State Employees Impacted by Rising Healthcare Costs

Governor Kitzhaber urges the Public Employees’ Benefit Board to make changes that add value and provide better health
February 23, 2011 -- With an impending budget shortfall of $10 million this plan year, the Public Employees’ Benefit Board faces tough choices about state employee health benefits when it meets March 1.
That funding deficit has arisen because of federal health reform, which now requires employers to provide coverage to adult children 26 or younger. The board hopes to reach consensus on plan changes by mid-April.
When the benefit package was designed for 2011, healthcare costs were only projected to increase by 10 percent, but current estimates expect those costs to grow by 11.7 percent, which is responsible for the looming deficit. 
That’s not the only challenge ahead. Governor John Kitzhaber admonished the board not to just cut benefits or shift costs when they develop the budget for the upcoming biennium, but to focus on innovative approaches. The money simply isn’t there to absorb double digit increases, he told the board last week.
“You need to make changes that add value and provide better health,” he said. “I recognize the shortfalls are daunting, and there’s no question that our employees have to shoulder more of the burden. But they need to be balanced on value-based evidence benefit designs.”
Dr. Bruce Goldberg, director of the Oregon Health Authority, laid out the board’s options. Look at the cost of keeping the current benefit design for the next two years, he said, by focusing on the medical trend, utilization, unit costs and reserves – then come up with a prioritized list of potential benefit changes and include the estimated savings. Finally, he recommended, develop alternative plan structures that focus on employee responsibility. Another possibility is to create a separate benefit pool for retirees.  
“That’s not simply the traditional way we’ve done things for the last 10, 20 and 30 years,” he told the board. “If we can put all that together, we can start to have a list we can all work from and craft a plan that would work well.”   
Unlike last year, the labor unions won’t be able to hold the board hostage. A collective bargaining agreement signed by Governor Kulongoski said that healthcare costs above the 5 percent mark for 2010 would have to come out of its reserve fund, not benefit changes. The board, which has equal representation from labor and management, deadlocked, and ended up liquidating a reserve account to absorb those cost increases.
To avoid a future scenario, Kulongoski had recommended a ninth member be appointed, but Kitzhaber indicated he won’t head in that direction. "We have to commit to a workable partnership," he said.  
From the union’s perspective, Diane Lovell, who represents the Association of Federal, State, County and Municipal Employees, said she felt more optimistic about making future decisions. “The previous governor asked us to break the collective bargaining agreement he agreed to,” she said.  “We don’t have one in existence now. We can collaborate with the unions, collaborate with one another, and have a whole new future. We’re not in the same position.”
For too long, the collective bargaining process has been done in isolation, said Rocky King, interim director of healthcare purchasing for the Oregon Health Authority. “Putting all the information out there so all the sides know what kind of a hole we have will help drive the support for the innovations and solutions we need,” he said.
The Oregon Health Authority has a tremendous opportunity to drive healthcare changes because of its purchasing power. Together with state employees, school district employees, Oregon Health Plan members and those on the high risk pool, it represents more than 850,000 Oregonians.
“Working together we can improve the benefit design,” the governor said. “Working together, we can make changes and not just cut or shift costs to employees, but add value. The purpose of our healthcare system is to focus on health rather than buying a benefit that may not be beneficial in terms of health.”
The cost curve must be bent without any adverse pooling of risk, Goldberg said. “PEBB is not an island. We all use the same hospitals, the same doctors, the same nurses; we have to work together to get that collective change in what we’re doing. We all want to create a bigger vision of what healthcare is, but we can’t do it separately.”
“The world has fundamentally changed,” the governor concluded. “It’s a new fiscal reality and the cost of healthcare is eating everything else alive. If we can get our act together here, we have a huge opportunity.”

Rep. Tina Kotek (D-Portland) who sits on the board, concurred. “We have to get this right,” she said. We don’t have a choice.”


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I had no idea that last year the entire reserve fund was used to block increasing state employes costs or cutting benefits tio state employes. Is that correct?

From an email sent to Diane Lund-Muzikant from Arthur Towers, political director for SEIU Local 503: Thank you for the excellent work that you do at The Lund Report. You play an important role in the debate around health care in Oregon, and that is much appreciated. I know that Joan K from PEBB characterized the PEBB rate hikes as caused by federal health reform. The big problem is that the economy continues to tank – more workers are having to add spouses and children (over and under 26) to their insurance coverage. Why? Because spouses and young adult children are losing their jobs or losing the health coverage at their job, pushing more folks into the PEBB pool. Arthur Towers Political Director SEIU, Local 503

Diane, Ms. Kapowich cannot honestly blame adding adult children under age 26 to the PEBB plan as the reason they are in a deficit. That is a terrible message to send to state employees and Oregon taxpayers and these two groups are smarter than that to believe this baloney. PEBB should have known in May 2010 that they would need to budget for the health care reform changes that were coming if they were responsible in planning and budgeting. They raided their reserves last year ($34 million) to cover their deficit because they couldn't (or wouldn't) make changes in their bargaining agreements. It is high time to make these changes to their health plans, you can look at their plan comparisons at the PEBB website: I'm sure many folks would like a plan that had no deductibles, $5 co-pays and no employee contributions. These plans are very rich with high utilization--that's why they are in a deficit. Ask any reputable broker--they do not blame adding adult children as the reason for a group's higher renewal costs--that's because that's not the reason.