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Changes OK'd for health insurance plans for Arkansas teachers and state employees

Legislators look at state funding by Michael R. Wickline | November 20, 2021 at 4:06 a.m.
FILE — The state Capitol is shown in this file photo.

The Arkansas Legislative Council on Friday approved a consultant's recommendations aimed at stabilizing funding and cutting costs for the health insurance plans for current and retired public school and state employees.

The Segal Group consulting firm recommended that the state link future funding increases for the two insurance plans to an inflation measure, such as the health care consumer price index.

Rep. Jeff Wardlaw, R-Hermitage, said the average increase in that index has been about 5% a year.

The state would build a multiyear projection model for the two plans and establish target reserve fund ranges equal to between 12% and 16% of claims, under the consultant's recommendation.

The state's Employee Benefits Division would be responsible for managing the plans' expenses so that the fund balances would be at the midpoint target of 14% of claims by the end of the projection period, the Segal Group said in a written report.

If the projected reserve funds fall below 12% of claims, a funding "trigger" would be executed to stay within the range by increasing contributions from employees and the state, Wardlaw said.

If the projected reserve funds exceed 16% of claims, the plans may decide to reduce premiums and state contributions, he said.

The consultant said the state should also consider increasing employee contributions at a slower rate than state contributions in the near term.

"The last thing we want is our teachers to get a raise and it all goes to insurance," Wardlaw said.

Afterward, John Bridges, executive director of the Arkansas State Employees Association, said Friday, "We appreciate the approach and recommendations [the Legislative Council] has taken of trying to create a stable health care plan for the long term.

"The retirees who have been following the process are happy that they will not be removed from the pharmacy plan permanently as they faced last year and now can stay in the state's pharmacy plan if an Advantage plan does not fit their needs," he said in a written statement.

"Hopefully with the new metrics in place going forward active state employees will not be faced with sudden, large premium increases that erodes their yearly performance pay increases."

The state's health insurance plans are "generally middle of the pack" from a design perspective, though employer contributions are low relative to the benchmarks of neighboring states, Segal's College and University Benefits Survey and overall market trends, according to the Segal Group.

The state should combine the funds of the health insurance plans for public school and state employees and retirees to maximize stability and provider consistency between programs, the consultant recommended.

In May, the Legislative Council approved a consulting contract worth up to $575,000 with the Segal Group to review the public health insurance plans and recommend changes to ensure their long-term solvency. The contract runs through Dec. 31 with a six-month renewal option.

Without changes in either plan, state officials had projected that the plans would collectively have a $103.3 million deficit at the end of 2022. Changes approved by the Board of Finance and Legislative Council this summer eliminated the potential deficits.

With no change to either plan or increase in funding, the Segal Group projected the state employee plan would have $8 million in assets at the end of plan year 2024 -- well below a recommended reserve fund level -- and the public school employee plan would have its assets drop into a cash flow deficiency.

The Segal Group said its recommendations would produce estimated annual savings of $70 million.

"The savings are created by maximizing what is currently available in the healthcare market, rather than increasing participant contributions or reducing plan designs, both of which negatively impact the employees and retirees of the [Employee Benefits Division] program," the consultant's report states.

"Incorporating the recommended reserve structure for the combined [state employees] and [public school employees] funds, and making the changes [recommended] to capture savings will provide [the Employee Benefits Division with] financial stability into the future," the Segal Group said.

"We project assets at the end of 2025 to be $234 [million], well above the established reserve target ... allowing the plan to increase funding at a rate lower than the target Medical [Consumer Price Index] and keeping employee contribution relatively stable."

The consultant's recommendations approved by the Legislative Council include:

• Preparing a request for proposals for a group Medicare Advantage prescription drug vendor and introducing Medicare Advantage prescription drug coverage in 2023 for both plans. Participants should be automatically enrolled, but the current retiree option should be kept so retirees have choices.

The state and public school plans' Medicare Advantage prescription drug program benefits should be set so the benefits are at least equivalent to the current benefits, and the prescription drug coverage for public school retirees reinstated, the Segal Group said.

The state should structure contributions to incentivize the Medicare Advantage prescription drug program so the lower premium yields shared savings for both the state and retirees, the consultant said.

Based on initial rates provided by Medicare Advantage Prescription Drug carriers, the state should expect savings of at least $34 million to $41 million for the state employees' plan and "we would expect [this] number to grow during a competitive bid," the Segal Group said.

Reinstating prescription drug coverage to the public school employees plan for retirees will likely be cost neutral during a competitive bid, the consultant said.

• Preparing a request for proposals for a pharmacy vendor that describes the flexibility desired in the program, including the custom formulary, custom clinical rules and the role of independent pharmacies in the state. The Employee Benefits Division has split the operational function of a traditional pharmacy benefit manager, relying on the Evidence-Based Prescription Drug Program and Medimpact to work in tandem to manage the program.

The recommendation requires bidders to propose guaranteed rates with independent pharmacies separate from other pharmacies to allow the plans to have control over pricing terms for the independent pharmacies.

A competitive procurement should generate savings of $25 million to $50 million a year through greater rebates, assuming the same plan design and formulary, the consultant said. The Segal Group recommended a repeal and replace of an insulin-related law -- Act 1104 of 2021 -- to avoid an estimated $7 million a year cost, starting in 2022.

• Aligning the two plan designs to simplify offerings and introduce more consistency between programs at a $4 million cost in exchange for richer benefits for members of the state's health insurance plan for public school employees.

• Rolling out a comprehensive diabetes disease management strategy, introducing a musculoskeletal program and maintaining the bariatric program and eliminating the cap on the number of participants. The Segal Group estimated initial savings at $10 million to $14 million driven by the engagement of diabetics and pre-diabetics.

• Issuing a request for proposals on the normal contract cycle for the Employee Benefits Division's medical contract with Blue Cross Blue Shield.

The consultant's report also called for creation of a new governing board for the state's two health insurance plans through draft legislation that's in the works. Act 1004 of 2021 abolished the State and Public School Life and Health Insurance Board and transferred its duties to the state Board of Finance. The report recommends that decisions made by the governing board continue to be subject to varying levels of legislative oversight.

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