Call to Order and Roll Call
The third meeting of the Interim Joint Committee on State Government was held on Wednesday, September 28, 2016, at 1:00 PM, in Room 154 of the Capitol Annex. Representative Brent Yonts, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Joe Bowen, Co-Chair; Representative Brent Yonts, Co-Chair; Senators Ralph Alvarado, Denise Harper Angel, Stan Humphries, Christian McDaniel, Morgan McGarvey, Dorsey Ridley, Albert Robinson, and Damon Thayer; Representatives Kevin Bratcher, John Carney, Leslie Combs, Derrick Graham, Kenny Imes, James Kay, David Meade, Reginald Meeks, Suzanne Miles, Phil Moffett, Brad Montell, Lewis Nicholls, Sannie Overly, Tom Riner, Steven Rudy, Sal Santoro, Kevin Sinnette, Diane St. Onge, Tommy Turner, Ken Upchurch, and Jim Wayne. (Senator Ridley attended via videoconference from Henderson, Kentucky.)
Guests: Thomas Stephens and Jenny Goins – Personnel Cabinet; Jason Parks, LexisNexis; and Joseph Lee, RELX.
LRC Staff: Judy Fritz, Alisha Miller, Kevin Devlin, Karen Powell, Roberta Kiser, and Peggy Sciantarelli.
The minutes of the August 24 meeting were approved without objection, upon motion by Representative Rudy.
Representative Yonts and the committee expressed appreciation to Representative Montell for his service. He is leaving the General Assembly at the end of September to assume a deputy secretary position in the Education and Workforce Development Cabinet. Representative Yonts recognized Representative Wayne for the recent publication of his debut novel, “The Unfinished Man.”
2017 Kentucky Employees’ Health Plan
Guest speakers from the Personnel Cabinet were Thomas Stephens, Secretary of the Cabinet, and Jenny Goins, Commissioner, Department of Employee Insurance. In conjunction with a slide presentation they discussed the Kentucky Employees’ Health Plan (KEHP), its successes, and highlights of the 2017 plan year.
Secretary Stephens said KEHP has been self-insured since 2006 and is the largest self-funded insurance plan in Kentucky, with annual payments of $1.7 billion. The plan has 178,000 active employees and pre-65 retiree members, representing 290,000 covered lives. School boards comprise 54 percent of the membership; early retirees, 20 percent; state agencies, 20 percent; and quasi-governmental agencies, six percent. KEHP has a significant wellness component to help control costs and increase personal health awareness. The Consumer Drive Health Plans (CDHPs) encourage consumerism and increase health insurance literacy. Anthem is the third-party administrator; CVS/Caremark is the pharmaceutical benefit manager; HumanaVitality—rebranded as “Go365”—is the wellness program administrator; WageWorks administers flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs); and Vitals SmartShopper is the vendor that assists in choosing high-quality, best-price locations for health care services.
Commissioner Goins said open enrollment for the 2017 plan year will be October 10-24. It is a mandatory open enrollment, which means each member must actively enroll or waive coverage. The first of 13 statewide benefit fairs will be held October 3 at the State Office Building in Frankfort. The retirement systems will also have representatives available at the benefit fairs. The same four plans will be offered in 2017. LivingWell plan premiums will not increase for members who completed their LivingWell Promise in 2016 and choose a LivingWell plan for 2017. Premiums will increase one percent in the Standard CDHP and Standard PPO plans. A low-cost single coverage plan for non-tobacco users will be offered for $13.10 per month.
The medical deductible for the LivingWell PPO plan and the out-of-pocket maximum for all four plans will increase by $250 (single) and $500 (family) for in-network coverage. These increases will save KEHP approximately $24 million. To comply with IRS requirements, members may once again carry over $500 of unused healthcare FSA funds to the new plan year. The minimum amount to carry over is $50.
Beginning in 2018, the embedded HRAs in the CDHP plans, the waiver general purpose HRA, and the waiver dental/vision only HRA will have a maximum carry-over of $7,500. The maximum would affect only 637 members, primarily in the waiver HRA plans. This change is expected to save $1 million by preventing future carry-over of large liabilities to the plan. Starting in 2017, prescriptions on the prevention therapy drug benefit list will not be subject to the deductible for the LivingWell or Standard CDHP plans. The Diabetes Value Benefit will continue.
LiveHealth Online Medical, which became available in July 2015, will continue to be covered at no cost to members. There have been 10,587 registrations for this benefit and 3,706 online visits with a provider. Even though it is covered 100 percent, this benefit has saved KEHP $700,000 since its inception. A new benefit, LiveHealth Online Psychology, will be offered in 2017, also at no cost to members and their dependents age 10 and above.
Previously, completion of the LivingWell Promise was required in order to be eligible for a LivingWell plan the following year. Based on new guidelines of the Equal Employment Opportunity Commission (EEOC), in the 2017 plan year KEHP will change how members are rewarded for their participation in wellness benefits. Members who completed their LivingWell Promise in 2016 and elect a LivingWell plan in 2017 will not have a premium increase. Members who did not complete the Promise in 2016 and choose a LivingWell plan for 2017 will have a $40 surcharge added to their premium. The LivingWell promise requires members to complete either the HumanaVitality (Go365) health assessment or a biometric screening between January 1 and July 1, 2017. In 2016, almost 98 percent of members who elected a LivingWell plan completed their LivingWell promise. The “family cross-reference” premium option is a valuable benefit not often found in other states’ plans.
Commissioner Goins said one-third of the population in the CDHP plans do not meet their deductible, and 20 percent of plan members do not reach their out-of-pocket maximum. While increased deductibles and out-of-pocket maximums save money for KEHP, the increases do not negatively impact all plan members. As mandated by the Affordable Care Act, medical and pharmacy out-of-pocket maximums accumulate together rather than separately in the CDHP plans. This is cost effective for members who take multiple prescriptions. It is a goal of KEHP to promote cost awareness as well as wellness. Because members are encouraged to continue their medications, there is no increase in the maximum pharmacy out of pocket.
Combined medical and pharmacy claims in 2015, per subscriber, were 12.5 percent less than in 2013. When Anthem became third-party administrator in 2015, better medical discounts were negotiated with network providers, and the medical cost per subscriber decreased from $647 to $514. A significant portion of claims cost is attributable to the same high-cost conditions encountered in 2004, such as coronary artery disease and musculoskeletal disorders.
LivingWell plan enrollment was 85 percent in 2016, a slight decrease from 86 percent in 2015. The decrease probably resulted from benefits analyzers recommending lower cost plans to certain members and because some members failed to complete their LivingWell promise.
Secretary Stephens said the paperwork necessary to communicate with members is a challenge and a cost driver. In the years going forward, KEHP hopes to optimize electronic communications, where possible and appropriate. Commissioner Goins said that engagement with the members is one of the biggest issues facing KEHP. There have already been several meetings with vendors regarding future plan years. She spoke about the value of the telemedicine benefit and KEHP’s emphasis on wellness. The growth in wellness since 2012 is illustrated by the number of members completing the health assessment and biometric screening and participating in KEHP step challenges.
KEHP includes almost 20,000 diabetic members. Overall utilization of diabetes prescriptions in the four plans has increased by nine percent, which actually helps save costs because members are using their medications as they should. The diabetes value benefit has resulted in a reduction in member out-of-pocket costs—from 20 percent in the first three months of 2015 to seven percent in the first three months of 2016. KEHP is considered a role model for its Diabetes Prevention Program. The program has grown to 49 providers in 71 counties and currently has 332 active participants in 62 active classes. Commissioner Goins said KEHP is proud of its accomplishments, both for its membership and the state as a whole, and strives to ensure good benefits for members while being fiscally responsible to the state.
Representative Wayne said there is reason to be proud and that he believes KEHP is being managed very well. Based on his personal experience, Anthem is an outstanding third-party administrator and is responsive to members. He also gives credit for that to the direction provided by KEHP leadership.
Representative Wayne questioned whether the funds taken from the health insurance trust fund in 2016 to help balance the budget could have been used to keep deductibles stable and to lower KEHP costs for the 2017 plan year. Secretary Stephens said the monies remaining in the trust fund each year are essentially in a stand-alone “silo” and are not available to be utilized in KEHP cost computations unless permitted by legislative change. The state’s contribution is about 84 percent of the total health insurance cost, with employee premiums covering approximately 16 percent. He believes that directing the approximately $500 million taken from the trust fund toward the retirement systems’ unfunded liability was the most prudent use of those funds. Commissioner Goins said that, by statute, each plan year stands alone. Any surplus at the end of the year cannot be used to pay down premiums or benefits for the next plan year. The surplus remains in the trust fund, subject to budgetary action. From the perspective that both the state and employees contribute to the retirement systems, she believes using the health insurance trust fund to help fund the retirement systems was a positive use of those monies.
Representative Wayne said the General Assembly has repeatedly stolen money from the health insurance trust fund to fill gaps in the budget. Such a large amount—between $500 and $650 million—taken from the trust fund in 2016 raises the question whether KEHP is being overfunded and whether the program could be improved by reducing deductibles, copays, and premiums and the amount being paid by the state. However, he would not want this issue to overshadow the good being done by KEHP, which is an outstanding program with tremendous leadership.
Representative Graham commended Secretary Stephens and Commissioner Goins and the previous gubernatorial administration for the hard work of KEHP and for establishing a wellness program to promote better health care. When he asked about the LivingWell promise, Commissioner Goins explained that members who failed to complete the LivingWell promise in 2016 but who choose a standard plan in 2017 would not have to pay the $40 premium surcharge; and they could choose a LivingWell plan again in 2018 at the discounted rate.
Senator Alvarado praised the achievement of the Diabetes Prevention Program, especially the improvement in the average A1C test results. He asked about the overall estimated cost of the medical and psychology telehealth benefit. Commissioner Goins said KEHP is saving $700,000 on the medical side. Online visits to a Ph.D. psychologist will probably cost the plan $95 and $80 for visits to a therapist. According to the actuary, if everyone who currently uses behavioral health services would use LiveHealth Online Psychology, KEHP would save $1 million. Senator Alvarado commended KEHP for “taking the bull by the horns” in promoting the online health care. He suggested that providers, especially emergency rooms (ERs), should be willing to share responsibility by making visitors to the ER aware that they might be able to save money by using the free online benefit. Commissioner Goins said that ER visits are one of the plan’s biggest headaches. Some people “emergency room shop,” and one Kentucky member visited an ER 19 times in the first half of the plan year. KEHP has a “pay and educate” program, which requires a member who goes to the ER without a medical emergency to pay more of the cost. KEHP has been addressing the ER problem and will take to heart Senator Alvarado’s point about partnering with ERs.
Secretary Stephens and Commissioner Goins discussed the Vitals SmartShopper program, which rewards members for shopping for their health care and saves money both for them and the state. They said KEHP hopes more people will begin using this valuable tool. It is an excellent program and is starting to add more high quality health care options to the available choices.
Representative Carney credited the Diabetes Prevention Program for helping him personally. He asked the speakers about a problem involving classified school board employees who have KEHP coverage. He said he received an e-mail calling his attention to the fact that classified staff who retire after July 2013 receive only $12.80 for each year of work. Most custodians, food service workers, bus drivers, and other classified school board staff will not draw enough from retirement to cover the cost of single health insurance coverage. He cited an example of a food service worker who draws $400 monthly for retirement after working 20 years and receives $256 to apply toward insurance coverage—not enough to cover their $750/month health insurance plan. Secretary Stephens said he did not feel qualified to speak about that but would look into the matter and get back with Representative Carney. Commissioner Goins said the retirement systems set the health insurance rates and that KEHP does not have that information. She suggested that Representative Carney forward the e-mail to her, and she will get an answer for him. He said he just wanted to make everyone aware of the situation. School systems cannot work without the classified employees, who are alarmed about their health insurance cost. Secretary Stephens noted that a small number of active state employees with family coverage have to write a check for their insurance because their salary is not sufficient to cover the employee portion of the insurance cost.
Representative Moffett commended KEHP’s wellness initiatives. Responding to his questions, Commissioner Goins provided further details relating to biometric screenings and the cap on the waiver general purpose HRA carryover balance.
Responding to questions from Senator Bowen, Commissioner Goins provided more information about the LivingWell Promise and the HumanaVitality point system. She also explained that KEHP coverage includes Medicare-eligible retirees who return to active employment with the state.
Senator Thayer said he appreciates the good work of KEHP in promoting its consumer-driven health plans and for helping to restore trust in the Personnel Cabinet after a recent scandal involving the former secretary of the cabinet.
Answering questions from Representative St. Onge, Commissioner Goins said the telehealth benefit is available on all four plans. There is no limit on the number of visits to LiveHealth Online Medical, but she would find out for Representative St. Onge whether there is a limit on visits to LiveHealth Online Psychology. She also confirmed the federal requirement that persons are not eligible for the Waiver General Purpose HRA unless they can attest to having other group health insurance coverage. Persons covered by government-sponsored plans like Medicare or Tricare are also not eligible.
Representative Yonts thanked the speakers for their presentation and their good work. He asked Senator Ridley—who was attending via videoconference—whether he had any questions. Senator Ridley said he did not but would like to receive a copy of the slide presentation.
LexisNexis Presentation – Identity Fraud and Business Tax Noncompliance: How They Could be Crippling Agencies Unaware
Guest speakers were Joseph Lee, Manager of State Government Affairs for RELX, and Jason Parks, Senior Client Executive, Tax and Revenue, LexisNexis. Mr. Lee said RELX, parent company of LexisNexis, is the fourth largest information solutions company in the world, with a goal to empower government and businesses with information to make the best solutions and decisions possible. LexisNexis is a public records search tool assisting government agencies to locate people, better detect fraud, accurately verify identity, perform in-depth due diligence, and more easily visualize complex relationships.
In conjunction with a slide presentation, Mr. Parks said he will discuss identity fraud and business tax noncompliance in order to further educate the committee regarding the challenges facing agencies in Kentucky and nationwide. He said every American’s identity perhaps could already be stolen, considering the amount of personally identifiable information (PII) that has been compromised through data breaches. Almost 800 data breaches, both in the private and public sectors, over the past couple of years have translated into approximately 27,000 identities being reported stolen every day. Military personnel and children are 52 times more likely to have their identities stolen. Agencies must learn to protect citizens from criminals who are using that information against them. In 2015, more than 707 million records have been lost or stolen, with 53 percent for the purpose of identity theft. Stealing credit card information by using skimmers continues to be a tactic used by criminals.
The Consumer Sentinel Network tracks identity theft complaints that are reported to the Federal Trade Commission (FTC). In 2014, 32.8 percent of reported identity thefts were used for the purpose of tax or wage-related fraud. In 2013, 34.7 percent of military victims’ stolen information was misused for tax or wage-related fraud. In 2015, these percentages increased to 45 percent. Children are also being targeted. Millions of American children were included among those who had their personal information stolen in the 2015 data breach of health insurance giant, Anthem, Inc. A teenage girl in Georgia (called Olivia in the slide presentation) who applied for a student loan discovered she had been a victim of identity fraud for 10 years.
According to data provided by Travelers, when thieves steal information, 36 percent use it for credit and debit card fraud, and 21 percent commit tax or employment fraud. PII is being sold on the black market. Social Security numbers are a commodity in the underground and can reportedly be bought for as little as $3.80. They have become so easy to obtain that thieves now usually bundle the number with extra identifying information like birth dates and medical records.
A change in mindset has resulted in a change in the methodology for validating an identity. States are starting to think differently about identity fraud because of the number of personal records that have been compromised. LexisNexis is partnering with agencies and helping them recognize that identities are represented not only by a person’s PII. Mr. Parks said he was a victim of identity theft four years ago and spent about three years fighting with credit reporting agencies about debts for which he was not responsible. That experience has increased his interest in helping other victims of identity fraud. Agencies are starting to realize that it is more important to look at the connections people have—their identity network—and not merely their PII.
Fraudsters have learned to adapt. When agencies continue to do only data matching, it can result in what is known as toxic identities. The identity may be synthetic. Many agencies—specifically revenue and tax agencies—are starting to realize the importance of relying not solely on a rules-based system but coupling that with some type of identity filter to prevent identity fraud from ever occurring but also to prevent criminals from using the stolen information. A rules-based filter is great at isolating outliers in large data sets, but its static nature requires long configuration when changes are needed. Adding a dynamic ID fraud filter helps the system make smarter decisions, based on the evolving nature of individual identities. Since 2012, LexisNexis has partnered with several states, including Kentucky, to help with identity fraud programs, especially in revenue. Tax Refund Investigative Solution (TRIS) is a proven patented identity fraud solution. The total amount of identity fraud it has stopped since 2012 is $100,000,000, an amount that is still growing.
Business (tax) noncompliance is a major issue in many states, including Kentucky. One of the primary reasons is that a lot of the information is related to the filers. Jurisdictions issue licenses, permits, and registrations at different levels of government. That often causes an increase in business (tax) noncompliance. Government analysis shows that business noncompliance has increased as the number of small businesses has grown. The Internal Revenue Service (IRS) estimates that 48 percent of annual revenue produced by small to midsize businesses from 1950 to 2010 was under-reported—either intentionally or unintentionally. LexisNexis partnered with the Governing Institute to conduct in-depth interviews with leaders at state and local tax agencies from 25 states (representing 50 percent of the US population) on the subject of business tax compliance, which continues to weaken or cripple state and local government budgets. The survey found that 85 percent of people contacted—primarily tax administrators—indicated that business tax noncompliance is a problem in their jurisdiction; 45 percent indicated that it is a major problem. The three taxes with the most noncompliance issues were sales and use tax, corporate income tax, and withholdings. Those surveyed indicated three areas that would be most helpful to them—higher quality data, better capabilities to link data, and a secure data warehouse with data from all states.
Mr. Parks said that data silos for licensing, permits, and tax are making it difficult for states and local jurisdictions to collaborate and better understand the full picture of a business. Being able to use a platform or an exchange that links data allows states and local government agencies to educate businesses about compliance before they fall into noncompliance. Voluntary compliance is the least expensive form of compliance. A combined business analysis means no more hiding in data silos. Business Integrity Solution links data with LexisNexis data on the same platform and increases effectiveness across agencies that are performing auditing, investigations, collections, and inspections. Users analyze combined LexisNexis and government data simultaneously for more effective and efficient compliance reviews and casework selection.
Building a major analytical business exchange for combating business tax noncompliance is not new to Lexis Nexis, which has a history of creating major analytical exchanges in both the private and public sectors. The Comprehensive Loss Underwriting Exchange (CLUE) has covered more than 300 million insurance claims records over 25 years. The Small Business Financial Exchange (SBFE) is a nonprofit organization that helps small businesses obtain credit. LexisNexis has been a strategic partner in helping with the cost of starting a new business. The National Accuracy Clearinghouse (NAC), helps states combat identity fraud and helps recipients of government benefits from five southern states.
Mr. Parks said that LexisNexis believes strongly in the importance of combating identity fraud and protecting the identities of Kentuckians as well as the state treasury. The company can also help state and local agencies build an exchange that can help tackle some of the growing challenges relating to business tax noncompliance. He commended the Department of Revenue and other agencies within the state that have worked with LexisNexis.
Representative Sinnette said he has not been able to receive LexisNexis legal research updates on his Apple computer and asked whether LexisNexis is Apple compatible. Ms. Parks said he is not an engineer and cannot speak to that but will get an answer for Representative Sinnette.
Representative Nicholls asked whether adopting a “Real ID” law in Kentucky would help fight fraud within the state system (Note: The General Assembly passed a Real ID law in the 2016 RS to comply with federal requirements, but the bill was vetoed.). Mr. Parks said he thinks it would help combat identity fraud but that states need to be adaptable, since fraudsters are constantly changing their methods of getting past controls that are put in place.
When Representative Yonts asked, Senator Ridley said he did not have any questions. With business concluded, the meeting was adjourned at 2:51 p.m.