The state agency providing health insurance to more than a quarter-million state employees, retirees and their dependents tapped nearly 40 percent of its cash reserves last year, a move that some fear could lead to double-digit increases in monthly insurance premiums.
For retirees, many of whom live on fixed incomes, the increases could be 25 percent or there could be reductions in benefits, or both, for a group of people who aren’t legally allowed to access Medicare, according to officials who represent retired state government workers.
The Jindal administration, however, says those concerns are exaggerated and that monthly payments are going up only 5 percent for members of state government’s insurance plans.
“Unless it’s addressed, it could be devastating to the system’s active employees and retirees,” said Frank Jobert, executive director of the Retired State Employees Association.
From January through the end of November, the Office of Group Benefits reserve account dropped from $438.9 million to $257.1 million, according to the agency’s most recent financial reports. The money was set aside to help pay insurance claims. The reserves stood at more than $500 million about two years ago.
“What happens if something really terrible happens and we don’t have any reserves at all? One bad month or two and we could really be messed up,” said Nancy Dewitt, Group Benefits advisory board vice chairman. “You know and I know health care costs are not going down.”
The money was spent prior to start-up of the federal Affordable Care Act.
The decline in reserves came as the Jindal administration reduced premiums by 7 percent last year and privatized Group Benefits operations. Blue Cross and Blue Shield of Louisiana took over management as a cost-savings plan.
The state lowered the premiums during the current fiscal year’s budget and instead tapped the reserve fund more frequently to help pay for health care claims, Dewitt said. Like many employers, state government contributes to the monthly cost of employees’ insurance policies. For state government, which contributes about three-quarters of the cost, the money comes from the state budget. Part of the plan to balance lower than expected revenues with higher costs was to decrease the health insurance premiums and rely more on the reserve fund.
“What the administration has done is lower the monthly rate employees pay and, by doing that, lowered how much agencies have to pay as their match. They essentially used reserve money to help balance the budget,” said Dewitt said.
Jobert said the Jindal administration did not raise premiums last year, which was good at the time.
But at some point, incremental increases will be necessary. “We don’t want to see rate increases in the 25 percent to 30 percent at once. Most people like to see increases incrementally over time. At some point the premiums have to go up. It’s a Catch-22 in many respects,” Jobert said.
Group Benefits provides life and health insurance to current and retired employees. Most retirees do not have Medicare.
Commissioner of Administration Kristy Nichols said steps are being taken to shore up Group Benefits, including a 5 percent premium increase. The state’s share is included in the administration’s budget proposal for the fiscal year that starts July 1.
In addition, Nichols said the global management firm Alvarez and Marcel LLP has been hired to look at Group Benefits operations with an eye on “cost-containment.”
Nichols said medical inflation is rising and changes are coming related to the federal Affordable Care Act, requiring a continued “transformation and redesign” of Group Benefits. She said it is important for state government coffers as well as plan members.
Alvarez and Marcel’s current $4.2 million state contract is being amended to add another $800,000 for the Group Benefits work.
As part of the initial contract, the administration reported the firm has identified about $2 million in administrative changes and efficiencies at Group Benefits. Among them: a $3,064 savings in advertising; $5,061 savings on memberships; a $122,319 reduction in office supplies; a $141,845 janitorial savings and $869,837 in internal medical management.
Jobert and Dewitt said the 16-member Group Benefits oversight board has not met in at least six months because of vacancies that create problems getting quorums. So, there has been no forum to get questions answered, they said.
Jobert said it took a public records request to get Group Benefits financials. “We knew the reserves were going south,” he said.
“There’s some legitimate questions that need to be answered,” Jobert said. “The board could bring this to the attention of the legislature and others.”
According to the Group Benefits website, there are 12 members today, but Dewitt said there have been more resignations.
The governor appoints a majority of the board. Two legislators are also on the board.
Nichols said the administration will try to fill the seats.