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State board backs $35M request for school employee health plan

by Michael R. Wickline | June 9, 2021 at 6:54 a.m.

The state Board of Finance on Tuesday voted to recommend that the state Department of Education ask the Legislative Council to authorize the transfer of $35 million from the state's restricted reserve fund to shore up the health insurance plan for public school employees next year.

This insurance plan covers more than 100,000 public school employees, retirees and dependents.

The board also tossed around options for premium increases for the employees and retirees; changes in the wellness credit for active employees; and creating a non-wellness contribution in 2022. The board next meets June 22 to consider which recommendations to make to the Legislative Council.

The restricted reserve fund has about $65 million. About $30 million will go to the state Department of Transportation to meet a commitment under state law, leaving about $35 million, said acting Board Chairman Larry Walther, who also is secretary of the state Department of Finance and Administration.

Under Act 416 of 2019, casino-related revenue above $31.2 million is diverted to the Transportation Department, which is guaranteed a minimum $35 million a year from casino revenue, a reserve fund and other sources.

Finance department officials expect $29.4 million from the reserve fund will be required to meet that $35 million commitment, department spokesman Scott Hardin said afterward.

If the remaining money in the restricted reserve fund is not obligated by the end of this fiscal year, that money will be swept into a long-term reserve fund under state law, Walther said.

Act 1058 of 2021 requires the transfer of the restricted reserve fund's balance to the long-term fund on July 1, Hardin said afterward.

The amount of the remaining money in the restricted fund is fairly close to the projected funding gap for the state's health insurance plan for public school employees next year, Walther said.

Without any changes to the plan, the projected deficit is $70 million next year, while changes under consideration by the board would raise between $30 million and $35 million next year, he said.

Greg Rogers, assistant commissioner of fiscal and administrative services at the state Department of Education, said the department is providing about $130 million in state funding to the plan in 2021, including $20 million in one-time supplemental funds, and expects to provide about $110 million in 2022.

School districts provide about $100 million a year to the plan, he said.

Employees are projected to contribute $137 million this year, according to state records.

Board member Keith Konecny said the health insurance program for public school employees is underfunded.

The state's contribution to the plan is low compared with the six surrounding states and Alabama and the employees' contribution is high compared with those states, he noted.

Jake Bleed, director of the state's Employee Benefits Division, said the financial problems of the public school employees' health insurance plan developed over many years and will be difficult to fix.

The now-dissolved State and Public School Life and Health Insurance Board voted in April to recommend premium increases and other changes in the plan next year and still planned to ask for $30 million more from the Legislature, he said.

The restricted reserve fund exists to meet temporary, short-term or unanticipated needs of the state and using that money requires a three-fifths vote of the Legislative Council, Bleed said.

"Right now, the state is looking at a very good year," he said, referring to fiscal 2021, which ends June 30.

Gov. Asa Hutchinson expects the state to have a general revenue surplus exceeding $1 billion.

"We are looking at increasing our long-term reserve balance to well in excess of $1 billion," Bleed said, "so the thought occurs is if we submit a request on behalf of the public school employees now to be considered by the Arkansas Legislative Council at their meeting next week, the Legislature could have the option to transfer funding in this fiscal year [out of the restricted reserve fund] in advance of that end-of-the-year sweep [to the long-term reserve fund] to help the teachers out to provide some support for their funding going forward and ... make [the board's decisions] a little easier."

The idea is to give the Legislature the option of which fiscal year that it wants to, if at all, help meet the needs of the school employee insurance plan, he said.

In an interview afterward, Senate President Pro Tempore Jimmy Hickey, R-Texarkana, said he doesn't want to tap the restricted reserve fund for $35 million before the end of fiscal 2021 for the insurance plan. Instead, he wants that money to be swept into the long-term reserve fund.

He said the restricted reserve fund will have $75 million starting July 1 and lawmakers could consider requests for using that money at that time.

A Legislative Council co-chairman, Rep. Jeff Wardlaw, R-Hermitage, said in an interview that he believes the $35 million request for the insurance plan will be funded in July out of the restricted reserve fund.

Walther told the finance board that tapping the $35 million "would send a message to the public school employees that we are setting aside money that will allow us to have a plan that is solvent through 2022 and then the next thing that needs to happen is we or the next board would then start working on how we are going to move forward with '23 and beyond."

Among the dissolved insurance board's proposals, active school employees would face a 10% increase in premiums, retirees under 65 would face a 15% increase, and retirees who are 65 and older would see a 20% increase.

Those proposals were projected to reduce the public school employees plan's projected deficit from $70 million to $29.7 million for 2022.

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