Advice is to raise state-job premiums

If not, bigger hit on way, panel told

State officials should consider increasing health insurance premiums for public school and state employees by at least a small amount in 2017 if they want to avoid large increases in future years, an actuary told a board subcommittee Friday.

While the State and Public School Life and Health Insurance Board could "technically" use reserves to keep rates stable next year, those reserves will eventually run out -- most likely by 2018 for state employee plans and 2019 for teacher plans, John Colberg, an actuary with the Cheiron financial and actuarial consulting firm, told the board's benefits subcommittee.

If the reserves were gone, the rates would likely need to be increased by at least 21 percent for state employees in 2018 and by at least 11 percent for school employees in 2019 unless benefits were cut, Colberg said.

And that's only if medical and drug costs increased by just 3 percent annually. If they increased by 6 percent annually, the rate increases would be even bigger -- 31 percent for state employees and 26 percent for school employees.

"It might be better for people to have a couple years of moderate increases than nothing, and then a rather large increase," Colberg said.

For instance, he said, increasing rates by a minimum of 5 percent each year could reduce the needed increase for state employees in 2018 to 14 percent or 23 percent, depending on how fast medical and drug costs increase.

For school employees, a minimum increase of 5 percent each year could prevent the need for larger increases through 2020 if costs grow slowly. If costs grow faster, the rates might need to be increased by 12 percent in 2019 and 20 percent in 2020, Colberg said.

The subcommittee, which meets again July 1, will make a recommendation to the full board, which is expected later that month to set rates for 2017.

Sen. Eddie Cheatham, D-Crossett, chairman of a legislative task force that monitors the plans, said information about the plans' finances led him to believe there wouldn't be a need for an increase next year. He said he intends to look into the issue.

"I was hoping for no increase," he said.

The plans cover more than 147,000 people, including 45,000 school employees, 26,000 state employees, 4,700 retirees, and family members of employees and retirees.

In 2013, a 21 percent increase in premiums for the richest plan available to school employees, then known as the gold plan, caused many employees to switch to plans with lower premiums but fewer benefits.

That year, the potential for an even larger increase in 2014 prompted then-Gov. Mike Beebe to call a special session of the Legislature in which lawmakers created the task force and allocated $43 million in surplus tax revenue to shore up the school plans.

After recommendations from the task force, legislators passed laws during a special session in 2014 to limit coverage of weight-loss surgeries and exclude from coverage part-time employees and employees' spouses who can get coverage from their own employers.

The health insurance board also revamped the plans, essentially eliminating the zero-deductible gold plan and creating the "basic" plan, which, for school employees, has a $4,250 deductible for individual coverage or $8,500 for family coverage. The changes resulted in lower rates for employees whose plan benefits were reduced, and higher rates for others.

Since then, the rates have stayed the same. Under the premium plan, school employees pay a maximum of $179.38 a month for individual coverage with a $1,000 annual deductible, or $814.92 a month for a family plan with a $2,000 deductible.

For the classic plan, now the most popular option, school employees pay up to $45 a month for individual coverage with a $2,000 deductible or $350.36 a month for a family plan with a $3,000 deductible.

The maximum premium for the basic plan is $11 for an individual or $269.50 for a family. Some school employees pay less than the maximum because their school districts contribute more than required by state law.

Because state employees' plans receive more taxpayer funding, they generally pay lower premiums than school employees for similar coverage.

For instance, for the premium plan, which is the most popular option for state employees, the premium is $104.78 a month for individual coverage with a $500 deductible or $484.34 for family coverage with a $1,000 deductible.

Possibly as a result of the benefit changes and employee plan choices, the medical claims for the average school employee fell from 2013-15. For the average state employee, medical claims fell in 2014 and increased by just 1.3 percent in 2015, Colberg said.

But this year, he said, medical and drug expenses for both groups appear to be on track to increase by 10 percent or 11 percent.

His firm is studying the reason for the increase, he said, but he noted that claims could be reverting to their previous growth trajectory after years of falling or remaining flat.

Board member Bob Boyd, an employee benefits consultant, said the switch to higher-deductible plans at other employers has been described as resulting in a "rush, then a hush, then a crush."

The rush comes when employees schedule procedures before the new plan with a higher deductible takes effect. Once it does take effect, the deductible may cause employees to put off medical care.

"We're in the crush period, because people delay doing things for a year or two, but you can't delay forever, and so they're all coming due," he said.

Colberg said his firm expects increases in 2017 of 6 percent in medical costs and 10 percent in claims for prescription drugs.

Annual funding from the state and school districts increases each year only slightly, meaning most of the money to pay for the increases will have to come from reserves, premiums or reductions in benefits.

Members of the benefits subcommittee said they want to learn more about the reasons for this year's increase in claims before recommending a rate increase to the full board.

"We don't want to raise rates if we don't have to," Chairman Jeff Altemus, who is deputy superintendent of the Marion School District, said.

A Section on 06/11/2016

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