PEIA faces cuts to health insurance

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PEIA faces cuts to health insurance
By Phil Kabler, The Charleston Gazette

Short of the governor approving more than $100 million in new state funding for premium increases, the Public Employees Insurance Agency Finance Board will have to steel itself this fall to come up with cuts in benefits for the PEIA health insurance program to close a projected $145 million budget deficit, board members were told Thursday.

“Only in the land of milk and honey should we expect to get an additional $145 million,” board member Josh Sword said. “This board is going to have to make some really difficult decisions six or seven months down the road.”

For the first two-thirds of the 2014-15 budget year, PEIA’s bottom line is down about $65 million from the same point last year, a combination of a spike in expenses for medical and drug claims and a downturn in investment earnings, primarily from its stock portfolio managed by the state Investment Management Board.

Jason Haught, PEIA chief financial officer, said the $41.6 million jump in medical and pharmacy claims expenses is being driven by increasing costs, not by a higher rate of use.

“It’s not folks using more services. It’s the cost of the services,” he told the Finance Board.

“It doesn’t look like Obamacare is coming anywhere close to stabilizing medical costs as intended,” board member Michael Smith said.

Haught said the upturn in medical claims is probably an anomaly, just as an unexpected downturn in claims in the 2012-13 budget year proved to be.

“I don’t believe these bad results are going to last,” he said.

PEIA Executive Director Ted Cheatham said PEIA has spent down its reserve fund to the point at which the Finance Board can no longer use the fund to close revenue gaps, as it has done in past years.

“We’re going to need an additional $50 million to $60 million a year, every year, because we’re out of reserves,” he said, citing a 5 percent annual inflation rate for medical costs for the $1 billion health insurance program.

Under a mandated 80-20 plan for premiums, the state would have to come up with an additional $116 million for employers’ share of premiums to avoid any benefit cuts for the 2016-17 plan year, which board members suggested Thursday is highly unlikely.

Under that scenario, employees’ PEIA premiums would have to increase by about $29 million

As in past years, the Finance Board will propose a draft plan for PEIA’s 2016-17 benefits package in October, conduct statewide public hearings on the proposed plan in November, and approve the final version of the plan in December.

Sword suggested Thursday that the Finance Board set up a subcommittee to get input this summer from groups of insurees on what benefits may have to be cut.

“These are going to be really difficult decisions, and I think we need all the input we can get,” he said.

Cheatham said that would be useful, but suggested waiting until the Finance Board gets word from the governor’s office on how much of an increase in state funding, if any, PEIA can expect for the 2016-17 plan year.

Cheatham added that he has prepared a two-page summary of options for cutting benefits, if that becomes necessary.

Last December, the Finance Board approved about $40 million in benefit cuts, primarily through increasing co-pays for generic drugs and for physician office visits, and by increasing the out-of-pocket maximum for family coverage. Those cuts go into effect July 1.