Auditor questions plans for Group Benefits reserves

The Jindal administration’s plan for stabilizing the finances of the state’s health insurance program would continue to drain its reserves, the Louisiana Legislature’s auditor concluded in an “informational audit” released Monday.

The Office of Group Benefits, commonly called OGB or Group Benefits , is the health insurance plan that helps pay medical expenses for about 250,000 state employees, retirees and their dependents as well as some school employees.

Responding to the voiced fears of several Louisiana legislators’ concern about the solvency of Group Benefits, the Jindal administration released a plan to ensure the stability of the reserve fund used to pay for services when monthly premiums don’t cover the amount of claims. The administration said it would, among other things, increase the amount employees and their government agency employers pay in monthly premiums, as well as encouraging the use of generic drugs, requiring pre-authorization for some services, and standardizing benefit limits.

Legislative Auditor Daryl Purpera said the Group Benefits program will continue to dip into ever-dwindling reserves at a pace of $10 million a month even with the planned premium increase and changes to benefits structure to reduce cost. “If both actions result in their intended consequences, the Legislative Auditor projects the $17 million monthly deficit could be reduced to a $10 million monthly deficit,” the auditor’s analysis concluded.

Purpera wrote the finding is based on information provided by Office of Group Benefits officials, including an estimated $131.8 million in savings tied to benefit ad structural changes proposed by Group Benefits and Alvarez & Marcel, a New York firm hired by the Jindal administration to look for cost-savings.

Purpera’s report follows one by the Legislature’s fiscal adviser that concluded the $500 million-plus in reserves Group Benefits two years ago when run by state employees, now under privatized management could fall to $55 million by the end of 2014 without changes.

The legislative auditor agreed with the Fiscal Office that barring change, the reserve account would be down to $56 million. He said the fund would be totally dry by April 2015.

“If no benefit or structural changes are made by OGB, we estimated that a premium increase of 17 percent would be necessary to prevent continued losses through December 2014,” Purpera wrote.

Purpera attributed the steep decline in reserves to a nearly 9 percent reduction in premiums over two years and rising costs due to medical inflation.

Commissioner of Administration Kristy Nichols said the administration’s planned 5 percent premium increase effective July 1 and changes to benefits such as promoting less costly generic drugs and pre-authorization of certain medical services starting Aug. 1 would stabilize the situation.

Nichols said the program is not going broke.

In response to Purpera’s report, Group Benefits Chief Executive Officer Susan West said the agency projects having a $103.3 million reserve fund balance by the end of state fiscal year 2015. She said the fund balance is “only slightly below the recommended target range of between $115 million and $230 million” recommended by Group Benefits actuarial firm.

“Combined, this comprehensive plan will reduce the rate of future premium increases and ensure the stability of OGB’s fund balance,” West wrote.