ERS Lays Out Options to Senate State Affairs Committee for Major Cuts in Employee Health Benefits
TPEA is communicating in order to make sure all state employees and retirees are aware of significant threats to our ERS health benefits. As the result of a projected $148 million deficit, ERS is planning to impose significant increases in a variety of out-of-pocket health care costs that will have the effect of shifting $150 to $200 million of costs on to ERS plan participants during the next fiscal year, which begins September 1, 2010.
Unfortunately, ERS does not appear to be exploring any options that would require health care provider efficiencies as a way to help close this deficit. This is particularly problematic since ERS has stated publicly that excessive increases in provider costs, particularly by hospitals, are the primary cause of the deficit, not increased utilization by plan participants. TPEA believes any fair plan to close the ERS deficit must include significant contributions through health care provider efficiencies.
In addition to the current projected deficit, ERS testified at a recent Senate State Affairs hearing that even with the proposed increases in participant costs, ERS may need an additional $400 to $700 million during the next legislative session to maintain benefits. Given that the state will face a budget shortfall in 2011 that is generally agreed to be at least $11 billion and potentially exceeding $15 billion, ERS is likely to face demands for further cuts rather than receiving new funds. The combination of significant benefit cuts during the next legislative session on top of the increased costs currently under consideration would necessitate deep and extremely costly reductions to our health benefits.
Background
TPEA communicated as early as November 2009 about the significant financial deficit that the Employees Retirement System projected for our health benefit plan. ERS had estimated, and newer data have confirmed, that the ERS Group Benefit Plan (GBP) is facing a deficit of $148 million by the end of the current biennium, primarily because of higher than anticipated health care costs, but also because the legislature provided less funding than ERS requested in its Legislative Appropriations Request.
In order to prevent this deficit, ERS has been studying an array of increases in co-payments and deductibles for medical services and prescription drugs, changes to co-insurance and other plan design changes. ERS has attempted to determine how plan participants feel about potential changes through the use of a survey that 48,000 state employees and retirees took part in. ERS should release its survey results soon, and TPEA will post these results on our web site www.tpea.org.
What Benefit Changes are Likely
ERS does not have legal authority to change state contributions towards health care, since these decisions are set in the Appropriations Bill. As a result, ERS is limited to seeking health care provider efficiencies or increasing copayments, deductibles, coinsurance and other out-of-pocket cost sharing features under the ERS health plan. ERS has testified that it anticipates increasing participant costs by 6 to 8 percent in the aggregate, with 6 percent translating to $150 million and 8 percent equaling $200 million, or $25 million for each 1 percent change.
ERS presented estimates of what particular design changes generate in terms of “savings” in its presentation to the Senate State Affairs Committee last week. Follow this link to see what type of combinations of changes would be necessary to achieve 6 to 8 percent savings.
Any combination of increases that generates 6 to 8 percent savings would likely require:
- reasonably significant increases in copayments for primary care and specialist office visits,
- a probable first-time imposition of a medical services deductible for HealthSelect,
- changes in the stop loss amount for coinsurance purposes,
- increases in copayments in inpatient, outpatient and emergency room services,
- and probable increases in prescription drug copayments.
ERS has indicated unofficially that survey respondents prefer multiple smaller changes to costs rather than fewer large changes.
After analyzing possible changes in plan costs, TPEA is worried that many state employees and retirees simply cannot afford all the shifted health care costs that are likely to change to close the ERS deficit. Deductibles and other changes that will cause large one time costs will also deter some participants from accessing needed services, which could lead to more expensive complications.
Equity Issues with Other State-Funded Health Plans
TPEA testified before the Senate State Affairs Committee on March 31 on our concerns about whether state employees and retirees could afford the extent of shifted costs being discussed. TPEA also raised a number of concerns about the equity of the cuts we are experiencing, since other state-funded health plans at TRS, UT and Texas A&M have been sufficiently funded and are not expected to face benefit reductions. If your agency policy permits, you can follow this link to see archived video of TPEA’s testimony. Of course TPEA is not in any way suggesting that other plans should be cut, but rather that legislative leaders need to help mitigate cuts to ERS now and during the upcoming legislative session.
Prospects for 2011 Legislative Session are Bleak
As we’ve mentioned before, the State of Texas will likely face a huge budget shortfall as the Legislature convenes next January. Most estimates conclude the shortfall will be at least $11 billion, and possibly $15 billion or more. To its benefit, Texas will have at least $8 billion in its “Rainy Day Fund” and possibly more than $10 billion. However, it is unlikely the Legislature will use more than half the Rainy Day Fund to help balance the budget.
ERS is projecting that it will need between $400 and $700 million dollars in new funds to maintain health benefits for the next two year state budget (after the significant cost increases already under consideration). Given that the 82nd Legislature will most likely be looking to cut current expenditure levels, some analysts have suggested the legislature will try to cut the state’s contribution levels for active and retired state employees. The state currently pays the full health insurance contribution for full time employees and qualifying retirees, and half the contribution for spouses and other dependents. TPEA worked very hard in 2003 to maintain this state contribution policy, we anticipate working to preserve this benefit in 2011.
Get Better Informed, Provide Your Home Email Address
TPEA has been working to inform state employees about relevant issues and concerns through our legislative update email program since 2003. TPEA takes pride in being the most reliable source of accurate and timely information on legislative developments and other concerns for active and retired state employees.
However, because this information is sent to your state email address, TPEA is necessarily constrained in the types of information and recommendations that we can provide. TPEA is therefore encouraging all interested state employees to provide their home email addresses, or other non-state email address, so that TPEA can offer you the full range of information we have available. TPEA will not sell or otherwise permit access to these addresses to any other party.
Follow this link to submit your home email address to TPEA.
Watch TPEA’s website www.tpea.org for special event announcements and to read about TPEA’s future schedule.