Group Benefits gets scrutiny _lowres

Advocate Photo by MICHELLE MILLHOLLON -- Legislative Fiscal Office senior analyst Travis McIlwain, left, talks about the finances of the state Office of Group Benefits during a Friday meeting of the Joint Legislative Committee on the Budget. At McIlwain's left is Deputy Commissioner of Administration Ruth Johnson.

The Legislature’s top money panel signaled Friday it would keep close watch on efforts to stabilize the finances of the state insurance program for about 230,000 employees, their dependents and retirees.

Joint Legislative Committee on the Budget Chairman Rep. Jim Fannin said he wants monthly reports on the progress of efforts to stop the continued erosion of a Group Benefits’ reserve fund, which stood at $524 million in 2011 and now is less than half that size.

“There is a lot of fear out there among participants in Group Benefits throughout the state,” Fannin, R-Jonesboro, said.

The panel also is concerned because if the funds run out, the state is on the hook to cover expenses.

Travis McIlwain, a legislative fiscal adviser, told the panel that the fund balance as of May 30 stood at approximately $237.2 million.

Group Benefits has been tapping the reserve account to the tune of $16.1 million monthly to pay insurance claims and other costs because not enough revenues are coming in, he said. In fiscal year 2012, Group Benefits started spending more on expenses than it collected in revenues, he said.

Expenses were increasing 6 percent annually, while revenue collections decreased 7 percent. The Jindal administration cut the amount of premiums that employees and their employers had to pay by about 9 percent.

The state pays 75 percent of the costs, so the premium cut relieved budget pressure but led to the reserve fund raid.

Deputy Commissioner of Administration Ruth Johnson said steps are being taken to stop the reserve account erosion, including a recently enacted 5 percent rate increase. In addition, there will be changes including reduced health benefits with a eye on keeping costs down, she said. Group Benefits is projecting a $114 million savings as a result of plan changes.

Johnson said a variety of plans will be offered to members who can choose based on their different health situations.

The administration’s management firm — Alvarez & Marsal — recommended changes to Group Benefits that are projected to save $1.1 billion over five years.

Johnson defended the premium reduction, saying there was no need to keep a $500 million reserve. Group Benefits officials have said a responsible target is between $120 million and $220 million. She said it was inappropriate “taking employees money and banking it.”

But state Sen. Ronnie Johns, R-Lake Charles, who is in the insurance industry, disputed Johnson’s statement.

“You honestly think that was too large for 230,000 employees?” Johns asked. “I personally believe there’s been some decision made at the Office of Group Benefits that’s not in the best interest of the overall stability of the program.”

Johns said he was a member of a legislative committee that had to deal with Group Benefits finances when it was in shambles previously. “We worked hard to get it back into a positive position,” he said.

State Rep. Rob Shadoin, R-Ruston, said the administration has a definite “PR problem.”

He said Group Benefits members point to increased premiums and benefit reductions that are on the way and blame it squarely on the program’s privatization.

“They say it was running great until we privatized this thing. Whether it’s true or not, it’s the perception of some,” Shadoin said.

Johnson and McIlwain agreed that the privatization was not the culprit in the diminishing reserves but rather an intentional act by the administration when it reduced premiums.

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