New information on the declining reserve funds for the state’s health insurance distressed budget committee members Wednesday who expressed fears that the program covering about 250,000 state employees, retirees and dependents could soon go broke.
By the end of December, the Office of Group Benefits’ reserve account will be down to $55 million from 10 times that amount just over two years ago, Legislative Fiscal Office analyst Travis McIlwain told a Joint Legislative Committee on the Budget subcommittee.
McIlwain said Group Benefits is “eating into reserves at a rate of $15 million to $20 million a month” because revenues coming in are below funds needed to pay medical and pharmacy claims.
A 5 percent premium increase goes into effect July 1 and could generate another $56.2 million, McIlwain said.
Budget committee Chairman Jim Fannin said the premium increase combined with the reserves would give Group Benefits about $111 million.
“So we are going to have $111 million and, if we burn at $20 million (a month), in 12 months we are broke,” said Fannin, R-Jonesboro. “It’s not a pretty picture.”
State Sen. Ed Murray, D-New Orleans, agreed: “There’s no question about that. It’s going to go broke.”
In April 2011, Group Benefits’ reserve account stood at $525 million.
McIlwain blamed the premiums paid by plan members and the state decreasing its portion by nearly 9 percent over the past two years.
“That is why this is happening,” he said.
The state pays 75 percent of the premium costs. Group Benefits is paying out an average of $78 million per month in claims where it had been $60 million in 2008.
The Jindal administration reduced the premiums, saying it wanted to provide relief for plan members.
“Everybody is concerned about the fund balance,” said Office of Group Benefits Chief Executive Officer Susan West. “We have every intent to stabilize the cash balance and the fund balance.”
West said the pharmacy program will see some changes, for instance, adding incentives to use lower cost generic drugs as well as required prior authorization for certain medical care. An estimated $131.8 million in savings could result, she said.
“It appears to me we are going to run a monthly deficit ... because the changes are not going to come on immediately,” Fannin said. “Even though we have a 5 percent increase, you are currently spending more than what’s coming in on a monthly basis. It’s not going to let you cash-flow.”
“I don’t think you are off-base making those statements, McIlwain said.