Budget Committee on Health Care

BUDGET COMMITTEE ON HEALTH CARE

The Budget Committee on Health Care was assigned responsibilities in nine areas. Section 2 of House Bill No. 1407 directed a study of existing mandated health insurance coverage and the feasibility and desirability of repealing state laws mandating health insurance coverage. The section also provided that the Legislative Council receive a report before July 1, 2002, from the Insurance Commissioner on an evaluation of existing health insurance coverage mandates on the cost or effect on insurance premiums as compared to the benefits of reducing the need for future health care services due to early identification and treatment. North Dakota Century Code (NDCC) Section 54-03-28 provides that the Legislative Council contract with a private entity, after receiving recommendations from the Insurance Commissioner, to provide a cost-benefit analysis of each legislative measure or amendment mandating health insurance coverage of services or payment for specified providers of services.

Senate Concurrent Resolution No. 4027 directed a study of the prices for prescription drugs and possible mechanisms to lower costs to consumers and the state, and whether the state should establish a program to assist in the purchase of prescription drugs based upon income.

Section 3 of House Bill No. 1441 directed a study of the coordination of the medical assistance and the children's health insurance programs, including the development of a single application form for both programs, whether the children's health insurance program (CHIP) should be administered by the state or the counties, the effects of eliminating the asset eligibility requirement for the medical assistance program, the standardization of the definition of "income" for all programs administered by the Department of Human Services, and the feasibility and desirability of seeking a federal waiver to allow the CHIP plan to provide coverage for a family through an employer-based insurance policy if an employer-based insurance policy is more cost-effective than the traditional plan coverage for the children. North Dakota Century Code Section 50-29-02 provides that the Legislative Council is to receive a report from the Department of Human Services describing enrollment statistics and costs associated with the CHIP state plan.

Section 1 of Senate Bill No. 2330 directed a study of the coordination of benefits for children with special needs under age 21 among the Department of Public Instruction, the Department of Human Services, and private insurance companies, with the purpose of optimizing and coordinating resources and expanding services, including augmentative communication devices and therapy services.

North Dakota Century Code Section 43-12.1-08.2 provides that the Legislative Council receive an annual report from the State Board of Nursing on its study, if conducted, of the nursing educational requirements and the nursing shortage in this state and the implications for rural communities.

Section 1 of Senate Bill No. 2288 provided that the Legislative Council receive a report from the Insurance Commissioner before November 1, 2002, regarding motor vehicle insurance independent medical examinations. These responsibilities were assigned to the committee.

Committee members were Senators Judy Lee (Chairman), Dennis Bercier, Gary A. Lee, Michael Polovitz, Ken Solberg, and Russell T. Thane and Representatives Rick Berg, Audrey B. Cleary, William R. Devlin, David Drovdal, Jim Kasper, George Keiser, Carol A. Niemeier, Kenton Onstad, Chet Pollert, Todd Porter, Clara Sue Price, and Robin Weisz.

The committee submitted this report to the Legislative Council at the biennial meeting of the Council in November 2002. The Council accepted the report for submission to the 58th Legislative Assembly.

HEALTH INSURANCE COVERAGE MANDATES STUDY

The committee was assigned three responsibilities regarding mandated health insurance coverage:

Section 2 of House Bill No. 1407 directed a study of existing mandated health insurance coverage of services and the feasibility and desirability of repealing state laws mandating health insurance coverage of services.
Section 2 of House Bill No. 1407 provided that the Legislative Council receive a report from the Insurance Commissioner by July 1, 2002, of an evaluation of existing health insurance coverage mandates on the cost or effect on insurance premiums as compared to the benefits of reducing the need for future health care services due to early identification and treatment.
North Dakota Century Code Section 54-03-28 provides that the Legislative Council contract with a private entity, after receiving recommendations from the Insurance Commissioner, to provide a cost-benefit analysis of every legislative measure or amendment mandating health insurance coverage of services or payment for specified providers of services. The committee was assigned the responsibility to make a recommendation regarding this contract.

Health Insurance Mandate Definition

The committee received information on the definition of health insurance mandates. The Insurance Department categorizes and defines mandated health benefits as follows:

Service mandates - Benefit or treatment mandates that require insurers to cover certain treatments, illnesses, services, or procedures. Examples include child immunizations, well child visits, and mammography.
Beneficiary mandates - Mandates that define the categories of individuals eligible to receive benefits. Examples include newborns from birth, adopted children from the time of adoption, and handicapped dependents.
Provider mandates - Mandates that require insurers to pay for services provided by specific providers. Examples include nurse practitioners, optometrists, and psychologists.
Administrative mandates - Mandates that relate to certain insurance reform efforts that increase the administrative expenses of a specific health care plan. Examples include information disclosures, precluding companies from basing policy rates on gender, and precluding insurers from denying coverage for preauthorized services.

Analysis of Health Insurance Mandates

The Insurance Commissioner contracted with Milliman USA, Consultants and Actuaries, Minneapolis, Minnesota, for an analysis of North Dakota's existing health insurance mandates and to provide a proposed format for analysis of future legislative mandates.

The consultant's report was presented to the committee and included:

An evaluation of the costs and benefits of North Dakota's 23 specified mandates. The specific mandates for service, beneficiary, provider, and administrative areas are detailed in the schedules later in this report which detail the impact of each mandate on insurance premiums.
An evaluation of the impact that premium levels have on the uninsured in North Dakota, including the impact of mandated benefits on the number of uninsured.
An evaluation of the impact of mandated benefits on North Dakota's small employer basic and standard plans.
An analysis tool that could be used to evaluate the costs and benefits of new proposed mandates.

Impact of Health Insurance Mandates

The following schedules identify the consultant's estimated direct monthly premium impact by mandate type on representative health insurance plans in North Dakota:

Estimated Direct Premium Impact by Mandate Type
Mandate Type	Monthly Premium Impact	As a Percentage of Total Plan Cost
Service - All mandates	$8.26-$69.43	5.1%-27.2%
Service - All but NDCC Section 26.1-36-06 (drugs and chiropractic care)	$8.26-$20.57	5.1%-8.2%
Beneficiary	$6.09-$19.78	3.9%-8.1%
Provider	$0.44-$1.27	0.3%-0.7%
Administrative	$2.27-$3.73	1.4%-1.7%

Estimated Direct Premium Impact of Selected Mandates Representative Plan: Individual - Indemnity Monthly Premium for This Plan: $239.12
			Monthly Premium
Mandate Type	North Dakota Century Code Section	Mandate Title	Cost	As a Percentage of Total Plan
Service	26.1-36-06	Optional drugs and chiropractic care	N/A	N/A
	26.1-36-06.1	Off-label uses of drugs	$5.31	2.2%
	26.1-36-08	Substance abuse treatment	N/A	N/A
	26.1-39-09	Mental disorder treatment	N/A	N/A
	26.1-36-09.1	Mammogram examination	$1.13	0.5%
	26.1-36-09.2	Involuntary complications of pregnancy	$4.47	1.9%
	26.1-36-09.3	TMJ disorder	$0.52	0.2%
	26.1-36-09.4	Preventive health care (copayments for standard plan)	N/A	N/A
	26.1-36-09.6	Prostate-specific antigen test	$0.29	0.1%
	26.1-36-09.7	Foods and food products for inherited metabolic diseases	$0.04	0.0%
	26.1-36-09.8	Postdelivery care for mothers and newborns	$0.00	0.0%
	26.1-36-09.9	Dental anesthesia and hospitalization	$0.33	0.1%
	26.1-36-09.10	Prehospital emergency medical services	$0.21	0.1%
Beneficiary	26.1-36-07	Newborn and adopted children	$3.78	1.6%
	26.1-36-20	Incarcerated juvenile	$0.07	0.0%
	26.1-36-21	Incarcerated adult	$0.24	0.1%
	26.1-36-22	Covered dependents	$5.39	2.3%
	26.1-36-23	Continuation/conversion after termination of employment	N/A	N/A
	26.1-36-23.1	Continuation/conversion of former spouse/dependents	N/A	N/A
Provider	26.1-36-09.5	Advanced registered nurse practitioner	$0.93	0.4%
	26.1-36-12.2	Freedom of choice for pharmacy services	$0.00	0.0%
	43-13-31	Optometrist services	$0.30	0.1%
Administrative	26.1-36-03.1	Information disclosure	$3.24	1.4%

Estimated Direct Premium Impact of Selected Mandates Representative Plan: Individual - PPO Monthly Premium for This Plan: $157.79
			Monthly Premium
Mandate Type	North Dakota Century Code Section	Mandate Title	Cost	As a Percentage of Total Plan
Service	26.1-36-06	Optional drugs and chiropractic care	N/A	N/A
	26.1-36-06.1	Off-label uses of drugs	$3.13	2.0%
	26.1-36-08	Substance abuse treatment	N/A	N/A
	26.1-39-09	Mental disorder treatment	N/A	N/A
	26.1-36-09.1	Mammogram examination	$0.78	0.5%
	26.1-36-09.2	Involuntary complications of pregnancy	$3.21	2.0%
	26.1-36-09.3	TMJ disorder	$0.37	0.2%
	26.1-36-09.4	Preventive health care (copayments for standard plan)	N/A	N/A
	26.1-36-09.6	Prostate-specific antigen test	$0.16	0.1%
	26.1-36-09.7	Foods and food products for inherited metabolic diseases	$0.04	0.0%
	26.1-36-09.8	Postdelivery care for mothers and newborns	$0.22	0.1%
	26.1-36-09.9	Dental anesthesia and hospitalization	$0.22	0.1%
	26.1-36-09.10	Prehospital emergency medical services	$0.12	0.1%
Beneficiary	26.1-36-07	Newborn and adopted children	$2.50	1.6%
	26.1-36-20	Incarcerated juvenile	$0.05	0.0%
	26.1-36-21	Incarcerated adult	$0.16	0.1%
	26.1-36-22	Covered dependents	$3.39	2.1%
	26.1-36-23	Continuation/conversion after termination of employment	N/A	N/A
	26.1-36-23.1	Continuation/conversion of former spouse/dependents	N/A	N/A
Provider	26.1-36-09.5	Advanced registered nurse practitioner	$0.46	0.3%
	26.1-36-12.2	Freedom of choice for pharmacy services	$0.49	0.3%
	43-13-31	Optometrist services	$0.15	0.1%
Administrative	26.1-36-03.1	Information disclosure	$2.27	1.4%

Impact of Premium Levels on the Uninsured

The consultant's evaluation of the impact of premium levels on the uninsured resulted in the following findings:

The uninsured rate in North Dakota of 13 percent is lower than the national average of 16 percent.
The uninsured are less likely to seek necessary medical care.
The uninsured rate is dependent on multiple variables.
Premium increases, including those associated with the implementation of state mandates, could result in some employers and individuals dropping coverage.
Premium reductions, including those associated with the elimination of state mandates already implemented, will not necessarily result in uninsured individuals and employers purchasing coverage.

Small Employer Basic and Standard Plans

North Dakota Century Code Section 26.1-36.3-06 requires carriers of small employer business to offer all plans available to the small employer market in the state, including the lower-cost, state-defined basic and standard plans. The standard plan generally has fewer benefits than other marketed plans of insurance carriers and the basic plan has even fewer benefits.

The purpose of the basic and standard plans is to provide small employers with lower-cost plan options. Based on the consultant's evaluation, the value of a basic plan should be 72.6 percent of the value of the standard plan. Based on the consultant's review of basic and standard premiums charged by insurance companies in North Dakota, basic plan premiums range from 61 to 102 percent of standard plan premiums.

The consultant recommended the following initiatives to ensure that affordable health insurance plans are available to small employers:

Review benefit factors - The Insurance Department could enhance its monitoring of benefit factors to ensure that factors for the basic and standard plans have not been loaded to reflect adverse selection and also to ensure that the plans have not been artificially priced higher for the purpose of encouraging employers to choose other, more expensive plans.
Encourage development of alternative basic plans.
Review the possibilities of offering "consumer-driven health plans" such as a high-deductible plan that allows employers the opportunity to make catastrophic coverage available to employees at a fairly reasonable cost.
Develop scheduled plans - Scheduled plans pay fixed maximum dollar amounts for specified services and provide the opportunity to cover a specified portion of medical costs. These plans are generally more affordable since they are not intended to cover the full cost of services.

Evaluation of Future Mandates

The report included a proposed analysis tool that could be used in evaluating the costs and benefits of proposed mandated health insurance benefits. The tool is based on a point system that allows for a consistent evaluation of the proposed mandates. Once a potential health insurance mandate has been identified, evaluation of the proposal could include:

A review of research information available on the costs and benefits of the mandate.
Completion of an evaluation form based on the information reviewed and personal beliefs.
Discussion and debate based on the completed evaluation forms.

The evaluation process can be completed generally within a month or less and does not require specialized training for the evaluators. The evaluation form measures the evaluator's judgment of the impact of the mandate. The form includes the following nine criteria:

How prevalent is the underlying illness or condition?
What is the impact of treatment on health status?
What is the impact of treatment on sick days, disability, and worker productivity?
To what extent is this treatment or service already covered by health insurance?
How often will the mandated service be used?
What is the expected direct cost impact on insurance premiums?
What are the indirect costs and benefits to the insurance company?
What is the impact of this mandate on costs currently funded by North Dakota?
What is the impact of this mandate on individuals?

A percentage is applied to each of the nine criteria in relation to the other criteria as determined appropriate by the evaluator and each criteria then scored from zero to three points. Once the total weighted average is determined, the scores are compared among the evaluators and used to stimulate discussion and debate on the proposed mandate.

Health Insurance Mandates - Other States

The committee reviewed health insurance coverage mandates of other states. The committee learned that in 1965 there were only seven mandated health insurance benefits imposed by the states. By 1997 there were approximately 1,000 state-mandated benefits. Based on a survey conducted by Blue Cross Blue Shield in 1999, the number of state health insurance mandate laws totaled 1,391, of which 677 mandated certain benefits, 444 mandated the coverage of specific provider services, 241 mandated specific persons be covered, and 29 mandated coverage for a specific procedure.

The committee reviewed other states' efforts to limit or evaluate the effect of enactment of new health insurance benefit mandates. Based on surveys conducted by Blue Cross Blue Shield in 2000 and 2001, 24 states have requirements for the evaluation of proposed health insurance benefit mandates. The following schedule identifies states with mandate evaluation requirements, the year each requirement was enacted, and the party responsible for conducting or arranging for the evaluation:

State	Year Enacted	Party Responsible for Evaluation
Arizona	1985	Proponents of the legislation
Arkansas	2001	Advisory Commission on Mandated Health Insurance Benefits
Colorado	1998	State Personnel Department
Florida	1987	Proponents of the legislation
Georgia	1989	State Insurance Department
Hawaii	2001	Legislative advisory panel
Iowa	1991	State Insurance Department
Kansas	1990, 1999	State Insurance Department
Kentucky	1998	Proponents of the legislation
Louisiana	1997, 1999	Legislative fiscal staff
Maine	1998	State Insurance Department
Maryland	1998	Health Care Access and Cost Commission
Nevada	1989	Legislatively established commission
New Jersey	1999	Task Force on Affordability of Health Care
North Dakota	2001	Legislative Council (contract with consultant)
Ohio	2000	Legislative Budget Office
Oregon	1985	State Health Council
Pennsylvania	1986	Health Care Cost Containment Council
South Carolina	1990	State Budget Control Board
Tennessee	1989	Legislative Fiscal Review Committee
Texas	1999	Legislatively established commission
Virginia	1990	Advisory Commission on Mandated Benefits
Washington	1997	Proponents of the legislation
Wisconsin	1988	State Department of Employee Trust Funds

North Dakota Health Insurance Policy Information

The committee received information on the number of health insurance policies issued in North Dakota. The committee learned that as of August 31, 2001, Blue Cross Blue Shield of North Dakota had in effect 153,365 employer-sponsored group health insurance policies covering 364,233 members. The company also had 64,547 individual health insurance policies covering 79,179 members.

The committee received information on the following insurance companies that ceased doing business in North Dakota during 2001:

Conseco Medical Insurance Company, including the following subsidiary companies:
1. Pioneer Life Insurance Company of Illinois.
2. National Casualty Company.
3. Washington National Insurance Company.
Sentry Select Insurance Company.
American Republic Insurance Company.
Trust Mark Insurance Company.

Although the Insurance Department does not require an insurance company to give a reason for discontinuing business in North Dakota, the Insurance Department believes these companies may have discontinued doing business in North Dakota for the following reasons:

Rising health care and prescription costs.
A company's inability to develop a provider agreement with major health care providers.
The state's small population.

The committee learned that Blue Cross Blue Shield of North Dakota opposes health insurance mandates for several reasons, including:

Mandates increase cost to members - Approximately 20 percent of total health care services paid for by Blue Cross Blue Shield relate to mandated benefits and services.
Mandates reduce flexibility in designing and marketing policies.
Mandates make it difficult to change benefits to reflect changes in acceptable medical procedures.
Coverage options should be determined by consumer demand, not legislative mandates.

The committee learned that many of the benefits mandated by law would be included in health plans offered by Blue Cross Blue Shield of North Dakota even if the mandates were not in place because the coverage is demanded by policyholders.

House Bill No. 1226, approved by the 2001 Legislative Assembly, authorized the issuance of a basic health insurance policy for individuals and small employers. The basic health insurance policy is not subject to certain mandates. Such a policy was previously authorized by the 1991 Legislative Assembly, but the policies were not successfully marketed to the public.

The committee learned that Blue Cross Blue Shield does not intend to market a basic plan as authorized by the 2001 Legislative Assembly because consumer demand does not support the development of such a plan. At a minimum most consumers want prescription drug coverage in a health insurance plan.

The committee learned that as of August 31, 2002, Blue Cross Blue Shield of North Dakota had 29 basic health insurance contracts covering 38 subscribers and 4 standard contracts covering 13 subscribers. The committee learned even though these plans are being offered, little interest exists for these plans in the market. The committee learned the basic plan provides very basic benefits and does not provide prescription drug coverage, which is very much in demand by the public. The committee reviewed Blue Cross Blue Shield monthly premiums for select plans as follows:

Plan	Family Premium	Single Premium
Basic plan	$442.10	$170.10
Standard plan	$606.30	$233.20
Select choice 250 plan	$548.20	$210.80

Other interested persons testified before the committee regarding health insurance mandates and provided the following comments:

For many of the state's citizens, mandates for mental health coverage have been the only assurance that citizens can access proper treatment and return to an independent life.
Employers across the state are struggling to maintain health insurance benefits for employees due to the rising cost of health insurance premiums.
Regarding national studies on the effectiveness of alternative treatments for mental illness, the use of these alternative treatments is increasing, and the Mental Health Association in North Dakota is concerned about the lack of research supporting such alternative treatments for mental illnesses. Persons who utilize over-the-counter treatments for mental illness are missing an important step in the treatment process--assessment and diagnosis by a physician or mental health professional.
The Mental Health Association believes mental health mandates are cost-effective.

Future Legislation Mandating Health Insurance Coverage
Statutory Requirements

North Dakota Century Code Section 54-03-28, enacted by the 2001 Legislative Assembly, provides that a legislative measure mandating health insurance coverage may not be acted on by any committee of the Legislative Assembly unless accompanied by a cost-benefit analysis. The cost-benefit analysis is to be prepared by a private entity under contract with the Legislative Council, and the Insurance Commissioner is to pay for the cost of the contracted services.

The cost-benefit analysis must include:

The extent to which the proposed mandate would increase or decrease the cost of services.
The extent to which the proposed mandate would increase the use of services.
The extent to which the proposed mandate would increase or decrease the administrative expenses of insurers and the premiums paid by insureds.
The impact of the proposed mandate on the total cost of health care.

Section 54-03-28 provides that a majority of the members of the committee to which the legislative measure is referred, acting through the chairman, has the authority to determine whether a legislative measure mandates coverage of services. The section also provides that any amendment to a legislative measure that mandates health insurance coverage may not be acted on by a committee of the Legislative Assembly unless the amendment is also accompanied by a cost-benefit analysis.

Issues Considered

The committee considered issues associated with the process of requesting, completing, and paying for the cost-benefit analyses of legislative measures mandating health insurance coverage during the 2003 legislative session. Issues discussed included:

The timeframe required for completion of the review and analysis process, including:
1. The length of time between when a measure is introduced or an amendment adopted and when a cost-benefit analysis is completed may result in a delay in acting on the measure or amendment.
2. If many bills are simultaneously referred to the contracted consultant for analysis, the length of time required for the consultant to complete each analysis may be extended.
The cost of preparing a cost-benefit analysis for each proposed legislative measure mandating health insurance coverage, including:
1. The Insurance Department recommended the committee contract with Milliman USA to conduct the cost-benefit analysis of legislative measures mandating health insurance coverage being considered by the 2003 Legislative Assembly. A preliminary estimate by Milliman USA indicated the cost for the initial analyses completed to be between $5,000 to $15,000 per analysis and a cost of $4,000 to $8,000 for each subsequent analysis. Based on Insurance Department review of the most recent five legislative sessions, the committee learned that from 3 to 10 bills with a health insurance mandate have been introduced in each session. House Bill No. 1407 (2001) appropriates $55,000 from the insurance regulatory trust fund to the Insurance Department for the cost of the contracted cost-benefit analysis services required during the 2003 Legislative Assembly. North Dakota Century Code Section 54-03-28 provides that the Insurance Department will pay for the cost-benefit analysis services but does not limit the department's liability for the cost. Consequently, if the total cost of the analyses required by Section 54-03-28 exceeds the appropriation provided to the Insurance Department, the department may need funding in excess of the $55,000 appropriated.
2. Although NDCC Section 54-03-28 allows the committee to determine if a measure is a mandate, the section also provides that any measure determined to include a health insurance mandate is required to include a cost-benefit analysis. The committee's discretion relates to determining if a measure includes a health insurance mandate. Once a measure is determined to include a health insurance mandate, a cost-benefit analysis must be completed.

Options

The committee considered options to address these issues and to facilitate the health insurance mandate review. Options considered include:

Legislative rules - Legislative rules changes were considered which would have precluded bills mandating health insurance coverage from being introduced after the fifth legislative day and required the Legislative Council or the Insurance Department to review bills introduced, and if necessary, request an analysis before referral to a committee. The committee referred the proposed rules changes to the Legislative Management Committee. The Legislative Management Committee has not approved the rules changes.
Statutory changes - The committee considered the bill drafts that would have provided:
1. Any health insurance coverage mandate approved by the Legislative Assembly apply only to the state public employees group health insurance program for a period of two years. After the first year, the Public Employees Retirement System (PERS) would prepare a report on the mandate's actual costs and benefits for consideration by the Legislative Council in determining if the mandate should be amended or repealed before becoming effective for other health insurance programs.
2. Any health insurance coverage mandate approved by the Legislative Assembly would not be implemented until studied by the Legislative Council.
3. Any health insurance coverage mandate approved by the Legislative Assembly must include an expiration date.
Cost-limiting provisions - In order to limit the costs incurred by the Insurance Department for analyses of legislative measures mandating health insurance coverage, the committee considered the possibility of including cost-limiting provisions in any contract between the Legislative Council and an actuarial consultant. Such provisions could provide for the preparation of a limited analysis when determined appropriate by the committee.

Testimony on Cost-Benefit Analysis Issues

Representatives of PERS expressed the following concerns regarding the bill draft involving the PERS health plan in a health insurance mandate pilot project:

In the past, mandates have been incorporated into the PERS health plan the second biennium after being passed by the Legislative Assembly, which has allowed funding for the enhanced benefits to accrue with the renewal of the plan and become part of the premium budgeted for the subsequent biennium. The proposed bill draft would require the mandate to be effective during the first biennium after the mandate is passed which will require that funding be provided for that biennium.
Currently proposed enhancements to the PERS retirement plan to be considered during the next session must be presented to the Legislative Council's Employee Benefits Programs Committee for technical and actuarial review. The same protocol may be beneficial for health insurance mandates.
The bill draft requires PERS to report to the Legislative Council on the effect of the mandate after the first year of implementation. It may be difficult to develop meaningful information and determine clear conclusions with only one year of data. In addition complete first-year data may not be available until the October prior to a legislative session, which would make it difficult for PERS to report to the Legislative Council before it concludes its interim work.
Administrative costs of reviewing and evaluating the mandate would have a financial impact on the PERS health plan.
Evaluating the costs and benefits of a health insurance benefit is difficult since quantitative information upon which to base the analysis is generally not available.

The Insurance Department testified the current statute will provide useful information and should remain unchanged for at least one legislative session.

Recommendations

The committee recommends Senate Bill No. 2029 to provide that any health insurance coverage mandate approved by the Legislative Assembly apply only to the state public employees group health insurance program for a period of two years during which time PERS is to evaluate the mandate's actual costs and benefits and prepare a report for consideration by the next Legislative Assembly in determining if the mandate should be allowed to expire or expanded to all insurers.

The committee recommends that, pursuant to NDCC Section 54-03-28, the Legislative Council contact with Milliman USA, for cost-benefit analyses of legislative measures mandating health insurance coverage during the 2003 Legislative Assembly.

PRESCRIPTION DRUG PRICES STUDY

Senate Concurrent Resolution No. 4027 directed a study of the prices of prescription drugs and possible mechanisms to lower costs to consumers and the state, and whether the state should establish a program to assist in the purchase of prescription drugs based upon income.

Prescription Drug Expenditures, Prices, and Utilization
Expenditures

Although comprising only a small percentage of total consumer spending (about 1 percent nationally, based on 1998 data), the committee learned the amount spent on prescription drugs has increased significantly in recent years, causing concern about the resulting impact on health care costs and the affordability of medications. From 1990 to 1998 the annual increase in prescription drug expenditures ranged from 8.6 to 15.4 percent. Spending on outpatient prescription drugs rose 18.8 percent from 1999 to 2000.

Prescription drug costs are still a relatively small percentage of total health care costs when compared to hospital care or physician services, but the percentage is increasing. From 1990 to 1998 hospital care and physician services decreased as a percentage of total health care costs from 41.7 to 37.6 percent and from 23.8 to 22.5 percent, respectively. During that same time period prescription drugs increased from 6.1 to 8.9 percent of total health care expenditures.

Prices

Drug expenditures are affected by changes in either prices paid for individual prescription drugs or prescription drug utilization. The committee learned that from 1991 to 1998 the average price per prescription increased from $23.68 to $37.38, an average annual increase of 6.7 percent compared to 2.6 percent for the consumer price index for all items and 4.6 percent for the consumer price index for medical care. A significant factor contributing to the increase in the average price per prescription is the purchase of new, more expensive drugs that are more effective than previous drugs or which provide treatment for diseases for which pharmaceutical treatments were not previously available. In 1998 the average price per prescription for new drugs (those introduced after 1992) was $71.49, more than twice the average price of $30.47 for older drugs (those introduced prior to 1992).

Consumer demand for new drugs results in part from advertising directed at consumers. The 10 most heavily advertised drugs in 1998 accounted for 22 percent of the total increase in drug spending from 1993 to 1998. Name brand drugs are more expensive than generic drugs, which are offered for sale by competing pharmaceutical firms after patent protection has expired on the name brand drug. In 1998 the average retail price of name brand drugs was $54.78 compared to $15.98 for generic drugs. A factor contributing to the high price of newly introduced drugs is the extensive period of research and development required to obtain Food and Drug Administration approval. Estimates of drug development time are as long as 15 years. United States pharmaceutical companies spent approximately $21.1 billion on research and development in 1998, more than twice the amount spent in 1990, and 10 times the amount spent in 1980.

The committee reviewed prices for certain brand name drugs in the United States, Canada, and Mexico. The following table presents, for 10 of the top 25 drugs prescribed in North Dakota, the average price in the United States, Canada, and Mexico.

Prescription Brand Name	Average Price in United States	Average Price in Canada	Average Price in Mexico
Celebrex	$77.15	$33.75	$36.00
Glucophage	$64.15	$14.00	$30.00
Lipitor	$229.93	$164.00	$108.00
Premarin	$35.17	$12.00	$17.00
Prilosec	$360.50	$170.36	$169.00
Prozac	$105.64	$43.00	$50.00
Singulair	$64.42	$52.00	$30.00
Wellbutrin	$81.98	$45.00	$39.00
Zocor	$101.82	$60.00	$48.00
Zoloft	$62.00	$31.00	$29.00

Utilization

Utilization also affects drug expenditures. As discussed, consumer advertising, the availability of new drugs, demographic changes, and other factors all contribute to increasing utilization of prescription drugs. From 1992 to 1998 the number of prescriptions purchased in the United States increased approximately 40 percent, from 1.9 billion to 2.6 billion, while the United States population increased only approximately 6 percent.

Insurance Coverage for Prescription Drugs

The Medicaid program is the largest source of public coverage for prescription drugs and is the primary source of payment for prescription drugs for low-income and disabled persons. In 1996 Medicaid provided prescription drug benefits to 11 percent of Americans. Medicare, the federal health insurance program for the elderly, does not provide coverage for most outpatient prescription drugs.

The committee learned the source of payment for prescription drugs has shifted over time from primarily out-of-pocket payments by the purchaser to primarily private insurance companies, as shown in the following schedule:

Year	Private Insurance	Out-of-Pocket Payments	Medicaid	All Other Sources
1965	3.5%	92.6%	0.0%	3.9%
1970	8.8%	82.4%	7.6%	1.2%
1975	12.2%	75.4%	10.8%	1.6%
1980	20.1%	66.0%	11.7%	2.2%
1985	29.9%	55.4%	11.8%	2.9%
1990	34.4%	48.3%	13.5%	3.8%
1995	46.8%	33.9%	15.8%	3.4%
1996	48.8%	31.6%	16.1%	3.5%
1997	50.8%	29.1%	16.5%	3.6%
1998	52.7%	26.6%	17.1%	3.6%

Medicaid Drug Expenditures in North Dakota

The committee learned that expenditures for Medicaid prescription drugs in North Dakota have increased significantly and are anticipated to continue to increase. Estimated expenditures for the 2001-03 biennium are 80 percent more than actual expenditures during the 1997-99 biennium, as shown in the following table:

Biennium	General Fund	Federal Funds	Other Funds	Total
1997-99	$13,769,111	$32,989,263	$385,554	$47,143,928
1999-2001	$19,469,799	$45,878,635		$65,348,434
2001-03 (estimated expenditures)	$20,853,533	$58,778,695	$5,297,948	$84,930,176

Compared to 1997 the committee learned the 2002 weekly cost for prescription drugs in the Medicaid program has increased by 149 percent. Part of this increase is due to the percentage of generic drug usage in the Medicaid program decreasing from approximately 50 percent in 1997 to 45 percent in 2002.

The committee reviewed potential general fund Medicaid drug costs based on general fund Medicaid drug cost increases from 1991 to 1999 and demographic projections. The following schedule indicates the potential increases in general fund Medicaid drug costs if actual general fund costs continue to increase at the average rate of 36.65 percent per biennium from the 1991 to 1999 time period.

Biennium	Possible General Fund Medicaid Drug Costs
2003-05	$36,356,389
2005-07	$49,681,005
2007-09	$67,889,094
2009-11	$92,770,447
2011-13	$126,770,816
2013-15	$173,232,320

Drug Utilization Review Board

The committee learned that the state is required by federal law to maintain a Drug Utilization Review Board. The Drug Utilization Review Board consists of four physicians, four pharmacists, and three Department of Human Services employees. The board meets quarterly to provide recommendations to the Department of Human Services regarding Medicaid pharmacy services.

The committee learned the board's recent discussions have focused on Medicaid drug cost containment measures. The board has advised the department to screen Medicaid drug claims to ensure that medications are being used within medical guidelines. The Drug Utilization Review Board also identified a test class of medications to be used for physician education activities in an attempt to direct usage to the most cost-effective medications.

The committee learned the Drug Utilization Review Board supports the following actions that could be implemented to help slow the rate of increase of Medicaid drug expenditures:

Establish a state maximum allowable cost-pricing formula for certain drugs with generic equivalents.
Establish a preferred drug list.
Establish a prior authorization process and require copayments for brand name drugs for certain Medicaid enrollees.
Require prior authorization for use of out-of-state pharmacies.
Expand educational activities.

Cost Containment Strategies - Other States and Provinces

The committee reviewed the following information regarding prescription drug initiatives in other states:

A number of states have implemented or are in the process of implementing strategies to control prescription drugs costs primarily for the state Medicaid program but also for other health insurance programs. States are also developing initiatives to improve consumer access to lower- cost prescription drugs.
Strategies to lower prescription drug costs in Florida, Maine, Michigan, and Vermont include the development of preferred drug lists and negotiating supplemental rebates from prescription drug manufacturers.
Thirty-four states have implemented or are in the process of implementing initiatives to improve consumer access to lower-cost prescription drugs. Maine and Vermont offer programs to the elderly and disabled with incomes up to 400 percent of poverty and to others with incomes up to 300 percent of poverty who do not have prescription drug coverage or have inadequate prescription drug coverage.
A national legislative organization has been formed to assist states in addressing issues involving prescription drug costs. The effort began as a collaborative effort among the New England states but has recently expanded to be available to all states. The purpose is to share information among the states on strategies that are effective in controlling prescription drug prices and to enhance the development of state partnerships for purchasing prescription drugs.

The committee received information on pharmaceutical benefit management in British Columbia, Canada, from a representative of the Fraser Health Authority, who identified strategies that have been used to ensure cost-effective utilization of public funds. The committee learned British Columbia successfully implemented cost-control measures in 1994 to curb the growth in pharmaceutical expenditures. Cost-containment suggestions of the Canadian representative include:

A new drug review process that utilizes independent evidence-based analysis to guide decisions on the costs and effectiveness of new drugs.
A low-cost alternative drug program that limits coverage to the cost of the lowest-cost alternative drug with the same therapeutic benefits.
A limited drug use program that provides for appropriate drug use by approving a particular drug for first-line treatment of a disease. If a patient's condition is not successfully treated with a first-line agent, second-, third-, or fourth-line agents may be used.
A reference drug program that provides for a class of drugs to be used to treat a particular condition.

Pharmaceutical Assistance Programs - Other States

The committee reviewed other states pharmaceutical assistance programs, grouped into the following categories:

Price reduction programs that involve the state setting a limit on the prices charged for prescription drugs purchased by the state or by a segment of the population.
Purchasing cooperatives that involve an interstate consortium of several states or an intrastate cooperative of state agencies or programs that consolidate pharmaceutical purchasing functions in order to obtain discounted prices and achieve administrative efficiencies.
Purchasing assistance programs that provide direct financial assistance to consumers for the purchase of prescription drugs.
Insurance programs that involve either a state-established program to provide insurance benefits for the purchase of prescription drugs or premium assistance to subsidize the cost of private prescription drug coverage.
Section 1115 waiver programs that require approval by the Centers for Medicare and Medicaid Services to allow a state to expand Medicaid services or eligibility levels and receive federal matching funds.
Tax credit programs that have the effect of reducing prescription drug costs through a state income tax credit for residents with high prescription drug costs.

Physician Prescribing Practices

The committee reviewed standards that dictate the prescribing practices of physicians and an American Medical Association report on increases in spending on prescription drugs in the United States. The committee received information from the North Dakota Medical Association and learned a physician focuses on the optimum treatment plan for each patient and is not always aware of the insurance status of the patient or the cost of pharmaceuticals used in the treatment. A physician prescribes a drug that based on the physician's judgment and clinical experience will most efficiently treat the patient's ailment. Physicians are guided by various ethical standards in the prescribing of medications. Ethical standards prohibit physicians from accepting gifts from the pharmaceutical industry in exchange for prescribing selected medications. Other ethical standards deal with direct-to-consumer advertisements of prescription drugs. Ethical standards dictate that physicians should deny patient requests for inappropriate prescriptions, and educate patients as to why certain advertised drugs may not be suitable treatment options.

Pharmaceutical Research and Manufacturers

The committee heard testimony from representatives of the Pharmaceutical Research and Manufacturers of America regarding the committee's study of prescription drugs, including the following comments:

Efforts to reduce pharmaceutical costs may negatively impact other areas of health care.
Legislators should consider the impact on patient access and choice when considering prescription drug management plans.
Even though newer medications cost more per prescription, they may lower overall health care costs due to fewer side effects, better patient compliance, and increased effectiveness.
Pharmaceutical manufacturers spend nearly 20 percent of revenue for research and development.
Drug manufacturers spend millions of dollars in research and development in clinical trials before a drug can be brought to market. Once brought to market, a drug's profitability is limited due to a short patent life and competition from other drugs.
Direct-to-consumer advertising leads to more educated consumers, allowing patients to make more informed decisions.
Quality of life issues need to be considered when examining drug cost control measures that may limit the availability of the most appropriate drug for a particular patient.
Reference-based pricing programs should be opposed because they involve grouping all similar drugs into one class even though all drugs in a particular class are not the same.

Blue Cross Blue Shield Information

The committee received testimony from representatives of Blue Cross Blue Shield of North Dakota, including the following observations:

Several factors contribute to increased health insurance premiums, including increasing utilization of services, increasing service costs, and increasing prescription drug costs. Monthly payments for prescription drugs increased from $10.88 per member in 1997 to $18.76 per member in 2001.
Blue Cross Blue Shield does not offer a limited coverage health plan because the company already offers a basic plan, and there has been very little consumer interest in limited coverage plans.
Member monthly drug costs for 2001 were 13 percent higher than in 2000 and 23 percent higher than in 1999.
The 30 major diagnostic categories paid for by Blue Cross Blue Shield of North Dakota for 2000 resulted in total charges of $156,628,448, relating to 19,548 cases for an average charge of $8,013 per case.

Other Information and Testimony

The committee reviewed the average Medicaid expenditures for the 20 most common diagnostic-related groups in North Dakota, Minnesota, South Dakota, and Montana and the average Medicaid expenditures for the 10 most common diagnostic-related groups in the four states.

The committee reviewed North Dakota demographic information and learned that for the period 1991 to 2015 the North Dakota population is anticipated to increase by 2.45 percent; however, older age groups are anticipated to increase at a much higher rate.

Recommendations

The committee made no recommendations as a result of its study of prescription drug prices.

COORDINATION OF HEALTHY STEPS AND MEDICAID PROGRAMS STUDY

Section 3 of House Bill No. 1441 directed a study of the coordination of the medical assistance and children's health insurance programs, including the Department of Human Services development of a single application form for both programs, whether the children's health insurance program should be administered by the state or the counties, the effects of eliminating the asset eligibility requirement for the medical assistance program, the standardization of the definition of "income" for all programs administered by the Department of Human Services, and the feasibility and desirability of seeking a federal waiver to allow the children's health insurance program to provide coverage for a family through an employer-based insurance policy if an employer-based insurance policy is more cost-effective than the traditional plan coverage for the children.

North Dakota Century Code Section 50-29-02 provides that the Legislative Council is to receive an annual report from the Department of Human Services on the children's health insurance program state plan, including enrollment statistics and costs.

Healthy Steps Program

North Dakota's children's health insurance program, named Healthy Steps, was authorized by the 1999 Legislative Assembly to provide health insurance coverage to low-income children not eligible for Medicaid. The income eligibility limit for Healthy Steps is set at family net income at or below 140 percent of the federal poverty level. The children's income eligibility limit for Medicaid is 100 percent of the federal poverty level.

The Department of Human Services contracted with Blue Cross Blue Shield of North Dakota to provide the health insurance coverage for the Healthy Steps program. The first contract covered the period October 1, 1999, through June 30, 2001. Insurance coverage is based on the state employee group health insurance plan, with added coverage for dental and vision services. For the 1999-2001 biennium the premium rate for most policies was $108.60 per member per month with copayments of $2 for each prescription, $50 for each hospital admission, and $5 for each emergency hospital visit. Copayment requirements are waived for American Indian children, and the premium paid by the state for those policies is $109.56.

The contract for the period July 1, 2001, through June 30, 2003, has a premium rate of $126.40 per month, while the premium for policies without copayments is $127.50 per month.

The federal matching assistance percentage (FMAP) for the Healthy Steps program and federal funds allocated to North Dakota for the program are:

Federal Fiscal Year	Healthy Steps FMAP	Federal Allocation for Health Steps
1998	79.30%	$5,040,741
1999	78.96%	$5,016,935
2000	79.29%	$5,655,883
2001	78.99%	$6,575,656
2002	78.91%	$5,332,879

The committee received the 2001 annual report regarding enrollment statistics and costs for the Healthy Steps program. The committee learned for federal fiscal year 2001 a total of 3,197 children were enrolled in Healthy Steps. The number of children enrolled in Healthy Steps as of October 1, 2001, was 2,560, which is 65 percent of the estimated number of eligible children based on the 1998 Robert Wood Johnson Foundation survey of uninsured children. For federal fiscal year 2001 the department spent a total of $3,173,901 for premium payments to Blue Cross Blue Shield of North Dakota for the program.

The Department of Human Services filed the 2002 annual report with the Legislative Council on October 28, 2002. For federal fiscal year 2002 a total of 3,571 children were in Healthy Steps at some time during the year. The number of children enrolled on October 1, 2002, was 2,282, which is 63 percent of the estimated number of eligible children based on the 1998 Robert Wood Johnson Foundation survey. For federal fiscal year 2002 the department spent a total of $3,774,425 for premium payments to Blue Cross Blue Shield of North Dakota for the program.

Single Application Form

The committee reviewed the development of a single application form for the Healthy Steps and medical assistance (Medicaid) programs. House Bill No. 1441 directed the Department of Human Services to provide medical benefits to children and families coverage groups and to pregnant women without consideration of assets if the federal agency approves amendments to the state CHIP plan.

Previously, eligibility for the Healthy Steps program did not include an asset test while eligibility for Medicaid did. If a family applies for Medicaid and is ineligible, the family would need to complete a separate application for Healthy Steps. If a family completes a Healthy Steps application and it appears the children are Medicaid-eligible, the family must complete a separate Medicaid application.

Based on a January 2001 report by the National Conference of State Legislatures, 38 states provide CHIP coverage to children at or above 200 percent of the federal poverty level. Of those 38 states, 35 states use a joint application form for Medicaid and CHIP, and 36 have eliminated the asset test for those programs.

The committee learned that all necessary amendments to the Healthy Steps program and the Medicaid program were approved by the Centers for Medicare and Medicaid Services (CMS) and that the department began using a combined application form on May 1, 2002. The new form is shorter and does not require individuals who are determined ineligible for one of the programs to complete a separate application form for consideration under the other program as was necessary previously.

County Administration of Healthy Steps

The committee considered whether the Healthy Steps program should be administered by the state or by the counties. The Department of Human Services determines eligibility for the Healthy Steps program while counties determine eligibility for Medicaid.

The committee learned the Department of Human Services administers the Healthy Steps program for two primary reasons:

Limit administrative costs - Pursuant to federal regulations, administrative costs for the Healthy Steps program may not exceed 10 percent of program costs. During the 1999 Legislative Assembly counties did not provide specific information regarding county costs for determining eligibility. Because the cost of county eligibility determination was not known, the department was concerned that adequate administrative funding would not be available for outreach activity necessary to launch the new program.
Client anonymity - The department wanted to determine if a separate state-operated eligibility determination process would meet the needs of working families and maintain client anonymity by allowing families to contact an insurer rather than a welfare agency.

The committee learned the Department of Human Services implemented the program without any additional staff and has operated the program for almost two and one-half years. The cost of determining program eligibility is approximately $89,000 for the 2001-03 biennium. The department believes its administration of the Healthy Steps program has worked well but the lack of staff has delayed the department's review of client renewals.

The committee reviewed other states' methods of administering children's health insurance programs. The committee learned that in all states, some administrative functions for the program are performed at the state agency level. Administrative functions include distributing applications, determining eligibility, calculating bills and cost-sharing, and gathering and analyzing data. In addition to the administrative functions performed at the state agency level, one state uses local social service agencies to determine eligibility, and eight states use a third party such as a nonprofit entity to perform eligibility or other administrative functions.

The committee received information from the North Dakota County Social Service Directors Association regarding county administration of the Healthy Steps program. The committee learned the association believes because most county social service agencies already deal with many low-income families, it is logical and appropriate for the Healthy Steps program to be administered at the county level. By incorporating the Healthy Steps program into the range of other low-income benefit programs administered at the county level, children are more likely to be enrolled in a health care program. Counties may be willing to contribute to the required local administrative funding match if allowed to access the federal administrative reimbursement for the Healthy Steps program. The association believes if the Legislative Assembly decides counties should administer the Healthy Steps program, a 12-month transition plan should be provided. Counties could be reimbursed either through a flat rate or reimbursed based on the random moment time study, which allocates staff time to various programs.

The association believes some small rural counties with few clients may have adequate staff to assume administration of the Healthy Steps program; however, larger counties with more clients may need to add staff to administer the Healthy Steps program. The association did not develop a specific cost estimate for county administration of the Healthy Steps program.

Effects of Eliminating Asset Test for Medicaid

The committee reviewed the effects of eliminating the asset test for determining Medicaid eligibility. House Bill No. 1441 directed the Department of Human Services to provide Medicaid benefits to children and families coverage groups and to pregnant women without consideration of assets if federal approval is obtained.

The committee learned the department submitted two separate state plan amendments relating to the elimination of the asset test for Medicaid eligibility and for the development of a combined application form for Medicaid and Healthy Steps. Both amendments were approved. The state CHIP amendment allowed the state to continue to claim the enhanced CHIP matching rate for qualifying children who are transferred from the Healthy Steps program to the Medicaid program. The state Medicaid plan amendment eliminated the asset test for children and family eligibility groups. Both plan amendments were effective January 1, 2002.

The committee learned the department originally estimated that approximately 960 children would transfer from Healthy Steps to Medicaid during calendar year 2002 as a result of eliminating the asset test, and that another 700 adults and children would become eligible for Medicaid as a result of eliminating the asset test.

The committee learned that as of the end of August 2002, 699 children and 381 adults had became eligible for Medicaid due to the elimination of the asset test for children and families aid categories. Of the 699 children, 145 currently have some other health insurance coverage, and 554 children would have been eligible for the Healthy Steps program if the asset test had not been eliminated. Contrary to projections, the department has not experienced a decline in Healthy Steps enrollment.

Standardization of Income Definition

The committee reviewed the standardization of the definition of income for programs administered by the Department of Human Services.

Healthy Steps

Income eligibility for the Healthy Steps program is based on net income at or below 140 percent of the federal poverty level. Net income is determined by subtracting child care costs and payroll taxes from gross income. Net income limits in effect as of March 31, 2002, are shown in the following schedule:

Number of People in Family	Maximum Allowable Monthly Net Income
1	$1,003
2	$1,355
3	$1,707
4	$2,060
5	$2,412
6	$2,764
7	$3,117
8	$3,469
9	$3,821
10	$4,174

Medicaid

Establishing eligibility for Medicaid is a more complicated process.

Nursing homes - The determination of income for an individual who requires nursing care services and who is residing in a nursing facility is calculated by excluding various types of income, including occasional small gifts, Veterans Administration pensions, and certain federal compensation; deducting various items, including mandatory payroll deductions for Social Security and Medicare, nursing care income level ($50 per month), amounts provided to a family member for maintenance needs, medical expenses, Medicare and health insurance premiums, long-term care insurance premiums, a portion of payments made for services of a guardian or conservator; and adding payments from any source received as a result of medical expenses or increased medical need.

Other services - Income eligibility for an individual residing in an individual's own home or in a specialized facility is calculated by excluding various types of income, including payments made by the department or a county under another assistance program, child support of $50 per month, income earned by a child who is a full-time student, occasional small gifts, income received as a result of participation in the Job Corps program, loan proceeds, income tax refunds, training allowances of up to $30 per week, and certain federal compensation; deducting health insurance premiums, medical expenses, food and veterinary expenses for a dog trained to detect seizures, long-term care insurance premiums, a portion of remedial care costs for an individual residing in a specialized facility, certain transportation expenses, court-ordered child and spousal support payments, certain child or adult dependent care expenses, any income of $20 per month, a portion of payments made for guardian or conservator services, and a work or training allowance of $30 per month; and also deducting from earned income for all individuals except aged, blind, or disabled applicants, mandatory payroll deductions and union dues, or $90, whichever is greater, and mandatory retirement plan deductions, and from earned income for aged, blind, or disabled applicants, $65 plus one-half of the remaining monthly gross earned income.

Once the level of income is established, eligibility must be determined. Income eligibility levels are different for each type of recipient--the categorically needy, the medically needy, and poverty income individuals.

The categorically needy consists of two categories of individuals:

Those who were eligible for aid to families with dependent children (AFDC) (before the AFDC program was replaced by the temporary assistance for needy families (TANF) program), for whom eligibility for Medicaid is a result of meeting AFDC eligibility requirements.
The aged, blind, and disabled recipients for whom eligibility for Medicaid is based on the income level that establishes supplemental security income.

Medically needy individuals receiving nursing care are subject to an income limit of $50 per month, after the adjustments indicated above. Medically needy individuals residing in their own homes are subject to the following income limits:

Number of People in Family	Maximum Allowable Monthly Income
1	$369
2	$428
3	$465
4	$556
5	$625
6	$684
7	$721
8	$760
9	$783
10	$810

Poverty income level eligibility is based on the following categories of eligibility:

Eligibility Category	Maximum Income as a Percent of Federal Poverty Level
Pregnant women and children under age 6	133%
Qualified Medicare beneficiaries	100%
Children aged 6 to 18	100%
Extended Medicaid benefits	185%
Qualified disabled and working individuals	200%
Special low-income Medicare beneficiaries	110%

Other Programs

Other programs considered include child care assistance, low-income heating assistance, and the TANF program. The committee learned federal regulations affect the definition of income in these programs making it difficult to standardize income without waivers from program requirements. The committee also reviewed other states' Medicaid and CHIP income eligibility guidelines.

Healthy Steps Eligibility Changes

The committee received information on Department of Human Services cost estimates of increasing the eligibility limits for the Healthy Steps program to various levels up to 200 percent of the federal poverty level based on net income:

Net Income Eligibility Level as a Percentage of the Federal Poverty Level	Estimated 2003-05 General Fund Cost	Estimated 2003-05 Federal Funds Cost	Estimated 2003-05 Total Cost
150%	$135,000	$471,000	$606,000
175%	$536,000	$1,864,000	$2,400,000
200%	$1,100,000	$3,900,000	$5,000,000

The committee also received information on the Department of Human Services cost estimates for increasing the income eligibility limit for the Healthy Steps program to various levels up to 200 percent of the federal poverty level based on gross rather than net income:

Gross Income Eligibility Level as a Percentage of the Federal Poverty Level	Estimated 2003-05 General Fund Cost	Estimated 2003-05 Federal Funds Cost	Estimated 2003-05 Total Cost
165%	$19,246	$67,643	$86,889
175%	$178,596	$627,707	$806,303
185%	$320,723	$1,127,236	$1,447,959
200%	$679,253	$2,387,351	$3,066,604

Expansion of Healthy Steps to Include Subsidies for Adding Family Coverage to Employer-Based Health Insurance Plans

The committee studied the feasibility and desirability of expanding the Healthy Steps program to provide family coverage through employer-based health insurance plans. The committee reviewed federal guidelines under which states may use CHIP funds to provide health insurance coverage through employer-sponsored group health plans. States that use CHIP funds to subsidize employer-sponsored group health plans are required to:

Impose a 6- to 12-month waiting period. Newborns are not subject to the waiting period.
Require employers to contribute at least 60 percent of the cost of the family coverage premium.
Limit the state's payment to the same amount that would have been paid through the state's CHIP plan.
Require families to apply for the full premium contribution available from the employer.
Evaluate the program.

The committee reviewed other states' actions involving premium assistance programs. The committee learned that several states, including Massachusetts, New Jersey, Rhode Island, and Wisconsin, have used Section 1115 demonstration Medicaid waivers to provide adult and family coverage through a premium assistance program for employer-sponsored insurance.

The committee reviewed North Dakota unemployment rates. The committee learned the unemployment rate in North Dakota is projected to change from 2.5 percent in 2001 to 3.3 percent in 2002, 3.1 percent in 2003, 3 percent in 2004, and 3 percent in 2005. Preliminary data included in a Job Service North Dakota employer survey indicated that 86.3 percent of employers responding offer health insurance coverage to employees. The committee learned that based on a 2001 survey, 73.5 percent of full-time employees and 22.1 percent of part-time employees had health plan coverage through their employers.

The committee learned in order to expand the Healthy Steps program by adding family health coverage through employer-sponsored insurance, the department would need to make a benchmark equivalency test. Such a test requires that benefits provided by an employer-sponsored plan meet or exceed a benchmark plan. A cost-effectiveness test must also be met to ensure that the subsidy paid to employers is not greater than what the state would have paid to enroll the children in the Healthy Steps program. Several states have implemented this type of program, but due to the complicated nature of the administrative requirements have experienced only minimal success.

The committee received information from the Department of Human Services suggesting that pursuing a Section 1115 Medicaid demonstration waiver rather than expanding the Healthy Steps program may be advisable to reduce administrative costs if the Legislative Assembly is interested in providing family health insurance coverage through employer-sponsored insurance.

Other Information and Testimony

The committee received information regarding a $908,000 federal community access program grant received by the Northland Health Care Alliance to support the coordination of services for underinsured and uninsured North Dakotans.

The committee learned the Department of Human Services believes children are not denied medical care because of a lack of insurance or ability to pay. If a child arrives at an emergency room, the child will receive care even if the health care provider will likely not receive compensation.

The committee received information on uncompensated care provided by North Dakota health care providers. Physicians commonly forgive or waive copayments to facilitate patient access to needed medical care; however, insurer policy restrictions may limit the physician's ability to make such accommodations. Hospital admissions have remained fairly constant from 1996 to 2000, while emergency room and outpatient visits have increased by approximately 10 percent. Hospital total gross revenue has increased approximately 42 percent from 1996 to 2000, while allowances, bad debts, and charity care have increased 112 percent.

The committee reviewed health insurance programs for children. The committee learned that North Dakota children not covered by private health insurance may be eligible for medical coverage through the following programs:

Medicaid - Provides coverage for various groups, including children through age 18 with net family income up to 100 percent of the federal poverty level. As of November 2001, 20,829 children were enrolled in the Medicaid program.
Healthy Steps - Provides coverage for children through age 18 who have net family income up to 140 percent of the federal poverty level. As of November 2001, 2,615 North Dakota children were enrolled in the Healthy Steps program.
Caring Program - Provides primary and preventive health care for uninsured children through age 18 with gross family income from 141 to 200 percent of the federal poverty level. As of November 2001, 539 children were enrolled in the Caring Program.

The committee received information from an American Academy of Pediatrics report indicating for 2000, an estimated 20 percent of uninsured children nationwide are eligible for the state CHIP and 52 percent are eligible for state Medicaid programs. The report estimates that in North Dakota, 14 percent of uninsured children are eligible for CHIP, and 59 percent are eligible for Medicaid.

The committee reviewed methods used in several midwestern states to estimate the number of uninsured children. The committee learned most states do not have a state-specific survey such as the 1998 Robert Wood Johnson Foundation family survey conducted in North Dakota to provide information on the number of uninsured children. Consequently most states use data from the Census Bureau's current population survey. The current population survey data indicates that nationally 37.1 percent of children under age 19 have family incomes at or below 200 percent of the federal poverty level and 7.3 percent of children under age 19 have no health insurance. The current population survey indicates that in North Dakota, 37.6 percent of children under age 19 have family incomes at or below 200 percent of the federal poverty level and 8.4 percent of children under age 19 do not have health insurance.

Conclusion

The committee makes no recommendation as a result of its study of the coordination of the Healthy Steps and Medicaid programs.

COORDINATION OF BENEFITS FOR CHILDREN WITH SPECIAL NEEDS STUDY

Section 1 of Senate Bill No. 2330 directed a Legislative Council study of the coordination of benefits for children with special needs under age 21 among the Department of Public Instruction, the Department of Human Services, and private insurance companies with the purpose of optimizing and coordinating resources and expanding services, including augmentative communication devices and therapy services.

Statutes Providing for Coordination of Services

The committee reviewed the following North Dakota Century Code sections of law:

Section 15.1-32-02 - Coordination of special education policies and programs. This section directs the Superintendent of Public Instruction to establish general state policy regarding special education and endeavor to ensure a cooperative special education program coordinating all available services. The Superintendent is required to cooperate with private agencies and solicit their advice and cooperation in the establishment of policy and in the coordination and development of special education programs.

Section 15.1-32-03 - Interagency cooperative agreements - Development and implementation. This section directs the Superintendent of Public Instruction to develop and implement interagency agreements with the Department of Corrections and Rehabilitation, the Department of Human Services, the State Department of Health, and other public and private entities to maximize the state resources available for fulfilling educationally related service requirements.

Section 15.1-32-05 - Special education - Cooperation among agencies. This section requires the Superintendent of Public Instruction, the State Department of Health, and the Department of Human Services to cooperate in planning and coordinating early intervention programs for individuals under age 3.

Section 15.1-32-13 - Related services - Insurance options - School district responsibility. This section provides that each school district is to require that all family insurance options be exhausted in paying the costs of determining a student's medically related disability and in paying for the provision of related services to the student, provided there is no financial loss to the student or the student's parent. The school district is responsible for all costs not covered by the family's insurance.

Section 50-06-01.4 - Structure of the department. This section requires the executive director of the Department of Human Services to consult with and maintain a close-working relationship with:

The State Department of Health.
The Department of Corrections and Rehabilitation, the School for the Blind, and the School for the Deaf to develop programs for developmentally disabled persons.
The Department of Public Instruction to maximize the use of resource persons in regional human service centers in the provision of special education services.

Definitions

The committee reviewed the definitions of various terms used in special education, including:

Assistive technology device - Any equipment or product used to increase, maintain, or improve functional capabilities of a child with a disability.
Assistive technology service - Any service that directly assists a child with a disability in the selection, acquisition, or use of an assistive technology device.
Augmentative communication - A means of communication other than natural speech.

State Programs

The committee learned the Medicaid program covers approximately 21,300 children; the Healthy Steps program covers approximately 2,500 children; and the children's special health services program covers approximately 400 children. The Medicaid program pays for rehabilitative, physical, occupational, and speech therapy; some maintenance services; and augmentative communication devices in certain cases. The Healthy Steps program is not permitted to pay for maintenance therapy or augmentative communication devices. The children's special health services program provides physical, occupational, and speech therapy services for eligible children if other payment sources are not available; however, the program does not cover augmentative communication devices. As of December 1, 2000, there were 13,650 North Dakota children with disabilities receiving special education and related services. These children represent 11.5 percent of the total student enrollment in North Dakota.

Cooperative Agreements

Pursuant to NDCC Section 15.1-32-03, the Department of Public Instruction has entered into cooperative agreements with various state agencies, including:

Cooperative agreement between the Department of Human Services and the Department of Public Instruction - Entered into on April 23, 2001, the purpose of this agreement is to establish more clearly the relationships among the party agencies through agreement on the coordination of roles, designation of liaison representatives, planning for joint staff training and conferences, evaluation of working relationships, and identification and definition of services for which claims may be made for reimbursement under state and federally funded programs.
Cooperation and collaboration in providing services to students with disabilities aged 14 to 21 - The agencies involved are the Department of Human Services, the Department of Public Instruction, Job Service North Dakota, and the State Board for Vocational and Technical Education. The areas of cooperation are:
1. Communication.
2. Outreach and referral.
3. Evaluation.
4. Individual program planning.
5. Transition.
6. Family involvement.
7. Professional development.
8. Shared resources.
9. Fiscal and administrative considerations.
10. Service to students within natural or least-restrictive environments.
11. Confidentiality of information.
12. Technical assistance and training.

The committee learned the Department of Human Services has entered into six cooperative agreements with other agencies relating to the coordination of benefits and services for children with special needs.

Blue Cross Blue Shield Task Force

In January 2001 Blue Cross Blue Shield of North Dakota formed a task force to evaluate benefits for children with special needs and to improve collaboration among parents, providers, and insurers regarding the care of children with special needs. The task force consisted of representatives of the Department of Public Instruction, the Department of Human Services, and Blue Cross Blue Shield of North Dakota; physical, occupational, and speech therapists; and parents of children with special needs.

The committee learned the task force focused on the following four areas:

The review process used by Blue Cross Blue Shield of North Dakota and the medical documentation required for the continuation of therapy and other benefits for children with special needs.
The definition of "medical services," "educational services," and "maintenance care" to determine what services are the responsibility of the school district and what services are the responsibility of Blue Cross Blue Shield of North Dakota.
The types of therapy and other benefits that should be covered by insurance.
The improvement of communication and collaboration between all parties involved in the delivery of services to children with special needs.

The committee learned the work of the task force resulted in two changes to benefits offered by Blue Cross Blue Shield of North Dakota:

The addition of a habilitative therapy benefit. The habilitative therapy benefit implemented by Blue Cross Blue Shield of North Dakota will allow for 90 visits per benefit period per discipline. Blue Cross Blue Shield requires that an individual medical plan be submitted every six months to provide a report on a patient's progress and the short-term and long-term habilitative goals.
The removal of the benefit exclusion for augmentative communication devices. A new task force was formed to evaluate current mechanisms and to develop a collaborative process for the purchase and lending of augmentative communication devices.

One unresolved issue identified by the task force is the legality of sharing information between private therapists, school therapists, and third-party payers.

A second task force organized by Blue Cross Blue Shield of North Dakota conducted a series of meetings with parents, therapists, providers, public school staff, Department of Human Services Medicaid staff, and Blue Cross Blue Shield of North Dakota staff. The task force explored issues relating to benefits for augmentative communication devices and other services provided to children with special needs. The goal of the task force was to understand the respective roles of insurance carriers, parents, schools, and government programs relating to the purchase of augmentative communication devices. The task force did not identify the need for any specific legislation resulting from its study.

Other Testimony

The committee received testimony from other interested persons, including a parent of a child who uses an augmentative communication device. Testimony indicated that better coordination is needed between schools and health care providers in the purchase of augmentative communication devices because these devices are medically necessary in many cases.

Conclusion

The committee does not make any recommendation regarding its study of the coordination of benefits for children with special needs.

STATE BOARD OF NURSING REPORT

House Bill No. 1360, which is effective through September 30, 2006, provides that the Legislative Council receive annual reports from the State Board of Nursing on its study, if conducted, of the nursing educational requirements and the nursing shortage in this state and the implications for rural communities.

The committee received the annual report from the State Board of Nursing and learned that the Board of Nursing contracted with the University of North Dakota Center for Rural Health to conduct a nursing workforce study at a cost of $110,000. The study is to address the issues of supply and demand for nurses as well as issues of recruitment, retention, and utilization of nurses. The board anticipates the study to be completed in 2004. The cost of the study is being paid for by increases in renewal, endorsement, and license examination fees of $20 per two-year period beginning July 1, 2002. The committee learned the Board of Nursing also applied for grant funding from many organizations but has not yet been successful in obtaining grant funding for the project.

The committee learned the North Dakota registered nurse workforce is aging, North Dakota is experiencing a shortage of specialty nurses, and nurses are inequitably distributed across the state. Once the workforce project is complete, future studies may involve:

Periodic sampling of nurses to obtain trend data.
Surveys of male and minority interest in nursing.
Surveys and focus groups of part-time nurses.

The workforce study project began in June 2002 and has involved management surveys of hospitals, long-term care facilities, and clinics. Surveys will also be sent to public health units, home health care providers, and individual nurses. The response rate of the initial management survey of hospitals and long-term care facilities was 54 percent for hospitals and 38 percent for long-term care facilities. A second survey has been sent to those not responding to the first survey. Committee members expressed concern regarding the low percentage of survey responses from hospital and long-term care facilities and suggested that in order for the study to be useful, responses are needed from all facilities. Preliminary conclusions based on initial survey results include:

Thirty-three percent of semirural and rural hospitals and 25 percent of long-term care facilities have difficulty recruiting registered nurses.
Registered nurses and licensed practical nurses resign their positions for other nursing positions, relocation, or higher salaries.
Urban hospitals report the highest cost to deliver care due to registered nurse vacancies while semirural hospitals report the highest cost to deliver care as a result of licensed practical nurse vacancies.
Urban hospitals report the highest patient loads due to registered nurse vacancies while semirural hospitals report the highest patient loads due to licensed practical nurse vacancies.

MOTOR VEHICLE INSURANCE INDEPENDENT MEDICAL EXAMINATION REPORT

Senate Bill No. 2288 provided that the Legislative Council, prior to November 1, 2002, receive a report from the Insurance Commissioner regarding motor vehicle insurance independent medical examinations.

The committee received the Insurance Department's report and learned that insurance companies may hire physicians to conduct an independent medical examination to determine whether an individual who has been injured in an automobile accident is healed or requires further treatment. The issue of these examinations is to ensure that the examinations are unbiased and impartial. While North Dakota has two reviews--the treating physician and the independent medical examination physician--the committee learned that some states have implemented a third review which is a form of no fault alternative dispute mechanism, including arbitration, mediation, informal conciliation, or review panels.

The committee received information on the Insurance Department's personal injury protection/no fault closed claims study. The committee learned the 2001-02 study was conducted with the cooperation of the top 25 automobile insurance writers in the state, which involves 82 percent of the market. Of the 4,371 total closed claims during the August 2001 to August 2002 time period, 148 resulted in an independent medical examination and 54 in an independent records review. Based on the information reviewed, the department developed the following conclusions:

Of all the claims involving benefits being paid, relatively few require an independent medical examination to be performed.
For those claims in which an independent medical examination was performed, the majority result in the termination of benefits.
Because of insufficient claims volume, the department is unable to make any credible observation regarding the average cost for providers of independent medical examinations.
Independent medical examinations and independent records reviews were performed more frequently in state than out of state.
The frequency in which an independent medical examination was requested when the primary medical provider was a chiropractor is equal to the frequency in which the primary medical provider was a physician.
Independent medical examinations and independent records reviews were requested more frequently on those claims in which a previous similar injury existed.

Conclusion

The Insurance Department did not make any recommendations as a result of its study; however, the department did suggest that if the Legislative Assembly chooses to make a change in this area, it may wish to authorize an alternative dispute mechanism rather than the formal legal process, especially for smaller claims. The committee does not make any recommendation in this area.