Open Enrollment FAQs for Plan Year 2006

Q. I am an active employee. Why are my rates going up while the State subsidy is going down?

A. For Plan Year 2005 (July 2004 to June 2005), the PEBP Board granted a one-time reduction to the participant share of rates for most categories (Participant Only, Participant + Spouse, etc) by using projected surplus. That surplus would have been generated from the increase in the State subsidy from $495.68 to $558.07 and maintaining the Plan Year 2004 (July 2003 to June 2004) participant share of rates. Compared to Plan Year 2004, 2006 the participant share of rates is going up by $6.45 for singles in the $500 PPO plan and $15.68 for Participant + Spouse. Participant shares are going down by $79.30 for Participant + Child(ren) and by $156.41 for Participant + Family enrolled in the $500 PPO plan. Additionally, PEBP has enhanced the benefits for the upcoming year. For additional information on the increased benefits or participant costs, see the Open Enrollment Guide or attend an Open Enrollment meeting in May.

Q. Why is PEBP giving back $45 million to the State while increasing the participant share?

A. PEBP is not giving money back to the State. As a result of fewer than expected claims in Plan Year 2005, the Program has generated a surplus. When the existing surplus is combined with lower than projected cost estimates by PEBP’s actuarial consultant and lower than anticipated renewal rates from insurance carriers for Plan Year 2006 (July 2005 to June 2006), PEBP recognized the budgetary need for Plan Year 2006 was less than requested in the budget process last summer. As a result, staff approached the Budget Division and a budget adjustment was authored and submitted to the Legislature decreasing the amount of funds requested by PEBP to operate over the next biennium.

Q. That still doesn’t explain why participant rates are going up while the State subsidy goes down. How is that possible?

A. The PEBP Board knew that the one-time reductions for Plan Year 2005 were not sustainable. As a result, the PEBP budget for Plan Years 2006 and 2007 was prepared using the more traditional cost split between State subsidy and participant share. Also, by using some of the surplus generated over the last two years, PEBP does not need as much from outside sources (i.e., State subsidy or participant share of rates).

Q. Why didn’t the State just use the projected surplus to lower participant share of rates?

A. While that would have been a possibility, it would have left PEBP and the Legislature in a precarious situation. In general, the State subsidy has historically been created as a percentage of the cost to run PEBP. The Plan Year 2005 cost sharing between the State subsidy and Participant share of rates deviated from this historic average in that the State subsidy was a greater share than in the past. This was due to the lower claims experienced by PEBP over the last year and a half, not a result of formal action by the Legislature to permanently increase the State share. PEBP prepared its budget for the upcoming biennium using the historic State/participant share ratio.

Q. Why does it cost more for a Participant and Spouse than for a Participant and family? Isn’t it cheaper to insure fewer people?

A. While one would normally expect it to cost less to insure two people than a family, the opposite has been true for PEBP. Starting with Plan Year 2005, the PEBP Board adopted predictive modeling to set its rates. The result of using predictive modeling is that participants in the Participant and Spouse category have been found to be utilizing services at a greater rate than any other category. This makes more sense when looking at the demographics of PEBP. The average age of a PEBP member is over 46 years of old. In general, those participants and dependents in the Participant and Family category are younger and healthier than those in the Participant and Spouse category. Many of the older participants and dependents in the Participant and Spouse category suffer from chronic illnesses and diseases and use more medications driving up the cost of healthcare for members of that category.

Q. What is predictive modeling and how does it work?

A. Predictive modeling is a statistical application that evaluates actual claims transactions and health status at an individual level. It then assigns a risk profile to each participant and dependent and predicts the claims for the next year. Predictive modeling isolates costs by category (Participant Only, Participant + Spouse, etc) and calculates rates for each of those categories. The effect is that categories with higher claims pay more for their insurance.

Q. I am a Medicare retiree with 15 years of service and have Participant and Spouse coverage in the $500 PPO plan. Why have my rates gone from $78.46 to $478.72?

A. First, the actual rate increase adjusted for the participant responsibility for Medicare Part B is $275.14, not $400.26. This results from the reimbursement for 80% of the Medicare Part B premium. In 2005, participants paid $78.20 per person for Medicare Part B. In 2006, PEBP will reimburse 80% of the Medicare Part B premium, or $62.56, for each retiree or retiree spouse who is covered by the Plan and Medicare Part B. The increase is still significant, and there are a couple of reasons for the increase to your rates. The first is the result of commingling claims for retirees and actives, and the second is the result of predictive modeling. Nevada Revised Statutes (NRS) 287.0434(3)(b) requires the claims of ALL retirees and actives be commingled to determine rates. There is no distinction between Medicare retirees and their non-Medicare counterparts. This statute was added in 2001. PEBP did not implement these provisions right away because we could not determine a method to account for the Medicare Part B premium paid by Medicare Retirees. The reimbursement of Medicare Part B allows PEBP to treat active, Medicare retirees and non-Medicare retirees the same.

Q. Maybe so, but Medicare is the primary payer and the State pays hardly anything for Medicare retirees. Why should Medicare retirees pay the same as non-Medicare retirees?

A. There are two aspects to medical insurance. First, how much does the participant pay for his premium, and the second what are the out-of-pocket costs for claims. In the current year, Medicare retirees pay less for their premiums (including their Medicare Part B premium) than their non-Medicare counterparts. At the same time, after meeting deductibles Medicare retirees pay 4% out-of-pocket for their claims (Medicare pays 80% of the claim and PEBP pays 80% of the remaining 20%), while non-Medicare retirees and active employees pay 20% of the total claim. Starting in July, the PEBP Board has attempted to standardize both the premium and out-of-pocket costs for all participants. As a result, Medicare retirees will pay the same premium and receive the same benefit as a non-Medicare retiree or active employee. Finally, there is a large segment of public employees who are not eligible for Medicare and PEBP will always be the primary payer for those retirees.

Q. How can that be? I thought all retirees are eligible for Medicare.

A. All retirees are eligible for Medicare Part B (Physician and Services) and are subject to its premium (currently $78.20/month). However, in order to be eligible for Medicare Part A (Hospitalization), you have to have at least 40 quarters (10 years) of payment into the Medicare system. Employees hired by the State prior to April 1, 1986 have never paid into Medicare unless they worked for another private sector employer during their career. As a result, Medicare retirees hired before April 1, 1986 currently get a benefit for years worked with another private sector employer.

Q. What is commingling and how does it affect rates?

A. Commingling is the combining of medical claims costs for multiple groups together to come up with a single rate. The benefit of commingling is to spread large claims across a broader group of people to keep rates down. When commingling was first implemented in 2002, the non-Medicare retirees and the actives were commingled together resulting in a decrease in rates for the non-Medicare retirees and an increase in rates for active employees. By commingling the Medicare retirees with the non-Medicare retirees and the active employees, all participants are sharing in the cost saving benefit of the Medicare Part A benefit (Hospitalization). The result of commingling the Medicare retirees with the non-Medicare retirees and active employees is to decrease both active employee and non-Medicare retiree share of rates. Unfortunately, it results in increases for the Medicare retirees. Removing the statutory requirement to commingle active and retired participants would result in decreases to active employees and Medicare retirees, but the rates for non-Medicare retirees would skyrocket.

Q. What are coordination of benefits, integration of benefits, maintenance of benefits and carve-out, and how do they affect me as a Medicare retiree?

A. Integration of benefits and maintenance of benefits (also known as carve-out) are methods of coordinating benefits between PEBP and any other insurance coverage, including Medicare. Under maintenance of benefits, PEBP would calculate the benefit as if it were the primary payer and deduct what Medicare (or other insurance) pays. PEBP would then pay any difference between its benefit and the amount paid by Medicare (or other insurance). Under integration of benefits, PEBP looks at the balance of the claim after Medicare (or other insurance) has made its payment and calculates the benefit as if the balance remaining is a new claim. In general, PEBP costs will be less and participant out-of-pocket costs will be more under maintenance of benefits than integration of benefits.

Q. Then why is this a good thing? Isn’t it going to cost more out-of-pocket for a Medicare retiree at a time when their rates are increasing?

A. Yes it will cost more out-of-pocket for a Medicare retiree. The reason for this change is equity among all classes of participants (active employees, non-Medicare retirees and Medicare retirees). The PEBP Board is ensuring that premiums and out-of-pocket costs are level across all classes of participants. In doing so, there will be some disruption to the affected participants. However, reversing what has been done will only impact another group of participants. PEBP needs a certain amount to fund its operations. If one group is given special treatment, it comes at the expense of all others. The PEBP Board believes the plan and rate structure being put into place in July 2005 is more equitable and fair than previous plan and rate structures, even though those who are hardest hit will surely disagree.

Q. Why would I want to stay with PEBP with these increases?

A. Retirees may want to consider changing to the High Deductible Health Plan to reduce their share of rates. Considering the way Medicare pays claims, it MAY be beneficial for Medicare retirees to choose this plan. PEBP also pays for prescription drugs, dental, vision, wellness and life insurance benefits that are not offered by Medicare. Additionally, Medicare does not have an out-of-pocket maximum and has limits on hospital days among other restrictions. PEBP provides this catastrophic coverage to retirees and pays after Medicare benefits run out. Another option is Senior Dimensions Retiree Choice Plus plan which is available in some areas. This provides a full HMO style replacement coverage for those with Medicare Part A and Part B. While PEBP does not recommend or endorse any individual plan option, Medicare retirees may want to review their individual circumstances and determine the best course of action based on those circumstances.