Dropping drug coverage for retired state employees, reducing other benefits and asking for more money from the Legislature were among options an advisory panel discussed Friday as ways of reducing the need for large increases in future years in the health premiums paid by state and public school employees.
The plans covering about 45,000 school employees and 26,000 state employees have enough reserves to keep rates stable next year, John Colberg, an actuary with the Cheiron financial and actuarial consulting firm, has said.
But Colberg told the State and Public School Life and Health Insurance Board's benefits subcommittee last month that the reserves will eventually run out -- most likely by 2018 for state employee plans and 2019 for school employee plans.
When the reserves are gone, the rates would likely need to be increased by at least 21 percent for state employees in 2018 and 8 percent for school employees in 2019, assuming the benefits stay the same, Colberg told the subcommittee on Friday.
That also assumes medical and drug costs grow by just 3 percent each year. If the costs grow at 6 percent a year, the rates for state employees would need to increase by 30 percent in 2018 and by 27 percent for school employees in 2019.
The subcommittee is considering recommending rate increases to take effect in 2017 as a way of reducing the need for the large increases in future years.
On Friday, the subcommittee also discussed other options.
Colberg said the state employees' plan pays about $30 million a year on prescription drugs for about 12,000 retired workers and spouses of employees and retirees who are on Medicare.
Although the federal government provides about $5 million a year to offset the cost, the subsidies available to insurance companies that provide coverage in stand-alone drug plans for Medicare beneficiaries are more generous, thanks to enhancements under the 2010 Patient Protection and Affordable Care Act, Colberg said.
Eliminating the state retiree drug benefit, while reducing retirees' premiums for medical care by $100 a month, would save the plan about $18 million annually, Colberg said. That would be enough to reduce rates for all state employees and retirees by about 20 percent.
Monthly premiums for stand-alone drug plans sold in Arkansas by insurance companies range from $11.40 to $131.90, Colberg said.
Most retirees would save money under the change, although some with high drug costs would likely pay more, he said.
The plans for school retirees who are on Medicare don't cover prescription drugs, so those retirees already must enroll in stand-alone plans if they want drug coverage.
Colberg cautioned that the change would likely be difficult for retired state employees, who would have to learn how to shop for coverage in the stand-alone plans.
Board member Janis Harrison said some retirees would likely feel betrayed.
"These are the people who are 65 and over who committed to working a long time for the state because they knew that they would have great coverage when they retired," Harrison said.
Other changes could also help, Colberg said. For instance, he said, increasing the deductible for state employees' top-tier plan from $500 to $1000 for individual coverage would save about $4 million a year.
Such changes could delay the need for large increases, but not prevent them altogether. Ultimately, holding down rates in future years will require slowing the growth of medical and drug costs or increasing taxpayer funding for the plans, he said.
The subcommittee will meet again next Friday and make a recommendation on rates for 2017 to the full board, which meets July 12.
Metro on 07/02/2016