Just over two years ago, the state employee health insurance program had a half-billion dollars in reserves.

Now, the fund balance available to help cover medical claims is half that amount.

While the reasons for the precipitous decline are in dispute, it occurred as the Jindal administration reduced insurance premiums and claims payments grew, eating into reserves.

More than 250,000 state employees, their dependents and retirees as well as some school system employees rely on the Group Benefits program.

“My fear is, if (the reserves) go too low, there will have to be a big rate increase to get it back up, or higher co-pays or reduced benefits hitting retirees and employees in their pocketbook,” said Frank Jobert, executive director of the Retired State Employees Association.

Plan members aren’t the only ones who will be on the hook. The state pays three-quarters of the insurance premiums for its employees and retirees. School boards pay the same amount.

The Legislature’s fiscal advisers deem the situation “a major budget issue.”

Commissioner of Administration Kristy Nichols said the insurance program’s actuaries believe an appropriate fund balance “for our particular health plan” is between $120 million and $150 million. “It’s not our goal to get to that level,” she said. “Our goal is to reduce claims costs overall” and stabilize the situation.

The most recent report from Group Benefits shows the fund balance as of Feb. 28 was down by $260 million.

Nichols blamed the dramatic reduction in reserves on increasing claims costs due to a “very ill state worker population.”

“You have an aging population. You have a very ill state worker population that are in a very rich plan, which is the HMO, and (there’s) not a lot of care coordination,” she said.

Nichols said there are “significant opportunities” to provide benefits to members that will lower costs. Those benefits, such as wellness programs — obesity fighting and smoking cessation — and programs to manage chronic illnesses, are being implemented, she said. Pharmacy program changes have already yielded savings, she said.

Nichols said the state also is looking to leverage its insurance buying power.

Another factor in the reserves decline was that “we felt compelled to reduce costs for our members, and we have done that,” Nichols said.

Between 2012 and 2013, the administration reduced insurance premiums by 8 percent. Beginning July 1, the rates are going up 5 percent, as part of an effort to stabilize the program.

In 2013, Group Benefits collected $1.2 billion in revenues, of which 98 percent came from premiums, according to the Fiscal Office.

While the two years of premium reductions helped plan members, it helped the administration more. It reduced the state’s hefty contribution — freeing up dollars that the administration used to fund other areas of the state budget. But it resulted in fewer revenues available for Group Benefits and the tapping of reserves to pay claims.

Jobert said the administration could not legally tap Group Benefits reserves directly, as it has done in other funds sweeps. But the premium reduction had the same effect, he said.

“They used that to help balance the budget,” said Nancy Dewitt, acting chairman of the Group Benefits Policy and Planning Board.

“Health care costs have steadily risen. It would make perfect sense (that) you don’t lower premiums,” she said. “It would be sensible: I’m going to have to pay more for my insurance.”

Dewitt said Group Benefits members “are no sicker than they ever were.”

The board, the only place where a light is shined on Group Benefits operations, has not met in a year because vacancies have created quorum problems. There were five vacancies out of 16 members — four of them Jindal appointees. Jindal recently appointed two people, and agency elections are taking place to fill three others.

Exactly how much money should be kept in reserves is a subject of debate.

“This isn’t a whole bunch different than retirement,” said Legislative Auditor Daryl Purpera. “You have a potential liability (claims) that must be paid for.”

Purpera referred to the state retirement systems, which have some $19 billion in long-term debts largely because the state didn’t make the appropriate contributions to cover promised benefits. The liability creates a major financial strain on the state budget.

If the proper insurance premium contribution rate is not computed, that leads to financial problems, Purpera said.

Purpera has auditors looking into the Group Benefits situation.

House Appropriations Committee Chairman Jim Fannin also is demanding some answers.

Fannin, a legislative budget expert, said that up until last week, he had always heard that the Group Benefits reserve fund should have about $300 million.

Fannin has asked Nichols to provide the actuarial report from Buck Consulting that supports the lower figure of $120 million to $150 million.

“What gets you to that reduced level,” said Fannin, R-Jonesboro, “co-pays, higher premiums ...”

Follow Marsha Shuler on Twitter @MarshaShulerCNB. For more coverage of the state capitol, follow Louisiana Politics at http://blogs.theadvocate.com/politicsblog/.