E2SHB 1569

HOUSE BILL REPORT
E2SHB 1569

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

As Passed Legislature

Title: An act relating to reforming the health care system in Washington state.

Sponsors: By House Committee on Appropriations (originally sponsored by Representatives Cody, Campbell, Morrell, Linville, Moeller, Green, Seaquist, Conway, Dickerson, Appleton, McIntire, McCoy, Kagi, Pedersen, Kenney, Lantz, Santos, Wood and Ormsby).

Passed House: 3/10/07, 53-44.
Senate Amended.
Passed Senate: 4/12/07, 28-20.
House Concurred.
Passed House: 4/16/07, 61-34.
Passed Legislature.

Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 9 members: Representatives Cody, Chair; Morrell, Vice Chair; Barlow, Campbell, Green, Moeller, Pedersen, Schual-Berke and Seaquist.

Minority Report: Do not pass. Signed by 4 members: Representatives Hinkle, Ranking Minority Member; Alexander, Assistant Ranking Minority Member; Condotta and Curtis.

Majority Report: The second substitute bill be substituted therefor and the second substitute bill do pass and do not pass the substitute bill by Committee on Health Care & Wellness. Signed by 26 members: Representatives Sommers, Chair; Dunshee, Vice Chair; Cody, Conway, Darneille, Ericks, Fromhold, Grant, Haigh, Hinkle, Hunt, Hunter, Kagi, Kenney, Kessler, Linville, McDermott, McDonald, McIntire, Morrell, Pettigrew, Priest, Schual-Berke, Seaquist, P. Sullivan and Walsh.

Minority Report: Do not pass. Signed by 8 members: Representatives Alexander, Ranking Minority Member; Bailey, Assistant Ranking Minority Member; Haler, Assistant Ranking Minority Member; Anderson, Buri, Chandler, Dunn and Kretz.

Background:

In 2004, Washington had approximately 600,000 uninsured persons under age 65. For adults ages 19-64, 13.2 percent were uninsured. For children ages 0-16, 6 percent were uninsured. Health coverage through an employer in Washington has declined from 71 percent in 1993 to around 66 percent in 2004. Rising health care costs are a significant barrier to small employers offering health coverage for their workers. Between 1999 and 2004, the annual increase in health insurance premiums for small businesses in Washington was substantially greater than the annual increase in wages or gross business income, some years by a factor of more than five. It is estimated that poor quality health care costs the typical employer between $1,900 and $2,250 per covered employee per year. Recent studies have shown that only a little more than half of adult patients receive recommended care. The level of performance is similar whether it is for chronic, acute, or preventive care and across all spectrums of medical care, including screening, diagnosis, treatment and follow-up.

Summary of Engrossed Second Substitute Bill:

The current Small Employer Health Insurance Program (SEHIP), established in statute in the Health Care Authority (Authority), is renamed the Health Insurance Partnership to serve small employers, beginning in September 2008. The Partnership will provide a premium subsidy for low-income employees with income below 200 percent FPL. Low-income employees who immediately transitioned from employer-sponsored insurance, will have to wait six months before becoming eligible for premium assistance.

A seven member Health Insurance Partnership Board (Board) is established. Members will include the Authority administrator and individuals with expertise in the health insurance market and benefit design. The Board will designate the health plans eligible for premium subsidy, from plans available in the private small group market, approved by the Office of the Insurance Commissioner. They must include at least four plans, with multiple cost-sharing and deductible options, and plans will range from high deductible/catastrophic to comprehensive. Designated plans must include innovative components, such as preventive care, chronic care management, wellness incentives, and payment related to quality of care. The Board will determine a mid-range plan that will be used as the benchmark for the premium subsidy, and the premium subsidy will be developed similar to the sliding scale used for Basic Health. The Board will determine minimum employee participation requirements and if there should be a minimum employer contribution; employers continue to determine employee eligibility and their contribution. The Board will evaluate rating methodologies, and impacts on applying small group market rating within a partnership, and consider options to manage carrier uncertainty through risk adjustment, reinsurance, or other mechanisms.

The Board may authorize a dental plan to be offered, but no subsidy will be available.

Enrollment in the Health Insurance Partnership (Partnership) is not an entitlement, and enrollment may be limited to available funding.

By December 1, 2008, the Partnership must report to the Legislature and Governor on the risks and benefits of incorporating the individual and small group markets into the Partnership; and by September 1, 2009, the Partnership must report to the Legislature and Governor on the risk and benefits of incorporating the high risk pool, Basic Health, Public Employees Benefits Board, and public school employees, as well as the impact of requiring all residents over 18 to be covered.

The OIC is required to contract for an independent study of health benefit mandates, rating requirements, and insurance statutes and rules to determine the impact on premiums and individuals' health. An interim report is due December 1, 2007, and the final report is due December 1, 2008.

The Joint Legislative Audit and Review Committee study of SEHIP due December 2009 is repealed.

Effective Date: The bill takes effect 90 days after adjournment of session in which bill is passed, except sections 1 through 6, relating to the creation of the Health Insurance Partnership, which take effect July 1, 2007.

Staff Summary of Public Testimony: (Health Care & Wellness)

(In support) This Connector will make it easier for the employers and employees to afford and keep health coverage. The sequencing of the elements of this bill are important to get right. As the bill is written, most of the high risk will go into the pool first. Other groups with known risk and lower risk, like state employees or K-12 employees, should go into the Connector first. This proposal will increase competition and result in lower costs for consumers. This is a good approach to sharing responsibility for the cost of health coverage between individuals, employers, and government. The Connector should be required to use a risk adjustment mechanism.

(Neutral) The model of a Connector aligns incentives in the health care system to get better results at a better cost. It will provide continuity of coverage for workers who change employers or might be self insured. It will lead to better continuity of care and better health outcomes. It will result in the consumer choosing the health plan that best meets their needs rather than having health plans attempting to choose their customers. If employees and employers are able to contribute pre-tax dollars when purchasing health coverage through the Connector the employee can realize a savings in the cost of their health coverage. In moving to this model a state should start with a population the health carriers know well.

(With concerns) Combining the individual market, the high risk pool and the small group market will result in higher costs for everyone receiving their health coverage through the Connector. These reforms will not attract other health carriers into Washington from other states. Providing a reinsurance program will reduce incentives for health carriers to manage the care and costs of their enrollees. The Connector could result in an increased average risk in the risk pool. An up-front risk adjustment is a better alternative than a reinsurance program. There is no funding source for the premium subsidy or the reinsurance programs created in the legislation. There must be a broad based consensus about any changes in the health insurance statutes to ensure any reforms will not be overturned in a few years.

(Opposed) This bill does not address what small business is asking for. Business wants affordable health coverage through the private market with more options. The mandatory nature of the Connector is a problem. Association health plans are already providing affordable health coverage. There might be a narrower application of the Connector concept that could be tried. We should make improvements to the existing health care coverage system and not throw out the entire system.

Staff Summary of Public Testimony: (Appropriations)

(In support) We supported the original version of this bill, and this version too. Waiting longer also has fiscal implications as the market is failing right now. The costs are being borne by the state taxpayers and other policy-payers. The bipartisan sponsorship of this second substitute is heartening, but we are concerned about reducing the pool that will be added to the connector even further. If we wait until 2009, consider funding the Small Employer Health Insurance Program that was created last year in the meantime. My business employs 20 people, and the long term impact to the state of passing this bill will be positive. The current system leaves too many people behind.

(With concerns) We are concerned that this would change the group marketplace into an individual marketplace instead. There has been commendable bipartisanship and energy in creating this, and connectors are intended to reduce administrative costs, add choice and portability. We support the goals and timeframe, but we support the study-first approach that was in House Bill 2098 instead. The health carriers prefer that course because we don't have enough information right now to understand the risks created by this bill.

(Opposed) We have just seen the new large proposed substitute bill, and have not had the opportunity to analyze it yet. But our concerns remain. We believe that as a connector or as a partnership this would be a massive overhaul of small employer coverage and we think that there needs to be an opportunity to evaluate this idea as was suggested in the Governor's blue ribbon commission bill. Sixty percent of our members oppose the connector approach as it eliminates the existing small group market. It needs to be studied thoroughly first. How will this affect our premiums? My business has five employees, and while we want affordable coverage, we don't support this bill. We don't want another experiment like in the early 1990s that destabilized the market. We have computer models now that can produce excellent studies of this behavior.

Persons Testifying: (Health Care & Wellness) (In support) Dr. Sarah Weinberg, Washington Chapter of Health Care for All; Robby Stern, Washington State Labor Council; Chuck Hawley, Providence Health and Services; Lonnie Johns-Brown, Washington Chapter of National Organization for Women and Washington Clinical Society; Bill Daley, Washington Community Action Network; Len McComb, Washington State Hospital Association; and Mike Kreidler, Office of the Insurance Commissioner.

(Neutral) Ed Heisselmeier, Heritage Foundation; and Rick Curtis, Institute for Health Policy Solutions.

(With concerns) Karen Merrikin, Group Health Cooperative; Audry Halvorson, Primera; Nancy Ellison, Regence Blue Cross Blue Shield; Rebecca Kavoussi, Community Health Plan of Washington; and Paul Chasco and Tammy Fellin, Association of Washington Cities.

(Opposed) Carolyn Logue, National Federation of Independent Business; Patrick Connor, Washington Farm Bureau; Mellani McAleenan, Association of Washington Business; Gary Smith, Independent Business Association; Mel Sorensen, Washington Assocation of Health Underwriters; David Westberg, Stationary Engineers and American Federation of Labor and Congress of Industrial Organizations; and Paul Guppy, Washington Policy Center.

Persons Testifying: (Appropriations) (In support) Kent Davis, Gene Otto, and Bill Daley, Washington Community Action Network.

(With concerns) Ryan Spiller, Washington Fire Commissioners Association; Melanie McAleenan, Association of Washington Business; and Nancee Wildermuth, Regence Blue Shield, Pacific Care, and Aetna.

(Opposed) Carolyn Logue, National Federation of Independent Business; Mel Sorenson, America's Health Insurance Plans; Gary Smith, Independent Business Association; and Susan Pittman, Washington Association of Health Underwriters.

Persons Signed In To Testify But Not Testifying: (Health Care & Wellness) Patty Smith, Washington Association of Health Underwriters; Erica Oberg, Washington Association of Naturopathic Physicians; Rachel Berkson, Washington State Council of Stronger Together Service Employees International Union; Roger Collier, Roger Collier and Associates; Jed Wessman, Washington State Association of Counties; and Jeff Johnson, Washington State Labor Council.