Wednesday, March 31, 2010
By John Reynolds
www.quorumreport.com
ERS faces $400-$700M in increased costs next biennium
Little wiggle room -- already shifting costs to participants in anticipation of pending $15B budget shortfall
Higher than expected cost trends and the spending down of a contingency fund are combining to blow a hole in the state employee health care program’s budget, meaning that the state could face $400 million to $700 million in increased costs for the program next biennium.
Employees Retirement System Executive Director Ann Fuelberg told members of the Senate State Affairs Committee this morning that the structural budget shortfall already takes into account proposed cost shifts to state employees set to go into effect Sept. 1.
“We’re hollering now and we’re hollering often that the issue is real now,” she said before adding the problem will only become more severe next biennium.
Fuelberg explained that over the past several years, ERS has relied on a strategy of using money from a contingency fund to cover budget shortfalls. The state agency, though, will hit a point this biennium where the contingency fund will zero out, leaving a $142.9 million shortfall next fiscal year.
ERS is currently looking at trying to save 6 percent to 8 percent through higher cost sharing by plan participants. Fuelberg said that plan design changes of that magnitude would save between $150 million $200 million. She said that ERS is in the middle of surveying its members to find which changes would be most palatable to the membership.
Looking to the future, the disappearance of the contingency fund takes away the funding buffer from past sessions – a difference for which the state will have to account. Senate State Affairs Chairman Robert Duncan (R-Lubbock) asked for a ballpark figure for how much more would be needed. Fuelberg replied that the number was between $400 million and $700 million, give or take $100 million.
Fuelberg said that cost trends are showing an increase of 9.1 percent, significantly higher than the 7.9 percent assumed before the current fiscal biennium began. The biggest driver was hospital costs, which was up 10.5 percent – 2.5 percent higher than what had been assumed for the budget.
Fuelberg said that hospital utilization by plan participants was mostly flat, meaning that the higher costs were being driven by the hospitals themselves. She attributed higher costs to consolidation in the hospital industry as well as the need for hospitals to recoup their investment in added capacity and more advanced diagnostic tools.
She noted that a hospital group in an urban area of the state recently informed ERS that it was asking for a double-digit rate increase. When ERS let it be known that they would not pay for a double-digit increase, the group said it would drop out of the ERS network.
Fuelberg cautioned lawmakers that while plan participants have alternatives to the dropped hospital, she said that more hospitals might leave in the future. “If we stand up to (these cost increases), we’ll have to understand that there might be less choice in hospitals.”
Representatives of state employees warned lawmakers against relying too much on shifting costs to employees as a way to cover ERS’ shortfall. They noted that state employees have foregone pay raises in recent years in order to preserve a decent affordable health plan.
Andy Homer of the Texas Public Employees Association said that he was concerned that he’s heard no talk on finding cost savings on the provider side, as opposed to the employee side.
“This is not over utilization by state employees,” he said. “We are caught in a cost spiral that is not our fault.”