Tuesday, January 31, 2012

PEBP has generated a $43 million reserve by restricting coverage and increasing premiums

At almost the same time that UNLV faculty and staff were asking, repeatedly, at today's town hall if the Board of Regents would be taking up the prospect of a supplemental benefit for NSHE faculty and staff to offset the woefully inadequate coverage offered under the current PEBP offerings, the executive director of PEBP was telling an interim legislative committee that it has accrued a breathtaking $43 million reserve.

This is deeply distressing news, particularly in light of the impacts that the shift to a choice of either high-deductible catastrophic-only coverage or high-premium HMO coverage have had on NSHE faculty and staff. A survey conducted of UNLV faculty and staff in November found which have led to a marked increase in UNLV staff either declining coverage outright, delaying care or skipping needed medications (especially those making less than $50,000 per year, which is over half the campus workforce).

What is particularly galling about this news is that the PEBP staff's own report to the Board prepared for the most recent Board meeting in January, attributed over half of the reserve ($23.5 million) to "[d]ecreased self-funded claims expenses" (p. 109) -- this despite repeated claims made by the Board and staff back in 2010 when proposing the conversion of the PPO to a high-deductible/ catastrophic-only model of "participant over-utilization". Equally galling is that most of the rest of the reserve is attributed to a claim of $20.5 million in "[h]igher beginning cash" at the start of the plan year, last July 1. (Another $5.3 m of the surplus is attributed to "[i]ncreases to HMO premiums.")

This means, of course, that the overcharging of participants clearly pre-dated the beginning of the new plan design, since PEBP was already running a hefty reserve back in fiscal year 2011 precisely at the time the claims of "participant over-utilization" were being repeatedly raised at Board meetings.

PEBP is now sitting on a reserve that has accrued almost $1200 per insured state worker in the last six months at the same time as treatments are being skipped, and a record number of employees are dropping off the plan. (This of course puts the state in jeopardy of running afoul of new federal requirements to take effect in 2014 that all individuals must be insured.) Keep in mind that the employer contribution for each employee will actually increase in fiscal year 2013 so that the supposed good news of stable premiums for participants that the PEBP board will consider at its March meeting means PEBP would still be increasing its revenue next year while continuing to offer sub-standard health coverage.

Finally, as for the claims of the PEBP staff at the hearing that the reduction in benefits paid is a consequence of "sheer luck" and that claims in the latter part of the current plan year will reduce reserves, this raises a puzzling question -- who does the actuarial work there? After all, PEBP and PEBP alone has the full data on its participants' past utilization experience, and PEBP and PEBP alone designed the current plan. If their economic models in fact expected that claims would be lower in the first 6 months of plan year 2012, then why did they not project this hefty surplus? And if they are in fact running significantly ahead of their own expectations for cash on hand, then why in the world does a non-profit self-insured plan not adjust the rates accordingly and give not only participants but the state a break on premiums for next year?

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