Medical Costs Threaten to Cripple State Budget
Labor officials insist on tapping into reserves to help meet PEBB’s $34 million deficit
Up until now, with the exception of a few plans, rmost state employees haven’t had to contribute anything toward their health costs – they aren’t charged any deductibles for medical services. And, they have very rich benefits, which are negotiated on their behalf by their union.
Because of the severe budget shortfall facing the state, Governor Kulongoski is unwilling to back away from the 5 percent cost increase built into PEBB’s budget for 2011 – when medical costs are projected to increase by 10 percent – which represents the $34 million hole.
As a self-insured entity, the options facing PEBB are limited – tap into its reserves, change the benefit design requiring employees to pay for certain services, stop subsidizing the medical costs for retirees or end the rural subsidy.
Complicating the issue is an agreement signed between the governor, the Department of Administrative Services and the union in 2009, which says that premium costs above the 5 percent mark during 2010 and 2011 should come out of PEBB’s reserve funds.
Diane Lovell, who represents the Association of Federal, State, County and Municipal Employees, believes the $32 million in a reserve fund established by Standard Insurance, should be used to help offset the deficit. But her motion failed to get a second and died.
“I don’t want to be premature, but I move that we authorize the staff to draw down the Standard fund as necessary to pay the claims,” she told board members. “It would be very odd if there was a request to implement a provision of a contract that seals the deal, and representatives didn’t act. That could have a chilling effect on future agreements.”
But tapping into such reserves could spell trouble if medical costs keep climbing in future years, said Rocky King, the policy advisor on health reform in the Consumer and Business Services Department. “We’re at the low end. Our responsibility is to PEBB’s stability moving forward.”
That stability could easily unravel unless union officials work together to resolve this funding gap, warned Fariborz Pakseresht, director of the Department of Administrative Services.
“Your employees are our employees,” he said. “There’s a cliff approaching. How far do we want to fall off this cliff? We can’t make you do anything but you need to be aware of the environment out there. The gap is so huge. There’s some room to get closer and still be good stewards so next year there’ll be lesser impact on the employees.”
As the discussion continued, cost-sharing seemed to play a more dominant role.
The governor is even leaning in that direction. In a May 28 letter, he encouraged PEBB, to consider “cost-containment mechanisms commonly found throughout industry to stem the rise of health care costs” without being more explicit.
The Board took a very cautious step in that direction, setting in motion $100 co-payments for sleep studies and medical imaging procedures such as PET scans, CT scans and MRIs in 2011, which will save upwards of $3 million.
If PEBB were to stop covering subsidies for people who’ve retired from state government, that would result in $10 million savings, and would impact close to 2,300 people.
That decision will face PEBB, which will continue holding meetings until they can resolve the $34 million shortfall.
Taking the plunge to becoming self-insured last January has definitely intensified the process. Originally, that option hadn’t been anticipated until 2012. But huge rate increases by Regence BlueCross BlueShield prompted that move.
“We were forced into self-insurance a year earlier than we wanted to because the trend was working against us,” said Dr. Jeanene Smith, administrator of the Office of Oregon Health Policy and Research. “We need to work toward evidence-based approaches and control costs. Otherwise pretty soon there won’t be any pocket of money to go to. At some point we need to make the plan sustainable over time.”
For more information
To learn more about the choices facing PEBB at its June 15 meeting, click here.
For related stories about PEBB click here.
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Comments
It’s natural that people with kids will see their non-childed friends less, as they will have less in common. I think og27 above made a relevant point – if we can adjust our expectations we will be less disappointed. It’s similar to the way friendships falter over distance – you just can’t catch up as much and don’t have as much in common. You could feel sad that you’ve lost the friend, or you could feel glad that you still have them in your life, albeit in a different way.
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Every one acknowledges that today's life is not very cheap, however we need money for different issues and not every man gets big sums money. Hence to receive quick mortgage loans or auto loan should be a correct way out.
We need a Ronald Regan approach to in uncooperative Unions. It 's called a mass firing !
If you would like to know why these costs are so out of control I suggest going to the OEBB website and looking at the outrageous benefits these employees are given. It's no wonder that there is overutilization when there is little to no cost for the member using those services. Guess what - just because it is free to these state employees doesn't mean the provider or the pharmacy doesn't need to be paid for their services or medications. How about bringing their benefits and cost-sharing up-to-date and being more in line with the rest of the workforce?
What happened to the cost containment strategy launched by PEBB administrators to great promotion a couple of years ago? Do we just get to leap from one strategy to the next without much leadership accountability? What proof does Dr Smith have that "evidence-based approaches" will deliver sustainable, bottom line results? When are we going to exhaust failed strategy over and over again?
Healthcare "inflation" is driven by new and expensive drugs and technology, according to The Kaiser Family Foundation's research. The way to control cost inflation is limit or prevent the implementation of new medical technology. Costs would not be inflationary if we had the same technology we had 20, or even 10 years ago. That is self evident. We must control costs or we will indeed "run over the cliff." Therefore, we all need to have a serious discussion about what new drugs and technology are "inflation neutral," and believe me, that isn't very many, if any at all.
You can run an entire classroom for a year, for the cost of one course, of the new drug "Provenge," which has been shown to keep a man with end-stage prostate cancer alive for 4 months longer. At $94,000, is it sensible to do this? Do we value those 4 months as much as we value a year of class for 30 fifth graders? If we continue to have this philosophy, where will we wind up as a state, and a nation.
You can run, but you cannot hide from this decision forever. In Oregon, and in the rest of the nation, it's bad to be in public school, but it's good to be entitled to the very best and most expensive treatments that public money can buy.
There was much hooplaw around a few years back how consolidation would save money. I testified at many hearings on the OEBB legislation and many like myself were drowned out by the mantra that costs could be contained. Should anyone be surprised by what is going on now. Many like myself predicted what would happen. This is what we can expect on the national level I suspect also. How can the State of Oregon gurantee things like this and continue to think they can use the threat of the power of the State to keep taking resources from the rest of us?
Actually there are copayments.
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