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Georgia’s State Health Benefit Plan On Life Support and Going Broke Is Asking the Federal Taxpayer for a $100 million bailout grant

July 27, 2010

Georgia’s health plan in ICU
AJC exclusive: After budget cuts, $472M surplus whittled to $33M

By Craig Schneider

The Atlanta Journal-Constitution

The state fund that pays health insurance claims for state workers is running out of money, and state officials are taking “immediate action” to keep it from going broke by the spring, The Atlanta Journal-Constitution has learned.

The State Health Benefit Plan, which pays health insurance claims for 680,000 state workers, retirees and their dependents, has seen its surplus of more than $472 million greatly reduced by budget cuts and work force reductions, said Lisa Marie Shekell, spokeswoman for the state Department of Community Health.

While the plan has enough money to pay current bills, it could run out of money by next spring, said DCH interim chief financial officer Scott Frederking.

State health officials are moving with urgency to prop up the fund with a rapid infusion of money. They plan to raise the health insurance premiums of workers and retirees by about 10 percent in January. That represents the second hike in two years, resulting in a combined 20 percent jump in premiums. Each of these hikes costs many workers several hundred dollars a year in new health care costs, on top of the pay freezes and job furloughs. Workers say they are also seeing increases in the plan’s medical deductibles and co-pays.

The state Legislature recently approved a $33 million shift in state dollars to the fund, and the state health agency is applying for a $100 million federal grant.

“It is a situation that warrants immediate action,” Shekell said.

A spokesman for Gov. Sonny Perdue said the state would never let the fund fall to the point of not paying claims. Spokesman Bert Brantley said the actions under way will stabilize the fund.

But a group representing state retirees fears the fund will run out of money and not be able to pay the health insurance claims of hundreds of thousands of Georgia workers.

“It will mean that they are not paying their bills,” said Bobbie Jean Bennett, president of the 4,000-member Georgia State Retirees Association. “It would be huge.”

In addition, worker groups are concerned that the state is shifting more of the financial burden of the fund to employees through hikes in premiums, co-pays and deductibles.

“It’s just another slap in the face,” said Chris Canter, 33, an English teacher at Pope High School in Marietta.

Canter has a kidney disorder, so he keeps a close eye on his medical expenses. In the past few years, he said he has faced furlough days, a slight salary decrease and increasing medical insurance costs. His annual premium for an individual health policy rose from about $840 to $924. His co-pay for a primary care visit rose from $25 to $35, and his cost for a three-month prescription for his kidney medicine increased from $90 to $120.

He sees teachers buzzing about these and other financial stresses, and he worries that eventually some might leave the profession or see the stress deteriorate their teaching skills.

The State Health Benefit Plan insures state workers, retirees and dependents from state agencies, local school boards and the state Board of Education. The state is a self-insurer, meaning it provides money for the fund and pays the workers’ health insurance claims itself. Numerous states are self-insured, and analysts say many are facing financial troubles.

Contributions from Georgia state workers and retirees and from the state pay for the Georgia plan.

The plan is paying medical claims on a month-to-month basis, counting on the money that comes in every month from state agencies and workers to pay the bills for that time frame. Without the addition of more money, the fund will be about $200 million in the red by June 2011, Frederking said.

“If we do not take steps, by the end of this fiscal year [in June 2011], we will be in a deficit,” he said.

The Atlanta Journal-Constitution reported in March 2009 that the state’s budget plans could deplete the reserve fund for the State Health Benefit Plan by June of this year.

Over the past two years, the governor and Legislature approved reductions in the amount that state agencies and the Board of Education were required to contribute into the fund. The move was meant to save those agencies money and preserve jobs during this budget crunch, said Brantley, the Perdue spokesman.

But the move led the fund to increasingly dip into its surplus. The effects of this strategy have been worsened by a decrease in contributions to the fund over the past year because of layoffs and furloughs that reduced workers’ pay, said DCH officials.

Frederking compared the fund to a person whose savings account was largely depleted and the person was living paycheck to paycheck.

The fund saw its surplus in 2008 of $472 million drop to $33 million last year. Agency officials said they do not have a current audited figure for the surplus. They said a surplus of $400 million is preferred. The total amount in the account available to pay claims, apart from any reserve money, is $122 million.

The fund usually pays about $200 million in claims a month. The fund paid a total amount, including claims and agency administration fees, of about $2.8 billion in funds last year.

Essentially, the state has to find new money to make up for an anticipated $200 million deficit. Last month, the state transferred $33 million from the state treasury to the fund. The DCH board has approved a 15 percent increase in the amount that state agencies and the Board of Education must pay into the fund, effective July to September. That will provide an $80 million infusion of cash into the fund for that period. But officials said they plan to reset the rate to its current level in October.

The 10 percent increase on health care insurance premiums to state workers and retirees would kick in Jan. 1. The exact figure on the rate hike will be determined when the DCH board finalizes plan changes this fall. A 10 percent hike would mean a monthly premium increase that ranges, depending on the plan, from $7 to $45.

Tim Sweeney, a health care policy analyst with the Georgia Budget and Policy Institute, said the state has the ability to inflate the fund. But the methods demand higher premiums from workers who have seen paychecks shrink due to furloughs and pay freezes, and higher contributions from state agencies and the Board of Education at a time when they are financially stressed.

Joseph “Danny” Harper, a 63-year-old retired internal auditor for the state, said he is concerned the fund could become short enough on money to delay payments on claims. Consequently some doctors and other health providers might pull out of the plan, forcing him to find new ones — “a pretty terrific inconvenience,” said the man who tests his blood sugar frequently because of concerns about diabetes.

DCH spokeswoman Shekell said payments will not be delayed.

The funding decisions for the State Health Benefit Plan — from the governor’s office to the state Legislature to the DCH agency — has been “a recipe for crisis,” said state Rep. Pat Gardner (D-Atlanta).

The lack of long-term planning and the use of stop-gap measures shows the state keeping the fund together “with glue and bubblegum,” said Gardner, who serves on the House appropriations subcommittee on health. She also worries that the need for more long-term planning won’t come any time soon, considering that the governor is in his last year.

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