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									 Governor’s Blue Ribbon Commission on Public Employees Retirement Systems

 Workgroup 3: Developing Sustainable Healthcare Plans and Benefits for Public

                                    June 4, 2007
                                     2pm – 4pm
                              Capitol Annex, Room 154

Workgroup Members Present:
Mark Birdwhistell, Secretary, Cabinet for Health and Family Services (CHFS)
Charlie Borders, State Senator, 18th Senatorial District and Chair, Senate
Appropriations and Revenue Committee
John R. Farris, Secretary, Finance and Administration Cabinet
Rep. Jimmie Lee, on behalf of Representative Harry Moberly, State Representative,
   81st Legislative District and Chair, Appropriations and Revenue Committee
Frank Hatfield, Retired Superintendent, Kentucky Retired Teachers Association
Bryan Johnson, on behalf of David Jones, Retired Chairman and Co-Founder of
   Humana, Governor’s Business Executive Appointee
Sylvia Lovely, Executive Director, Kentucky League of Cities
Brent McKim, Kentucky Education Association

David Jones, Governor’s Business Executive Appointee
Harry Moberly, State Representative, 81st Legislative District and Chair, Appropriations
and Revenue Committee

Other Attendees:
Brad Cowgill, State Budget Director, and Chairman, Blue Ribbon Commission
Workgroup One
Mike Burnside, Deputy Secretary, Finance and Administration Cabinet

Shawn Crouch, CHFS, Chief of Staff
Chris Corbin, Executive Director, CHFS, Office of Health Policy
Trudi Matthews, Senior Policy Advisor, CHFS, Office of the Secretary
Melissa Adkisson, Division Director, CHFS, Office of Health Policy
Annette Gatewood, Executive Assistant, CHFS, Office of Health Policy

Call to Order
The meeting of the Governor’s Blue Ribbon Commission on Public Employees
Retirement Systems Workgroup 3 was called to order by Secretary Mark Birdwhistell on
Monday, June 4, 2007 at 2:00 p.m. in Room 154 of the Capitol Annex.
Welcome and Introductions
Secretary Birdwhistell welcomed the group and asked that each member introduce

Review of Minutes
The minutes were approved as distributed.

Benefits Consultant Update
Secretary Birdwhistell introduced Deputy Secretary Mike Burnside, Finance and
Administration Cabinet, who provided an update on the Benefits Consultant RFP.
Deputy Secretary Burnside stated that responses have been received for the Benefits
Consultant RFP and that evaluations will be completed within the next two weeks. He
further stated that contract negotiations for the Legal Services RFP are in progress and
final selection should be made before the end of June.

Medicaid Modernization Overview
Secretary Birdwhistell introduced Trudi Matthews, Senior Policy Advisor for CHFS. Ms.
Matthews provided an overview of the Medicaid Modernization Act (MMA) of 2003 and
its effect on retiree benefits, including the outpatient prescription drug benefit for
Medicare recipients, known as Part D. Part D went into effect January 2006 and offers
employers a 28% drug subsidy to encourage them to continue offering creditable drug
coverage to retirees.

In passing MMA, Congress was concerned that employers currently providing retirees
with drug coverage would drop that benefit allowing their retirees to enroll in Part D. To
protect against this, Medicare offers employers a 28% subsidy payment to continue
credible drug coverage. In 2006, over 80% of large employers took the subsidy and
continued offering drug coverage to their retirees. As a result, an average savings of
$546/retiree was reported by large firms. In 2007, only 78% of large employers took the
subsidy and 2% of employers chose to become a stand-alone drug benefit plan rather
than taking the subsidy.

Ms. Matthews stated that in order for employers to qualify for the drug subsidy, they
must offer “creditable coverage” which is defined as a benefit that meets a standard
roughly equal to what is offered through Medicare Part D.

Presentation on Kentucky Retirement Systems (KRS)
Secretary Birdwhistell introduced Rick Schultz, Senior Advisor, Kentucky Retirement

Mr. Schultz provided a brief history on the transition of KRS (which manages the
Kentucky Employee Retirement System, KERS; the County Employee Retirement
System, CERS; and the State Police Retirement System, SPRS) from a fully-insured
plan to a self-funded model for calendar year 2006. In 2006, five plans were offered, 3

self-funded plans and 2 Medicare Advantage plans (HMO and PPO). The HMO and
PPO were not offered in 2007.

Secretary Birdwhistell asked about the benefit changes between 2005 and 2006. Mr.
Schultz responded that during the transition to a self-funded plan, KRS tried to mirror
the plan design that the fully-insured product offered.

Mr. Schultz commented that one of the challenges KRS has faced is the population of
members who have exhausted their Medicare benefits. KRS becomes responsible for
hospital stays when the emergency reserve days are exhausted.

Sylvia Lovely, Kentucky League of Cities, asked Mr. Schultz if deductibles and co-pays
are renegotiated by KRS every year. Mr. Schultz replied that these rates have
remained flat but that if an increase in trends should occur, those amounts could be

A member asked Mr. Schultz if all major pharmacies participated in the Advantage 90
plan. Mr. Schultz responded that about 60% of them do.

Discussion commenced regarding the Consumer Directed Health Plan (CDHP) options.
Mr. Schultz commented that there is potential for offering a CDHP to their members,
and that this option is currently under internal review. The CDHP is an option that was
offered to retirees under the age of 65 by the Department of Employee Insurance. The
CDHP promotes consumer responsibility by giving the member more control over their
healthcare expenditures.

Representative Lee inquired about over-the-counter (OTC) medications and if they
qualify for coverage under the KRS plans. Mr. Schultz replied that when an OTC
equivalent is available members are notified by mail. He further commented that the
first quarter has been focused on an OTC educational component and that a push for
preauthorization will occur later this year.

Representative Lee then asked if an OTC equivalent should be available, would KRS
require that the member purchase the OTC rather than the prescription. Mr. Schultz
responded yes and that KRS will pay for the OTC medication. Representative Lee
asked how the medication would be dispensed and Mr. Schultz answered that that
would be up to the pharmacy to determine, however a dispensing fee would likely still
be charged.

Secretary Birdwhistell commented on the issue of active employees who are not in the
state health care system until they retire, also known as “unescorted” retirees. State
employees who chose a flexible spending account rather than a health plan benefit also
qualify as “unescorted”.

Seeking clarification, Mr. Brent McKim stated that for a state or school board employee
who opted for a flexible spending account, the state still has an obligation to provide

health insurance or the payment to the flexible spending account. This is not the case
with the city and county employees who choose to opt out as the state never had an
obligation to pay towards their retirement.

In conclusion, Mr. Schultz commented that for 2006, KRS realized a $41 million dollar
savings through cost-sharing which included co-pays, out-of-pocket deductibles,
rebates, and the subsidy program.

Discussion and Next Steps
Secretary Birdwhistell stated that at the next workgroup meeting, representatives from
the Kentucky Employees Health Plan (KEHP) will provide an overview of the active
state employee plan, which includes a number of pre-65 retirees. After hearing from
KEHP, a side-by-side comparison of all benefit plans presented thus far will be
distributed to the workgroup. Additionally, information will be distributed on other
retirement systems from surrounding states sharing comparable demographics to

The next meeting date of Workgroup 3 will be determined at a later time.


The meeting was adjourned at 3:40 p.m.


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