SENATE BILL REPORT

SB 5912

BYSenator McDermott

Relating to state government.

Senate Committee on Ways & Means

Senate Hearing Date(s):March 2, 1988; March 3, 1988

Majority Report:  That Substitute Senate Bill No. 5912 be substituted therefor, and the substitute bill do pass.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Bluechel, Cantu, Hayner, Johnson, Lee, Newhouse, Saling, Smith, Zimmerman.

Minority Report:  Do not pass.

      Signed by Bauer, Fleming, Gaspard, Moore, Talmadge, Vognild, Williams, Wojahn.

Senate Staff:Charles Langen (786-7715)

                  March 4, 1988

AS REPORTED BY COMMITTEE ON WAYS & MEANS, MARCH 3, 1988

BACKGROUND:

Health and other forms of insurance benefits are currently provided to state employees through contracts negotiated by the State Employees Insurance Board (SEIB).  The SEIB is composed of representatives of the governor, higher education faculty and administrators, the director of the Department of Personnel, employee unions and associations, retired persons and the legislature.  Health benefits are provided with no premium contribution by the employee.  The present contracts for health insurance for both the Uniform Plan (Blue Cross) and the HMOs end June 30, 1988.

SUMMARY:

SB 5912 was introduced by title only.

EFFECT OF PROPOSED SUBSTITUTE:

The Public Employees Benefits Agency (the agency) is established as an agency of state government with the director of the agency appointed by the governor.  The director is to be knowledgeable in the development and provision of employee benefits.  The director may appoint four exempt staff, one of whom is to be an internal auditor and one of whom is to be a confidential secretary.

Employees are all full time, career seasonal, part time employees of an employer.  Project employees whose positions are not terminated for at least nine months are included.  Ferry workers, certain federal employees in the Extension Service at Washington State University, and employees of the State Trade and Convention Center are excluded, as they are in present law.

An employer is the State of Washington, including the legislative and judicial branches including noncivil service positions, and its political subdivisions other than educational service districts and school districts.

Dependents are the legal spouse; any natural born or adoptive child or children either living with the qualified employee or whom the employee has a legal obligation who are either under the age of 20 or under the age of 24 and verified as enrolled in full time postsecondary education or are developmentally, mentally or physically disabled; at the discretion of the director, step children living with the employee with the same conditions as natural born or adoptive children; at the discretion of the director, foster children who are not covered under another benefit plan; and natural born relatives for whom the employee is sole legal guardian.

A qualified employee is one who is single or married to a spouse not employed by the state or its political subdivisions excluding educational service districts and school districts.

The director, with assistance of the actuary and the consent of the Public Employees' Benefits Board (the board), shall do all things necessary to develop and conduct benefit requests for bids and award contracts for the qualified employees.

The director, with the consent of the board, shall develop and provide a health care benefit plan through a contract or contracts with an insurer, a health care contractor, or panel plan; contract with at least one insurance carrier or health care service contractor to provide similar benefits; and authorize premium rates that exceed the employers' contributions, and the rates shall be established on the basis of separate rates for the employee, spouse and children.

Premium contributions for dependents may be authorized except for spouses who are employed by the state or a political subdivision other than an educational service district or school district.  This contribution is to be the difference between the premium required and the employer's contribution.  Such contribution, however, shall be designed with consideration of the individual's ability to pay and shall not create obstacles to receipt of medically necessary and preventive care.

Coinsurance, deductibles and other forms of employee financial participation shall be incorporated into the plan or plans.

The employer contribution shall be the same for all health care plans offered to state employees, adjusted for the number of employees and dependents covered by the health plan, provided the employer contribution shall not exceed the premium charged by the plan.  The director shall establish effective coordination of benefits.

The director is authorized to engage legal, actuarial and other consultants in event self-funding is entered into.  All claims adjudication and all other types of administrative and employee services are to be done by a third-party contractor.

Records of the agency are to be maintained in a central location and any data held by an insurer, health care contractor or panel plan is to be the property of the state.

The director shall require financial and utilization reports on an annual basis with quarterly updates.  If the experience is at variance of more than 3.0 percent from what was anticipated when submitting material for the biennial budget, the director is to notify the Governor and the Legislature.

The director, Office of Financial Management, is authorized to enter into any contract negotiated to begin on July 1, 1988.

The director, through the actuary, annually is to provide a funding rate to the Governor and the Legislature developed from data maintained for each of the health plans by the actuary.

The Public Employees' Benefits Board is created consisting of eight members appointed by the Governor:  three representatives of employees, a representative of retirees, and four non-public employee representatives knowledgeable in employee benefits. They are to advise and consent in the decisions of the director as prescribed in law.  They are also to study all matters related to employee benefits.

Excess funds in the employees' insurance principal account, the account into which all employer contributions, refunds, etc., are deposited, are not intended to be used solely for the purposes of employee benefits and may be transferred periodically to the general fund.

An employees' contribution account is created and the employees' contributions, if authorized, are to be deposited in this account.  These funds are to be used only for partial payment of the premium.

Health care benefit plans for full time and career seasonal qualified employees shall be provided immediately after the commencement of employment.  Part time employees shall have a 6- month probationary period prior to provision of these benefits. Plans may not provide maternity benefits for dependent children. There is to be an open enrollment period at least once every two years, but coverage for dependents may be changed at any time. The agency may not provide liability insurance for dependents.

Retirees and disabled state employees may continue their participation in insurance plans after retirement or disability. The rates charged for health care will be developed from the same experience pool as active employees.  The retiree or disabled state employee must bear the full cost of the premium and this self-pay rate is to be established based on a separated rate for the employee, the spouse, and the children.  The retiree or disabled state employee who is eligible for and who elects to apply for Medicare will be actuarially reduced to reflect the value of Part A and Part B of Medicare.

Persons eligible for continuation of coverage (those eligible under the Consolidated Omnibus Budget Reconciliation Act COBRA) may continue participation in insurance plans under the same terms and conditions as the retirees and disabled state employees except they may be charged up to 102.0 percent of the premium.  Coverage will no longer be provided if such person becomes covered under any other insurance or benefit plan including Medicare, or if they fail to make premium payments in a timely manner.

The director is authorized to self fund, self insure, or enter into other methods of providing insurance coverage except for property and casualty insurance.  Reserves shall be maintained as required for other insurance programs.  Any savings realized from self funding may not be used to increase benefits unless authorized by law.  If a contract is entered into, the director shall ensure that any benefits shall not be increased unless a specific appropriation or similar authorization for the Legislature occurs.  Third party administrators shall be contracted for to provide claims adjudication and other services. Full accounting and record keeping is required.  Annual statements with quarterly updates are specified and information filed with the Insurance Commissioner.  A reserve account is established with draw downs made according to criteria established by the director and the Insurance Commissioner. The director stands in fiduciary responsibility to the employees.

The Deferred Compensation Committee is moved into the Agency and will continue to operate in the same manner as it is currently.  The only difference is the director is added to the board and the public member is removed.  Similarly the state employee child care, the child care salary reduction program and the state wellness program are removed from the Department of Personnel and placed within the agency.

The actuary is authorized to assist the director and agency in actuarial and underwriting services.  Reimbursement is accomplished through the interagency reimbursement statutes.

The State Employees' Insurance Board is abolished and standard language is provided to transfer materials, etc., to the agency, including the provision prohibiting that any existing collective bargaining agreement be altered.

$7 million is transferred from the employees' insurance principal account to the General Fund.

Appropriation:    $36.3 million to the Office of the Governor, including $23 million of the General Fund-State, $4 million of General Fund- Federal, and $9.3 million from the Special Fund Salary and Insurance Contribution Increase Revolving Fund; and $200,000 from the State Employees' Administrative Insurance Account

Revenue:    none

Fiscal Note:      requested February 29, 1988

Effective Date:The bill contains an emergency clause and takes effect immediately.

Senate Committee - Testified: Mark Brown, Washington Federation of State Employees; Eugene St. John, Washington Public Employees' Association; Joan Gaumer, Blue Cross of Washington and Alaska; Aubrey Davis, CEO, Darlene Burgess and Grant McLaughlin, Group Health Cooperative of Puget Sound; Michele Rodosevich and Karin Davis, Washington Teachers' Association; Susan Johnson, Service Employees' International Union; Gus Swartz, Retired Public Employees