SJR 372: Joint Subcommittee to Study the Feasibility of a Statewide Health Insurance Experience Pool for Educators and Local Government Employees

October 10, 2007

The joint subcommittee held its second meeting in Richmond on October 10, 2007, with Senator Norment as chair.

Constitutional Issues

Staff presented an overview of the constitutional issues regarding General Assembly mandates to local school boards. The state Constitution divides public educational responsibility among the General Assembly, the Board of Education, and the local school boards. The General Assembly is responsible for the provision of free public primary and secondary schools and establishment and maintenance of a high quality educational program; the Board of Education is responsible for the general supervision of the Commonwealth's public school system; and local school boards are required to supervise just those schools in its respective school division.

The law is not clear as to the constitutionality of a General Assembly mandate that local school boards participate in The Local Choice, the state's health insurance program created exclusively for local governments, authorities, school divisions, and constitutional officers. Staff discussed several relevant Virginia Supreme Court cases of interest to the members and the hypothetical legislative mandate that school boards purchasing health insurance for its employees must purchase such insurance through a state program. Staff concluded that a General Assembly mandate that local school boards participate in a state-created health insurance program with choices for specific coverage may avoid some constitutional questions.

Presentations

HEALTH INSURANCE PROGRAMS IN OTHER STATES
Carol Malone, Senior Health Care Specialist for the National Education Association (NEA), provided the joint subcommittee with an overview of health insurance programs in other states. Topics of her presentation included:

• Goals of statewide health insurance pooling.
• State health insurance pools for public education employees.
• State pooling legislation.
• Feasibility studies.
• Pooling issues and considerations.
• Other types of pooling opportunities.

Goals of statewide health insurance pooling

The goals of statewide health insurance pooling include the expansion of health plan bid opportunities, the creation of greater leverage with carriers and providers, the spreading of pool risks across a larger group of people, and the restraint and stabilization of health insurance premiums and administrative costs. Additional goals include the reduction and/or elimination of broker, consultant, and other commission payments, the achievement of better health plan cost management, and the assurance of long-term health plan solvency and viability. The most important goals, however, are the improvement of school employee health status, the provision of the highest quality plan, benefits, and provider choices, and the attraction and retention of qualified educators.

State health insurance pools for public education employees

Ms. Malone discussed insurance pools that have been established by states legislatures that pool employees statewide, including those implemented in Alabama, New Mexico, and Texas. In these pools, the same rates exist throughout the state for the same plan, but there may be some regional rate differences for HMOs. Characteristics common to pools include:

• Little to no stakeholder opposition.
• Central administration.
• One main carrier with one or more smaller carriers.
• Pool boards that include teachers and support professionals.
• Prescription drugs carved out of the programs.

Ms. Malone provided the members with a list of NEA state affiliate pools, including those in existence in Indiana, Maine, Michigan, Vermont, Washington, and Wisconsin, and further listed those states that pool education employees and state employees. The states of Delaware, Georgia, Kentucky, and North Carolina mandate that education employees and state employees be pooled together. The pooling of education employees and state employees is voluntary in Oklahoma, Tennessee, New Jersey, Utah, and Massachusetts.

State pooling legislation

Ms. Malone discussed current legislation being considered by Massachusetts, Michigan, Oregon, Pennsylvania, and Montana. The passage of state pooling legislation depends on the vital support of large localities and school districts, NEA state and local associations, and other stakeholders. Deal breakers for state pooling legislation often turn on whether pooling is mandatory or voluntary, the choice of plans and providers or lack of choice, and whether the insured see benefits cut or costs increased. She suggested that legislators identify and include opposition and supporter participation early in the legislation process, identifying the current health plan, service, and prescription drug providers.

Feasibility studies

Feasibility studies compare and contrast localities and school districts by cost and utilization experience, benefit package and value, and premiums, contributions, and other costs and current plans are compared to more standardized. Feasibility studies usually require at least three years of health plan data. Ms. Malone discussed New Mexico and Pennsylvania that mandate school districts provide health data for feasibility studies. She noted that states without mandates are hindered in collecting necessary data for a thorough feasibility study.

The goal of a feasibility study is to determine whether savings will result from pooling. Savings should result from the creation of a large pool and not from cuts to benefits or the shifting of costs to employees. Ms. Malone provided information on projected savings in Oregon, Minnesota, and Pennsylvania. She cautioned that who conducts a feasibility study and how the study is conducted influences the validity of projected savings. Savings may depend on aspects of the pool, such as:

• Mandatory or voluntary participation.
• Start-up costs and plan design.
• Statewide standards for procurement, administration, and evaluation.
• Benefits that are carved-out.

Ms. Malone noted that projected savings correlated with the existence of a state wellness and health management program, and states with these programs estimated higher savings. Some states look at statewide carve-outs and/or pooling of the following:

• Prescription drug benefits.
• Mental health, dental, and vision benefits.
• Mandatory regionalized consortia.
• Reinsurance/stop loss.

Ms. Malone explained that too many plan options could create two pools, one for the sick and one for the healthy and listed some of the important questions that should be answered before considering legislation for a statewide pool:

• Will the pool be mandatory or voluntary?
• Who will operate the pool?
• Will there be centralized administration?
• Will the pool combine or separate active and pre-Medicare eligible retirees?
• Will the pool self-insure, fully insure, or both?

Issues Facing Localities

Dean A. Lynch, Director of Intergovernmental Affairs for the Virginia Association of Counties (VACo), and Mr. Wayne Faddis, Administrator of Risk Management Programs for VACo, gave an overview of the issues facing various localities throughout the Commonwealth.

Northumberland County
Mr. Lynch shared the specific difficulties faced by Northumberland County with respect to the provision of health insurance to its employees. The county's health insurance plan covers both Northumberland County School Board employees and Northumberland County employees, a total of around 245 policies. Seven year ago, in response to escalating costs of health insurance, the county unsuccessfully sought legislation for its school board employees and county employees to be pooled in the state employees' health insurance plan.

Northumberland County was unable to self-insure county and school board employees, because the costs were too high with its existing $25 million budget and one severe claim would significantly affects rates. The county claims that its rates increased 31.9% in 2002 due to one heart surgery and one kidney disease claim. The county reported that the average annual increase in health insurance coverage costs has been approximately 15% over the past 10 years. As a result of escalating insurance costs, the Northumberland County board of supervisors considered dropping certain benefits and establishing an employee out-of-pocket
co-payment of $1,000 before any benefits are paid.

VACo Perspective
Mr. Faddis provided information regarding health insurance costs common to all localities in the Commonwealth. VACo health insurance trust, available to localities throughout the Commonwealth, will cease operations at the end of the calendar year. Mr. Faddis testified that the
cost of prescription drugs is one of the major contributors to the skyrocketing costs of healthcare insurance. He noted that while costs of health insurance rise because insurance companies seek profit, the increased utilization of benefits also contributes to increased costs. Mr. Faddis postulated that the costs of health insurance will steadily increase even if local government employees and educators were all pooled under a state health insurance experience pool if the number of benefits and the amount of utilization remains constant or increases.

Recommendation

The members decided that a feasibility study by a college or university was most likely needed before the joint subcommittee could recommend legislation to the General Assembly for a statewide health insurance experience pool for educators and local government.

Chair:
The Hon. Thomas K. Norment

For information, contact:
David Rosenberg, Kevin Stokes, DLS Staff

Website:
http://dls.state.va.us/insurance.htm

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