The Raleigh Report
Supplemental
From the Office of Representative Jimmy L. Love, Sr.
April 29, 2009
Senate Bill 287 regarding the State Health Plan was enacted by the General Assembly on April 22, 2009, and signed by the Governor on April 23, 2009. Below is an informational explanation as well as a summary of the changes to the State Health Plan.
Frequently Asked Questions
1. What caused the losses in the State Health Plan?
Last year, the State Health Plan transitioned entirely from an indemnity plan to a preferred provider plan. A preferred provider plan sets up a network of health care professionals who provide care at a negotiated rate that’s lower than the standard rate. In addition to paying premiums, the insured make co-payments for services to help offset the costs.
Inaccurate information about the costs of the transition resulted in the losses. The actual cost of the plan and the frequency with which plan members went to the doctor after the move to the new plan was higher than the former plan administrators estimated. While they were reporting a surplus of several million dollars last summer, the plan was already running a deficit.
2. How was it supposed to work?
Very few states still use an indemnity plan, which requires the insured to pay a fixed percentage of all of their health care costs. Preferred provider plans are now the industry standard because they result in increased availability of health care, better preventative care, less emergency care and generally lower costs.
3. Why didn't it work?
The legislators who oversee the plan were given overly optimistic estimates of the plan’s projected finances. The discounts from health care providers were half as much as projected, more people than expected went to the doctor after their out-of-pocket costs were reduced and both premiums and out-of-pocket cost-sharing for plan members still brought in less than expected. Some of the numbers are difficult to quantify because the former administrators didn’t leave complete records.
Legislators discovered the shortfall only after the plan was negotiated and in place because the former State Health Plan director did not share accurate information. He has since been fired and replaced.
4. What did we do to close the gap?
Once the problems were discovered, the legislative committee that oversees the plan asked that the plan director be replaced. The oversight committee began meeting weekly to carefully monitor the plan’s finances and to begin developing a strategy to keep the plan solvent while we learned the extent of the issues. Recent actions taken by General Assembly to address some of the issues associated with the Plan include (1) a one time appropriation of $250 million to support the Plan for the duration of the current fiscal year, (2) elimination of the high cost 90/10 PPO option, (3) increase in premiums, co-pays and deductibles, (4) appropriation of $527 million over the 09-11 biennium to finance the 8.9% premium increase for state employees and retirees. While there have been complaints about the state trying to finance the plan on the backs of workers, about two-thirds of the cost of this plan comes from state money, not employees.
5. What is our long-term plan?
A significant provision in the recently ratified Health Plan legislation requires the establishment of a Blue Ribbon Task Force. The task force will review all aspects of the plan’s operations and make recommendations for changes that will ensure the ongoing financial stability of the plan. Included among the issues the task force will study are: governance and operations of the plan; ways to increase dependent coverage; tiered premium rates based on ability to pay; and transfer of the day-to-day oversight of the plan to an independent agency. The law also requires an independent audit of the plan’s operations, including its claims processor, pharmacy benefits manager and disease management contractor. The new law creates a better plan that strengthens monthly reporting requirements to the plan’s oversight committee and provides additional transparency in the plan’s dealings with its contractors. All of these requirements were added by House members and will address many of the administrative shortcomings that led to the existing problems with the health plan.
We have also added efforts to encourage plan participants to adopt healthier lifestyles. The plan is authorized to implement a wellness initiative to encourage members to quit smoking and to lose weight. The plan will provide assistance to each member in achieving his/her smoking/weight loss objectives. Success in these two areas should result in lower health care costs, which will contribute to the long-term financial viability of the plan.
Through the recent fixes, we were successful in continuing to provide free health care coverage to all state employees and retirees. Very few employers still provide such a benefit.
Following is a summary of the substantive provisions of Senate Bill 287.
Funding:
Section 1:
- Appropriates $250,000,000 for the 2008-2009 fiscal year to cover the current year shortfall.
- Appropriates $138,384,774 from General Fund/Highway Fund for the 2009-2010 fiscal year, and $289,068,095 for the 2010-2011 fiscal year.
Benefit changes
Section 2:
- Eliminates the PPO Plus (90/10) option effective July 1, 2009.
- Wellness Initiatives on Smoking Cessation and Weight Management. These initiatives are being developed. Smoking cessation will go into effect July 1, 2010, and weight management will go into effect July 1, 2011.
- Prescription drug changes:
Generic copay remains at $10.
Preferred brand w/o generic = $35 (up from $30)
Nonpreferred brand = $55 (up from $40)
Brand w/generic equivalent = $10 plus the difference between the Plan's gross allowed cost for the generic and the Plan's cost for the brand.
- If a pharmacy offers to the general public a drug covered by the Plan at a price that is less than the co-payment under the Plan, the pharmacy must charge the lesser of the general public's cost and the Plan's co-payment.
- Specialty medications: Specialty medications must be purchased from a specialty vendor under contract with the Plan. Co-payment for specialty drug will be 25% of the Plan's cost, not to exceed $100. Specialty medication requirements do not apply to cancer medications. Specialty medications are those that, among other things, exceed $400 per prescription cost to the Plan.
- Routine eye-examinations will not be covered on and after January 1, 2010.
- Deductibles and co-payments. Effective July 1, 2009, the following deductibles, co-payments, and co-insurance apply. The aggregate maximum deductible and coinsurance for employee-child and employee-family coverage is three times the member-only coverage:
Basic Plan (70/30 coverage):
In-network deductible = $800. Out-of-Network = $1600.
In-network coinsurance maximum = $3,250. Out-of-network=$6,500.
In-network primary care co-pay = $30 per covered individual.
- In-network specialist co-pay = $70 per covered individual, except that mental health and substance abuse providers, chiropractors, and physical, occupational, and speech therapist co-pay = $55 per covered individual.
Inpatient co-pay = $250 per covered individual
Deductibles and Co-payments (continued):
Standard Plan (80/20 coverage):
In-network deductible = $600. Out-of-network = $1,200.
In-network coinsurance maximum = $2,750. Out-of-network = $5,500.
In-network urgent care = $75 per covered individual.
In-network primary care = $25 per covered individual
- In-network specialist = $60, except for mental health, substance abuse, chiropractic and physical, occupational, and speech therapy providers = $45 per covered individual.
Inpatient = $200 per covered individual.
- Dependent coverage premium is increased by 8.9% in 2009-2010. An additional 8.9% increase will be applied for 2010-2011.
- Pharmacies have agreed to achieve savings of $18,000,000 in pharmacy benefit costs to the Plan in 2009-2010, and $20,000,000 in 2010-2011.
Technical and conforming changes:
Sections 3, 4, and 6:
- Clarifies step-child's eligibility for coverage as a Plan member's dependent.
- Clarifies eligibility for full-time students age 19+ as member's dependent.
- Conforms waiting periods and pre-existing conditions to applicable federal law.
- Requires verification of a dependent's eligibility for coverage.
- Makes clarifying and conforming changes to NC Health Choice coverage.
- Makes conforming changes to employer contribution rates for Plan coverage.
Other changes.
Sections 5-7:
- Adds to the duties and responsibilities of the Executive Administrator.
- Clarifies that State Hospitals that provide mental health and chemical dependency treatment must be accredited
- No visit limit on physical therapy, occupational therapy, and speech therapy extended to July 1, 2011.
- Makes certain terms of the contracts between the Plan and its claims processing contractor and other contracting entities a public record. Excluded are terms that contain proprietary, confidential, or trade secret information.
- Requires an independent audit of the Plan. The audit will be put out for bid and will address such things as governance structure of the Plan, claims data, role of the Board of Directors, overpayments, over-utilization, and fraud and abuse.
- Requires that Plan contracts with other entities contain detailed billing information, transactional data information, and administrative costs to the Plan.
- Establishes a Blue Ribbon Task Force to review governance of the Plan and to make recommendations for changes that will ensure ongoing financial stability of the Plan, increase and maintain high participation rates for dependent coverage, and other specific tasks. Task Force reports to the General Assembly, the Governor, and the Committee on Employee Hospital and Medical Benefits.
- Effective date: Except for appropriations and benefit changes that become effective 7/1/09, the remainder of the act is effective when it becomes law (signed by Governor).
Prepared with the assistance of the Speaker’s Office of Communications
