State Faces Another Possible $52 Million Shortfall
Health benefits for state employees and their dependents exceed budget projections for 2011
Another $34 million to $52 million is needed to sustain health benefits for state employees and their dependents next calendar year.
There isn’t final agreement on the exact shortfall, but the Public Employees Benefit Board will wrestle with this daunting issue when it meets next Tuesday.
As a self-funded entity, its options are limited – it can dip into dangerously low reserves or require state employees to pay more for their health coverage. If the board decides to draw down its reserves, that could have an impact on health benefits in future years.
Such decisions won’t come easily since board membership is evenly split between union representatives and management who remain divided about what should be done. If agreement can’t be reached, state employees could eventually face layoffs.
What’s responsible for this shortfall? Here’s a sneak preview:
- The largest sum – $34 million is a result of higher utilization of medical services projected for 2011. Governor Kulongoski built a 5 percent trend into PEBB’s budget; costs are estimated to increase by slightly over 10.4 percent.
- Another $3 million results from the impact of national health reform, requiring children to be covered under their parents’ policies until age 26.
- Increased reserve requirements would add another $12-13 million beginning Jan. 1. 2012.
- Samaritan Health Services, which provided medical coverage through 2008, may be owed $1.7 million for unpaid claims.
- The state is also responsible for up to $13 million in unpaid claims owed to Regence BlueCross BlueShield, however that money has already been set aside.
“I’m approaching this next meeting that we’re $52 to $55 million short,” said Rocky King, during the public board meeting. “If I’m wrong with that, I’m looking to you to tell me I’m wrong.”
PEBB’s overall reserves, which will reach $144 million by January 2011, are at the low end of recommended levels for self-insured groups, according to representatives from Mercer.
Board members could choose from plenty of options to confront the shortfall. Among them:
- Charge a $500 copayment for certain services including upper endoscopies, hip and knee replacement surgeries, back surgeries and knee or shoulder arthroscopic surgeries, which could save $7.3 million, according to projections by Providence Health Plan.
- Require a $100 copayment for CT scans, MRIs or PET scans, which would save $2.5 million.
- Require a $100 copayment for sleep study benefits, resulting in $300,000 in savings.
- Reduce the coverage of new dental crowns and save $1.8 million.
- Require a $1,000 copayment for bariatric surgery, which would save $250,000
- Limit alternative care to 60 visits, for $600,000 in savings, or
- Discontinue the rural subsidy, which would save $4 million
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Comments
Big, bad Regence made the group go self-funded before they were ready. Really? Maybe they just didn't want to pass the cost of these benefits to the rest of their members....
Why in the world is it okay to use tax payer's money to cover such a ridiculously extravegant plan for public employees? This is not the reality the tax payers of Oregon are currently facing. How about joining our world of $500 - $1000 deductibles? How about a $30 copay for office visits on top of an addition percentage of the office visit? Limiting alternative care to 60 visits a year? This is one of your cost sharing ideas? A $1000 copay toward bariatric surgery? And we're supposed to try really hard not to put some of the responsibility on the backs of the employees. We're supposed to make sure they continue on with their rich benefits.
I'm disusted.
In addition to the rate increase, there are inequities in the program. If you are in Salem you are on PEBB statewide Providence which has higher co-pays and less of a network than those in Portland. It seems that if you are in Providence land you have less out of pocket than those covered in Salem. A lawsuit waiting to happen?
Fully insured vs fully self-funded not relevant?! Really? Spoken like someone who isn't paying the bill.
The assumption of increasing risk vs the transfer of that risk is the most primary fiduciary question the PEBB Board members faced in exercising their responsibility for the sound financial management of the plan. Citing one advantage of self-funding, greater plan control, is not relevant to the primary question as to when to consider making the funding transition.
If greater control over the plan were, in and of itself, relevant, then it failed to pass the test, given that the Board and the new administrator failed to improve the performance of the plan over the prior period and, in fact, given the stated numbers, made it worse.
The real problem here is the over-utilization of healthcare by state employees. Simply put- State employess tend to be an unhealthy bunch. Require them to pass a physical prior to being hired. For current employees that are smokers- require that they quit smoking as a condtition of employment. If they are overweight give them 6 months to get in shape.
These are all adults and as such they should be required to take care of themselves.
On a group of this size, whether it is fully insured or self funded is not relevant. Should be self funded to gain total control of all fiscal elements and measure them independently. Claims are claims and the Plan Sponsor has the obligation to budget properly for this cost.
The total cost is a very simple equation
utilization x unit cost = total cost
The predictability of cost for a group of this size should not be very difficult. A good underwriter should be within one-tenth of one percent variance for all lines of coverage.
So, what accountability is there for PEBB Board members who decided to take on the financial risk of self-funding at a time when:
1. Their consultant's openly reported they had minimum reserves to do so;
2. Decided to make the transition at the very time you should not--that is, when claims costs were rising at a significant pace (as evidenced by the 16% rate increase requested by the then carrier Regence), and -- perhaps most important --
3. Choose to move all of their claims from a proven and stable state-wide network to an unproven network (Providence) with little history of state-wide PPO coverage and savings. This is the same insurer that "pop"-ed OEBB for a huge double-digit rate increase for their second year of coverage--proving their first year rates were either 'bait and switch,' or their marketing assertions were negligent, or their underwriting was simply incompetent.
Me thinks perhaps the PEBB Board members had other motivations in making the decision to throw out Regence and install Providence than managing the sound financial foundation of the public employees plan. The results of their decision in light of such obvious results given the information available at the time suggests to me that some regulator ought to be looking a little closer.
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