Senate Insurance and Commerce
February 4, 2025
Senator Blake Johnson Members, if you would take your seats and the lobbyists get to the seats. Chair sees a quorum. Insurance and commerce come to order. We're going to begin with a fiscal impact in the health benefits with Jill Thayer. Jill, if you would, just introduce yourself and you're welcome to begin.
Jill Thayer Thank you, Mr. Chair. Jill Thayer, Bureau of Legislative Research. You should all have, I think, in your meeting folders, a copy of the draft procedures for use of the Health Benefits Actuary, The Segal Group. I'm just going to hit the highlights of this. Under the joint rules, the Senate Insurance and Commerce Committee and the House Insurance and Commerce Committee have to adopt procedures for use of the actuary. These are almost identical to what was adopted during the last regular session. But I'll just quickly go over this with the joint rules having been adopted last week.
I have in here the language from section 26 of the joint rules that talks about the fiscal impact statements. Those are now solely for bills that will incur or impose a new or increased cost to the state and public school life and health insurance program that's run by EBD. Segal was hired by Legislative Council last year. We have them under contract. They began tracking bills November 20th when you all started pre-filing and have been providing me with since session began daily updates of the bills that they've identified as requiring a fiscal impact statement. Under this rule, we have about 27, I believe, that have been filed. Most of them are with the Insurance and Commerce committees.
There are 3 or 4 with the Public Health committees. So. Segal will now, since the bill filing deadline passed this past Friday, they're preparing their data request this week. They will provide that TBD and begin producing those fiscal impact statements. Under the joint rules and these procedures, a bill can not be taken up in committee until it has that fiscal impact statement with it. So I will be keeping Michelle and through her you all apprised of the status of those fiscal impact statements.
I have also notified all the sponsors of the bills that have been identified that their bill has been flagged as needing a fiscal impact statement. And our staff, as they were drafting those bills, were notifying members of the possibility that they might need a fiscal impact statement. This is all part of these procedures. The only thing that I will need to know from you all is whether or not you all want Segal to be here in person to present. I checked with them this morning. If they have the EBD data request this week, they think they can have all of the fiscal impact statements completed within a three week period of time.
They'll begin releasing the smaller ones that have little to no impact as soon as they're ready. If under these procedures, if you would like them to be here in person because they are located out of state, the procedure is to set a special order of business for them to be here to limit the amount of travel that they're being reimbursed for. I'll be happy to take any questions.
Senator Blake Johnson Senator Boyd.
Senator Justin Boyd Thank you, Mr. Chair. So, Jill, this is not an intent to shoot the messenger. I've got some questions. They're not directed at you. They're directed at the people who-- so I realize that we, the Senate and the House, have voted to place this bureaucracy on us for whatever reason. Okay, can you hear me now? I realize that we, the Senate and the House, have voted to put this bureaucracy on us and farm out our responsibility to make decisions to a third party.
I guess my concern is in the contract with Segal, or it could be any other company. I'm not calling out Segal. I'm just saying we have a contract. Do we have a way to vet any conflicts of interest that that third party might have? Like some reason they might have a contract with a drug manufacturer. Or they might have a contract with the insurance broker or something. Do we have anything that really gives me helps allay my concern or alleviate my concern that something else is influencing them in their decision on a fiscal impact. Does that make sense?
Jill Thayer Yes, sir. Segal was originally hired through a request for proposals procurement process, and within that we did ask for them to disclose any conflicts of interest. And there were none that were identified.
Senator Justin Boyd So do we have a way to have ongoing conflicts of interest, like a way to know if, say, a broker is paying them on the side or they're doing business with an insurance broker that might have a client somewhere else. I mean, this is a complex world, and there are lots of reasons why we might have conflicts. And if we're going to make decisions based on what a third party tells us, I'd like to feel confident that that third party is really working for us and not working for somebody else in a nontransparent way, if that makes sense.
Jill Thayer Absolutely. So I think that, as you know, all of our consultant contracts are approved by the Legislative Council. During legislative session, the executive subcommittee has that authority. So if the executive subcommittee would like to request a complex check, we could certainly do that.
Senator Justin Boyd That's very helpful information. I appreciate that.
Senator Blake Johnson Senator Flowers.
Senator Stephanie Flowers So is single just doing the fiscal impacts for these state and public school life and health insurance program bills? Or are they covering other?
Jill Thayer They're exclusively for these bills.
Senator Stephanie Flowers Okay. And you mentioned that we don't have a list where they have identified bills that they have been referred.
Jill Thayer Yes, actually, we do. All of the Insurance and Commerce Committee agendas show the bills that have been flagged for pending a fiscal impact statement. Those are the Segal impact statements.
Senator Stephanie Flowers Well, the ones that are on our agenda pending fiscal impact, breast reconstruction, pharmacy discrimination, pharmacy benefits. How are those related under the state and public school life and health insurance program?
Jill Thayer I'm definitely not an actuary or an insurance expert, but it's my understanding that anything that they feel may cause the program to incur an increased cost due to additional coverages they may have to provide, that type of thing, is what has been flagged.
Senator Stephanie Flowers Do we still-- I always understood DFA was providing some fiscal impact reports. Do they not have any involvement with fiscal impact anymore?
Jill Thayer They do. I believe they are doing those for the tax bills.
Senator Stephanie Flowers That's it.
Jill Thayer I'm not sure, but I think so, yes.
Senator Blake Johnson Senator, those are mainly ones that will hit the general revenue whenever they do the fiscal impacts, DFA. So this one is strictly the employee benefits and how our bills could possibly affect those members. Thank you, Jill. Is there any other questions? Seeing none, appreciate it, Jill. Motion to adopt. Motion by Senator Boyd. Seconded by Senator Mark Johnson. Any discussion? All in favor say aye. All oppose like sign. Thank you. Next, we're going to go on to the insurance, the Department of Insurance. And if you would just come to the table and then give those reports that were requested last week. Just identify yourself and you're welcome to begin.
Alan McClain Alan McClain, State Insurance Commissioner.
Jimmy Harris I'm Jimmy Harris, compliance director. Sorry.
Alan McClain And Deputy Commissioner. So he got a new title in the last year, so I've got to remind him he's deputy commissioner and everything else. So thank you, Mr. Chair. Just we had gone over some of the reports in the previous meeting and we highlighted that one particular report regarding that had some reporting requirements and it was Act 955 of 2021 and the department had not filed those reports since then.
So in your attachments I have provided a composite report, hopefully, to bring it up to date the activity around this particular law. And so that report is intended to sort of summarize that. And the 2021 legislative changes updated the processes used to review and evaluate craniofacial services. And these changes required a nationally approved craniofacial team to evaluate a person with craniofacial abnormality to determine if the treatment is medically necessary and to coordinate a treatment plan for that person.
So that's what the gist of that law was. And since the 2021 law and it was Senator Irvin's law, the since that law became effective, the department has received no complaints relating to the operation and interpretation of the law. There were four complaints related to whether the services performed by a prosthodontist would be considered medical or dental. But there is no mention of a person with craniofacial abnormality being denied services after an approved craniofacial team has reviewed the decision.
So it does appear that the 2021 legislative changes have provided a clear pathway for insurers to get proper treatment for craniofacial services. So that was the gist of the law. And the attachment that I gave you all was to bring you up to date. And of course it's up to you if you want us to continue making reports on a biannual basis or what you want to do with the report.
Senator Blake Johnson Senator Irvin.
Senator Missy Irvin Thank you. Thank you, Mr. McClain, for your dropping off the report to me with your personal note. I very much appreciate that. I appreciate the report. Do you know if those four complaints that, whether those services were performed by prosthedontist, do you know if those were part of the review process of the team or not? Or were they outside of the review process and they were independent claims?
Jimmy Harris They were outside of the review. They hadn't gone through the craniofacial team up to that point. So, no, they didn't follow the steps outlined in the law. I think that's how they ended up with us.
Senator Missy Irvin Okay. Well, I appreciate this. And if you don't mind, I mean, Mr. Chair, if you don't mind, I'll work with them to revise and review this all myself because this i my law. But I'll work with you to change the reporting mechanism to where it makes more sense. And I can do that with you individually, if that's okay with you all. Would that work?
Alan McClain Certainly.
Senator Missy Irvin We'll do that in addition to, but outside of what the chair is doing on the other reports. Would that be acceptable?
Alan McClain Yes, ma'am. O
Senator Missy Irvin Thank you so much.
Senator Blake Johnson Senator, I will give you that bill. And we will do that.
Senator Missy Irvin I'll work with them.
Senator Blake Johnson On your time.
Senator Missy Irvin I'll work with them. If you guys want to just put together a draft of what I think would make sense? I think that we can manage that.
Alan McClain Okay. Glad to do that.
Senator Missy Irvin Thank you very much.
Senator Blake Johnson But that way, we'll still have one bill on all of those subjects instead of two separate bills. And I'll just hand it off to you if that's all right. Thank you. Do you want to give your general report or do we want to do that later on for this year?
Alan McClain Yeah, I don't think we have anything else prepared for now except just highlighting those reports and so always happy to entertain anything. But we can come back later for a more general report.
Senator Blake Johnson Well, maybe just give that to the members on the committee now what you had done at the end of the year so we can be updated on that general report that's been provided to the previous committee.
Alan McClain Okay. Yeah.
Senator Blake Johnson Is that okay with the committee? All right. Thank you, sir. Yes, ma'am.
Senator Stephanie Flowers So I thought we went through a list of reports that this committee was doing, and the only thing that was pulled out was Senator Irvin's cranial facial.
Senator Blake Johnson Yeah, and I have that bill. And I had drafted a bill with all of them in there and I took the ones that we wanted to retain out. And now I'm just going to let Senator Irvin take care of that. What we have put in to eliminate or change. So I'm gonna let her work with the Insurance.
Senator Stephanie Flowers I'm just wondering. I thought we had gone over most of this. And so the only thing we're waiting on is an amendment or some enhanced kind of reporting for this cranio.
Senator Blake Johnson It is. It is. And rather than have all those others and then Senator Irvin do another one, I'll just let her run the whole total package with her amendment on this reporting.
Senator Stephanie Flowers But the reason I ask is because you asked them if they had any other reports. And I thought we had dealt with all the other.
Senator Blake Johnson Well, there was a discussion on the general insurance report, the big insurance report that they do that they gave to the committee at the end of 24. And that's what I've asked them to give to all the membership. So we can be up to speed on their reporting in the previous year.
Senator Stephanie Flowers So I got that handed to me after the end of the last meeting plus an email with it attached.
Senator Blake Johnson Okay. All right. Thank you. We're going to move on to our bills. Senate Bill 77. Senator Johnson has something to pass out to the members. No, you don't have to go all the way down there. Come on. Okay. Okay. All right. It's a long ways back there. Thanks, Senator Johnson. Just if you would, if you want to bring your.
Senator Mark Johnson I'll bring Mr. Bo Renshaw, who is not only a physical therapist, he's been my physical therapist. So I doubly trust him.
Senator Blake Johnson Go ahead and introduce.
Senator Mark Johnson I'm Mark Johnson. District 17. Bo, if you'll introduce yourself.
Bo Renshaw Bo Renshaw, on behalf of the Arkansas Physical Therapy Association.
Senator Mark Johnson Michelle just passed out an email from Elizabeth Pitman over at Medical Services. And it's self-explanatory. There's no fiscal impact that she sees, and I think we could even say it may be a positive impact. But I'll get to the bill and then I'll bring it up. This bill simply allows Medicaid to reimburse, right now, it is in a hospital setting. It would allow it to reimburse in a clinical setting.
Now, as a practical matter, what you see happen is that people, if they're in an area where they might have to drive 40 or 50 miles to get back to that hospital and get their PT there, they don't do it very well. There's distractions. There's a lot of reasons why, but a lot of it's just-- my brother is also a PT and he has told me he's seen many patients that their problems, say, they have a knee replacement and they don't follow through with their therapy. They lose range of motion in their knees and their problems persist.
So I think we could see if people actually do it right and follow through with their therapy, they have a much better clinical outcome. And as Miss Pitman said in this, she said there should be savings from patients not needing additional surgeries or drugs if they're able to access physical therapy more readily. So that's all that the bill does, and I'll be happy to answer any questions. And Mr. Renshaw would be as well.
Senator Blake Johnson Senator Irvin.
Senator Missy Irvin Thank you. I really appreciate your due diligence on this, Senator Johnson, and Medicare and getting a fiscal impact. I think it's really good information for us to know before we vote on something because I know the budget is tight. And I know we're trying to check on Medicaid spend as much as we possibly can. So with that, I'll make a motion do pass.
Senator Blake Johnson All right. Is there any other questions? Go ahead, Senator Flowers.
Senator Stephanie Flowers I can see the need for the bill. but I'm just wondering, how is there no fiscal impact on Medicaid?
Senator Mark Johnson I'm going to give you my shot. I can't speak for Miss Pitman, but based on what she's provided, Senator Flowers, here's the answer from my interpretation. This is a a service that is paid for by Medicaid. Today, the only difference is the venue where it would be. So that the actual raw dollar cost wouldn't change at all. However, the dynamic effect could very well be that because someone actually goes to the closer clinic, gets their physical therapy done and completes what they should do to get back as close to 100% as they could, then Medicaid division seems to be interpreting the same way I do in that that person would have less physical problems.
Therefore, in the long run, they could avoid further surgeries, further drugs. And it would actually be perhaps even a net gain for the system in that instead of being a burden on the system needing yet another surgery, for example, they would get to complete their therapy properly. And therefore be well and not be coming back in for some other expensive follow up treatment. I hope that answers your question.
Senator Stephanie Flowers Well, it does. It makes sense. And I'm just wondering, since it's always been now done in hospitals, is there going to be the same type of routine procedures expected in these private clinics?
Senator Mark Johnson Yes, ma'am. These are licensed physical therapists. These are under the same licensure. Just like an M.D. in a hospital or an M.D. in a private clinic, they're still medical doctors. And these are the exact same technicians and specialists.
Senator Stephanie Flowers Well, but I guess my question is, would that require DHS to have more screening to see if procedures that should be applied or prescribed for a patient are actually being followed?
Senator Mark Johnson I couldn't tell you what their procedures would be. Mr. Renshaw, do you have a comment on that?
Bo Renshaw Yes. The outpatient, we are already credentialed with Medicaid and underneath that system. So the outpatient clinical setting is no different than the hospital based physical therapist.
Senator Blake Johnson Thank you, Senator. Senator Boyd. Senator Penzo.
Senator Clint Penzo Since we're kind of being disclosure happy, I just want to disclose that I'm a former physical therapist assistant. I haven't had my license active in probably 20 years but wanted to go ahead and put that out there. Thank you.
Senator Mark Johnson I'm relieved you're not practicing anymore, Senator.
Senator Blake Johnson Are you closed for your bill?
Senator Mark Johnson I'm closed for my bill and appreciate a good vote.
Senator Blake Johnson You want to make a motion?
Senator Mark Johnson I think Senator Boyd. I move do pass.
Senator Blake Johnson And second by Senator Irvin. Is there any discussion? All in favor, say aye. All opposed like sign. Senator, you passed your bill. I'm going to go on. I don't know if the director of EBD is here with my bill, but we'll go on to Representative Warren and, I think, Senator Penzo for 1271.
Senator Clint Penzo I'll do it from right here.
Senator Blake Johnson That is fine.
Senator Clint Penzo Okay. House Bill 1271 addresses priority of liens. This bill addresses a current issue for consumers and lenders alike. Specifically, we are talking about new construction loans or add ons to an existing property. The best way I know to make you understand what the bill does is to give you an example. Let's say a friend of mine decides to build a house. He has some money saved up and decides to do it without a loan. Before the house is complete, he runs out of cash. The cost of everything has increased.
He goes to the bank for a loan, but he can't get one because he has already commenced construction. If the bank makes him a loan, every person who provides labor or materials from the beginning to the end of the construction process has priority in the courts, according to current statute, over the lender who made the loan to finish the house. The lender doesn't want to make a loan because their loan is not secured well. The same thing happens if a contractor thought a closing occurred and began construction before the mortgage was filed.
What this bill will do is anyone who has done work prior to a mortgage being filed has priority over the lender. Once the lender files their mortgage, their position is set and nobody else has priority over them. A good lender will get proof that everyone who did work prior to their mortgage being filed has been paid in full. That, in essence, will put their mortgage in a first lien position. This has gone unaddressed for years. We want to give lenders the same lien protection as anyone else in the construction process. Any questions?
Just to break that down, if this passes, everybody that has done work prior to the loan being made is in a position ahead of the lender. But then they're going to check and make sure everybody's been paid. And then they're going to make the loan. And then everybody else that does construction work after that is in a second or third place position for the loan. Because currently what happens is people can't get loans to finish jobs because the banks can't secure their positions. Because the way the statute is now, they're in last place, no matter when that lien that mortgage is filed.
Senator Blake Johnson Senator Murdock.
Senator Reginald Murdock Okay. Thank you, Chairman. So being quite familiar with specifically the construction lien business, if you will. Typically throughout the process, there are layers that are done each time money is paid. So therefore, the owner and the financer are always in a good position as it relates to any lien liability.
Senator Clint Penzo If the mortgage is filed first before construction takes place.
Senator Reginald Murdock No, this happens, period, as a part of the contract in state work and any other work. And I've done several of them whereby you have to file that you've paid each subcontractor. In each payment, you've got to prove that at each draw, as we call it. Before you release that money, you do a release of lien document to protect all those that you're talking about. So I hear what you're saying. I'm just trying to find the necessity of it honestly, based on what's already going on.
Senator Clint Penzo I've got some folks who could probably clarify his question. I'm not really sure where you're at on the hang up.
Senator Blake Johnson So if you would just go down there with them, Senator Penzo. e
Wes Lessaigne Thank you, Mr. Chair. My name is Wes Lessiagne. I'm here on behalf of the Arkansas Land Title Association. I could not hear all of your comments because of the noise in the hallway.
Senator Reginald Murdock So as I understand this bill, it's a protection in place to ensure that the financier and everyone is protected properly through the lien process. And I was just commenting from a construction standpoint that we do release of liens as the project progresses. Whether a mortgage is filed is not just irrelevant to the construction contract. Many times we don't even get into that side of it for the work to be done. You know, you py me a draw, I have to show you, prove to you payments to subcontractors for whatever work they've done. So you're always in a proper lien position.
Wes Lessaigne I wish all were as sophisticated as that, but unfortunately, in practice, that does not always happen. So as Senator Penzo was testifying about the bill, the way the law is written now, if construction commences prior to the recordation of a construction mortgage, all lien claimants, regardless of whether they were the first one who commenced construction or they're the last person on the project six months, a year down the road, all of their property relates back to the date of commencement of construction, which would be ahead of that construction mortgage.
If the construction mortgage is filed, as it should be, ahead of commencement of construction, then of course, it has priority. And I understand the process that you're talking about, withdrawal request and affidavits and securing lien waivers from sub suppliers that the general contractor would do. But unfortunately, it doesn't happen in all instances. And so if somebody wasn't paid in that circumstance and they filed suit to enforce it, they filed a claim and then they filed suit to enforce their lien, assuming that they complied with the statutory requirements to perfect their lien, they would be ahead of that construction lender.
Senator Reginald Murdock So where I would have a concern-- if I may, chair. Where I would have a continued concern, if I'm hearing you correctly, is the position it puts them in front of those that have completed the work. Let's just say it's not done as I'm stating, and a trade has not been paid properly and they've done that work. I don't know that I agree, if I'm hearing this correctly, that their rights should not should be subverted by the--
Wes Lessaigne I understand what you're saying. So nothing within this bill removes any rights of a lien claimant to file a claim to protect and secure their right to a payment for work or materials that they've supplied for the project. The only thing that this bill would do is allow for the construction lender whose loan is meant to pay for the labor and materials that were supplied to be in a priority position over them.
So if in your circumstance, that contractor had done work before the construction mortgage was filed, they would absolutely have priority over that construction mortgage and nothing within this bill would change that. So if there is a situation where construction commences on a project for one reason or another, the construction mortgage is later filed, all of those trades, all of those suppliers who had done work or supplied material up to the point of the filing of that construction mortgage have priority.
And then that construction lender and their borrower would work with those suppliers to make sure that they're paid, secure lien waivers, as you described, so that that mortgage is then in the first position. But it does not remove any lien claimants' rights to file a lien to protect themselves.
Senator Reginald Murdock Right. And so I guess my concern is, and I'll pass the mic, is that once that mortgage is filed, how they jump in front of those that have done the work. I understand their financial interest in that and I understand that the trades still have a claim. But now they have to get behind.
Wes Lessaigne Those who have done work ahead of the filing of the construction mortgage are still ahead of the construction mortgage. They do not lose that priority position. It would only be trades that come in after the construction mortgage is filed that would be junior to it. So those who did work prior always will have priority.
Senator Clint Penzo And that construction loan that is taken is to pay the people afterwards. So it should have a priority position because that money is used to pay the people. So does that make sense?
Senator Reginald Murdock Allegedly, yeah. Supposed to be. It's supposed to be.
Senator Blake Johnson Senator Murdock, could I go to Senator McKee and maybe come back after you've heard some more discussion? Senator McKee.
Senator Matt McKee Thank you, Mr. Chairman. I didn't mean to cut in line. So the way I understood you explaining it to begin with was that giving the lender the priority would, I mean, the word priority means they would be ahead in line of the people who were completing the work.
Senator Clint Penzo After the mortgage is filed. Not the ones that have done work prior to the mortgage be involved.
Senator Matt McKee Okay. Does that clarify it?
Senator Reginald Murdock Well, it doesn't clarify. It only states the problem. Because filing a mortgage still does not take care of the people working necessarily when you just jumped them in front of them. I mean, they should be secured. I guess the thing I'm stuck on is jumping in front of the people out there working and they become less priority then based on what I'm hearing.
Now, what should happen is to ensure the trades are taken care of is the process I talked about previously. Maybe some wording of that, because then we're guaranteed that those trades people are paid and that everything is clean. But the way it is happening now, if something goes bad, if I'm hearing you correctly, the trades people, the workers and probably the ones that's may be less complicated, if you will, some situations, they have a different fight now to get satisfied.
Senator Clint Penzo When you take a draw from the bank, though, it's to pay specific invoices.
Senator Reginald Murdock To pay for the work.
Senator Clint Penzo Yeah, right. So any time I've done a job, I present what invoices I'm going to pay and I get a draw.
Senator Reginald Murdock It's not necessarily an invoice you present. You present a request. And they pay you. You got labor and material and overhead. There's a lot of things in that draw, not just invoices. It's not a 1 to 1 deal.
Senator Clint Penzo So but usually there's documentation on what you're going to pay with that.
Senator Reginald Murdock And that's okay. I'm okay with that. I'm hearing priority whereby once it's filed, they get in a different position.
Wes Lessaigne Senator Murdock, if I may take one more stab at trying to explain this. So if a construction mortgage is filed today, no work has commenced, nothing has been done. You've got clean, raw land. And that construction mortgage is filed, it's going to have priority as a matter of law ahead of all those trades.
Once construction starts, it's going to be in a first lien position. So what this bill is attempting to do is in those situations where construction started before that construction mortgage is filed, is to restore the ability of that construction lender to have priority over potential claimants who come in and do work after that mortgage is filed.
Anybody who did work ahead of the filing of that construction mortgage will have priority over it. And so they're not losing their rights. And none of the future suppliers of labor or material are losing any lien rights. They still have the right to file their lien to a secure payment, which they're doing.
Senator Reginald Murdock Okay. I think I understand. Thank you. I think it's still the same understanding, and that's just my issue with this. Thank you.
Senator Blake Johnson Senator McKee.
Senator Matt McKee So even in giving them priority, is there any guarantee that their responsibility is to take care of the tradespeople who have also filed liens?
Wes Lessaigne It's not changing the process in any form or fashion as to how they do it today. So if a situation works in a transaction, as Senator Murdock described, then obviously you've got a draw request for payment in the payment of invoices, other ancillary fees and costs that are associated with that, and that would continue. So this changes nothing with respect to how those draw requests are made or approved.
Senator Clint Penzo So I guess the way I look at it, you pull out a new construction loan, the lender is priority, and all the trades come in line afterwards. If the construction loan is pulled in the middle of the construction process, this allows them to verify that all the liens prior to have been settled. And then it starts that process over where they're in first position and then all the trades come after. So it really doesn't change the process. It just allows the slate to be cleared of the old liens and insert them into the process as the new construction loan.
Senator Blake Johnson Senator Murdock.
Senator Reginald Murdock Okay. So let me re-follow up and let me give it to you like this. During that construction loan process, Senator Penzo, the priority should be the people doing the work. The mortgage--
Senator Clint Penzo Is it today or is it the lender? On a new construction loan, who's in first place?
Senator Reginald Murdock I really can't answer that question.
Senator Clint Penzo Well, it's the lender.
Senator Reginald Murdock So my concern is what it should be during the construction loan process because really where the lender gets made whole is from the buyer, from the applicant or the mortgagee. That's how they're going to be made whole for what the worker has done. So during that typically nine month period called a construction loan, priority should be given to those people doing that work.
During that time, even if the mortgage is filed, that shouldn't alleviate those workers because they're the one in that construction loan period that's really, really, really on the stick here for time, effort, money, labor, material. What this does, if I understand it correctly, it jumps everybody in front of them, if you will, during the construction loan period. So when the construction loan is over, the contractors go away.
They're paid and they're gone. Now the relationship is between the mortgagee and mortgager. So that's how all that settled. But why are we, during construction, are we putting somebody ahead of the people doing the work, if that makes sense?
Senator Clint Penzo I don't think you realize that that's exactly how it is set up on a new construction loan. Any new construction loan that's taken out today, that's how it works is the lender is in first position. Any construction loan that is pulled out. So this hurts the consumer that's wanting to finish the house. They can't get a loan because the bank's not going to loan money that isn't secured with the property.
Senator Reginald Murdock That security is the property.
Senator Clint Penzo But they can't attach to it under the way the statute is written now. They come at the very end of the line. They're the last to be paid. Today if you pull, like if I go to the bank and say I want to build a house, I'm going to pull out a construction loan and the bank is going to be the first lien position. So this doesn't change that process. If we're in the middle of the process, it allows them to be in the first lien position and they verify that everybody's already been paid at that point.
Senator Reginald Murdock I think we're probably talking about something different. I really do. I think there's labor. And is a worker getting paid versus what you're talking about in security? I think we are probably mixing something here in the statue. But okay, we got some more additions to this.
Senator Blake Johnson So Representative Warren, I have no idea who you are. If you'll introduce yourself.
Billy Romanback I'm Billy Romanback. I chair the legislative committee for Land Title. And I'm an agent, so I'm the one that sits in front of the customer. And so let me, maybe if I can explain it this way. In my 30 years, many times I'll be sitting in front of somebody who started construction using their own money to build a house. I just had one. And they go to get a mortgage loan to finish the project. They ran out.
And I tell them, I said, Well, you've already started construction, so I can't guarantee the bank the correct position. I can't guarantee the bank that they have first lien position at that point in time. And they're like, Why not? And I'm like, Well, because not only the contractors that did work for this mortgage, but any unknown contractors after this mortgage also have priority over the mortgage. It's not logical. And they're like, well, why don't you fix it? And I'm like, Well, easier said than done. It's a lot of process.
And really it's something that as an industry has needed to be fixed, but it doesn't directly impact us. It impacts the customers that we try to help. So it's been on our legislative agenda for a long time. You're right. The contractors do deserve to be protected to the extent that they did the work before the mortgage was recorded. So this doesn't change that. They still have priority. It just gets that mortgage in the right slot.
So think of it this way. You got a footing guy, the concrete guy, rebar guy, maybe a framer, and then we run out of money. Those guys have priority over the mortgage debt now and after this passes. However, the guy that does the touch up paint at the very end, he hasn't even entered the project yet. Right now, he's in front of the mortgage, regardless of the fact that the mortgage may have been recorded a year before he even steps foot on the project. Well, it just doesn't make any sense.
You know, he ought to have rights, but his rights should be behind the bank because the bank recorded the mortgage before he did the work. But that's not the way it is. And that's what causes the problem. And, you know, like, I'll meet with somebody who-- I just did out on Kanis Road. A guy had $100,000, cut down the trees, made his own lumber, in his mind, he was taking a piece of property he owned outright.
He was improving it to the extent that he could. And in his mind, when I run out of money, my collateral will be worth more. I can go to the bank and borrow the rest of it. And the problem is the bank wants us to guarantee them that they're going to be in front of any subcontractor or contractor after that mortgage. And as it is today, we can't. They're going to be behind who knows how many subcontractors that hadn't even stepped foot on the project yet. It just doesn't make any sense. And so that's what we're trying to fix.
Wes Lessaigne The way that I put it best is that we want to give the lending institutions, the mortgage companies, the same right as everybody, every lien holder in the process. Three people do work, bank files a lien, their lien ought to be fourth if that's when they file it. We're giving them the same rights as everybody else that does work in this process. Otherwise, you're treating them as basically a stepchild. And regardless of when you file your lien, you're at the end of the line. We don't care. That's the way the statute is right now. They do not get to have a position based on when they file. The statute has it where they're at the end and behind everyone. So we're just saying treat them the same as you treat everyone else.
Senator Blake Johnson Senator Flowers.
Senator Stephanie Flowers I talked to you two gentlemen before the meeting, Now I'm a little bit more confused. I thought I had this set in my head. Okay, so you go to the bank and you have secured a mortgage for construction purpose because it says for the purpose of construction or repair of the improvement. And so work begins.
But with that mortgage, there's a draw, as Senator Murdock said. So all of the money that you're expecting through that mortgage has not been paid out. But work starts. And maybe there are some issues and the construction worker or the person that provides the materials or supplies is not satisfied with their payment.
And work stops and litigation comes in. What is the bank's position now? They haven't paid everything that they promised to pay in the mortgage. What's going on here? Because I do agree with Senator Murdock about when somebody performs some work, provides some supplies of materials, they should be paid.
Wes Lessaigne Yes, ma'am. With respect to your question, did construction commence prior to or after that construction mortgage was recorded?
Senator Stephanie Flowers After recording.
Wes Lessaigne Okay. Then that construction mortgage would have priority over any of the claimants with respect to work or supplies that they recorded as a matter of law right now, the way the statute is written. If construction had commenced prior to that construction mortgage being recorded, then not only would those who provided work or labor prior to recording that construction mortgage be entitled to priority, but the last person who screwed in a light bulb at the very end of the project leaps ahead of that mortgage as well.
Because all of their property relates back to the commencement of construction, which was ahead of that mortgage being recorded. So what we're seeking to do is in that situation, in what we call a broken priority situation, construction starts before the mortgage is recorded is to say those suppliers of labor or material who did work or supply materials before the mortgage is filed, they're absolutely entitled to priority and we will make sure they get paid and secure lien waivers with respect to what they had done.
It would only be those who come after that construction mortgage is recorded that would be inferior to the construction mortgage. They still have their lien rights, and this would not remove any lien rights. It only establishes where they rank as far as their priority is concerned. So basically it takes a situation where what we call a broken priority situation, where construction has started before the mortgage is filed and resets the clock as to that particular construction mortgage. It allows them to settle up the lender and the borrower with all those who provided labor before their mortgage is filed, secure those lien waivers and reestablish the construction lender as being in a first position, then all suppliers of labor and materials.
Senator Stephanie Flowers Well, let me ask you this.
Wes Lessaigne Yes, ma'am.
Senator Stephanie Flowers You say right now the construction mortgage is first if no work has been performed.
Wes Lessaigne Correct.
Senator Stephanie Flowers But you were talking about construction and mechanic liens, material mans liens. And then a bank that has not distributed all the money to that borrower for that construction mortgage, but here comes a laborer or construction person providing labor, material, supplies, whatever, and they file a claim. Are you telling me the bank is going to be able to get jump ahead of-- how does this even work? I mean, I don't understand this.
Wes Lessaigne The bank would only be secured for its lien with respect to the funds that it has disbursed. So if you've got a $200,000 construction mortgage and they've only disbursed $20,000, all they can seek to recover is $20,000. They're not going to get a windfall of $200,000 because they're not out that.
Senator Stephanie Flowers But what you're saying is the bank is already in front of those construction and repair workers or supplies, suppliers or material.
Wes Lessaigne Only if their mortgage was recorded before construction started would they be in front.
Senator Stephanie Flowers So these people that are providing the work, they're going to take after the bank comes in and says, I want my $20,000 back. Is that how this works?
Wes Lessaigne Well, I'm not--
Senator Stephanie Flowers If you're saying priority is given to the bank.
Wes Lessaigne The priority of their lien. The amount that they would be entitled to secure in a foreclosure is only going to be for the amount that they've disbursed.
Senator Stephanie Flowers I understand that. But I'm just trying to see how is that worker, that supplier of goods or materials, how do they get their money? If the person who took out the loan in the first place and needed the money to pay anything, I mean, would the bank come in to the lawsuit that's filed by the person that holds these mechanical and material liens?
Wes Lessaigne They should be named as an interested party because they have a record interest in the property.
Senator Stephanie Flowers The judgment is going to be first for the bank and then next for the material man or the mechanic lien holder.
Wes Lessaigne If construction started after the mortgage was recorded, then yes, the bank would be in a first position long term. But it's only going to be with respect to what they're out. I mean, if they're not out anything and their borrower is still paying on their debt to the lender, then the bank has not suffered any loss.
Senator Stephanie Flowers So they can't inject themselves into the lawsuit.
Wes Lessaigne Well, they're an interested party.
Senator Stephanie Flowers They have to be noticed.
Wes Lessaigne They have to be noticed and given an opportunity to protect their interest.
Senator Stephanie Flowers But they can't make a claim because no default has occurred as to the bank.
Wes Lessaigne They're going to argue about the priority of their position would be what they would argue about.
Senator Stephanie Flowers So how would that turn out?
Senator Blake Johnson Senator Flowers?
Senator Stephanie Flowers I just want to know because, I mean, it's kind of serious.
Wes Lessaigne If the construction mortgage was recorded ahead of any work being done, then the construction mortgage should be ruled to be in a first priority lien position.
Senator Blake Johnson Senator Boyd.
Senator Justin Boyd Thank you, Mr. Chair. This is a quick yes or no question. And Representative Warren, so I see construction happening seven days a week. So when you refer to business days, I just want to clarify, you intend that to be Monday through Friday, exempting major US holidays when you say four business days.
Senator Blake Johnson Yes.
Senator Justin Boyd Thank you.
Senator Blake Johnson Senator Murdock.
Senator Reginald Murdock Okay. Let me see if I can find some clarity in this. The purpose of a construction loan, really the sole purpose is to pay for the work, the house being built, if you will. So the first thing done many times is dirt work in a slab. So at that point, the worker incurs $20,000, $50,000 in work. That construction loan, then going back to the original process, the contractor should be paid a draw for that. They issue a lien release saying, I've been paid my 50,000 or whatever for that.
Here's where I want to get clarity. At that point, so the construction loan was in place. So therefore, the financial institution is going to ensure that the contractor gets paid for that first draw, the dirt work and whatever. So therefore, the contractor now is really in first position, really, because they're getting paid.
So my understanding is not the wording you have, but I think my understanding is the contractor stays in first position because each draw their pay and they release the lien and they're not even in lien gain no more. Until they do some more work. So the construction loan is for that purpose.
Wes Lessaigne Exactly.
Senator Reginald Murdock But the semantics that you're using in this wording of this is for, I guess, the whoever the institution that wants to read this, to say this, that they're in first position or something. It's kind of convoluted, in my opinion..
Senator Blake Johnson Please push your mic.
Wes Lessaigne Sorry, Mr. Chair. It is to establish some statutory certainty with respect to where the lien claims line up. If a lien claimant, supplier of labor or material, wasn't paid and had to actually go and file a lien, we don't ever want to see that happen. We want them to be paid with the draws on the construction mortgages.
Senator Reginald Murdock And that's why the process is in place that I'm saying that I get confused a little bit in that in where you, the way this is written is that because the lien release, when I do, whomever does that work, at each phase, each draw, they're getting paid, which is the purpose of the construction loan.
Wes Lessaigne Yes, sir.
Senator Reginald Murdock Okay. All right. I think I understand better. Now, I may have talked myself into something.
Senator Blake Johnson I appreciate the debate, but if we don't get this priority right, those projects that were possibly self funded and there's still something owed to those workers, that mortgage may never happen because of the priority situation we have in place. And this priority situation allows the bank to be comfortable with a loan to move forward and even those previous people to be paid.
And they won't afterwards because of the position that that bank has. So is there any other questions? I think everybody that signed up for or against the bill is at the table. Is anyone else concerned, would like to speak for or against this bill? No one's here against the bill. So, Senator, you want to close your bill?
Senator Clint Penzo I think we're in good shape with the discussion, so I'll make a motion do pass.
Senator Blake Johnson Motion. Second by Senator McKee. Any discussion? All in favor say aye. All oppose like sign. Thank you, Senator. If you want to take a little break, Senator Penzo. And Representative Moore, I'll run Senate Bill 150. Thank you.
Senator Justin Boyd Senator Blake Johnson, you may proceed with Senate Bill 150 and please have your guest identify himself.
Senator Blake Johnson Thank you. Senator Blake Johnson, District 21.
Grant Wallace Grant Wallace, Director of Employee Benefits Division.
Senator Blake Johnson So, Chairman, members, this bill tries to help with a problem where our retirees, you see a lot of commercials, Medicare Part C where they might enroll in something that's not beneficial to them, to where the director can work and get those back on without having to wait the year time frame to re enroll them in our system rather than with that part C. So you want to say anything else?
Grant Wallace The only thing I would add is that currently state law, there is a prohibition that once you leave the state plan, you cannot come back as a retiree. So the confusion when you get into these Medicare Advantage plans with some misleading advertising, that somebody might inadvertently leave our plan and not realize that when they sign up, they think they're signing up for an additional, quote unquote, benefit.
They may leave our plan and they do not realize that. The CMS does have an appeal process by which somebody can say, look, I inadvertently did this. There was misleading advertising. I got a phone call that tricked me in to signing up for this Plan. CMS rules and says, Yeah, we agree with you. We uphold your appeal. They roll you back, they revert you back to the plan you were on. So we get into this crux within our file sharing, our eligibility rules of CMS, rolling them back onto our plan.
We're saying they're ineligible for our plan. Now the member is stuck in no man's land, so to speak, when in fact, we do want them to come back under their plan. We do understand that there are situations that some of our retirees get into inadvertently. We want to work with them. We want to make sure we're doing the best for them. This bill gives me that flexibility to continue to work with them and do the right thing for our members at the end of the day.
Senator Justin Boyd Senator Mark Johnson. Question.
Senator Mark Johnson Thank you, Mr. Chairman. Mr. Wallace, thank you for all you do in your capacity. And I had to observe it sometimes, and you cover a lot. I have been given information about how this problem has affected, not just people that are retired state employees, but a lot of people. And you said misleading advertising. And I see it and I mentioned in my bill, I go my brother's physical therapist and he has had patients that had to deal with this.
And the only thing he ever told me when I was first in a position to turn 65 and go on Medicaid. He says, Whatever you do, don't do a Medicare Advantage plan. And that's not to say there aren't good ones. It's not to say they aren't appropriate for some people. But Lord help if you made a mistake. We can't let you fall in the cracks. So thank you for this. And the only question I really had specifically is what are the time periods of when you can revert? Or is there a limit on reverting more than once?
Grant Wallace There are no real time limits. You know, it can happen throughout the year at any point in time. Yes, there is the Medicare enrollment period that happens in the fall. But as people age in and kind of go through this, you can make changes to your Part D plans. You can get behind on payments on Part B plans. All of those things factor into all of this. So to answer your first part of your question, it can happen at any time. Now for our retirees, they have one time of year in the fall to make changes to their retiree coverage. They can go with our Medicare group Advantage plan or they can go with our traditional supplemental plan.
Senator Mark Johnson But I guess I didn't ask that very clearly. Once they make that opt out thing, I'm just talking about our participants, not the general population. Is that a one time thing, other than the annual thing? In other words, once you go out, I assume this bill allows you to come back. But is it like indefinite? Can you flip flop, I guess is what I'm asking.
Grant Wallace I think I just want to kind of clear up two issues and just want to make sure that I'm answering your question. There was an opt out condition when our group Medicare Advantage plan rolled out, if you remember. I've done away with that because it created too much confusion and too many issues. We do have an open enrollment experience, which I was alluding to. So if you remain covered under our plan, either through the Medicare Advantage plan or through our supplemental plan and you stay under, you can switch one time of year.
Senator Mark Johnson Once a year.
Grant Wallace Once a year during open enrollment. Now, if you leave either of those plans, if you opt to leave our plan entirely, you are gone and you cannot come back. And that provision is maintained.
Senator Mark Johnson That's what this fixes.
Grant Wallace Well, it fixes it only in the issue of if you get into a situation with your Medicare Advantage coverage. There are reasons people want to leave our plans. And it's okay. It's justifiable. It's a better thing for them. That's fine. But we're not just giving them the willy nilly flexibility to come on and off.
Senator Mark Johnson That was my question. Thank you, Mr. Wallace. Thank you, Mr. Chair.
Senator Justin Boyd Senator Flowers.
Senator Stephanie Flowers Thank you. So what will this, what does it mean when you have the ability to cooperate with the US government in matters of mutual concern pertaining to federally funded programs related to employee benefits division, including without limitation, Medicare? What are we, what does it do? What kind of cooperation are you talking about?
Grant Wallace Right. So CMS obviously does the rules and regulations around the Medicare Advantage plan, the Part B, part C, Part D plans with all of that. This just gives me when they come up with a rule or regulation around how those operate, it gives me as the director the flexibility to make sure our Medicare group Advantage plan coincides with that, works with that. There's file shares that occur on a weekly basis around eligibility, who is participating in what, what level of coverage do they have?
It just keeps our ability to coordinate and make sure that that operationally goes as smooth as it possibly can. If there is an issue, for the example that we keep using, around somebody inadvertently signs up for a Part D plan when they have our group coverage, they're actually kicked out of our group coverage. And if they come back and say, look, I didn't intend for that. I really want to be on the state of Arkansas group coverage.
Medicare has typically said, okay, yeah, we see where that was a false advertising or we see where you inadvertently did that. You go back to that plan. So this just helps us to continue to do that work and make sure that we don't get into an issue under state law where we're, quite frankly, we're not supposed to bring somebody back on the plan. And we do.
Senator Stephanie Flowers So does your office then give information or advice or consult the retirees or the employees of the state of Arkansas about what's in their best interest or try in some way to explain all of this that they may not?
Grant Wallace We do our best to try to educate and explain. I draw the line at advice. I don't think it's appropriate for us as an entity to be offering anybody insurance advice. That's not really our role. But we do educate all the plans. We educate on the implications that if they do make a change in their part B coverage, Part C coverage or Part D coverage, that it would kick them out and that they are at risk for leaving the state plan forever. And so, again, yes, we're doing our best to educate and inform. We do draw the line at advice.
Senator Stephanie Flowers Well, just tell me, last question, Mr. Chair. How do you do that? Is there a newsletter? What is this?
Grant Wallace So we do newsletters. We have walk ins all the time that we have one on one. We have our Facebook, our social medias that put out educational information. We've got our website.and we've got printed materials. And we are doing more of an outreach effort to get into more facilities, more retiree groups, all of those, and talk and meet with them.
Senator Justin Boyd Okay. I've got a question for you, Mr. Wallace. And so I think I understand what the purpose of this is. But that said, it says the director may cooperate with the United States government in matters of mutual concern pertaining to federally funded programs. And so I guess my question is, as you had said, you stated something along the lines of doing best for our members.
So I went back to The Wall Street Journal to see how many articles I could find regarding our state, the company who has the contract with our Medicare Advantage plan that we use. And I counted 17 and that doesn't even include the data breach articles or the one regarding the unfortunate death of the CEO. So one of them was titled Antitrust Probe UnitedHealth, February 27th, 2024. 12/29/24, Unitedhealth's Army of doctors helped it collect billions more from Medicare.
What happens when your insurer is also your doctor and your pharmacist, June 13th, 2024, in the Wall Street Journal. So would you agree that those titles, the content would be of mutual interest to the state and the federal government?
Grant Wallace Yes.
Senator Justin Boyd So will this empower you to work with the federal government to address those concerns?
Grant Wallace If something comes up and they ask for our assistance to turn over information or anything like that, absolutely we would.
Senator Justin Boyd Thank you, Mr. Wallace. Any further questions? Seeing none, anyone signed up to speak for or against? No one in the audience. Okay. Do we have a motion?
Senator Blake Johnson Can I close?
Senator Justin Boyd Sorry. Yes.
Senator Blake Johnson Appreciate it, Chair. I think this will help our members and be able to, if they're taken advantage of, get back on our system and allow the director that flexibility. And I would make a motion to adopt.
Senator Justin Boyd Thank you. And we've got a motion. We've got a second. All in favor say aye? Any opposed. Hearing None, your bill passes. Thank you.
Senator Blake Johnson Senator Penzo, I think we're on 1273, correct?
Senator Clint Penzo Yes, sir.
Senator Blake Johnson All right. You're getting anybody that you need?
Senator Clint Penzo Hopefully not, hopefully not. All right. House Bill 1273 clarifies the superiority of liens between DFA and a purchase money mortgage. This bill is just providing language where there is none for the state of Arkansas. This language will mirror what is currently in place with the IRS. When someone purchases a piece of real estate with any level of investment in it and secures a loan for the balance owed, the resulting loan is considered a purchase money mortgage. DFA has agreed that any lien they have is inferior to this type of mortgage, and they're actually mirroring the IRS on this right now. This will just put this practice in Arkansas statute.
Senator Blake Johnson Any questions? Seeing none, you want to close for your bill?
Senator Clint Penzo Just appreciate a good vote.
Senator Blake Johnson All right. What's the will of the committee? Motion by Senator Boyd and second by Senator Johnson. Any discussion? All in favor say aye. All opposed like sign. Thank you, Senator. You have passed your bill.
Senator Clint Penzo Thank you, committee.
Senator Blake Johnson I don't see the sponsor for Senate Bill 94. Is there any other business need to come to the committee? Yes, ma'am. Your mic's not on.
Senator Stephanie Flowers SB 94 is back on the agenda today, and I'm not certain about the rules that we have. I know we discussed it and it was presented to us last week, but I know that there are members of the public that are here that testified against this bill last week. And it just seems to me, to be fair to people that come in and have an interest in these bills one way or the other, that they should know whether or not it's actually going to be presented.
Senator Blake Johnson That's what a regular agenda is. And I can't force members if they've got other things going.
Senator Stephanie Flowers When does it come off the regular agenda? How many times does it have to be--
Senator Blake Johnson We took no action on it. It was pulled down last time, heard, no action. So I guess this would be the first time of not hearing that bill. I think it has to happen three times.
Senator Stephanie Flowers The time last week doesn't count.
Senator Blake Johnson Well, this is the second time. If it's on there again, it'll go to deferred.
Senator Clint Penzo I had asked Dotson to work with me on some potential language changes. I will try to make sure that that's addressed before our meeting next week. He was going to run it today. But I think the reason he's not here is because I wasn't quite there with him yet. So we're working on that and hopefully next week we'll have something worked out and be able to run it. So that's kind of the goal right now.
Senator Stephanie Flowers So it just seems to me that you want to identify who it is that's here for it to speak one way or the other and to try to have some dialog with them. Shaking your head like you agree or something.
Senator Clint Penzo I do.
Senator Stephanie Flowers Okay. Well, they're all there.
Senator Clint Penzo I'd be happy to chat with anybody afterwards if you'd like to speak with me.
Senator Blake Johnson So our Insurance and Commerce photo is next Tuesday, and we'll do that at the beginning before we start our business. So thank you, members. We are adjourned.
