PEBB Dips Into Reserves to Fill $34 Million Hole

June 30, 2010 -- Labor officials got a reprieve on Tuesday when the Public Employees Benefit Board decided not to cut the healthcare benefits of state employees next year despite having to patch a $34 million budget hole.

 

Instead the board decided to liquidate a $32 million reserve fund established by Standard Insurance at the end of the year, which had provided a $20,000 death benefit to state employees. Nearly half of those funds -- $14.7 million will help plug the $34 million hole – the remainder coming from federal matching funds. The other $18 million heads into the board’s reserve account, bringing it closer to the mid-point range, of $161.5 million, which was recommended by Mercer consultants, which advise the board. State employees will retain their $5,000 death benefit.  

 

Those cutbacks occurred because medical costs are expected to increase by 9.93 percent next year; the governor’s budget only allocated 5 percent. Earlier the board decided to require state employees to pay small deductibles for imaging tests – MRIs and PET and CT scans – and sleep studies.

 

Labor had the upper edge, however. An agreement signed by the governor gave officials the ability to petition the board to fund any increases between 5 and 10 percent

 

However, all state employees aren’t protected by this decision. In fact, another $16-18 million needs to be slashed from agencies such as the Department of Consumer and Business Services that do not receive general fund revenue. Because of cutbacks announced earlier, that agency will lay off 31 employees on July 19, bringing it down to 937 employees with another 100 unfilled positions, according to Lisa Morawski, communications director. It's still unknown how the agency will deal with the deficit from the latest decision since there's not yet any information about the size of those cuts, however there is the potential of future layoffs or program cutbacks.    

 

 “We’re just patching a hole, and state employees are at risk of losing their jobs,” said Dr. Jeanene Smith, administrator of the Office of Oregon Health Policy and Research. “My concern is that there’s also a 9 percent budget cut across the board for all agencies recommended by the governor, and significant cuts are going to happen.”

 

Smith urged the board to consider evidence-based approaches to bring costs in line by, for example, charging $500 deductibles for procedures that have not proven effective such as knee and hip replacements and spine procedures for pain.

 

“We need to look at the best evidence to get the right care and avoid unnecessary costs,” she said. “Medical trend is continuing to go up; we’re not really bending the cost curve at all. We need to provide affordable quality healthcare to all Oregonians.”

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Now the board faces hard-core decisions about benefits during 2012 and must produce an RFP by early September. With medical costs increasing by at least 10 percent, coupled with Oregon’s multi-million dollar budget deficit, management and labor officials could find themselves grappling with a double-edged sword. Up until now, the board has deadlocked over changing the benefit structure by increasing out-of-pocket costs, charging deductibles or limiting services – with labor adamantly opposed. Management and labor each have four seats on the board.  

 

And, with the governor’s race about to heat up, pressure could be exerted on the leading candidates – John Kitzhaber and Chris Dudley – to make promises not to cut employee benefits in return for making an endorsement and receiving campaign donations.  

 

Rich Peppers, who chairs the board and is assistant executive director of SEIU Local 503, was unwilling to speculate about whether labor officials would try to influence those candidates, saying he couldn’t address collective bargaining issues in his role as chairman.  

 

He also expressed doubt that the board would remain deadlocked once discussions begin  about healthcare benefits in 2012.  

 

“People are very committed to making PEBB work; everyone’s aware that the future is going to require some difficult decisions,” Peppers said. “It’s a little premature to say what exactly people want to do. Next year there’s going to be a new set of circumstances facing us. We have to make certain PEBB can provide the best affordable coverage and protect our reserves to make sure that self-insurance is assured. Everyone’s approaching this with the best mind set.”

 

However, those tough decisions won’t come easily, acknowledged Rocky King, who works as a policy adviser on health reform for DCBS. “You’ve really just postponed some of the difficult decisions you have to make, and because you have postponed the decision, whatever action you will have to take in the future will be more pronounced,” he told his colleagues.

 

Nothing’s been done, he added, to reduce the impact of medical claims. “What we’ve done is plug with money the difference between 5 percent and 10 percent. A year from now we’re starting 5 percent in the hole.”

 

 If the board stays on track, the bid proposals for 2012 are expected to be released in October.