(August 22, 2011 – Hagåtña, Guam) The decision on whether to issue a $340 million bond should wait until January. That is what Vice Speaker Benjamin J.F. Cruz is saying in light of recent talks in Washington proposing substantial cuts in federal spending, including on the military buildup.

Early this month, Cruz wrote to Governor Eddie Baza Calvo recommending to delay any further action to pursue additional borrowing until it is clear how cuts in federal spending will impact Guam.

The concern stems partly over a deal early this month between Congress and President Barack Obama to raise the federal government’s debt ceiling. It called for U.S. Congress to appoint a joint 12-member congressional committee tasked with identifying $1.5 trillion in deficit reductions. Both chambers of congress must vote to approve the recommendations by December 23. If Congress does not pass the recommendations by then, across-the-board cuts in federal spending, including cuts in military spending will begin.

“The Administration is banking on annual increases of $52 to $150 million in revenue resulting from the buildup alone,” Cruz said. “At this point, questioning the government’s ability to pay for the new borrowing is not only prudent, it is the responsible thing to do.”

Cruz is now calling attention to a prominent U.S. Senator’s proposal to cancel the Guam Buildup and close Department of Defense funded schools. U.S. Senator Tom Coburn from Oklahoma presented his plan to save $69.5 billion dollars by reducing military spending overseas, including Guam; a plan which may severely reduce and hamper Guam’s ability to repay to the bond. While Senator Coburn is the primary author of this proposal, other high-ranking federal officials, like Secretary of State Clinton have warned that dramatic cuts were possible.

Back in Black proposal by Senator Tom Coburn states:

“One of the military deployments to cancel that makes the most strategic sense is the military deployment to Guam. The original plan for Guam was a result of a bilateral agreement with the Japanese government to transfer 8,600 Marines and 9,000 dependents from Japan to Guam. Japan agreed to pay for approximately $6 billion of the total costs, which are now expected to run to as high as $23.9 billion. These conventional troops could be maintained in the continental United States at a far lower cost.”

The proposal can be viewed at:

http://coburn.senate.gov/public//index.cfm?a=Files.Serve&File_id=92a11aeb-a484-45d4-b02a-

83071603accf

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For more information, contact the office of Vice Speaker Cruz at 477-2520/1.

August 19, 2011

MEMORANDUM

TO:                  The Honorable Vicente C. Pangelinan, Chairman

Committee on Appropriations, Taxation, Public Debt,

Banking, Insurance, Retirement & Land

FROM:            Vice Speaker Benjamin J.F. Cruz

SUBJECT:      FY2012 Revenue to be derived by the applicability of the Patient Protection and Affordable Care Act (PPACA) on the 2011 Government of Guam            Group Health Insurance Contract

Although the legislature is deliberating the FY 2012 Budget for the Government of Guam, I believe we must consider the provisions of the U.S. Public Law 111-148 – Patient Protection and Affordable Care Act (PPACA) and its applicability to the Government of Guam Group Health Insurance Program, which will result in an increase in FY 2012 General Fund Revenues.

The PPACA amended the Public Health Services (PHS) Act and established a requirement for insurers to provide value for premium dollar spent. This is widely referred to as the medical loss ratio provision. The provision requires insurers to provide rebates to enrollees if the amount spent on medical services does not meet a minimum standard of value for premium dollars spent on the insurance plan.

Section 2718(b)(1)(A) of the PHS Act, as amended by §1001 of the PPACCA, states

“(A) REQUIREMENT. — Beginning not later than January 1, 2011, a health insurance issuer offering group or individual health insurance coverage (including a grandfathered health plan) shall, with respect to each plan year, provide an annual rebate to each enrollee under such coverage, on a pro rata basis, if the ratio of the amount of premium revenue expended by the issuer on costs described in paragraphs (1) and (2) of subsection (a) to the total amount of premium revenue (excluding Federal and State taxes and licensing or regulatory fees and after accounting for payments or receipts for risk adjustment, risk corridors, and reinsurance under sections 1341, 1342, and 1343 of the Patient Protection and Affordable Care Act) for the plan year (except as provided in subparagraph (B)(ii)), is less than –

(i) with respect to a health insurance issuer offering coverage in the large group market, 85 percent, or such higher percentage as a State may by regulation determine; or

(ii) with respect to a health insurance issuer offering coverage in the small group market or in the individual market, 80 percent, or such higher percentage as a State may by regulation determine, except that the Secretary may adjust such percentage with respect to a State if the Secretary determines that the application of such 80 percent may destabilize the individual market in such State”

As you know, the federal standard set for the Government of Guam’s Group Health Insurance Program is a medical loss ratio requirement of 85%. On December 1, 2010, an Interim Final Rule implementing §2718(b)(1)(A) by the U.S. Department of Health and Human Services requires that rebates be paid “on a pro rata basis to the person or entity that paid the premium on behalf of the enrollee” was published in the Federal Register/Vol. 75 No. 230.

The date of enactment of PPACA is March 23, 2010. Section 1004(a) of Part A of the PPACA reads as follows:

“SEC. 1004. EFFECTIVE DATES.

(a) IN GENERAL.—Except as provided for in subsection (b), this subtitle (and the amendments made by this subtitle) shall become effective for plan years beginning on or after the date that is 6 months after the date of enactment of this Act, except that the amendments made by sections 1002 and 1003 shall become effective for fiscal years beginning with fiscal year 2010.”

Therefore, the effective date of the medical loss ratio requirement established by §2718(b)(1)(A) is September 23, 2010. Both of the 2011 Government of Guam Employee Group Health Insurance Contracts, the HAS 2000 Plan FY 2011 Group Health Insurance Agreement and Calvo’s SC 1500 Plan FY 2011 were executed on September 28, 2010 with terms beginning October 1, 2010. The signature pages of these contracts are attached for your review.

It is clear that the 85% Medical Loss Ratio requirement of PACCA applies to the current Government of Guam Group Health Insurance Contracts, which were signed on September 28, 2010 and made effective October 1, 2010.

§4302(g) of Chapter 4, Article 3 of Title 4 of the Guam Code Annotated requires quarterly reporting of detailed claims utilization and cost information to the Office of Finance and Budget. My staff has been monitoring these reports and has analyzed these amounts in cooperation with the Office of Finance and Budget staff to project the amount of any rebate due to the Government of Guam and its employees.

For Fiscal Year 2010, the Medical Loss Ratio is estimated to be 73.88% in a plan that included first dollar coverage on medical services excluding hospitalization and ambulatory care. Although current FY2011 data provided by Calvo’s Selectcare is tracking a Medical Loss Ratio below 60% for the first 3 quarters, by our mutual estimation, even if we use the FY2010 Medical Loss Ratio of 73.88% to project the FY2011 Medical Loss Ratio for the Government of Guam Health Insurance Contracts, the following amounts would be rebated to the Government of Guam and its employees:

	General Fund	Other Sources	TOTAL
Estimated Amount of Rebates owed to Employer	$5,184,956	$1,393,690	$6,578,647
Estimated Amount of Rebates owed to Employees	$1,637,325	$521,195	$2,158,520
TOTALS	$6,822,281	$1,914,885	$8,737,166

Based on this conservative projection, the Government of Guam and its employees are entitled to a rebate of $8,737,166. Of this amount, up to $6,578,647 in additional FY2012 revenues is available for the legislature to allocate for government obligations and approximately $1,914,885 to refund to the government’s employees. I believe these amounts will be greater because the FY2011 Government Health Insurance Benefit did not include the first dollar coverage for medical services.

I intend to offer an amendment to Substitute Bill 145 that would include these amounts in the Total General Fund Revenue Projection and establish a permanent process to rebate employee contributions for future years.

Senseramente,

BENJAMIN J.F. CRUZ

cc:        All Senators

Honorable Doris Flores Brooks, Public Auditor

Honorable Lenny Rapada, Attorney General

Ms. Benita Manglona, Department of Administration

Mr. Art Illagan, Insurance & Banking Commissioner

Enclosures:

(1)   Signature Page of the HAS 2000 Plan FY 2011 Group Health Insurance Agreement

(2)   Signature Page of Calvo’s SC 1500 Plan FY 2011 Group Health Insurance Agreement

(3)   §2718 of the Public Health Act amended by PPACA, U.S. Public Law 111-148

(4)   Federal Register Interim Final Rule implementing §2718(b)(1)(A)

(5)   §1004 of U.S. Public Law 111-148 (PPACA)

(6)   Section 2718 PPACA Projection

(Hagatna, Guam – August 12, 2011) Vice Speaker Benjamin J.F. Cruz, who chairs the legislature’s committee on general government operations, is aware that employees of various
Government of Guam agencies and departments today received notices entitled “General Notice of Proposed Layoff.”

“The situation compels us to call oversight hearings on the Department of Administration and the Civil Service Commission to determine the legality and force of these notices,” Cruz said. “We will insist that the law is followed.”

Vice Speaker Cruz would like to inform all employees that layoffs cannot be undertaken unless the department or agency has exhausted all available alternatives in relocating or reassigning employees before a layoff is initiated including the termination of unclassified employees first. Cruz adds, “The notices sent out today should not be considered valid because they do not contain individual employee retention standings as required by law.”

Employees are encouraged to view the government’s Personnel Rules and Regulations which are posted on the Department of Administration’s website at www.hr.doa.gov. The layoff procedures are very specific and procedures not being followed are grounds for an appeal. “Employees must familiarize themselves with the Government’s personnel rules and
regulations and particularly their rights,” Cruz said.

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For more information, call the Office of Vice Speaker Cruz at 477-2520