff and change the Commission’s Current Issues Seminar from three hours to two hours. Judge Wilhoit said the Commission feels that it would also be helpful to provide training to LRC staff.


Recommendation #14 – Authorize the Commission to dismiss a complaint without prejudice if the complaint or preliminary inquiry is publicly disclosed by the complainant, or the complainant comments publicly about the complaint. Mr. Schaaf pointed out that the complainant would have the option of refiling a complaint that was dismissed.


Senator Thayer asked what action the Commission can take regarding frivolous or politically motivated complaints. Judge Wilhoit explained that knowingly filing a false complaint is a Class A misdemeanor but is difficult to prove because investigation usually reveals a “speck” of truth in what is alleged. It is also a problem for the Commission that it is not permitted to investigate a matter that is brought to its attention until a complaint is actually filed. Recommendations #14 and #15 would strengthen the Commission’s process for handling complaints.


Recommendation #15 – Delete the requirement that a complaint be filed prior to a Commission investigation, but add language to clarify that “the Commission shall have no jurisdiction in the absence of a complaint to impose any penalty, except administrative penalties listed in KRS 6.807 and 6.821.” (See discussion of Recommendation #14.)


Recommendation #16 – Restrict the political activity of the staff of the Legislative Ethics Commission, as was originally intended by the General Assembly in the ethics code. When asked by Senator Thayer, Judge Wilhoit said the Commission has four full-time staff, a part-time secretary, a part-time prosecutor, and two part-time investigators, and that the Commission’s current employees have not been active politically.


Mr. Schaaf said the Commission’s monthly newsletter publishes information about what is happening nationally and that each month finds a number of states to be having problems in the legislative arena. He briefly discussed cases involving ethics violations in Alabama, Georgia, Massachusetts, Virginia, and Maryland. Mr. Schaaf closed by commending the Kentucky legislature for having a good ethics law. Representative Pullin said that the General Assembly is well served by a helpful and willing Commission staff. Senator Higdon also commended the Commission staff. Senator Thayer thanked the speakers and proceeded to the next item on the agenda.


Kentucky Employees Health Plan (KEHP)

Guest speakers from the Personnel Cabinet Department of Employee Insurance were Fred Nelson, Commissioner, and Joe Cowles, General Counsel. They gave an overview of KEHP and the 2012 plan year, accompanied by a slide presentation. Key elements of the discussion are summarized as follows.


Mr. Cowles said that the employer contribution for plan year 2012 increased by two percent, while health care costs for employers are forecast to increase 8.5 percent. Plan design was limited in order to maintain grandfathered status. The plan includes state-mandated coverage for autism, which will have a continuing cost impact. Goals for 2012 include: a low-cost plan option, with a zero dollar plan for singles; offering the same four plans; no changes to the Commonwealth Standard Plan; consumer-driven health care options; premiums competitive with other states; a benefits analyzer; preventative care at little or no cost; health and wellness options; benefits comparable to 2011; a lower-cost PPO option; and maintaining medical benefits and contribution increases within grandfathered limits. Aon Hewitt has replaced PricewaterhouseCoopers (PwC) as KEHP’s actuary-consultant and has provided a wealth of knowledge regarding how competitive Kentucky is relative to other states.


Mr. Cowles discussed in detail the criteria for grandfathered health plans and the reasons for maintaining grandfathered status after enactment of the new federal health care reform law [Affordable Care Act] on March 23, 2010. The cost impact of losing grandfathered status would have been approximately $15-$25 million, for things such as reporting to the U. S. Department of Health and Human Services (HHS), payment of clinical trials, a modified appeal process, and coverage of some preventative services at 100 percent. It is possible that KEHP could lose grandfathered status in 2013 or 2014.


Responding to a question from Representative Cherry, Mr. Cowles and Mr. Nelson explained that, as a grandfathered plan, KEHP was able in 2011 to raise some pharmacy copays by as much as $10.00 and medical copays by $5.00, based on the rate of medical inflation, but this left no room to increase copays in 2012.


Representative Montell asked about the effect of increasing the employer contribution by two percent, when an 8.5 percent increase is predicted in employer health care costs. Mr. Nelson said that employee contributions will also increase by two percent in 2012, and some cost savings will result from an increase in deductibles and out-of-pocket maximums. In addition, KEHP will make use of early retiree reinsurance money that was received from the federal government in 2011.


Responding to questions from Representative Montell regarding KEHP contracts and audits, Mr. Cowles and Mr. Nelson explained that master agreements can be in force for more than five years, while personal service contracts are for five years or less. Contracts are reviewed and renewed on an annual basis, with the assistance of Aon Hewitt. In 2009 and 2010, former actuary PwC analyzed the performance of ActiveHealth, the utilization and disease management vendor for Humana, and ActiveHealth’s contract was renewed, based on PwC’s recommendation. Software programs provided by KEHP’s data aggregator, Thomson Reuters, have examined Humana and Express Scripts (ESI) and found both to have very low error rates. In addition, the state Auditor of Public Accounts is currently on site to conduct the fiscal year audit.


Representative Owens said his Humana Visa card was declined on three occasions when he tried to use it. Although the problems were resolved after contacting the Personnel Cabinet, he is concerned that he had no prior notice and that this may be causing difficulties for other health plan members. Mr. Nelson said this can happen for a number of reasons—for example, if a card is swiped on a date different than the date of service. He pointed out that Humana is required to send notification if a card is suspended and indicated that he would follow up on this issue. Senator Higdon later said he had also experienced problems with his Humana Visa card being declined.


Representative Rollins questioned whether it is fair to local pharmacies—and perhaps a conflict of interest—that ESI owns the pharmacy mail order company. Mr. Cowles said he does not feel it is a conflict of interest or discriminatory. He explained that retail pharmacies also may offer a 90-day supply of maintenance drugs at the lower mail order cost, although not all pharmacies participate. Answering another question from Representative Rollins, Mr. Nelson explained that ESI proposed a program to KEHP that would require members to choose either a local pharmacy or home delivery in order to obtain a 90-day supply; however, KEHP did not adopt that program. Senator Higdon later said he, too, had received inquiries about the 90-day maintenance drug option.


Representative Graham expressed concern and dissatisfaction about Humana’s announcement a few months ago that all durable medical equipment would be provided by a nationally known company outside Kentucky. He said this decision hurts a small business located in Frankfort, as well as others throughout the state. He was also told that costs are higher as a result, and he asked whether anything can be done to remedy the situation. Mr. Nelson said that the Personnel Cabinet had received complaints from some plan members and that his office would investigate, consult with Humana, and follow up with Representative Graham. Mr. Cowles said it is his understanding that Humana scaled down its national vendor network as a cost-saving mechanism. He added that the Personnel Cabinet does not normally intervene in contractual provider matters. Representative Graham urged that this issue be addressed as a priority before a new contract is awarded for durable medical equipment.


Mr. Nelson discussed premium rates and benefits for 2012 and the open enrollment process. He noted that employee contributions will increase by two percent; however, the Standard PPO single plan remains at a zero dollar contribution. Two-thirds of members are currently enrolled in Optimum PPO, the most expensive plan. Copays will not increase, but there will be relatively modest changes in deductibles and maximum out-of-pocket limits in the Maximum Choice, Capitol Choice, and Optimum PPO plans. A new benefit offering is the waiver Dental/Vision-Only HRA (health reimbursement account), which provides $175/month in an HRA to be used for qualifying vision and dental claims. Federal law will allow members who may be covered under a spouse’s HSA (health savings account) plan to participate in this HRA. Open enrollment for 2012 will be passive; that is, action is needed only if members need to change their coverage, enroll in a flexible spending account, or elect the new waiver HRA. The benefits analyzer will be in paper format and sent to KEHP members by mail.


Mr. Cowles explained the Early Retiree Reinsurance Program (ERRP), a federal program authorized by the Affordable Care Act, which establishes a $5 billion reinsurance fund to help employers with the cost of certain early retiree medical claims. He said that KEHP members include thousands of early retirees of KTRS (Kentucky Teachers Retirement System) and KRS (Kentucky Retirement Systems) and that KEHP pays $1.33 in claims for every dollar of premiums received from KTRS and KRS. If a sponsor chooses to use reimbursements to reduce plan participants’ costs, it must do so for all plan participants and not just for early retirees. Kentucky is one of approximately 2,500 governmental organizations, or organizations representing governmental employees, that received ERRP funds in 2010. Notable participating Kentucky employers include Humana, Ashland, Inc., Brown-Forman, E.ON US, Lexmark, University of Kentucky, University of Louisville, and Yum!. Responding to a question from Representative Cherry, Mr. Cowles said that application for the funds may be made once each quarter. KEHP currently has $63.4 million that will be used to the extent necessary in 2012, and all excess funds received will be used in plan year 2013. When Representative Cherry expressed concern that the funds could be depleted before 2013, Mr. Cowles said that a great deal of the $63.4 million will be used to reduce and offset health benefit costs in 2012. Approximately $2 billion remains in the program, and the Personnel Cabinet is continuing to apply for, and expects to receive, additional funds. When Senator Thayer later inquired, Mr. Cowles and Mr. Nelson said they were not aware of any federal money that Kentucky received after passage of the Affordable Care Act other than through the ERRP program. They confirmed that KEHP would be facing significant challenges without an influx of additional ERRP funds to help combat medical inflation and the budget crisis.


An overview of KEHP wellness initiatives followed. The Virgin HealthMiles program will end on December 31, 2011. Humana Vitality, a more comprehensive, data-driven, verifiable wellness program, is being considered for the 2012 plan year, but a final decision has not yet been made.


Answering questions from Senator Thayer, Mr. Nelson said that open enrollment is passive this year due to the modest change in benefits and rates, and it is felt that the majority of members will probably not make changes. The benefits analyzer will be on paper rather than online in order to encourage greater participation. With open enrollment being passive, fewer people would probably make use of an online analyzer.


Representative Clark expressed concern about ESI’s announcement that Walgreen’s will be excluded as a provider next year and the disruption that this will cause for many state employees. Mr. Cowles said that the Personnel Cabinet is concerned about the impact on plan members, has contacted ESI, and is aggressively pursuing the issue, which is a provider dispute at the national level. He said Aon-Hewitt foresees that there will eventually be an agreement because of ESI’s and Walgreen’s very strong presence in Kentucky. In the meantime, KEHP is postponing notification to plan members in hopes that the dispute will be resolved. When Representative Lee pointed out that Walgreen’s is the only 24-hour pharmacy, Mr. Cowles said that this is probably the biggest concern and that ESI is contacting other pharmacies regarding extending their hours. Representative Lee also asked Mr. Nelson and Mr. Cowles to find out whether there is provision for obtaining prescribed medications when pharmacy prior authorization (PA) is not available from ESI after hours or weekends.


Representative Riner said that members of the Task Force on Childhood Obesity would like to have input regarding the new comprehensive wellness program. Mr. Nelson suggested that they contact him personally as early as possible, although suggestions and new ideas are welcome at any time. Representative Thompson lauded the KEHP program for the rates and benefits to be offered in 2012.


Senator Thayer thanked Mr. Nelson and Mr. Cowles for their presentation. He also lauded the Cabinet for its work in keeping the increases low for 2012 but expressed serious concern about the potential for significant increases in employer and employee contributions in the near future as health care costs continue to grow and one-time federal monies potentially cease.


Administrative Regulation Review

The agenda included review of the following administrative regulations for the indicated agencies:


PERSONNEL CABINET: 101 KAR 2:095&E (Classified service administrative regulations); 101 KAR 2:102&E (Classified leave administrative regulations); and 101 KAR 3:015&E (Leave administrative regulations for the unclassified service).


FINANCE AND ADMINISTRATION CABINET: 200 KAR 21:010 (Procedure for prequalification of underwriters and bond counsel for state bond issues); and 200 KAR 21:031 (Repeal of 200 KAR 21:030).


KENTUCKY RETIREMENT SYSTEMS: 105 KAR 1:140 (Employer’s administrative duties); and 105 KAR 1:190 (Qualified domestic relations orders).


Senator Thayer recognized the agency representatives: Dinah Bevington, Executive Director, Office of Legal Services, Personnel Cabinet; Travis Powell, Deputy General Counsel, Finance and Administration Cabinet; and William Thielen, Interim Executive Director, Kentucky Retirement Systems. Because of lack of a quorum and shortness of time, the Committee reviewed the regulations as a block. There being no questions or comments, Senator Thayer thanked Ms. Bevington, Mr. Powell, and Mr. Thielen, and noted that the review had been duly completed.


Subcommittee Report and Adjournment

The Subcommittee Report of the Task Force on Elections, Constitutional Amendments, and Intergovernmental Affairs was postponed until the next meeting.


Business concluded, and the meeting was adjourned at 3:20 p.m.