ALC Employee Benefits Division Oversight Committee

November 16, 2022


Sen Hammer: All right, we’ll call the ALC Employee Benefit Division Oversight Subcommittee to order. First item on the agenda is to consider suspending the subcommittee rules to take up the agenda item D that is listed – it came in after the 10 day period – will help, be beneficial to understand overall the content of today’s discussion. So can I get a motion to suspend the rules for the purpose of taking up item D? I’ve got a motion. Is there a second?


Audience: Second.


Sen Hammer: Second? Any discussion? All in favor say aye.


Audience: Aye.


Sen Hammer: Any opposed? Thank you very much. All right, and we’re going to go on to item C. And if Jake Bleed– if you would come forward, please. And members without objection, we’re going to turn the order around just a little bit. It will help things flow with the adding of item D. So we’re going to go to– C2 will be the first item that Jake will be speaking about. Is that right, Jake? Is that what you’d prefer?


Bleed (EBD): Sure.


Sen Hammer: And it should be exhibit C2. Says AR benefits at the top, formulary recommendation report. Is that it, Jake?


Bleed (EBD): Thank you, Mr. Chair. And so just for everyone’s awareness, this is what we’re looking at here. This is part of our regular routine business as part of our management of the drugs that EBD covers. So this is the formulary report.


Sen Hammer: All right, Jake. If you would, name and title for the record, please. And I recognize you to proceed.


Bleed (EBD): Jake Bleed, Director of the Employee Benefits Division.


Sen Hammer: Okay, go ahead with the C2 changes to the EBD drug formulary.


Bleed (EBD): So like I said, this is part of our routine business. We have a clinical consultant over at UAMS EBRX that helps us manage the drugs that we are willing to cover. As you can imagine, healthcare is very complicated. There are all kinds of brand new pharmaceutical drugs that are coming on the market. There’s always new studies and information on existing drugs, so all major group employer plans like ours have to manage which drugs we cover and which ones we don’t. That is several light years outside of my expertise, so the EBD has traditionally contracted with the College of Pharmacy. We have two folks with us from EBRX who are in the back here who can answer the questions far better than I can. On the first page, you can see that there’s a code that we use to identify why we might not cover, which is to say, exclude a drug. If you flip to the back, you can see a series of drugs that were reviewed in the last few months by EBRX. There’s the date considered. There’s some descriptions about the drug. In the middle, you’ll see a column that says recommendation. If we say we are excluding that for a code, that means that we are recommending that we not cover the drug for the code in question. So for example, the first drug there, Tadliq, we are recommended that we exclude that as a 13. If you look up at the front, code 13, insufficient clinical benefit or alternative agents available. If you look on the right side, the medication cost is $27,000 a year. We already have, in some cases, the condition [crosstalk]–


Sen Hammer: Hey, Jake, slow down.


Rep Ladyman: Hey, Jake, where are you at on that? What page are you on?


Bleed (EBD): Page two.


Sen Hammer: Page two. And which drug are you talking about as an example?


Bleed (EBD): The very top drug.


Sen Hammer: Hang on one second. T-A-D-L-I-Q?


Bleed (EBD): Yes, sir.


Sen Hammer: Okay. All right. Go ahead, if you would.


Bleed (EBD): So that drug treats some things that we don’t cover. It also treats some things, pulmonary ulterior hypertension, which we do cover. But there are other drugs on the market that are cheaper and just as effective, so we’re recommending that we exclude that. If you go through here – and a lot of these are exclusions – you will see, if you follow on the right-hand side, particularly when you get to page four, the specialty drugs. And just for your reference, a specialty drug is a drug with a comma in its price tag. That’s what I’ve been told. There are some pretty big numbers. If I can draw your attention to page five of the report, there at the top, Skysona, and then the second from the bottom, Zynteglo. Those are representative of a new generation of gene therapy drugs that are coming on the market. They are very high tech. They’re very innovative. And as you can see on the right-hand side, they’re very expensive. And I only bring that to the committee’s attention just to underscore the difficulties that we face in making these decisions, because that’s a $3.6 million drug for one year. And with that, I’ll ask if there are any questions.


Sen Hammer: Members have any questions? Okay. Recognize Co-Chair Ladyman.


Rep Ladyman: Thank you, Mr. Chairman. So that right-hand column, Jake, where it says $3.6 million.


Bleed (EBD): Yes, sir.


Rep Ladyman: That’s the annual cost?


Bleed (EBD): Yes, sir. That’s a 12 month cost.


Rep Ladyman: Based on what you think we would use or what? I mean, how is that–


Bleed (EBD): Based on pricing from the manufacturer.


Rep Ladyman: I mean, is that one person? Or how many people treating–


Bleed (EBD): So that would be one round of treatment for one individual for 12 months.


Rep Ladyman: Okay, thank you.


Sen Hammer: Any other questions from any other members? Am I interpreting it right that all these drugs are the ones that y’all declined to add?


Bleed (EBD): Well, so if you look in that middle column, if we’re declining, it will say exclude. But if you– for example, page six– and I apologize, I can’t pronounce these drug names very well. Third from the top, Cibinqo is a drug for atopic dermatitis. We are recommending coverage of that with prior authorization. So what that means is, if a doctor prescribes this, they can call EBRX. EBRX can review the charts and confirm that it’s being used for the conditions that we recommend it be used for. And we do recommend it be covered. That’s a good medicine. We want our people to have it.


Sen Hammer: Do you ever get any pushback from doctors that want to have maybe a particular drug prescribed for a patient’s particular needs and it’s not covered? Or do they have a voice in the process?


Bleed (EBD): We hear from them regularly.


Sen Hammer: I’m sorry?


Bleed (EBD): We hear from them regularly. So our plan, for example, covers a lot of generics. We have a very high generic utilization rate, the reason being it’s cheap. A lot of times doctors will want the name brand for that drug. Well, we don’t cover the name brand. We cover the generic. A lot of times, if particularly a specialist at a specialty hospital will want to prescribe the latest, greatest experimental drug. We’re pretty conservative about what we recommend and not, and we really need to see that the drug works before we’re going to cover it. And that opens up, though, the door to a process that we use a lot and the drug companies use a lot. Sometimes it’s called patient assistance, where if the drug company or the provider asks us to cover the drug and we say, “No, we will not cover it,” then all of a sudden the manufacturer will begin offering that drug on a cheaper basis. They’ll offer the member a coupon. So there’s a lot of hands-on work on our end to hopefully get our folks covered, but also shield the plan from costs.


Sen Hammer: Okay. Senator Bledsoe?


Sen Bledsoe: Thank you, Mr. Chair. Jake, under our step therapy law, if a physician prescribes a drug that is expensive, and I guess maybe the benefit plan starts off accepting a generic, but the generic doesn’t work, what then?


Bleed (EBD): So then we would move up. And I’m not super familiar with the step therapy law, but step therapy, for those members who aren’t familiar, is a process that we use to make sure that if somebody is diagnosed with a condition, they aren’t immediately put on the most expensive, highest-impact medicine. A lot of times there are much cheaper, much lower dosage medicines that are available, and we use step therapy to both help the member and also maintain costs. But we do, as part of step therapy, allow that. Again, I’m not super familiar with the law itself, though.


Sen Bledsoe: Well, it’s just that you may start with a generic, but if the patient does not respond to the generic, then there is that chance that they will be allowed–


Bleed (EBD): Absolutely, yes.


Sen Bledsoe: And that was what I was trying to get you to say.


Bleed (EBD): Okay. Well, no, and thank you. We do try to have flexibility in the process, and we really do try to work with our members. We have appeals all the time where– and it’s very, very, very hard to make those decisions a lot of times.


Sen Bledsoe: Okay. Thank you very much.


Sen Hammer: Senator Irvin?


Sen Irvin: I do want to follow up. Senator Bledsoe had excellent legislation on step therapy that she passed, and it’s very important to understand and not just repeat kind of a line from the market, so to speak. Because sometimes those step therapies and that process for that patient ends up in more cost to the system and more pain and suffering for the patient. And so we really need to think about tracking those costs. Because if you have a child, for instance, who has asthma, and who is put on a generic that does not work, and then that child ends up in a hospital situation where they have a hospital overnight stay, then it’s going to be cheaper in the long run to the plan to avoid the hospitalization. And if we had just put the child on the medication that it needed from the very beginning, according to the physician that saw that patient, then you’re actually going to save money that way, not the other way. So really want you to dig down into that and make sure that you have that flexibility built in, because again, hospitalization is a lot more costly sometimes than the other replacement drug that’s not the generic.


Bleed (EBD): Absolutely, absolutely.


Sen Irvin: And we do not do a good job of tracking that cost. And also you’re not accounting for the time lost out of school. You’re not accounting for the suffering that that child has gone through because of their asthma. I mean, that’s just a scenario, but it happens over and over and over again. So just understand that that’s a very, very important issue, that policy decision that this legislature made.


Bleed (EBD): I understand. Thank you.


Sen Hammer: Representative Richardson.


Rep Richardson: Thank you, Mr. Chair. I just had a quick question. There are several that are excluded because of code 13. And I don’t know if you can answer this or not, but when you say it’s insufficient clinical benefit, what’s the timeline for that that makes it sufficient?


Bleed (EBD): Well, Dr. Johnson is here from EBRX. She actually does the hands-on research for us and is actively involved in these recommendations, so she can help answer that question.


Rep Richardson: No, I think you got to go–


Bleed (EBD): I think you have to come up to the table, Jill.


Sen Hammer: Good morning. If you would, please, name and title for the record, please.


Johnson (UAMS): My name is Jill Johnson, and I’m a professor at the University of Arkansas for Medical Sciences College of Pharmacy. The answer to your question is the code 13s that we have used in this, all of them were because of alternative therapy are available, other alternatives are available. As far as the insufficient clinical benefit typically has to do when a drug shows a benefit over another drug, but by such a narrow margin, it’s not clinically apparent. So perhaps maybe the measurement in the drug trial showed people answered the questionnaire a little bit better on the new drug than the old drug, but the margin of benefit was so minuscule that the patient couldn’t appreciate any better health benefit because of that.


Rep Richardson: Okay, thank you. Thank you, Mr. Chair.


Sen Hammer: All right.  Any other questions from any other members? Last one I’d have on this, Jake, is the prices that are listed on the right-hand column. Do they reflect any rebates, or are rebates even applicable at the point of this discussion?


Bleed (EBD): No, they do not. And actually, that’s a great question. One of the areas that we’ve worked on improving the financial performance and the pharmacies on the rebate side, we’re actually in the process now of trying to procure a new pharmacy benefit manager. My hope is that the new PBM we put in place and the relationship we build with them will allow us to use this report really with kind of a whole new variable or side to it that allows us to balance our decision against the available rebates that the PBM might have. So if a PBM comes along and says, “Hey, there’s a new drug on the market, and here’s a very, very, very powerful rebate,” or there’s an existing drug on the market that we don’t cover, but because of our relationship with that PBM, we have access to a large rebate, that might affect our decision-making making process.


Sen Hammer: One other question, compounding is– when you have a drug like this, is compounding introduced into the conversation to see if compounding the drug would be cheaper than purchasing it from the PBM, if compounding of a drug is actually an avenue to exercise?


Bleed (EBD): I have not dealt with that, but my guess is that would probably be a case by case situation that we would look at.


Sen Hammer: If you don’t mind looking at that. I’ve had a couple pharmacies that have said that with some new federal regulation coming down where PBMs are trying to choke down the ability to compound certain drugs that could be done cheaper than what might be purchased from the PBM. Would you look into that and get back to me, please?


Bleed (EBD): Sure, absolutely.


Sen Hammer: All right. Senator Irvin?


Sen Irvin: Thank you. Just quickly, when you say exclude from prior authorization, could you explain that a little bit better for me?


Bleed (EBD): Okay, so what that means is we’re removing the PA on it. What that means is–


Sen Irvin: Retiring it.


Bleed (EBD): Yeah, that we no longer feel like it’s necessary.


Sen Irvin: To retire the prior authorization?


Bleed (EBD): Yes. I mean, we’re still covering the drug. We’re just not requiring the PA.


Sen Irvin: You’re still covering it though. Okay, okay, okay, okay. And then there’s some that you’re moving to just exclude based on your code that you gave us. Okay. I was just checking to see– all right, thank you. That’s all.


Sen Hammer: All right, last call. Any other questions from any other members? Then without objection, this item will be approved and reviewed. Thank you. Let’s move on to C1, I think is the next one. Thank you, Doctor. C1 will be the next one on the list.


Bleed (EBD): And so this is the quarterly report. This is the third such report we’ve submitted. This is a result of the legislation that was adopted last year. It is a quarterly report on the performance of the plan. It’s for the three months ending September 30th. The first page there is a letter that really does not provide a whole lot of detail, but it does note one of the major changes that we adopted during the quarter, which was, of course, our bariatric surgery process and coverage policy. That is something that we anticipate will be a pretty big lift for us starting January when it becomes effective, with some legislation adopted that required our coverage of it. And then on the back, in remarkably small print, is our financial performance. We can walk through that if you’d like.


Sen Hammer: Just a high level overview, if you don’t mind.


Bleed (EBD): Sure. So one of the things I want to talk to you all about today is the need for transparency on our numbers, and to make sure that we’re all aware of the financial performance of the plan. We’re operating on projections, okay? We’re trying to predict the future. So in order to make sure that our projections are correct, we had our actuaries at Milliman put together this budget tracker. And so every quarter, we have three sets of columns. The first one is your projected amounts, second one is actuals, and the third one is the differences, okay. So that group of columns on the right is how accurate our projections were. Did we get it right or did we get it wrong? Going down the left, you can see we’re trying to project things like how many members we’re going to have, how many retirees, what kind of funding we’re going to get from the state and the employees, what kind of expenses we’re going to have. And then going on down to gross assets, and finally, that net assets line at the bottom. There are two plans, of course. There’s ASE and PSE. ASE is the first one. If you flip to the second one, which is the PSE, I’d like to draw your attention to the numbers at the bottom.


Sen Hammer: On the PSE?


Bleed (EBD): Yes, sir. So if you look on that middle column– or, excuse me, the first set of columns that are projected. We thought in July and August, we would lose our butts, really. In actuality, we did pretty good, if you look– and that’s because we had some transfers from the public school fund. If you look at that difference in that year to date total all the way on the right, we’re still very strong for the year on the public school plan, meaning $38 million. What that is is the transfer from the restricted reserves that we received at the beginning of the year from the Legislative Council. If you go to the bottom, you can see our net assets are very strong. And if we flip to the next page, you can see the 10 year projections that we have. Again, we have two 10 year projections, one for ASE and PSE. I’m going to flip to the second to last page of the report, which is our 10 year projections for public school. And I’m sorry if I’m moving too quickly. I hope I’m not moving too fast. But if you can see, our surplus for the year for 2022 is $63 million. For 2023, we’re tracking at a $25 million surplus. That’s very, very positive on the public school plan. However, from there, the numbers become– you can see we start running a deficit in 2024 and in 2025 and in 2026.


Sen Hammer: Hey, do me a favor. Could you give me a reference on what page? Because the way our pages are, it’s either me or– maybe it’s not me. But give me a reference on the page you’re on.


Bleed (EBD): I’m looking at on the piece of paper with the yellow bar at the top.


Sen Hammer: You talking about this one?


Bleed (EBD): No, sir, that is a–


Sen Hammer: [crosstalk] color.


Bleed (EBD): No, the page before that. And it should say at the top, Arkansas public school employees, and then in parentheses, PSE, estimated 2022 to 2032 financials.


Sen Hammer: Okay, got it. Okay, go ahead.


Bleed (EBD): So this is a tool that we use for our funding. You can see at the top, it has the amount that the Department of Education is giving us. That $212 million includes the funding we got from the ARPA money to reimburse us for COVID expenses. And you can see if you go down there, our surplus or deficit for the year is very strong, $63 million. We’re projecting, again, another surplus or deficit for 2023. That’s because of the decision by this General Assembly to increase the minimum district funding from $168 to $300. So in the short term, we’re very good. In the long term, however, if you keep going out, you can see deficits forming. And that’s the point that I want to make to you all when we get into this PowerPoint that I’m going to make you sit through, is the importance of not taking our eye off the ball, so to speak, as far as this plan goes.


Sen Hammer: What year is it you’re projecting out that– just make sure I’m on the same page. What year are you talking about that–


Bleed (EBD): So if you go down to that surplus/deficit line on the PSE page– okay? You can see the lines or the numbers are black for 2022 and 2023.


Sen Hammer: 2024 is where we–


Bleed (EBD): 2024 is when we start sliding. Now, let me make something clear. These are based on projections. These projections are very conservative. These projections do not reflect, necessarily– so for example, this is based on fairly low enrollment in our Medicare Advantage plan. They don’t reflect any changes that we might see from our new Pharmacy Benefit Manager contract. These are going to change every quarter. But what won’t change, and I think is the reality of American healthcare, is that costs are always going to go up, and we’re always going to have that challenge of looking three or four years down the road, and making some hard decisions now so that we don’t avoid bigger problems later.


Sen Hammer: So got a couple of questions. Co-Chair Ladyman?


Rep Ladyman: So, Jake, if I’m reading this correctly, out in 2032, that deficit is going to rise to $334 million.


Bleed (EBD): Sure. And I just want to make something clear. If you go up to the top– when we put this together, we really based it on what we know now, okay? And obviously, when you project out 10 years, there’s no telling what’s going to happen. This is part of a calculator. And I don’t know if I can show you how we put this together. But those yellow cells, we can adjust. And if you look, the number that we have in there on the minimum district funding is at $300, and it goes to $311 in 2025, and it doesn’t increase, okay? So what that’s saying is, if we never give public schools any more money than they’re currently getting, and we still continue to have a 6% increase in the number of retirees we have, we still have 2% increase in headcount, we still have 6% increase in overall costs, then 10 years from now we’ll be in a heck of a place.


Rep Ladyman: But what you’re saying is if we monitor that quarterly, we may have to make adjustments.


Bleed (EBD): Yes, sir.


Rep Ladyman: But we still see what that number is going to be 10 years out.


Bleed (EBD): Yep. And when I took this job, or when we took over this board, this kind of reporting wasn’t done. And I can say that because I was the budget guy. I was in the governor’s office when a lot of this happened. And it’s been a priority for us at EBD to make sure that we have transparency on the numbers. And even if they’re not numbers we want to look at, we’ve got to make sure that they are front and center.


Rep Ladyman: Well, I think this is a good report, because it gives time to make adjustments if we need to.


Bleed (EBD): Yes, sir.


Sen Hammer: All right, let me ask you a couple of questions, then I’m going to defer to a couple of members. That $311 at the top, do you have a way in managing the numbers to show what it would have to be as it progresses toward 2032, so we would have an idea of knowing what it would have to go up to?


Bleed (EBD): Sure. So this, if you look– is that up on the screen?


Sen Hammer: No.


Bleed (EBD): No, it’s not. Okay. Well, if there’s a way to get it up to show this on the screen, what we’re looking at with this piece of paper is one tab on a spreadsheet that was created for me by– it’s a nerdy, nerdy financial spreadsheet. It is nothing I could even dream of printing off and presenting to you. But what it really is is a dashboard that our actuaries came up with to help us manage all these things. And everything that’s yellow there, we can plug in any number we want. The $311 was a conservative number based, when we did this report, on what I thought the Educational Adequacy Committee might recommend.


Sen Hammer: [crosstalk]. Go ahead.


Bleed (EBD): But of course, all of this is dependent upon whatever decisions we ultimately reach during this session.


Sen Hammer: All right, one other question, then I’ll go to members. The number of people that have chosen to opt out, what’s the current number? And how does that play into these numbers that we have in front of us? Because if they come back in, that’s going to be a game changer as far as the numbers based on those that opt out.


Bleed (EBD): Absolutely. So right now we are getting hammered by forms. We are getting them through faxes, we’re getting through emails, we’re getting them walked in. I manually keyed 150 of them last night myself. We are kind of all hands on deck. We have about 5,000 that we have sent letters to to confirm that we have received their opt out, or that we are going to send a letter to. The challenge is, a lot of people have sent in multiple opt out forms for themselves. In addition, we have multiple people who have opted out and are now calling and saying, “I don’t want to opt out.” So we’re managing the process. It will be a little while yet, probably mid December, before we have a good handle on exactly how many people have opted out. So just for perspective, we have about 27, 28, 30 thousand post-65 retirees who are covered. So right now, I think it’s about 20 or 25 percent that are opting out.


Sen Hammer: As of right now?


Bleed (EBD): Yes, sir.


Sen Hammer: All right, I’ll come back to you in a minute. Let me give members a chance. Representative Dotson?


Rep Dotson: Thank you, Mr. Chair. So if I’m understanding this correctly, the $311 number was just a number that you conservatively plugged in there. But one of the reasons the deficit is showing so large in out years is because that number remains static throughout the entire decade.


Bleed (EBD): Correct.


Rep Dotson: So if we increase that amount by so much annually, like a percentage–


Bleed (EBD): Sure, sure. And the law that was adopted– and this was one of the arguments we had internally about drafting this report. The law that was adopted requires that number to go up for CPI. And so do we build that in? That’s a great law, but we’re still a balanced budget state. So we had some challenges there. I’ll just warn you now, this report is always going to show that in four or five years we face a challenge, and that’s just because our projections are that healthcare costs are going to continue to go up.


Rep Dotson: Right, but is there any other variable in there besides that $311 that’s static?


Bleed (EBD): Well, so there’s–


Rep Dotson: Whatever the state kicks in.


Bleed (EBD): So up at the top there, there’s the Department of Education funding. There’s no mechanism currently to increase that, but that’s something that grew up over time, because the $168 that we previously were giving wasn’t sufficient. Also, if you go down to that income line, there’s an other income right there. That is kind of a catch all, but it includes our pharmacy rebate. If we can get a new PBM contract in place, like I think we’re hoping to, that number will go up. And of course, the expenses, they’re pretty conservative. If you go back to that budget tracker section, you can see that some of our expenses are, in actuality, are better than projected.


Rep Dotson: What percentage of utilization is on the new– are you anticipating? And this is projected for the new [crosstalk].


Bleed (EBD): These numbers are based on 50% enrollment in MAPD.


Rep Dotson: 50%, okay. Thank you.


Sen Hammer: Senator–


Bleed (EBD): So if you look just for clarification, if you look down on the pharmacy expense line– actually on the ASE side on the pharmacy expense line, you’ll see a decrease as people move over to that MAPD.


Sen Hammer: Okay. Senator Irvin.


Sen Irvin: Thank you. Thanks, Jake. Does this line up with what Segal had presented and then the recommendations that they made in order to ensure that we don’t get upside down in the future?


Bleed (EBD): Yeah, the law requires the quarterly report. The law creating the quarterly report requires a ten-year projection. What we’ve done here is really following best practices that our actuary recommended. And it jives with the rate changes, the structure that we changed with our rates. But it, of course, also reflects the MAPD that was adopted pursuant to the Segal recommendations.


Sen Irvin: Okay. But we also increased and adjusted the contribution at the school district level as well?


Bleed (EBD): Correct.


Sen Irvin: So does this reflect in that?


Bleed (EBD): So if you go up to the top there in those yellow boxes, you can see that in 2022, the minimum district contribution is $168. If you go to the right, that jumps up to $300.


Sen Irvin: Right.


Bleed (EBD): And also, these are calendar years. So just to confirm, we don’t do anything simple or straightforward. [laughter] Okay? These are calendar years, not fiscal years, which, as we get into this PowerPoint in a moment– it hurts my head whenever I think about it, but it makes things kind of almost needlessly complicated. But that’s kind of how we have always done it, so to speak.


Sen Irvin: Okay. I mean, would it kill us to change it?


Bleed (EBD): We actually looked at that a year ago. It was one of the first things I wanted to do. It’s still something I think we need to do, but it will require a lot of work, particularly with the school districts. Because if you think about moving to a fiscal year, that’s going to happen right in the middle of their summer when you have a lot of people moving around. So it’s something we want to work on, but I think it would just make a lot of sense to do.


Sen Irvin: Yeah, I think it would help a lot. Okay. I just wanted to make sure that those recommendations were reflected. But we do know that there are some proposals, just things that will maybe affect us in the future, too, with some of the changes that we’ve made.


Bleed (EBD): Absolutely.


Sen Irvin: So okay. Thanks.


Sen Hammer: Representative Ladyman. And then we’re coming to Beatty.


Rep Ladyman: Thank you, Mr. Chair. Jake, talking about the opt-out percentage you mentioned, I don’t know about other legislators, but I’ve got a number of calls from retirees asking about the– it showed a Medicare Advantage Plan. And I tell them that it’s not your typical Advantage Plan you see out there on TV. But the people that I’ve talked to, there seems to be confusion. They don’t understand. They think it’s just the same thing they talk to their insurance company about. And I tell them, “Hey, no. This is much better based on the committee meetings we’ve had and the discussions that we’ve had.” So how is the communication, the education– and, I mean, how’s that going with the people?


Bleed (EBD): It’s going. Of course, United, our vendor, who is overseeing the plan, came in and did 150 meetings all over the state. We, for a while, had radio advertisements. We have tried to avoid too much advertising because, of course, we don’t want to be confused with what a lot of our people are seeing on TV. It’s hard to distinguish our plan. It’s been a challenge to distinguish our plan from all the other ones. And what I tell people is I really, really do believe the Medicare Advantage Plan is a better product. However, if you opt-out for the discretion as the better side of valor, I understand completely. And that’s why we offered that opt-out provision. This is a marathon, not a sprint for us. We want this program to be successful. So it’s not going to be a one or a two or a three-year thing. We really want it to be successful. We want our folks to always have that option, but we also want our folks to ultimately have a plan that works for them, but then also can allow us to afford to give equally rich benefits to future teachers and generations.


Rep Ladyman: I know they had one of the meetings there in Jonesboro. I wanted to go but couldn’t. But do you know has the attendance been good at these meetings? Do you have any ideas?


Bleed (EBD): It’s been very strong. We have the numbers. United provides it to us. They’ve done this in 25 states. And they said that the participation has been very strong. And there are a number of people who are very vocal in saying that they don’t want the plan. They don’t like it. But there are also a lot of people who are very excited about it.


Rep Ladyman: Thanks.


Sen Hammer: On the opt-out number, you said you’re at 5,000. And some are coming back in. Are they giving the reason why they’re coming back in?


Bleed (EBD): I’m sure they will. Nobody seems to– we had 200 retirees a day coming into our office at the beginning of this week. None of them wanted to just give us a piece of paper. They all wanted to tell us why. But we’re not recording that at this time. So my hope is that they’ve realized it’s a very good program.


Sen Hammer: Well, that’s why I’m wondering. As time goes on and people get a grasp on this, perhaps they’ll see. And as far as the number of opt-out and opt-in times, clarify that, if you will, because, just for the record, there is some confusion out there.


Bleed (EBD): In January, if any member wakes up and they realize that something’s happened and they’ve been enrolled in the MA plan and they just don’t want to be, we will allow them to opt-out that one time. After that, they will be in whatever plan they are enrolled in until next November when we will do this all over again. So that if somebody wants to try the Medicare Advantage Plan but it turns out they don’t like it, they will have an opportunity to re-enroll in our existing coverage, whatever coverage is at that time in November.


Sen Hammer: Right. So they got the one opt-out and the one opt-in. Is that right?


Bleed (EBD): Basically, yeah.


Sen Hammer: Basically. And that’d be open enrollment next fall when that comes around.


Bleed (EBD): Yes.


Sen Hammer: All right. Going to go to Representative Beatty.


Rep Beatty: Thank you, Mr. Chairman. I guess I have one question, and you may have covered this prior to me coming in. Looking at your spreadsheet, the components, I’d like you to talk a little bit on your enrollment and subscribers, how you arrive at those projections and those numbers. That would be, I mean, a direct input into this model to show the deficit that would create. Because it looks like in 10 years, we’re going to grow public school employees by a little over 10,000 jobs in the public school sector in the state. So is that just a percentage that you apply to those numbers, or is there some hard science and statistics behind the information on that input?


Bleed (EBD): That’s all based on the history of the plan. And, of course, one of the reasons we went through that budget tracker earlier that I made you all sit through that, is to make sure that we know if those projections are accurate. And based on that experience, we’re going back to our actuaries and saying, I don’t think–for example, on the ASE side, the public school or the state employees side, we’re losing positions.


Rep Beatty: I noted that there. But then on the public school sector, where we’re having difficulty finding employees now, these projections say you’re going to grow 10,000 jobs in that sector in a ten year. That’s 1,000 jobs a year, more or less, of active employees. So I just want a little more discussion on that because that seems a little unrealistic.


Bleed (EBD): [crosstalk] 2% increase annually. But like I said, that’s something that we can adjust as we move forward if we think that’s unrealistic. The area of growth that I’m more concerned with is on the retiree side. That’s a 6% growth, which is difficult, so.


Rep Beatty: Right, right.


Sen Hammer: Representative Rice. Sorry. Senator Rice. Sorry about that.


Sen Rice: Thank you, Mr. Chair. Jake, just for my hearing loss. I understand and I knew I’d heard that before. And I asked a couple of members, and they weren’t sure. But you’re saying they can opt-out in January. And some of them that were telling me they didn’t know all the facts– so they didn’t want to opt-in. Can they opt-in in January? Is that what you said, too? Or they got to opt-in now and can opt-out?


Bleed (EBD): We would prefer they make their decision now. The deadline to enroll in– so the federal Medicare program has a deadline to get people signed up. And that’s the deadline we’re working against. That said, UnitedHealthcare is a great partner. And we’re helping people however we can. So if an individual gets to next year and they decide they want to be in the Medicare Advantage Plan, there might be options for them where we can get them enrolled.


Sen Rice: Okay. And I think some of the issues just cause a change. And we talked about it. I’m trying to keep from talking people into it because I’m not in the business and I can’t do that. But I had a lady come up to me in the store Saturday and said it’s saving her over $500 a month for her and her husband. That was about a big a figure, as I’d heard. So I passed that along. I mean, I realize that’s not everybody that does that. And if it’s not for them, opt out. But I just think there’s some closed minds that are going to wish they had been open. Thank you.


Sen Hammer: Representative Beck.


Rep Beck: Thank you, Mr. Chair. I was meeting with a group of retired teachers. And one of the issues that came up – and you might verify this first, and then it might prompt the second question – is that you can only be in one healthcare Advantage Plan.


Bleed (EBD): Mm-hmm.


Rep Beck: All right. So that’s correct?


Bleed (EBD): Correct.


Rep Beck: So the other question that I have is if you were enrolled in another healthcare Advantage Plan somewhere else, I guess if you’re trying to opt-in in January or something like that, how does that work that you would– would you automatically be kicked out of the other one, or how does that work?


Bleed (EBD): So you can only be enrolled in one Medicare plan. And the concern that a lot of retired teachers have– of course, we don’t provide pharmacy benefits for our retirees. Our retiree coverage is only medical. So those retirees have gotten used to going out and getting pharmacy coverage through the open market. A Part D plan, a Medicare Part D plan. If they don’t opt out, right, but then they go out and buy that Part D plan, Medicare isn’t going to exactly know which bucket to put them in. So on one hand, they’ll be enrolled in Medicare Advantage over here, which has a Part D plan, part of it. And on the other hand, they’re also going to be trying to enroll in a separate Part D plan. And the rule that they use is that Medicare will put you in whatever you enroll in last. And so with that in mind, we’re really going to delay our enrollment of our folks until the last moment. And we’re really trying to communicate with people that if they want the Medicare Advantage Plan, please do not sign up for a separate Part D plan. If you opt-out, you still need to go get that Part D plan. But we’re really trying to help people.


Rep Beck: Okay. Thank you.


Sen Hammer: The reality is you’re giving us a projection based on what we know right now. But until all this shakes out, with everybody opting in, opting out probably in the next 12 to 18 months, that’s when we’ll get a real feel for things, plus getting the PBM contract in place. At least for right now, based on what we know here and now– and I guess my one question is these projections that you’ve given us, are they real time, considering 5,000 have opted out?


Bleed (EBD): No. So these only, like I said– well, let me back up. These are based on 50% enrollment. So these are based on 15,000 opting out.


Sen Hammer: Okay, good deal. And the next time you’ll come back before us with this is– I can’t remember. You come before this committee every time we meet.


Bleed (EBD): Well, this is a quarterly report.


Sen Hammer: All right. So?


Bleed (EBD): And it’s required 30 days at the end of the calendar quarter. So in February or so will be the next time I bring this report to you. At that point, we’ll know more about the enrollment. And then we’ll be in the middle of the session trying to figure out how that works.


Sen Hammer: Sure. Okay. Any other questions from any other members? All right. Then, without objection, this will be approved and reviewed. And we’re moving on to now the item that was added on, which is going to be D. And I think you’ve got a PowerPoint presentation on this one, right?


Bleed (EBD): Yes. But I’m not sure how to work the big screen. So building off of what we just talked about on that quarterly report, one of the big things that we wanted to take care of when we came on to EBD is making sure that we had transparency on the numbers, that we knew the state of the plan, that we were working in real-time, and that we were making sure that there was communication with all involved on the needs of the plan. And so we worked up this process. I presented it to the Board of Finance just to kind of get them ready for what we’re doing. To the extent that you all want to skip over this stuff, it’s probably a little detailed and technical. But I want to get– what I’d like to do is get everybody approaching some of the thornier problems with the same mindset. What I really want to do is develop a process. Okay. So this is one of my favorite charts. I show this to a lot of people. And it’s the public school plan. This is what we were looking at when we came on a couple of years ago. Okay? So if you remember the first time we had a problem with the public school plan– it was about 2011, 2012. And back then, state government did what state government does, which is rush to the problem, invest resources, develop solutions, and fix it, right? That top line is revenues. That dark green line is revenues. That light green line is expenses. And the bottom line is the reserves.


Sen Hammer: Hey, Jake. Just for the benefit of knowing, the members only have black and white copies. As long as we can see that, that’s good. But maybe a reference line one, two, or three or so, please. Thanks.


Bleed (EBD): Sure. So if you look, we came in in 2013. We were focused on the problem. We addressed the problem. And then four years later we were in a great place. Had $133 million in reserves. The line on top there, that $301 million was revenues. It was well in advance of the $277. We were in a good place. The problem was we didn’t act at that point to address what we knew or should have known was coming. And so as a result, those expenses grew over time. Revenues did not keep up. And you can see at the bottom what happened to our reserves. Now, that 2022 line is incorrect because of course we’ve acted to fix this problem. But the lesson I draw from this slide, and that I hope you all draw as well, is the importance of not losing focus on the challenge that we have as a plan and making sure that we’re regularly checking in on this and making decisions not for whatever is coming down the pike today, but what’s coming four, five, six years  from now. That means accurately projecting our funding needs, implementing the solutions, fitting all this within the process of both EBD and the state, and having flexibility in the process.


Bleed (EBD): We are helped because of the decision by the Board of Finance to adjust rates. And these rates went through. They went in today. They were going into effect in 2023. I’m very proud of the work we did on that because it will significantly change our ability to change and respond to problems in the plan. Just to remind everybody, what we’re doing is annually adjusting for actuarial basis. We’re going to have a uniform employer contribution, a five-year rollout across those five years. Okay? What that means is fairer funding. Everybody’s employer contribution is going to be the same. Currently, it is not. All of this means that when we need to come up with more money, we’ve in effect come up with an agreement that says how much your share is, how much my share is, how much the state share is. That gets us out of one of the thornier problems that the old board had, which was when it came time to raise revenue, when we needed to find more money, they got into a political fight of who was going to pay more. And we’ve gotten past that. We have an agreement now in place. And we also, because of that, have much, much more accurate projections. What this means for us though is basically we can boil it down to a very basic formula, which is the cost of benefits has to equal the state’s contribution and the employee’s contribution. So the real challenge is, if we want to give our people rich benefits, we have to be willing to pay for it. The real challenge is, okay, if the actuaries come in and say, “This is how much money we need,” we have to have a process to raise that amount of money either from state contributions, employee contributions, or by drawing from reserves.


Bleed (EBD): This is primarily background for the Board of Finance. But just to clarify, ASE is different from PSE in that it is funded per budgeted position. Its revenue is not dependent on a specific piece of legislation. Instead, it’s kind of in the background, right? Whenever we talk about positions, there’s something called salary and match. We’re part of the match. The funded amounts have to go through Board of Finance and get approval of the chief fiscal officer of the state. One of the reasons I think that there is far more stability in the funding of the state employee side is because of this process. Meaning it’s not dependent on a particular bill. It’s not a target that’s out there. It’s just kind of in the background. If you compare that to PSC, PSC’s funding is dependent on the educational adequacy process. It’s in the Education Appropriations Act. And pursuant to legislation adopted by this General Assembly recently, it will go up annually. Okay? But there’s some big differences in how we fund those two plans. And I apologize if I’m going through this too quickly or not fast enough.


Sen Hammer: You’re good. Just keep the pace.


Bleed (EBD): State budget process is on a fiscal year, right? So we have annual sessions. Those begin in the winter or the spring. Usually, we tend as a state to operate with really tight budgets on the front end, and then one-time surplus payments on the back end. That’s good, but it also creates some headaches. If the session starts in January, that means you usually have budget hearings in the fall before that. The agencies obviously have to get their budgets ready to go well before that. So as a result, the Department of Education and agencies need to know what we need usually like May or June, right? So if we want to submit a budget request for the fiscal year beginning July 1 of 2024, we have to prepare our request no later than April 1 of 2023. Okay? The complicating factor, one of them, is that the plan, of course, doesn’t run on a fiscal year. It runs on a calendar year basis. We’ve got open enrollment. We’ve got changes that have to be adopted in the system if we need to change anything or if the law changes. And as a result, if we want to submit a budget request for the fiscal year beginning July 1, no later than April 1, 2023, then the funding provided by that request will not be available until calendar or plan year beginning January 1, 2025. So that means we’re 18 to 20 months out as far as projections.


Bleed (EBD): I put this together because when I tried to explain it to my staff in words, people got confused. I don’t think I succeeded in clarifying it because I think this just makes it more intimidating. But basically, this is my way of saying that every legislative session is going to end with– every fiscal and regular session is going to end with us needing to make two decisions. The first is that when we come out of the session, we will know how much money the legislature can give us for the calendar year beginning for that next upcoming calendar year. So if you look, that green box is calendar year 2024, right? Well, when we come out of this legislative session here in 2023, we’ll know how much funding we’re going to get on a per-budgeted position. We’ll know how much funding we’re going to get through the public school fund. We can then go back to our members and say, “Okay, here’s the state’s piece. If the state gives us the amount of money we want, then we can make the employees pay their fair share. We can provide the level of benefits we want to provide. And that’s our plan for the coming year.” However, if a recession hits, if the Joint Budget Committee is just in a bad mood that day, if something happens where the state has to say, “Hey, guys, we cannot provide you the level of funding you’ve asked for, then we’re going to have to go back and say, “Okay. We’re either going to have to reduce the level of benefits, or we’re going to have to increase the employee cost share, or we’re going to have to pull from reserves.” So that’s a big piece of the kind of the equation that we’ll need coming out of that session.


Bleed (EBD): At the same time, we’re going to have to start the whole process again for the next fiscal year, 2025. So there’s two pieces of information that we’re going to have or two decisions we’re going to bring to you all at the end of every session. One is the plan year coming up. The other is the fiscal year coming up. And that’s really basically what this whole presentation is about. I can walk through all these different slides, but at the end of the day, that’s the plan that we put into place. One thing I’ll also add on this – and I’ll say this because the bill filing deadline was just started yesterday – we’re going to have a new fiscal impact process. One of the things I’d like to do is incorporate fiscal impacts into this process. So if during the session, the legislature chooses to adopt a variety of bills that have an impact on the plan, we will incorporate that. And that will be part of our recommendations coming out of the session for the next plan year as appropriate. So with that, I’ll ask if there are any questions?


Sen Hammer: So let me ask you. Going back to the handout that we just finished covering before and showing the projection out to 2032, am I interpreting it right that you’re projecting to go from $168 to $300? Or am I missing–?


Bleed (EBD): That’s in law. So that will happen. The challenge for us is– and this deals with– so keep in mind, this is calendar year that you’re looking at. The recommendations for adequacy were in fiscal. But the recommendations for the Adequacy Committee, I think we have two different– I don’t know that we have final recommendations yet. Do we?


Sen Hammer: All right. I’m going to recognize Senator Irvin. Go ahead, Senator Irvin.


Sen Irvin: The law states that they have to be turned in by November 1. And those were turned in by November 1. You have a Senate recommendation and you have a House recommendation, but I believe the contributions are the same. I think the recommendation was to follow the Segal recommendation for the member contributions.


Bleed (EBD): Okay.


Sen Irvin: But you can look at those. they’re submitted to the president pro tem and the Speaker of the House, as well as to the Governor.


Bleed (EBD): Yeah. My understanding was there was a difference between the House and the Senate. But if there’s not, then we can certainly update these.


Sen Irvin: Well, as far as this portion of it, I think, it’s the same. But ours was to track the increase. The Senate one was to track the gradual increases that were not just a flat $300, but to continue to increase that from the district level as well as the state level.


Bleed (EBD): Excellent.


Sen Irvin: Because we felt like that was the stronger recommendation from Segal Group in order to prevent us from being upside down in the future.


Bleed (EBD): Yeah. And I agree. Thank you.


Sen Irvin: Yeah. You don’t want to create a cliff where all of a sudden, it’s a huge amount to contribute.


Bleed (EBD): Well–


Sen Irvin: If you gradually incrementally increase that year to year, then you avoid that cliff.


Bleed (EBD): And avoid the precedent that that number never goes up.


Sen Irvin: Right. Exactly.


Sen Hammer: End of the day, we’ll know something by the middle of February sometime. There’ll be more with the next quarterly report based on all the pieces that are floating around out there that will get us closer in time.


Bleed (EBD): Yes, sir.


Sen Hammer: Okay. All right. Any questions from any members? All right. Jake, thank you for the presentation.


Bleed (EBD): Thank you.


Sen Hammer: Anything else you’ve got?


Bleed (EBD): No, sir.


Sen Hammer: All right. With that, we’re adjourned.