SCHOOL EMPLOYEE HEALTH BENEFITS S.B. 895-898: COMMITTEE SUMMARY






Senate Bills 895 through 898 (as introduced 11-10-05)
Sponsor: Senator Shirley Johnson (S.B. 895 & 896) Senator Wayne Kuipers (S.B. 897 & 898)
Committee: Education


Date Completed: 11-29-05

CONTENT


The bills would create the "School Employees Health Benefit Act" and amend various statutes to do the following:

-- Require a school board or the board of trustees of a community college that provided health benefits to employees to provide those benefits in accordance with the proposed School Employees Health Benefit Act. -- Require that all school medical benefit plans and public universities in the State be offered the opportunity to participate in a catastrophic stop loss (CSL) benefit plan.
-- Create a board of directors that, beginning July 1, 2006, would have to implement and administer one or more CSL benefit plans and a CSL fund. -- Require the CSL fund to reimburse a participating school medical benefit plan for a claim over a certain dollar threshold (of at least $50,000 per claim), as specified in the CSL benefit plan; and require the fund to assume liability for a covered claim exceeding the threshold.
-- Allow a school employer to provide health benefits by self-insuring (individually or with other school employers), contributing to a trust fund, procuring coverage from a carrier, or entering into a multiple employer welfare arrangement.
-- Require all school medical benefit plans in the State to compile and make available to school employers claims utilization and cost information for the benefit plan in the aggregate and for the employer's claims and benefits under the benefit plan; and prohibit a school employer from entering into or renewing a benefit plan unless the employer were given that information.
-- Provide for access for school employers, employees, and medical benefit plans to information concerning the cost and performance of certain health care providers, facilities, and services.
-- Allow a municipal corporation to provide medical benefits under the proposed School Employees Health Benefit Act.

Senate Bills 895, 897, and 898 are tie barred to Senate Bill 896, which would create the School Employees Health Benefit Act. That bill is tie barred to Senate Bill 897.

Senate Bill 895
The bill would amend the Revised School Code to state that if the board of directors of a public school, an urban high school, or a strict discipline academy, or the school board of a school district or an intermediate school district provided medical, optical, and dental benefits to employees and their dependents, the board would have to provide those benefits in accordance with the proposed School Employees Health Benefit Act and would have to comply with that Act.


Senate Bill 896

Board of Directors


The bill would create a board of directors to administer a CSL benefit plan and CSL fund. The board would consist of nine directors, eight of whom would be appointed by the Governor with the advice and consent of the Senate. The appointed members would have to include the following:

-- Two directors with some background in insurance issues representing school employers until July 1, 2007; and, effective on that date, two with some background in insurance issues representing school employers participating in a CSL benefit plan and CSL fund. -- Two directors with some background in insurance issues representing collective bargaining organizations that represented school employees, at least one of whom was recommended by the Michigan State AFL-CIO, until July 1, 2007; and, effective on that date, two with experience representing bargaining organizations that represented school employees of school employers as defined in the bill, including at least one recommended by the AFL-CIO.
-- One director representing the general public.
-- One director representing the House of Representatives with some background in insurance issues, as recommended by the Speaker of the House.
-- One director representing the Senate with some background in insurance issues, as recommended by the Senate Majority Leader.
-- One director who was an actuary in good standing with the American Academy of Actuaries or the Society of Actuaries, to serve ex officio and without vote.


The ninth member of the board would be the Commissioner of the Office of Financial and Insurance Services or his or her designee, who would serve ex officio and without vote.


The directors first appointed to the board would have to be appointed within 60 days of the bill's effective date. The board would be required to adopt rules providing for the composition and term of successor boards, consistent with the provisions of the bill. The directors' terms would have to be staggered so that they did not all expire at the same time, and successive appointments would have to be made in the same manner as the initial appointments.


Except as otherwise provided, each director would have one vote on any matter coming before the board. The first meeting of the board would have to be called by the Commissioner. At the first meeting, the board would elect from among the directors a chairperson and other officers as it considered necessary or appropriate. The board would be required to meet at least quarterly, or more frequently at the call of the chairperson or if requested by three or more directors.

A majority of the directors would constitute a quorum for the transaction of business at a meeting of the board. A majority of the directors present and serving would be required for official action of the board.


Directors would serve without compensation, but could be reimbursed for expenses incurred in the performance of their duties.


The board would not be a State board or agency. The CSL fund administered by the board would not be a State fund.


CSL Fund & CSL Benefit Plans


 Beginning July 1, 2006, the board would be required to implement and administer a CSL fund that provided one or more CSL benefit plans. The fund would have to reimburse a participating school medical benefit plan for a claim over a certain dollar threshold, as specified in the CSL benefit plan. (The bill would define "school medical benefit plan" as a plan established and maintained by one or more school employers that provides for the payment of medical benefits, including hospital and physician services, prescription drugs, and related benefits, to school employees. "School employer" would mean a school district, a public school academy, or an intermediate school district, and a community college or junior college.)


The board would have to develop a plan to provide for the nonprofit operation and management of the CSL fund and each benefit plan created under the bill.


In establishing the fund and each CSL benefit plan, the board would have to provide reimbursement to a participating school medical benefit plan for the portion of a covered claim that exceeded a dollar threshold established in the CSL plan selected by the school medical benefit plan. The threshold could not be less than $50,000 per claim. The board could provide additional plans that provided higher thresholds. A dollar threshold established under this provision would have to be adjusted to reflect changes in the consumer price index by June 1 of each year.


The board also would have to determine a premium for each CSL benefit plan that would be sufficient to cover expected losses and expenses that the CSL fund likely would incur during the period for which the premium was applicable. The premium would have to include an amount to cover losses incurred but not reported for the period, and could be adjusted for any excess or deficient premiums from previous periods. Adjustments could be made in a single period or over several periods.


In addition, the board would have to provide one or more incentives to participating school medical benefit plans, through a premium rate structure or other means, to provide health promotion and chronic care management programs to covered individuals for the purpose of improving or maintaining their health and reducing unnecessary or excessive medical expenses. The programs would have to meet any applicable nationally recognized accreditation standards. If no standards were applicable, the programs would have to meet standards established by the board, which would have to include, at a minimum, complete health risk assessments.


Also, in establishing the fund and each CSL benefit plan, the board would have to do all of the following:

-- Provide that each benefit plan would not require any changes in the participating school's medical benefit plan, and would provide for continuity of health care treatment and providers for individuals covered under the school's medical benefit plan.
-- Maintain relevant and accurate loss and expense data for each plan.
-- Require each school medical benefit plan to furnish claims data as required by the CSL benefit plan selected by that school medical benefit plan. -- Receive and distribute all sums required by the operation of the CSL benefit plan.
-- Adopt a policy for investing and reinvesting the assets of the CSL fund.
-- Provide a comprehensive program of case management services that would have to be offered to a participating school medical benefit plan for a covered individual whose claim was covered under, or was likely to become covered under, the CSL fund.


All school medical benefit plans and public universities in the State would have to be offered the opportunity to participate in a CSL benefit plan.


The CSL fund would have to do all of the following:

-- Assume all liability for any covered claim exceeding the dollar threshold under the CSL benefit plan.
-- Maintain relevant and accurate loss and expense data for all liabilities of the CSL fund.
-- Maintain reserves as required by the Commissioner for the preservation, maintenance, and operation of the fund.


Authorized Activities of the Board


 The board would have the authority to do any of the following:

-- Reinsure all or any portion of its potential liability with reinsurers licensed to transact insurance in this State or approved by the Commissioner.
-- Provide for appropriate housing, equipment, and personnel as necessary to ensure the efficient operation of the CSL plan and the fund.
-- Adopt reasonable rules for the administration of the plan and the fund, enforce those rules, and delegate authority as the board considered necessary to assure proper administration and operation.
-- Contract for goods and services, including independent claims management, actuarial, investment, and legal services to assure the efficient operation of the plan and the fund.
-- Hear and determine complaints of a school employer, school medical benefit plan, or school employee or covered dependent concerning the operation of the plan or the fund.
-- Perform other acts that were necessary or proper to accomplish the purposes of the plan and the fund.


The board also could sue and be sued in the name of the CSL benefit plan or the CSL fund. A judgment against the board could not create any liability against the school medical benefit plan or school employers.


School Medical Benefit Plans


 Subject to collective bargaining requirements under Public Act 336 of 1947, a school employer could provide medical, optical, and dental benefits to employees and their dependents by any of the following methods:

-- Establishing and maintaining a plan on a self-insured basis as provided in the bill. -- Joining with other school employers and establishing and maintaining a plan on a self-insured basis as provided in the bill. -- Entering into an agreement under which contributions were made to a trust fund for the purpose of providing medical, dental, or optical benefits to school employees and their dependents under a plan agreed to by their employer. -- Procuring coverage from one or more carriers (a health insurance company, a health maintenance organization, and a nonprofit health care corporation), either on an individual basis or with one or more other school employers. -- Forming a multiple employer welfare arrangement under Chapter 70 of the Insurance Code.

A plan under either of the first two provisions would not constitute doing the business of insurance in the State, and would not be subject to the insurance laws of the State. If a school employer entered into an agreement under which contributions were made to a trust fund, the trust fund could receive contributions from one or more school employers and could provide benefits to employees of one or more school employers.


The bill states that the proposed Act would not prohibit a school employer from participating, for the payment of medical benefits and claims, in a purchasing pool or coalition to procure insurance or coverage, health care plan services, or administrative services.

A school medical benefit plan participating in a CSL benefit plan that elected not to participate in a case management program would have to provide to covered individuals case management services that met accreditation standards established by the National Committee on Quality Assurance, the Joint Commission on Health Care Organizations, or the Utilization Review Accreditation Commission.


Self-Insured Medical Benefit Plans

 A self-insured school medical benefit plan would have to maintain such reserves as necessary to cover the projected cost of medical benefits for covered individuals. A report of amounts reserved and disbursements made from them, together with a written report from a member of the American Academy of Actuaries or the Society of Actuaries certifying whether the amounts reserved conformed to these requirements, were computed in accordance with accepted loss reserving standards, and were fairly stated in accordance with sound loss reserving principles, would have to be filed with the Commissioner within 90 days after last day of the school employer's fiscal year. The report would have to be made available for inspection by any person at all reasonable times during business hours, and copies of the report would have to be provided, at cost, within a reasonable period of time upon request.

A self-insured school medical benefit plan also would have to provide for administration of the plan using personnel of the school employer or employers, personnel of an organization representing the employees, or by awarding a contract, which would not have to be competitively bid, to any person, political subdivision, or corporation. No such contract could be entered into without full, prior, public disclosure of all terms and conditions, including at least a statement listing all representations made in connection with any possible savings and losses resulting from the contract, and potential liability of the school employer or employee.


Further, a school medical benefit plan would have to enter into a contract with a member of the American Academy of Actuaries or the Society of Actuaries for the preparation of the written actuarial evaluation of a plan as required under the bill. The evaluation would have to be based on all of the following information: access fees to a facility and provider network; paid claims for the previous three years; estimated incurred claims for the previous three years; plan administrative costs; chronic case management fees; disease case management fees; and preventive and wellness plan fees.

A school medical benefit plan also would have to enter into agreements with providers of services to the school medical benefit plan, subject to the requirements of the bill and as established by the Commissioner.


To the extent permitted under the written agreement, a school employer could assume the risks of any other school employers.


Disclosure of Benefit Plan Information


 Beginning on the bill's effective date, all school medical benefit plans in the State would be required to compile and make available upon request to the school employer complete and accurate claims utilization and cost information for the benefit plan in the aggregate and for each school employer as follows:

-- The number of person covered under the school medical benefit plan.
-- If applicable, the number of people covered under a policy, certificate, or contract issued by a carrier.
-- The number of claims paid.
-- The dollar amounts of claims paid and of claims incurred but not reported.
-- The claims experience, by coverage component and by provider.
-- The dollar amount of premiums or fees paid, if any.
-- The dollar amount of administrative expenses or retentions incurred or paid.
-- The dollar amount of provider, network, case management, precertification, or other service fees paid, if applicable.
-- The dollar amount of any fees paid or commissions paid to agents or brokers by the school medical benefit plan or by any school employer or carrier participating in or providing services to the school medical benefit plan.
-- Other information as may be required by the Commissioner.


Beginning on the bill's effective date, a school employer would be prohibited from entering into or renewing a school medical benefit plan unless the employer would be furnished with complete and accurate claims utilization and cost information, described above, with respect to the employer's claims and benefits under the school medical benefit plan.


The claims utilization and cost information would have to be compiled on an annual basis, covering the 24 month period ending not more than 120 days before the effective date or renewal date of the school medical benefit plan under consideration. If the plan had been in effect for less than 24 months, the information would have to be compiled for that shorter period.

A school employer or combination of school employers would have to make public the claims utilization and cost information not later than 60 days before the effective date or renewal date of the school medical benefit plan or the administrative services agreement under consideration. The school employer would have to make the claims utilization and cost information available for inspection by any person at all reasonable times during regular business hours, and would have to provide copies, at cost, within a reasonable time upon request.


The claims utilization and cost information could not include any protected health information as defined in the Health Insurance Portability and Accountability Act of 1996, (HIPAA) or regulations promulgated under that Act (which prohibits a person from knowingly obtaining, disclosing, or using individually identifiable health information relating to an individual).


Comparison of Services


 To encourage and facilitate informed decisions concerning school medical benefit plan design, the administration of plans, the selection of medical service providers, and the planning of medical care, the Commissioner would have to gather data evaluating and comparing the cost, efficiency, and performance of administrative services provided to school medical benefit plans, including claims payment timelines and accuracy, and make available easily accessible comparative ratings and descriptions of those plan administrators on a regular basis.


Also, working with other State departments and agencies, the Commissioner would have to ensure access on a regular basis for school employers, school medical benefit plans, and covered school employees to information concerning cost and performance of Michigan hospitals, medical clinics, and other health care facilities, including licensure, accreditation, and performance measures for those facilities; and information concerning cost and performance of Michigan physicians and other health care providers, including medical training, years in practice, board certification, verified licensure information, patient experience, and the results of at least two clinical performance measures of physicians and other health care providers.

Senate Bill 897

The bill would amend Public Act 35 of 1951 (which authorizes intergovernmental contracts between municipal corporations) to allow a municipal corporation to provide medical benefits as would be permitted under the proposed School Employees Health Benefit Act.


Public Act 35 specifies that a group self-insurance pool may not provide for hospital, medical, surgical, or dental benefits to the employees of the member municipalities in the pool except when those benefits arise from the obligations and responsibilities of the pool in providing automobile insurance coverage. The bill would add an exception from that prohibition if the municipal corporation were providing hospital, medical, surgical, or dental benefits as would be permitted under the proposed School Employees Health Benefit Act.

Senate Bill 898
The bill would amend the Community College Act to require a board of trustees of a community college that provided medical benefits to employees to provide those benefits in accordance with the proposed School Employees Health Benefit Act.


Specifically, the bill would authorize the board of trustees of a community college to select and employ administrative officers, teachers, and other employees it found necessary to operate the community college district and establish the terms and conditions of their service or employment. If the board provided medical, optical, and dental benefits to employees and their dependents, the board would have to provide those benefits in accordance with the proposed School Employees Health Benefit Act and would have to comply with that Act.


Under the Community College Act, a board of trustees may delegate to the chief executive officer the authority to select and employ personnel of the community college. The bill would add that if the chief executive officer provided medical, optical, and dental benefits to employees and their dependents, he or she would have to provide those benefits in accordance with the proposed School Employees Health Benefit Act and would have to comply with that Act.

MCL 380.632 et al. (S.B. 895) 124.5 (S.B. 897) 389.123 & 389.124 (S.B. 898)


Legislative Analyst: Curtis Walker
FISCAL IMPACT Senate Bills 895 and 898
State: The bills would have no fiscal impact on the State.


Local: The bills would require school districts, public school academies, intermediate school districts, and community colleges that offer medical, optical, or dental benefits to employees and their dependents to provide those benefits in accordance with the proposed School Employees Health Benefit Act. The only local mandate under that Act would require a school employer to be furnished with complete and accurate claims utilization and cost information with respect to the employer's claims and benefits when entering into or renewing a medical benefit plan. Therefore, the fiscal impact on school employers under the bills would be zero (unless a benefits provider under contract with a school employer chose to increase the premiums charged to cover any costs associated with providing claims data), though the availability of claims data could lead to different benefit choices.
Senate Bill 896
State: The State would see new administrative costs associated with the creation of a catastrophic stop loss fund and the creation of a board of directors for oversight and management of the fund. Specific State costs could include the hiring of skilled actuaries trained in determining the stop loss premiums charged to participating school employers, and information technology costs pertaining to the collection and manipulation of necessary data. However, costs the State would incur in creating and overseeing the fund should be included in the premiums charged to participating school employers, thereby resulting in zero net State costs, once the premium fees were collected and used to pay for start-up and maintenance. Other responsibilities imposed by the bill would increase the administrative costs of the Office of Financial and Insurance Services within the Department of Labor and Economic Growth and could not be recovered via the premiums charged to participating school employers. This office would be required to collect and ensure access to data on the cost efficiency and performance of administrative service providers and health care facilities and providers.


Local: According to A Model for Saving Public School Health Care Dollars Through Large Claim Pooling, Increased Competition and Improving Health Care Quality, an August 10, 2005, report sponsored by the Michigan Federation of Teachers and School Related Personnel and the International Union of Operating Engineers Local 547, the estimated savings for the proposed model partially contained within the bill are $156 million in the first year, representing savings of 7.20% of the total cost of school employee health care. The savings in this report assume that 75% of groups that are currently fully insured would move to self-funding through purchasing coalitions or pools, and the report uses HayGroup assumptions found in the July 13, 2005, paper, Report on the Feasibility and Cost-Effectiveness of a Consolidated State-wide Health Benefits System for Michigan Public School Employees.


Through the creation in the bill of a statewide catastrophic stop loss fund available to participating school employers (defined as school districts, public school academies, intermediate districts, and community colleges), and through the availability of health care claims data (mandated under the bill in any contract signed by a school employer when offering medical benefits), the proposal estimates that 75% of currently fully-insured groups would become self insured, thereby saving 2.77% due to the self-funding (or "pay-as-you-go") of medical claims, rather than the purchase of policies.


Other estimated savings reported in A Model for Saving Public School Health Dollars include frequent updates of employer eligibility, more aggressive checks of students' eligibility for benefits, negotiated administrative fees, provider access fees, and pharmacy carve-out (savings estimated to equal 4.88% of total school employer health care costs). However, the bill itself would not force these savings; instead, if a school employer did regionally pool and self- insure, it would be in the best interests of that employer to undertake these activities and generate the possible savings. Again, however, this bill would not force or guarantee those stated savings, but likely would make it easier for a self-funded, pooled benefit arrangement to occur due to the availability of a statewide catastrophic stop loss fund and health care claims data.


Participants in the Statewide catastrophic stop loss fund would pay premiums based on the expected losses and expenses of the catastrophic stop loss fund. Premiums could be adjusted for any excess or deficient premiums from previous periods.

Senate Bill 897
State: The bill would have no fiscal impact on the State.


Local: The bill would allow municipal corporations to group self-insure if the benefits were provided as permitted under the School Employees Health Benefit Act. Therefore, the fiscal impact under the bill is indeterminate and would depend upon how many municipal corporations used the bill's provisions and any resulting changes the provisions would make in the cost of providing insurance. The bill would expand the circumstance under which municipal corporations are allowed to pool group self-insurance, but would not mandate such activities. The availability of this type of arrangement could lead to changes in the provision of benefits, and corresponding differences in costs, but the bill itself would not require those benefit changes.


Fiscal Analyst: Kathryn Summers-Coty
Elizabeth Pratt

Analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent. sb895-898/0506