SJR 372: Joint Subcommittee to Study the
Feasibility of a Statewide Health Insurance Experience Pool for Educators
and Local Government Employees
September 5, 2007
Senate Joint Resolution
372 establishes a joint subcommittee to study the feasibility of a statewide
health insurance experience pool for educators and local government employees.
The joint subcommittee held its first meeting on September 5, 2007, in
Richmond. The members elected Senator Thomas Norment, the patron of SJR
372, as chair of the joint subcommittee and Delegate S.C. Jones as vice-chair.
Other legislative members are Senators Steve Martin and Frank Ruff and
Delegates David Bulova, Kathy Byron, Frank Hall, and Chris Peace. Three
nonlegislative citizen members are Dr. Joseph O. Cox, Mr. Wayne C. Carruthers,
and Mr. Thomas W. Long. Secretary Viola Baskerville serves as the ex-officio
member of the joint subcommittee.
Staff presented an
overview of the mandates of SJR 372. Primarily, the joint subcommittee
is charged with reviewing current health insurance coverage available
for active and retired school employees and other local government employees,
including state and local early retirees not eligible for Medicare. The
resolution also specifies that the Department of Human Resource Management
is to provide technical assistance to the joint subcommittee.
STATE AND LOCAL HEALTH BENEFITS PROGRAMS
Walt Norman, Department of Human Resource Management Program Manager for
The Local Choice Program, provided the members with an overview of the
state and local health plans. The state health plan began in the early
1970s and evolved into two self-funded plans in the 1990s. The two plans
merged to form COVA Care in fiscal year 2004. Currently, over 94,000 state
and early retirees are enrolled in the state health plan. There is a 4.5%
increase in state premiums in fiscal year 2008, and a single digit increase
is projected for fiscal year 2009.
By contrast, The
Local Choice (TLC), established in 1990 by an act of the General Assembly,
is exclusively for political subdivisions and schools and is funded entirely
through group premiums. To be eligible for TLC enrollment, an entity must
be created by or under an act of the General Assembly. While no minimum
participation is required for TLC, an employer must make a minimum contribution,
for example 80% for full-time employees and 40% for part-time employees.
An employer is not required to make a contribution for retirees.
The Department of
Human Resource Management manages TLC and program specialists administer
self-funded plans. The advantages of TLC are numerous and include:
- Procurement savings.
- Multiple plan
- Low administrative
- Access to Department
of Human Resource Management benefits expertise.
- Disease management,
employee assistance program (EAP), and CommonHealth wellness program.
- Large provider
network with substantial network discounts.
- Shared risk multiple
- Drug, behavioral,
dental, and Medicare component pooling.
- Specific stop-loss
- Adverse experience
adjustment (AEA) protection.
Currently, 238 school
and local government groups are enrolled in TLC. Specifically, eight community
service boards; 25 independent school groups; and 119 local governments
are enrolled in TLC. Four school groups are enrolled in TLC as a part
of a local government group, such as a local school division when the
locality participates in TLC as a single group. Finally, there are 82
other groups, such as commissions, authorities, and regional jails that
participate in TLC.
consists of nearly 25,000 employees and nearly 43,000 members. Fifty-five
percent of all groups enrolled in TLC have fewer than 50 employees. In
addition, 36% of all TLC-enrolled groups each have between 50 and 299
employees. Only 9% of groups enrolled have over 300 employees. TLC plan
choices for active employees and early retirees include:
- Key Advantage
- Key Advantage
- Key Advantage
- Key Advantage
- TLC HDHP (High
Deductible Health Plan).
- Fully insured
regional Kaiser HMO.
In 2007, the number
of groups offering Key Advantage Expanded is 176 with an average monthly
premium of $475; the number of groups offering Key Advantage 200 is 74
with an average monthly premium of $458; and the number of groups offering
Key Advantage 300 is 41 with an average monthly premium of $446. In 2007,
23 groups offered Key Advantage 500 with an average monthly premium of
$406 and only four groups offered TLC HDHP (high deductible) with an average
monthly premium of $343. In addition, TLC offers an optional Medicare
supplemental plan. With regard to rating pools, medical experience, which
comprises 60% of claims, is pooled based on group size. Drug, behavioral
health, dental, and Medicare experience comprises 40% of claims and are
pooled across all TLC groups. Demographic adjustments are made for smaller
EDUCATION ASSOCIATION PERSPECTIVE
Robley S. Jones, Director of Government Relations for the Virginia Education
Association (VEA), testified before the joint subcommittee, beginning
with how the VEA initiated legislation 20 years ago to reduce the costs
of health insurance and bring economy of scale to all of Virginia's school
divisions. The legislation led to the creation of the Local Choice Health
Benefits Program. Mr. Jones further stated that the average total cost
of health insurance increased about 60% between 2001-2002 and 2006-2007.
Moreover, the out-of-pocket cost to a teacher for family coverage is as
high as $12,372 per year; thus, while some VEA members receive pay increases,
their take-home pay declines as a result of increased health premiums.
Mr. Jones posed the following questions for the joint subcommittee's consideration:
- How much will
health care cost Virginia's school divisions in the years ahead?
- Is the current
voluntary pool (TLC) approach working, and why aren't more localities
- Studies in
Minnesota, Michigan, Pennsylvania, Ohio, and Montana have all concluded
that pooling saves substantial money; so with no studies contradicting
these findings, how much money could be saved in Virginia?
- What additional
information is needed to reach an informed decision regarding a pooling
program in Virginia?
- Does the Constitution
of Virginia allow mandatory participation in the pool? If not, what
incentives would lead to widespread participation, and what steps need
to be taken to gain support for this approach?
- What governance
structure should oversee a statewide program?
and Beth Phares, both vice-presidents and senior consultants for Hilb,
Rogal & Hobbs (HRH), delivered an overview of experience rated pools.
To begin, the two presenters discussed the type of funding for experience
rated pools. Namely, an experience rated pool can be fully insured or
self-insured. To be a fully insured experience rated pool, a carrier assumes
the risk. All administration, stop- loss coverage, as well as claims risk
are included in the fully insured rate. The employer's risk is limited
to the amount of premiums paid. To be a self-insured experience rated
pool, however, the pool assumes the risk. Specifically, the pool is at
risk for claims and administration, and the pool generally purchases specific/aggregate
stop- loss coverage, or reinsurance, to protect against catastrophic claims,
which can be paid by the carrier, third party administrators, or the pool.
According to HRH,
experience rated pools have numerous advantages and disadvantages. The
benefits of experience rated pools include:
- Risk being shared
between several entities/organizations.
- Pool of risk
for small organizations.
- Increased premium
volume increases leveraging position with carriers.
- Flexibility in
- Possibility of
favorable plan performance and competitive rate increases.
- Reduced administrative
These benefits are
limited, however, by geographical limitations; complexities of funding,
underwriting, and pricing; benefit design restrictions, such as the inability
of a carrier to offer unlimited options; and the threat of what is known
as a "death spiral," when lower risk insured leave a pool resulting
in adverse risk for the carrier. The pool may then become unable to sustain
an appropriate rate structure and viability.
MUNICIPAL LEAGUE PROGRAMS
Director of Member Services for Virginia Municipal League (VML) Insurance
Programs, and Claire Holbrook, Senior Consultant with Wachovia Insurance
Services, gave testimony regarding VML insurance programs. Mr. Dickie
stated that VML offers an employee-retiree program in conjunction with
Wachovia. Ms. Holbrook, by contrast, testified that Wachovia assists VML
in the marketing, implementation, and administration of the program. Moreover,
a VML employee-retiree health insurance plan is underwritten on a fully
insured plan and is in place for a year. Ms. Holbrook conceded that the
VML plan has achieved "limited success." That is, success of
the VML program cannot be judged solely on the number of participating
political subdivisions because political subdivisions made decisions regarding
health care plans before the unveiling of the VML program. Finally, Ms.
Holbrook testified that the VML program cannot compete with TLC plans.
The joint subcommittee
held its second meeting on October 10, 2007, and will be reported in the
next issue and on the study website.
The Hon. Thomas
Kevin Stokes, DLS Staff
of Legislative Services > Legislative
Record > 2007
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