PEBP had $43 million in reserve, still made cuts

February 16, 2012 by Julie Ann Formoso 

Despite multi-million dollar reserve, public employees took drastic reductions in health benefits

Public Employees Benefits Program executive officer James R. Wells said that PEBP had a $43 million reserve in June 2011, prior to cuts of health benefits for statewide employees.

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.

UNLV Faculty Senate chair Gregory Brown expressed outrage towards Wells’ statement regarding the reserve.

“[PEBP] had $43 million in the bank before [July 1, 2011]?” Brown said. “You’ve got to be kidding me.”

PEBP’s funding comes from premiums paid by participants and contributions from employers such as UNLV.

During the last legislative session, the employer contribution rate was set to increase in the 2012 fiscal year and rise by 13.8 percent in the 2013 fiscal year.

Wells said that PEBP’s actuarial consultant company, AON Hewitt, had predicted that claims would rise by 9 percent during the 2011 fiscal year.

Claims only increased by 1 percent, however, meaning that the premium rates were set too high based on the actual medical and prescription claims submitted by participants.

“[The] expenditures for health care were lower than they were supposed to be,” Wells said.

This overestimation was the primary contributor to the $43 million reserve.

Wells said that PEBP is not the only program experiencing lower-than-projected health care utilization.

“It is a national phenomenon resulting in PEBP and other self-funded insurance plans ending with reserves higher than they projected,” he said. “PEBP is not the only one experiencing excess reserves from under-utilization.”

Brown said this was “good news.”

“If the problem is [national], we need a local solution,” he said.

Wells said that utilization could be lower because of the long-stagnant economy.

He said that although estimations of claim costs that will be incurred during the coming year are based on historical data and the national trend, they will never be exact.

“Those estimates will always be off,” Wells said. “The only question is by how much and which direction.”

UNLV senior vice president for Finance and Business Gerry Bomotti said it is “very strange” that PEBP’s $43 million reserve was not made known sooner.

“It seems interesting to be reported so late,” Bomotti said. “It would be unusual to not know your reserve by September. You have to think that [PEBP] had a good idea of what that number would be on June 30.”

Wells said that PEBP knew during the 2011 legislative session that there was going to be a reserve of approximately $35 million.

He said the remaining $8 million came from a change in the estimation of the number and amount of claims that were incurred before June 30, 2011 but not received and paid until after that date.

PEBP calculates its final reserves when the fiscal year ends in July, but the reports are not released until October.

Brown accused PEBP of intending to have its own reserve and failing to provide adequate health care to its participants.

“Get back to the [pre-July 1, 2011] model instead of building up hefty reserves,” he said. “And adjust the contribution rates of employees and employers.”

Wells countered the allegation that the organization planned to store money away rather than fully funding benefits.

“PEBP does not intentionally accumulate reserves,” he said.

Brown questioned PEBP’s decision to enact changes to the health benefits plans even though it had a multi-million dollar reserve.

Wells said that when PEBP was creating its budget for the 2012 and 2013 biennium, AON Hewitt said the premiums paid during the 2011 fiscal year would not be enough to cover the cost of benefits offered under the plan in existence at that point.

Consequentially, premium rates for participants in the Health Management Option plan increased but their benefits remained the same.

For participants in the PPO Consumer Driven Health plan — now known as the high deductible plan — copays were removed and prescription drug costs were included in the deductibles, but premium rates remained unchanged.

Wells said had it not been for PEBP’s reserve, it would have had to increase the CDHP premium rates as well.

Brown pointed out that the changes to health care benefits enacted in July were affecting numerous Nevada System of Higher Education employees negatively.

“The purpose of [PEBP] is to provide health care to state employees, not to run a reserve,” he said. “We’re seeing quite significant evidence that people aren’t getting insurance.”

A health benefits survey conducted by UNLV’s Faculty Senate last November revealed that 3.2 percent of the respondents had declined PEBP health coverage after last July.

The survey also showed that 60.8 percent of the survey participants had chosen not to refill their prescriptions because of the high costs enacted in July.

Additionally, 42 percent of respondents have switched to generic prescriptions against the advice of their doctors, 60 percent have delayed filling their prescriptions and 46.8 percent have tried to make their medications last longer than prescribed, according to the survey.

Brown said that PEBP has to keep in mind where it receives its funds.

“Students are stakeholders in state money,” he said. “That’s a major responsibility the PEBP board has.”

Wells said that PEBP will receive data from the October to December quarter, which will have information regarding claim payments made during the new plan year — after July 1, 2011 — later this month.

PEBP board members will set premium rates for the next fiscal year during the PEBP board meeting in March.

Wells is expected to make a formal proposal that the CDHP premium rates remain the same. He said HMO premium rates may increase.

Wells said that if this does not happen, the PEBP board would have to consider the possibility of having to double the premium rate during the fiscal year 2013.

He said members on the PEBP board would rather increase the premium rates during the next two fiscal years to avoid subjecting participants to a sudden jump in rates.

Brown stressed the need for cooperation among PEBP and its participants.

“We’re all in this together in the state and we’re doing more with less,” he said. “There’s been no communication to the participants. [PEBP] should have told the participants about the reserve — not say so when it comes to just press time.”

Julie Ann Formoso reports on faculty and staff issues for The Rebel Yell. Contact her at julieann.formoso.ry@gmail.com.