Interim Joint Committee on State Government


Minutes of the<MeetNo1> 2nd Meeting

of the 2012 Interim


<MeetMDY1> August 22, 2012


Call to Order and Roll Call

The<MeetNo2> second meeting of the Interim Joint Committee on State Government was held on<Day> Wednesday,<MeetMDY2> August 22, 2012, at<MeetTime> 1:00 PM, in<Room> Room 154 of the Capitol Annex. Senator Damon Thayer, Co-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, R. J. Palmer II, Dorsey Ridley, and John Schickel; Representatives Linda Belcher, Dwight Butler, Larry Clark, Leslie Combs, Tim Couch, Will Coursey, Joseph Fischer, Jim Glenn, Derrick Graham, Mike Harmon, Melvin Henley, Martha Jane King, Jimmie Lee, Mary Lou Marzian, Brad Montell, Lonnie Napier, Sannie Overly, Darryl Owens, Tanya Pullin, Tom Riner, Bart Rowland, Steven Rudy, Sal Santoro, John Will Stacy, Tommy Thompson, Tommy Turner, Jim Wayne, and Brent Yonts.


Guests: William Thielen, Kentucky Retirement Systems; Representative Jim Gooch.


LRC Staff: Judy Fritz, Brad Gross, Alisha Miller, Karen Powell, Greg Woosley, and Peggy Sciantarelli.


Approval of Minutes and Opening Comments

The minutes of the June 27 meeting were approved without objection, upon motion by Representative Rudy. Senator Thayer and Representative Cherry reported briefly on the August 21 meeting of the Kentucky Public Pensions Task Force, which they co-chair.


Medicare Plan for State Retirees

The guest speaker was William Thielen, Executive Director, Kentucky Retirement Systems (KRS). He provided three handouts to the Committee: financial analysis charts of projected savings based on the provision of Medicare Advantage plans versus the current KRS self-insured Employer Group Waiver Plan; Medicare Advantage Key Points; and charts comparing benefits and member costs for the proposed Medicare Advantage plan and the current self-insured plan.


Mr. Thielen explained that Medicare-eligible retirees—approximately 34,000 “over 65” retirees plus those eligible for Medicare as a result of disability—have been covered by KRS’ self-insured plan since 2006. About a year ago, the KRS Board’s Retiree Health Committee authorized issuance of requests for proposals (RFPs) for alternative health plans in order to determine whether there might be a more cost effective way to provide those retirees’ health insurance benefits, while maintaining the current benefits level. The Retiree Health Committee voted July 9, 2012, to recommend to the full Board that KRS move to a Medicare Advantage (MA) plan offered by Humana Insurance Company. The Board deferred action on the recommendation for several weeks to allow time to inform retirees statewide about the proposal. Financial analysis by the KRS actuary, Cavanaugh Macdonald, projected cost savings of $45-$67 million over the next two years by moving to the MA plan. Based on Humana’s commitments and the funding status of the systems, the Board voted on August 6 to implement the MA plan for Medicare-eligible retirees, effective January 1, 2013. Benefit levels offered by Humana match benefits provided under the current self-insured plan and offer additional benefits such as the SilverSneakers wellness program. Cost savings will be shared by retirees and the KRS Health Trust, approximately on a 50/50 basis, depending on the actual rates that will be set. The Board, however, is expected to adopt the rates to which Humana has committed. Under the new plan, Medicare-eligible retirees who pay all or a portion of their premium will realize a substantial cost reduction, and the Health Trust will save from $20-$35 million.


Some KRS Board members voted against the change, preferring to wait until the impact of federal health care reform is evident, but the majority of the Board was comfortable with the two-year savings. Humana is able to offer the favorable rates because of a sizeable federal subsidy in which pharmaceutical companies pay half the cost of the Medicare “donut hole” [Medicare Part D coverage gap]. Under the Affordable Health Care Act, the subsidy is expected to be reduced in April 2013. Humana will honor its rate commitment for two years, regardless of what happens at the federal level. In the second year of the new plan, Humana proposes that combined premium and administrative costs will not increase more than 12 percent—which will still result in a projected savings of $18 million. If deemed necessary, KRS has the flexibility to later make application to return to the self-insured program.


Representative Lee said that most doctors in his area do not accept Medicare Advantage, and he is concerned whether retirees will be able to use their current primary care physicians. Mr. Thielen said that the MA plan is a custom-designed PPO plan. Humana has assured that reimbursement rates will remain the same for any physician who accepts Medicare and that it will not be necessary to shift primary care physicians. Representative Lee requested that this commitment be provided in writing to the Committee. Mr. Thielen said he would be glad to provide a copy of the contractual language and relevant documentation.


Representative Lee questioned how retirees’ choice of doctors might be affected if the federal subsidy is lost and KRS again self-insures. Mr. Thielen explained that the Kentucky Teachers Retirement System (KTRS) implemented Humana’s MA plan in 2006. According to KTRS executive staff, they have had very good experience and saved about $67 million. There was initial non-participation by some doctors in Florida who thought the KTRS plan was a traditional MA plan, but the problem was resolved when Humana sent a team to meet with those doctors. Humana advised the KRS Retiree Health Committee that they have resolved this type of problem in Kentucky and that 99 percent of all Kentucky physicians accept the Humana MA plan; if not, Humana will reimburse the retiree directly. Representative Lee said his concern that retirees may need to change physicians will not be allayed until he sees a written guarantee from Humana.


Representative Cherry said he understands Representative Lee’s concern and hopes that the desired assurance can be provided. Mr. Thielen noted that the “Medicare Advantage Key Points” handout addresses questions about provider acceptance. He repeated that KRS has contractual language assuring that retirees will not have to change primary care physicians.


Answering questions from Representative Pullin, he said that the network of out-of-state providers serving Kentucky’s border areas will remain the same but that retirees will not be restricted to Humana’s network. KRS and Humana are planning a series of 18-20 educational seminars around the state during the next few weeks. Open enrollment will commence in October.


Representative Wayne said it is important that the plan complies with the new federal mental health parity law, which requires persons receiving mental health services to be reimbursed at the same rate as for medical services. The Humana plan, however, limits in-patient mental health care to 190 days, and there is a disparity in co-pays for mental health and medical care. Mr. Thielen said there have been several compliance audits, and it is his understanding that the plan complies with federal law. He agreed to check into this issue and advise Representative Wayne.


Responding to concern raised by Representative Graham about possible revisions to the Affordable Care Act, Mr. Thielen said that the projected savings are based on rate commitments by Humana for a two-year period, regardless of what might happen at the federal level. He cannot speak for individual board members but believes that the Board felt compelled to take advantage of the savings offered under the Humana plan. If changes at the federal level should adversely impact the plan, KRS has the flexibility to return to the self-insured plan.


Responding to questions from Representative Stacy, Mr. Thielen said that the only concerns he has heard from retirees related to not wanting to have to change physicians or be restricted to Humana’s provider network. Retirees who pay part of their premium welcomed the savings under the new plan. Prior approval requirements, in-hospital care, and pharmacy benefits remain the same. A key issue that led to selection of Humana was that the Board would be able to retain control of the drug formulary, which has been a source of significant savings to KRS’ overall health insurance program. The other respondent to the RFP would not concede control of the formulary to the Board.


When Representative Lee expressed concern whether Humana will reimburse its contracted providers at the same level as the current self-insured plan, Mr. Thielen said that physicians will be reimbursed, with or without a contract—as has been done for the past six years in KTRS’ Humana plan. Savings will be achieved from the federal subsidy. Representative Lee said he has grave doubts that out-of-network physicians will be paid at the same rate as those in network, which would result in many primary care physicians not contracting with Humana. Mr. Thielen again pointed out KTRS’ good experience with its similar MA plan. He offered to bring a Humana representative to a future meeting if the State Government Committee so wishes.



Chairman Thayer agreed with a suggestion by Representative Graham to have committee staff request information from KTRS about its MA plan with respect to the issues and concerns discussed today.


Responding to questions from Representative Owens and Representative Marzian, Mr. Thielen explained that the current self-insured program is supplemental to Medicare but that the new MA plan is a fully insured program under Medicare Part-C. All retirees will automatically be rolled into either the MA plan or KRS’ “medical only” plan. There will be a limited opt-out provision under certain circumstances.


Representative Stacy emphasized the importance of knowing whether the projected savings under the MA plan are due to the federal subsidy and not cuts in provider fees. Mr. Thielen said, to his knowledge, there will be no cuts to providers and that Humana will reimburse all providers the same, whether in network or out of network. Senator Thayer asked Mr. Thielen to provide a copy of the Humana contract and all relevant documentation to Judy Fritz, State Government Committee staff administrator. Mr. Thielen said he would be happy to do so.


When Representative Owens inquired about doctors who accept Medicare but might not accept the Humana plan, Mr. Thielen said it is his understanding that Humana will meet with those doctors to explain that it is not a typical Medicare Advantage plan. In KTRS’ experience, most doctors agreed to accept the Humana plan after learning it is a fully insured plan.


Representative King said she is concerned about seniors recouping their money if their doctor will not bill Humana and they have to submit claims on their own. She asked about KTRS’ experience in this regard. Mr. Thielen said he had not discussed this issue with KTRS but, according to Humana, only about one percent of doctors in the KTRS plan have refused to bill Humana.


When Representative Rowland asked about retirees who choose to opt out of the Humana MA plan, Mr. Thielen explained that those retirees would go into the KRS health insurance “exception” plan. Representative Henley noted that one of the KRS handout states that retirees who are not satisfied with the Humana plan can elect to return to original Medicare during the KRS open enrollment period. Mr. Thielen said this information should have been revised; based on recommendations from Humana, the Board decided to limit the opt-out provision to certain circumstances.


With agreement of the Chair, Representative Lee requested that KRS provide the Committee with a copy of the exceptions that allow retirees to elect the traditional self-insured plan. He said he would also like to know the claims and billing procedure to be followed if a doctor does not accept the Humana plan. Mr. Thielen noted that this information is included in the contract documents that he will be providing.


Mr. Thielen briefed the Committee on the recent cost-savings decision of the KRS Board to eliminate the dependent health insurance subsidy for under-65 retirees. The subsidy, created by the General Assembly in 2004 health insurance reform legislation, cost the Health Trust $19.6 million last year. Language in the 2012 budget bill made the subsidy discretionary on the part of the Board rather than mandatory, as it had been since 2005. Due to the funding status of the systems, the Board decided not to continue funding the subsidy, beginning January 1, 2013. As a result, the monthly health insurance premium increase for affected retirees will range from about $132 to $372 per month. An estimated 5,300 retirees have been receiving the subsidy.



With the business concluded, the meeting adjourned at 2:15 p.m.