A consultant Thursday recommended annual increases in funding for health insurance plans for public school and state employees and retirees, with the state shouldering more of the future increased costs than the employees contribute.
The rise in state funding needs to outpace future increases in employee premiums to keep the financial contributions in line with what is made to plans in comparable states, according to The Segal Group's report.
In May, the Legislative Council approved a consulting contract worth up to $575,000 with The Segal Group to review the health insurance plans for the public school and state employees and retirees, and recommend changes to ensure their long-term solvency. The contract runs through Dec. 31 with an option to renew for six months.
Without changes in either plan, state officials had projected that the two plans would collectively have a $103.3 million deficit at the end of 2022. Changes approved this summer eliminated the potential deficits.
The Segal report stated: "Historical financial issues stem from stagnant State funding and short term planning causing reactionary decision making."
An official representing the consultant said the annual funding increases for the plans should be tied to an index, such as the medical consumer price index of 3% or 4%.
The consultant also recommended setting an amount equal to a range of 12% to 16% of a plan's claims for a reserve fund, with a target of 14%.
If the reserve fund is projected to be 12% of a plan's claims target, that could institute a trigger that could require more funding for the plan and allow the plan to build its reserve fund back up to between 12% and 16% of the claims, a representative for The Segal Group told the Legislative Council's executive subcommittee.
If the state doesn't comply with the trigger, the increased funds would come from the plan's employees, according to the consultant's report.
An official for the consultant said if the reserve fund is projected to hold more than 16% of the plan's claims, the consumer price index increase in funding could be lower, such as 2% rather than 4% for that year.
Both plans are projected to be above the target reserves in calendar year 2022.
The state needs to provide $40 million to $60 million more in permanent funding for the public school health plan in 2023, according to The Segal Group.
While the public school plan anticipates $165 million in state funding next year, only $110 million of that is ongoing permanent funding.
The Segal Group also recommended removing the monthly $500 per position funding maximum for the state's contribution to the state employees' plan and develop a multiyear projection model for state funding.
The consultant recommended that the insurance plans for both state employees and public school employees provide group Medicare Advantage prescription drug coverage through a private carrier.
Medicare Advantage combines traditional Medicare Parts A and B, wrap benefits and Medicare Part D, and the private carriers receive payments from the U.S. Centers for Medicare and Medicaid Services to subsidize the cost of coverage. The majority of states have moved to Medicare Advantage.
The state would issue a formal procurement to contract with a Medicare Advantage carrier to start Jan. 1, 2023, under the consultant's recommendation.
The health insurance plan for state employees provides prescription drug coverage for its Medicare-member retirees, while the plan for public school employees doesn't do that.
The consultant estimated that the savings of providing Medicare Advantage coverage would be $20.9 million a year for the state employees' insurance and $12.6 million a year for state retirees.
Providing Medicare Advantage coverage for the public school employees' plan would cost the plan $2.1 million a year and the retirees $1.8 million a year.
These estimates are based on the auto enrollment of Medicare-member retirees into the Medicare Advantage plan and allowing them to opt out for other coverage, and 75% of these retirees remaining in the Medicare Advantage plan, according to an official for The Segal Group.
Jake Bleed, director of the state's Employee Benefits Division, said, "We agree that the Medicare Advantage plans and the savings that they offer are something we need to consider as a state."
The federal government has put a lot of subsidies into the program, and "the promise of savings and benefits for active and retirees are too big to ignore," he said.
"We would recommend if we do want to go that direction, obviously the devil is going to be in the details on how we structure this," he said. "But we really would emphasize the need for communication and education for making sure that everybody knows on a timely manner how they can benefit from it."
A Legislative Council co-chairman, Rep. Jeff Wardlaw, R-Hermitage, said, "There is no discussion of cutting Part D plan benefits for anybody over 65 here.
"There is no discussion of a mandatory move of anybody over 65 here to a Part D program for Medicare," he said. "I want to make this clear we are doing what was suggested a year ago."
A year ago, the now-defunct State and Public School Life and Health Board voted to reverse its decision to not offer pharmacy benefit coverage to Medicare-member retirees through the state employees' plan and require them to purchase that coverage through the Medicaid Part D market.
Instead, the board opted to give those retirees the option of either continuing pharmacy benefit coverage through the state plan or purchasing that coverage through the Medicare Part D market. Most of them decided to continue their pharmacy benefit coverage through the state plan.
The board's initial decision in August to discontinue that coverage drew sharp criticism from some of these retirees as well as some state lawmakers.
The board's initial decision to discontinue pharmacy coverage for Medicare-member retirees, coupled with initial projections for deficits for the state's health insurance plans for public school employees and state employees next year, prompted the Legislature earlier this year to enact legislation that abolished the board, transferred its duties to the state Board of Finance and requires the Legislative Council's approval for changes to the two plans.
The consultant also made a wide variety of other recommendations, including:
• Issuing requests for proposals to administer the medical and pharmacy plans.
• Reducing the urgent care co-pay of $100 to $75 to discourage members from using the emergency room.
• Keeping the current $3 million cap on the current bariatric program, although history indicates there is a low likelihood of surpassing the cap.
• Repealing and revising Act 1004 of 2021. The consultant said this law means that a plan sponsor has lost all ability to negotiate with a manufacturer of insulin, and there is no requirement that the manufacturer offer any concession on their price to patients. Plan sponsors and pharmacy benefit managers have been restricted in using their size and scale to negotiate with drug manufacturers, the consultant said.
"A more appropriate solution to limit member cost share is to write into law a cap on member cost share as many other states have done so that insulin cannot exceed a certain dollar amount per month," The Segal Group said in its report. "The most common caps are $25 per month depending on the state. This would take away the burden of cost share on the member and still allow the plan sponsor to [effectively] negotiate price, rebates, discounts, etc. to lower their cost."
In July, the Legislative Council approved the state Board of Finance's recommendations for no changes in premiums next year for employees and retirees in the health insurance plan for public schools and to cut a wellness credit for current employees and create a contribution for employees who don't participate in the wellness credit. The plan covers more than 100,000 people.
These changes have been projected to cut the school plan's projected $70.1 million deficit to a projected surplus of $1.9 million next year and increase the plan's projected reserve fund next year from $3.8 million to $75.7 million, according to Milliman, an actuarial firm for the state's Employee Benefits Division.
In June, Legislative Council signed off on a 5% increase for next calendar year in premiums for current and retired employees in the health insurance plan for state employees and on changes in the wellness credits for current employees.
The state employee plan covers more than 58,000 people.
These changes have been projected to eliminate the projected deficit of $33.3 million in 2022 for the health insurance plan for state employees, according to state officials. The Milliman firm had projected a 2022 reserve estimate of $38.6 million, based on the changes.