MONTGOMERY – Gov. Bob Riley announced Thursday he is calling a special session of the Legislature beginning Nov. 8 to tackle reforms to the health insurance program for public employees. The reforms sought by the governor are expected to save at least $300 million over the next five years.

“These reforms are a significant first step in finally getting some control over these skyrocketing costs. We need to, and we will, keep pushing for additional reforms in the future. But now we have a tentative agreement that gets us started on finally reforming the system and saves at least $300 million over the next five years,” Riley said. “I say, the sooner we start, the better.”

Because residents in the Black Belt won’t elect a state senator until Dec. 14, parts of Marengo, Hale, Greene, Perry,

Sumter, Choctaw, Tuscaloosa and Bibb counties will be without senate representation for the session.

The reforms were recommended by a task force the governor appointed in April to address soaring health insurance costs for state employees and education employees.

“We have to seize this opportunity to start changing an unsustainable system and to start saving money,” Riley said.

Spending on health insurance for state employees and education employees has increased from $363 million in 1998 to an expected $1 billion in the current budget year.

Reform descriptions

Boards authority over premium rates – Provides the Boards with the authority to change the premium rate for all classes of employee by a 2/3 vote of the Board. Currently, by law in the SEHIP, the active employee single and Medicare retiree single contracts pay $0. These two classes of employees represent more than 50 percent of the insured contracts.

Individual premium adjustments for avoidable risk factors – Provides the Boards the authority to use individual premium rating as a means of encouraging employees to assume more personal responsibility for their own health care. An individual’s premium would be adjusted for attributes such as: smoking, wellness participation and preventive care compliance.

Allows employees to opt out of the health plan – Eliminates mandatory coverage and allows an employee to opt out of the plan.

Active employee supplement to other employer coverage – Provides an employee who is eligible for another employer’s coverage with the option to purchase a supplemental policy in lieu of full coverage through the State. The employee will have enhanced coverage. The supplemental policy will cost the State approximately 60 percent less than the full coverage under the plan.

Retiree contribution based on years of service – For employees who retire after Sept. 30, 2005, the state’s retiree contribution would be based on the years of service. The employer contribution for employees retiring after Sept. 30, 2005 will be decreased 2 percent for each year of service less than 25 and increased 2 percent for each year of service more than 25, not to exceed 100 percent of total premium.

Retiree other coverage carve-out – Requires an employee who retirees after September 30, 2005 and becomes employed with another employer (that contributes 50% or more to the coverage) to take the other employer’s coverage as their primary coverage.

Federal poverty level (FPL) subsidy – Provides for the reduction of the employee and retiree premium based on the federal poverty level guidelines, so that the coverage is more affordable for low-income families. Children of state employees otherwise eligible for the federal Children’s Health Insurance Program shall receive the same level of benefits as children covered under the Children’s Health Insurance Program.

Independent actuarial review – An annual independent actuarial review of the State and Education Employees’ Health Insurance Plans shall be performed by a national firm with skill and experience in reporting for such matters.

Full disclosure by contractors – Contractors shall agree to full disclosure of their net cost of providing services to the plan. All contracts subject to independent audit. Penalty for noncompliance.

Penalty for employees providing false or misleading information – Provides for a penalty for an employee who submits false or misleading information to the health insurance. Penalty includes repayment of claims plus interest.

Corporate status – Provides the plans corporate status for the purposes of management of the health insurance plans. The plans have the power and privileges of a health insurance corporation, which includes holding its cash reserves in trust for the purpose for which received.

Mandatory pre-taxed employee contributions – Employee premium contributions shall be deducted from payroll on a pretax basis as permitted under Section 125, IRS Code. Establishes the Public Education Flexible Benefits Board for the administration of flexible spending accounts for employee medical and childcare expenses.

The estimated savings from this plan for the first full year (FY 06) of implementation are $50,000,000, while the five-year cumulative impact is $300,000,000.