Actuary: Without changes, health insurance rates for state workers likely need big increase

Can’t maintain ‘status quo,’ panel told

Without a cut in benefits or other changes, health insurance rates for state employees will likely need to rise by double digits next year, an actuary told a state board Tuesday.

The projection by John Colberg, an actuary with the consulting firm Cheiron of McLean, Va., is in line with what he told the State and Public School Life and Health Insurance Board last year about the outlook for 2020.

At that time, the board decided to keep the rates the same for state employees this year as they were last year despite Colberg's prediction that the reserves available for the plans to use to offset the need for a large increase would be exhausted by 2020.

On Tuesday, he told the board that if medical and drug expenses grow at an annual rate of 5.5 percent, the rates for the state employees' plans will need to increase 27 percent next year unless other changes are made.

"We can't keep [the] status quo," he said. "There's not the reserves left to do that."

The board sets the rates for health plans covering about 26,000 state employees and 46,000 school employees, along with employees' family members and retirees.

In contrast to the state employees' plans, the school employees' plans have more reserves built up and are likely to need an increase of just 3 percent next year if no other changes are made, Colberg said.

To hold rates at that level, however, the plans would need to use up enough of their reserves that they would require a 24 percent increase in 2021.

Chris Howlett, director of the Department of Finance and Administration's Employee Benefits Division, emphasized that Colberg's presentation Tuesday was "the first discussion that we've had about rates for next year."

"We're exploring all the options," he said.

That includes changing the plans' benefits or asking for an increase in what that state contributes.

The state currently pays $420 a month for each budgeted position in state government, amounting to about $175 million a year, toward the state employees' plans.

Arkansas Code 21-5-414 allows Department of Finance and Administration Director Larry Walther to increase that amount up to $450 per position.

The law requires the department to seek the advice of the Legislative Council, which meets when the state Legislature is not in session, and the House and Senate insurance and commerce committees "before additional state contributions can be made" to the plans.

Howlett said the board likely won't decide whether to request an increase in funding until June, when he expects it to set the rates for next year.

Finance agency spokesman Scott Hardin said Walther "would consider everything presented" by the Employee Benefits Division, as well as the state revenue outlook, if he receives such a request.

By the time the board sets the rates, the projections could also change somewhat based on the plans' spending during the first few months of this year, Colberg said.

The state employees' plans benefited from several years in which spending came in below projections, including a decrease in expenditures compared to the previous year in 2014, 2015 and 2017.

The last time the plans' rates increased was 2017, when they rose by 3 percent for most plans.

Last year, however, the plans' medical expenses grew by about 8 percent, or about 3 percentage points higher than what had been projected, Colberg said.

Drug expenses, which had been projected to grow by 8 percent, increased by just 2 percent, he said.

With no rate increase, the plans' revenue, along with reserve built up in previous years, would fall about $27 million short of expenses next year, Colberg said.

The plans also have a "catastrophic reserve" of $30.6 million to cover a spike in large claims.

Among the options the board could explore to offset the need for a rate increase is eliminating drug coverage for retirees who are eligible for Medicare, which Colberg said would save the plans about $21 million a year.

Plans covering Medicare-eligible school retirees already don't provide drug coverage.

The board could also save about $3.8 million a year by making the deductible for the premium plan, the most popular plan among state employees, the same as it is on the premium plan for school employees: $750 for an individual or $1,500 for family coverage.

The state employees' plan currently has a deductible of $500 for or an individual or $1,000 for a family.

The premium for state employees under the premium plan is $107.92 a month for individual coverage or $498.88 for family coverage

School employees pay $183.46 a month for individual coverage or $833.44 a month for family coverage under that plan.

Under the classic plan, the most popular option for school employees, they pay $46.06 a month for individual coverage or $358.32 for family coverage.

That plan has a deductible of $1,750 for an individual or $2,750 for a family.

For state employees, the classic plan has a deductible of $2,500 for an individual or $5,000 for a family.

State employees pay $47.88 a month for individual coverage or $315.18 for family coverage under that plan.

The last rate increase for school employees was also in 2017, when the rates rose by 2 percent.

A Section on 04/17/2019