SADOW: Louisiana’s Medical Claims Reserve Is Funded Just Right, Thank You

Louisiana’s reserves to pay out medical claims of state employees, dependents, and retired employees and dependents has declined by about half in the last couple of years, that’s a good thing for these people and taxpayers.

In the past two years, a pair of reductions in premium expenses to payers – who in number are about 130,000 representing around 221,000 covered persons (a media report gives the figure as 250,000, but that seems unlikely as using 2010 data, the latest publicly available for these numbers and medical claims expenses, produced a ratio of members to covered persons of 1.7) – has contributed to a fall from around $525 million to about $245 million at the end of 2013. After a 7.11 percent decrease beginning in fiscal year 2012, the drop was to $413 million at the end of FY 2013, but after a 1.77 percent decrease starting in FY 2014, the shallow decline became much steeper. Monthly revenue collections have declined roughly $10 million a month over that period (when adjusted for 2,000 fewer members due to downsizing of government).

Some seemed concerned about this. Frank Jobert, head of the interest group Retired State Employees Association, rather than be happy about the rate decreases of the past, suddenly now frets that there will have to be a big rate increase as a result of this. There is planned in the budget for next fiscal year a 5 percent rate increase – but this is not really driven by any desire to bump up reserves but instead to offset the impact of increased premium costs to the state courtesy of the Patient Protection and Affordable Care Act (especially those ending special state exemptions). So that should add little if anything to the reserves.

This also has got the attention of state Rep. Jim Fannin, who asserts he’s “heard” from somewhere that $300 million ought to be kept in reserves for medical benefits payment. And, historically, the state always was in that range. In 2008, it was $271 million. It’s only in the last few years that it ballooned to its high figure and the end of 2013 number closer to historical norms. Commissioner of Administration Kristy Nichols says it should be even lower, at $150 million or even less.

According to industry practices, she’s correct. Typically, two months’ worth of claims is the industry standard and a number states prohibit keeping more than three months’ worth in reserves. Using the 2010 data, two months’ worth of claims would be $147.5 million.

In some ways, the issue mimics that of dedicated funds where money piles in way beyond any valid need for it, raising the question of whether it should sit idle as far greater priorities need funding or be spent on low priority purposes, or whether these funds ought to be used in the form of funds transfer creating “one-time money” for more important matters (or if such important purposes don’t seem to need this funding, whether they ought to be collected at all). Drawing down on these reserves to a more appropriate level saves not only families of state employees and retirees, but also taxpayers, because they pay the lion’s share of any premiums charged.

Unfortunately, for a few years until 2011 in essence employees and retirees and taxpayers were charged more in premiums than they should have been, as the burgeoning reserves demonstrated. The same group in the past couple of years have been beneficiaries of that correction, and continue to be by paying lower rates than years ago in an economy where health care costs have increased and, as noted above, for federal policy reasons will go higher still. They should not have to overpay again in an attempt to boost reserves to an arbitrary level that has no sound actuarial reason behind it.

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