The Public Employees Benefit Board expects to drain its reserves from $343 million today to just under $47 million in three years, due to a rise in healthcare spending and the Legislature’s decision to take $120 million from the fund to pay for other state needs, like wages.
Emery Chen, an actuary with Mercer, told the board on Tuesday that it faces a sharp decline to $174 million next year, followed by $136 million in 2018, as healthcare increases exceed the 3.4 percent per employee cap imposed by the state.
In addition to the $120 million that the Legislature has raided from its reserves, PEBB will be forced to pay an estimated $15 million in tax penalties to the federal government in 2018, since the money had been earmarked for public employee health spending.
Although PEBB kept its spending below the inflation cap for several years, inflation was at 5.1 percent this year and is expected to grow to 5.8 percent next year. The projections for 2018 and 2019 are based on a 7.5 percent increase -- which could be higher than actual growth.
Veteran PEBB Board Member Paul McKenna cautioned against reading too much into the depletion of the reserves in 2018 and 2019, as the actuaries had warned PEBB it could fall to those low levels by 2017 during an earlier forecast. “We had a big hole, and now we’re all right,” McKenna said.
However, the $136 million left in the fund in 2018 is actually lower than a forecast Chen made this spring -- when he fixed the remaining fund at $159 million for that year. He now projects PEBB will spend $89 million more than it takes in on healthcare costs in 2019, a deficit that would wipe out the remaining $47 million reserve in 2020.
A separate forecast -- where the state is able to limit inflation to 3.4 percent -- showed a reserve still at $154 million in 2019, although Chen offered no realistic explanation for how PEBB could keep spending increases that low.
Claim costs for the state’s two self-insured health plans from Providence actually increased 11 percent and 10.4 percent from 2015, but the state has saved money as employees migrate from the traditional expensive statewide plan to more coordinated models.
The PEBB statewide Providence plan now averages $17,000 per employee, while the Providence choice option costs $12,800. The coordinated option from Moda Health costs $11,100; a plan from All-Care in southern Oregon costs $14,000 and the standard Kaiser Permanente plan was at $12,300. A separate Kaiser plan with a $250 deductible costs the state only $5,900 per employee, as it attracted the healthiest employees.
Interestingly, the employees using Moda Health’s model had the highest risk scores, despite the lowest costs per employee.
Prescription drug spending, after spiking for several years to pay for new blockbuster speciality medications, has started to level off, rising 6.6 percent since 2015, after a 10.1 percent increase, across all plans, from 2014 to 2015.
Chris can be reached at [email protected].
Correction: An earlier version of this article mistated at one point the amount of money that the Legislature has removed from the PEBB reserve.
