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How will PEBP go from a massive reserve to $0?

28 Feb 2012 10:13 AM | Deleted user
On Jan. 13, the University of Nevada, Las Vegas, held a town hall meeting, at which faculty and staff again raised concerns over the woefully inadequate health coverage offered under the current Public Employees’ Benefits Program. At almost the same time, the executive director of PEBP was telling an interim legislative committee that the plan has accrued a breathtaking $43 million excess reserve.

This was deeply distressing news, particularly in light of the impact that the shift to a choice of either high-deductible catastrophic-only coverage or high-premium HMO coverage has had on Nevada System of Higher Education faculty and staff. A November survey of UNLV faculty and staff found that the shift has led to a marked increase in personnel, especially those earning below $50,000 per year, delaying care, skipping needed medications or declining coverage outright. (PEBP’s own financial report shows a decline of about 5 percent in eligible state public service workers enrolled in the plan for the current year, a significant drop-off due almost assuredly to the higher premiums and reduced coverage.)

In February, PEBP Executive Director Jim Wells told UNLV’s daily newspaper, the Rebel Yell, that the excess reserve had been accrued entirely prior to the start of the current plan year: “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.”

This is difficult to understand, as it appears to contradict the PEBP CFO’s report of December 2011, which stated a positive “change in cash” figure of more than $10 million for the first quarter of fiscal year 2011-2012 (against a budgeted figure of negative $22 million). The same chart shows an “actual” figure for “net realized funds available” (i.e., above the budgeted reserve) of $45.2 million, as of Sept. 30 2011, compared to an anticipated figure of $11.8 million. Thus, it appears PEBP expected to have $32 million less in cash on hand by the end of September than it actually had at that point in the year. We should learn soon whether this trend of accruing an even larger excess reserve has continued in the second quarter of fiscal year 2012.

Compounding the problem, is that, according to Wells, “PEBP knew during the 2011 legislative session that there was going to be a reserve of approximately $35 million.” As he told the Rebel Yell, claims increased by only 1 percent during fiscal year 2010-2011. (Again, this $35 million actually refers to excess reserve, over the amount set aside for claims that have yet to be filed and the amount set aside for potentially costly catastrophic claims.)

In other words, “PEBP knew… that there was going to be a reserve” because of lower-than-expected claims during the 2011 legislature, at the same time that Wells and PEBP staff were presenting the new plan design to the legislature as necessary “to urge on participants to regard more critically the need for medical treatment.” Indeed, Wells himself told the legislature in early 2011 that without the plan switch, the program would run over $80 million into the red.

Yet even after all this, he told the Rebel Yell that, while he will recommend no increase in participant premiums for next year, the board may still want to increase premiums at its March meeting in order to avoid steeper increases in future years.

It’s important to note that, p. 3 of PEBP’s own January 2012 fiscal report says just the opposite, that “reserves in excess of the required reserve levels will be used to reduce premiums and contributions during future plan years.” This same report, on the next page, shows PEBP's history of carrying excess reserves: Every year since 2004, the plan has carried excess reserves of at least $20 million per year, with excess reserves of more than $40 million per year in six of those years. The projected reserve for the current fiscal year is even larger than the actual reserve for 2010-2011.

Still, without explanation, PEBP reports it intends to hold $0 excess reserve in the coming year, 2012-2013, despite the big jump in the state’s (the larger) share of premiums for that year.

In the words of a great American economist, PEBP has “some ’splainin’ to do” at its next board meeting, Wednesday, March 14, 9 a.m. Specifically, how does it intend to spend that reserve down to $0?

One obvious solution is to restore an option for the status quo ante by putting in place for 2012-2013 an affordable “middle-tier” option, between the HMO and the catastrophic-only coverage model, which the Board rejected at its last meeting.

I encourage all NSHE faculty and staff to write the PEBP board before its March 14 meeting and/or to attend the meeting. Urge program officials to spend the excess reserve on restoring benefits or cutting premiums for 2012-13. For contact and meeting information, visit the PEBP website at www.pebp.state.nv.us or follow our updates on nevadafacultyalliance.org/LastestNews.

Comments

  • 14 Mar 2012 7:34 PM | anonymous
    I think it's time for a new board! Perhaps consult someone from the private sector.
    Link  •  Reply
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