Analysis: Dwindling Health Fund Drawing Worries
Louisiana health fund drops from $500M to $50M
BATON ROUGE, La.—Gov. Bobby Jindal’s administration has spent down a reserve fund to cover state employee and retiree health care costs at such a rapid pace that the legislative auditor and lawmakers are raising red flags.
An audit released last week shows the Office of Group Benefits’ fund balance, which once neared $500 million, is expected to drop to as little as $56 million by year’s end. Auditors say the Jindal administration plan to fix the problem would only slow, but not stop, the hemorrhaging of cash.
Administration officials are telling lawmakers not to worry, saying they have a path for leveling the fund balance at a sustainable amount. That hasn’t stemmed concerns that those with insurance could face steep rate hikes or an insolvent insurance program needing a bailout with general state tax dollars.
“It’s not a pretty picture,” said House Appropriations Committee Chairman Jim Fannin. “I’m not convinced yet that we’re not in real trouble with Group Benefits.”
The Office of Group Benefits provides health care coverage for more than 250,000 public employees, retired workers and their dependents. Blue Cross and Blue Shield of Louisiana manages the largest health care plans through a contract with the office.
The agency had a $482 million fund balance at the end of 2011. That fell to $275 million two years later and is on track to dip to $56 million by Dec. 31, according to Legislative Auditor Daryl Purpera’s office.
Travis McIlwain, a budget analyst with the nonpartisan Legislative Fiscal Office, told lawmakers recently digging into the issue that part of the problem is the Jindal administration cut premium rates in recent years.
The move reduced costs for workers and retirees — and for state agencies that pay a share of their employees’ insurance costs. That gave the governor and lawmakers short-term financial relief in years when they have faced difficulty patching together the state’s operating budget.
But it also meant that the Office of Group Benefits started depleting its reserve funds to fill gaps when premium payments didn’t cover administrative costs and the ever-rising prices of health care services.
The Jindal administration plans a 5 percent premium hike next year that McIlwain said would bring in between $50 million and $60 million a year.
The governor’s top budget adviser, Commissioner of Administration Kristy Nichols, told lawmakers that the administration also was working to lower claims costs.
She said the employees and retirees covered by group benefits’ plans are an aging population with high rates of diabetes, smoking and obesity that are more costly to treat and lead to additional health problems.
Nichols said the state is launching a disease management and wellness initiative to better coordinate care of chronic illnesses and improve health outcomes, which also could help to control costs.
Susan West, interim CEO of the Office of Group Benefits, told auditors that a combination of the rate hike and insurance plan changes will stabilize the fund balance and the agency’s operations.
“OGB has developed a comprehensive plan to ensure its solvency without burdening members with excessive rate increases,” West wrote in a response to the audit.
She estimated the office’s fund balance would be $103 million at the end of the 2014-15 budget year, which runs from July 1 through June 30, 2015.
But earlier this month, West told lawmakers that the Jindal administration didn’t want the fund balance to fall below a $120 million benchmark.
Meanwhile, Purpera’s office said if the premium hike and claims cost savings pan out as West estimated, the Office of Group Benefits still would be spending $10 million more a month than it takes in on average.
For now, the employees and retirees that depend on the office for their health care coverage are closely tracking the fund balance, and Fannin has called for monthly reports to lawmakers about the financial situation.
*Concept image of health care funds via Shutterstock