Further on the $43m PEBP excess reserve

Since our last comment on the revelation of the $43 million excess reserve reported by PEBP in January, the program's executive director told the Rebel Yell that in fact this excess reserve had been accrued entirely prior to the start of the current plan year

The reserve is not a result of plan design changes and premium rate increases effective July 1, 2011. Instead, it accumulated due to premium rate estimates that were higher than the amount of claims PEBP had paid leading up to June 30, 2011.

This is difficult to understand, as it appears to contradict the program's own CFO's report of December 2011, which reports a positive "change in cash" figure of over $10m for the first quarter of fiscal year 2011-2012 (against a budgeted figure of negative $22m.) The same chart shows an "actual" figure for "net realized funds available" (ie above the budgeted reserve) of $45.2m, versus an anticipated figure of $11.8m. Thus, PEBP appears to have expected to have $32m more in cash on hand by September 20, 2011, than it actually expected to at that point in the year.

But whats more egregious, and seems to compound the problem, is that, according to Wells, "PEBP knew during the 2011 legislative session that there was going to be a reserve of approximately $35 million," because, as he told the Rebel Yell, claims increased by only 1% during fiscal year 2010-2011. (Again, this $35m actually refers to excess reserve, over the amount set aside for claims that have yet to be filed and the amount set aside for potentially costly catastrophic claims.)

So "PEBP knew ...that there was going to be a reserve" because of lower-than-expected claims during the 2011 legislature, at the same time he and PEBP staff were presenting the new plan design to the legislature as necessary “to urge on participants to regard more critically about the need for medical treatment". Indeed, Wells himself told the legislature in early 2011 that without the plan switch, the program would run deeply into the red.

Jim Wells, executive director of the Public Employees' Benefits Program, said maintaining the status quo and subsidies paid by the state would have left an $85 million shortfall.

Yet even after all this, he told the Rebel Yell that while he will recommend no increase in participant premiums for the next year, the Board may still want to increase premiums at its March meeting to avoid steeper increases in future years. (Of course, PEBPs' own January 2012 fiscal report says just the opposite, that "reserves in excess of the required reserve levels will be used to reduce premiums and contributions during future plan years" (p. 3)).

This same report, on the next page, shows PEBP's history of carrying excess reserves; in every year since 2004, the plan has carried excess reserves of at least $20m per year with excess reserves over $40m per year in six of those years. And the projected reserve for the current fiscal year is even larger than the actual reserve for 2010-2011.

Yet, without explanation, PEBP reports it intends to hold $0 excess reserve in the coming year, 2012-2013, even though it will get a big jump of 14% in the employer's share (the larger share) of premiums for that year. That increase, by the way, which will represent a hit of over $3m for UNLV and at least $7m for NSHE, is money that will have to come from our operating budgets and be diverted from academic uses. So this is an issue that impacts the students quite directly, too.


PEBP has, in the words of a great American economist, "some splainin' to do " at its next board meeting, Wednesday March 14 at 9am, about how it intends to spend that reserve down to 0. One obvious solution is to restore an option for the status quo ante by putting in place for 2012-2013 an affordable "middle-tier" option, between the HMO and the catastrophic-only coverage model, which the Board rejected at its last meeting.

Another is to refund that money by instituting a premium holiday for both employer and employee, as it has done in the past, which would help cushion the blow for faculty and staff and help NSHE (and all other state agencies) both pay for gap coverage for its staff and restore services to the public that have been cut so deeply.