September 2010

To: All NSHE Employees

From: Jacque Ewing-Taylor, UNR Faculty and PEBP Board Member

Of all the columns I have written about PEBP issues, this is by far the most difficult and disturbing. Many of you have already heard of the dramatic changes being made to our healthcare benefits package but there is also some incorrect information floating around. Let me give you a bit of background and context then explain what has been decided to date. The information presented below is all based on what I have available right now and could change at the next board meeting on September 2.

The Public Employees’ Benefits Program (PEBP) is an executive branch agency of the State government. As such, PEBP’s budget is part of the governor’s budget which is presented to the legislature in the odd-numbered years that body meets. The resulting budget is good for the next biennium. As part of the budget process, in August of the year prior to the legislative session, the Budget Office gives every agency a target budget number from which the agency prepares its biennial budget to be included in the total budget submitted to the legislature by the governor. PEBP was told by the State Budget Director, Andrew Clinger that our biennial budget had to remain flat; there will be no increase in the State’s contribution to PEBP budgeted for the next biennium (July 2011 – June 2013). The only good news is that every other agency was directed to reduce its budget by at least 10%. This is the second biennium in a row that PEBP has been directed to maintain a flat budget.

The effect of keeping state contributions at current levels is a $111 million gap in what PEBP currently receives from the state and you to run the plan and what the actuaries predict it will cost to provide benefits over the next biennium. You may recall what happened two years ago when we had to close a $55 million gap: our premiums went up and our benefits went down. So, as Yogi Berra once said “It’s déjà vu all over again!”

The PEBP Board began discussing approaches to this problem in June and July. PEBP staff were directed to come up with options and to really think creatively about how to achieve this budget goal, while keeping in mind a core philosophy: protection from catastrophic healthcare expense to the participant is core to the program. The initial results of those discussions were presented in July and discussed at a workshop. Two weeks later at a board meeting, staff presented options for plan design changes along with the estimated savings associated with each option. The board discussed all of the options at great length and made some decisions that will result in plan savings of approximately $80 million over the biennium, or half of what is needed to balance the budget. The remaining $31 million will likely come in the form of increases in our monthly premiums.

The HMO plans will be retained and largest change will be to the PPO plan. The wellness portion of the PPO remains intact and under the new federal healthcare reform, the $2,500 limit will be removed. While the PPO network will not be affected, a Consumer Driven Health Plan (CDHP) model will be added. This model is predicted to save over $30 million for the biennium. CDHPs are designed to encourage individuals to become actively involved in making their own healthcare decisions (e.g., designing their health insurance coverage, choosing their service providers, selecting healthcare services, and managing their own fitness and wellness). They provide incentives to plan participants to take a more vested interest in the cost and frequency of services utilized. Details of the plan design will be decided over the next nine months but the main features of this model are:

• $2,000 annual Individual Deductible/$4,000 Family Deductible
• $3,900 annual Individual/$7,800 Family Out-of-Pocket Maximum
• 75% Co-insurance (after deductible is met)
• Office visits are subject to the deductible and the co-insurance; no co-pays
• All services (except wellness/preventive medical services) including prescription medications are subject to the annual medical deductible.
• Health Savings Account (HSA) for Active Employees
• Health Reimbursement Account (HRA) for Retirees
• Fund HSA/HRA annually with $600 seed money for participants and $200 for each dependent to a maximum of $1,200 annual total seed money
• HSA/HRA funds, including seed money, can be used to pay for any covered medical costs
• HSA funds can rollover year after year and are portable

I want to emphasize the change in the deductible. Prescription drugs will not have a separate $50 annual deductible, but will be subject to the annual “medical” deductible…..either $2,000 or $4,000.  Employees and retirees who have family coverage (two or more covered individuals), will be subject to the $4,000 family deductible….which can be met by a combination of covered family members or by one family member.  For example, under our current plan design, one family member cannot meet more than the individual deductible.  Under the new plan, one individual could possibility meet the entire $4,000 family deductible.  As an example:

1. Family tier member #1 incurs $2500 in eligible in-network medical expenses, which is applied to the family in-network deductible of $4000. In-network deductible now remaining, $1500.
2. Family tier member #2 incurs $2000 in eligible in-network medical expenses: $1500 is applied toward the remaining family in-network deductible, which satisfies the $4000 annual family in-network deductible amount. The remaining $500 is paid at the appropriate coinsurance rate.

Other changes to the PPO plan include:

• The plan coverage for all lab tests performed at hospitals except those for pre-admit testing, urgent care, emergency room and in-patient admissions will be eliminated.
• Coverage of temporomandibular joint (TMJ) disorder coverage will be reduced from 80% to 50%.
• A 90 day supply of certain retail drugs will be allowed (no detail on what these will be).
• Routine vision benefits, except annual eye exam, will be eliminated (i.e., $125 every other year).
• Coverage for spouses and domestic partners eligible for coverage through the spouse's or domestic partner's employer will be eliminated.
• The phrase "or as needed" will be removed from the Wellness and Preventive Guidelines in the Master Plan.

Significant changes to the dental plan will be made and include elimination of all benefits EXCEPT routine preventive services (cleanings, annual examinations/x-rays, fluoride and sealant treatments). Up to four cleanings per year will continue to be allowed.

Other changes will affect our life and long term disability insurances. Basic Life insurance will be reduced for participants and retirees by 50% effective July 1, 2011, taking our life insurance to $10,000 per active employee and $5,000 per retiree. Dependent life and AD&D has been eliminated. Long Term Disability (LTD) insurance, currently set at 60%, will be reduced to 40% and employees will be given the option to "buy-up" from 40% to 60% voluntarily. This change is of particular concern to NSHE Faculty who are not in PERS, which has a "disability" component to it. If you are not in PERS, you should seriously consider “buying up” to the 60% coverage level. Additionally the majority of us are not eligible for social security disability benefits, meaning this LTD insurance could be our only income if we were to become disabled and unable to work.

Finally, coverage for current and future retirees will change dramatically. PEBP will no longer be the provider of coverage for Medicare eligible retirees. Those retirees will be moved to a Medicare Exchange and will choose the plan and benefits that best suit them. The Medicare Exchange will assist the retiree with the purchase of a Medicare Supplemental policy that will help pay some of the health care costs not covered by Medicare.  The policies will be offered by large insurance companies such as Anthem, Cigna, Aetna and United Health.  Many of the policies include coverage for prescription drugs. All retirees will continue to be eligible for the PEBP dental and basic life insurance plans. Each retiree will have an HRA which will be funded by contributions from the state as follows: $10 per month ($120 per year) per year of service (YOS); minimum of 5 YOS; maximum of 20 YOS. For example, participants with 5 YOS would receive $600 seed money per year; participants with 20 YOS would receive $2,400 seed money per year. This seed money can then be used to pay the premiums.

For Medicare Part A eligible retirees who have dependents who are ineligible for Medicare, the participant and all dependents will be moved to the appropriate tier non-Medicare rates and the retirees (participant only) will be provided a premium rate credit in an amount equal to the published Medicare Part B premium at the time PEBP sets rates each year (currently $96.40).

Medicare Part B eligible retirees who are ineligible for Medicare Part A will be moved to the non-Medicare retiree rates. Currently, these retirees receive the same rates as those who have both parts A and B Medicare coverage.  To assist these retirees with payment of their premium, PEBP will provide a “rate credit” equal to the amount of the Medicare part B premium as published by the Centers for Medicare and Medicaid Services (CMS) at the time PEBP sets its rates each year.

Those are the changes approved at the August meeting. Changes made at the September meeting include a revision to the formulas used to determine what you pay each month as a percentage of the total premium. Currently, the state covers 93% of an active employee’s base plan premium, 85% of all other plans, and 64% of a retiree’s base plan premium, in the form of the state subsidy. Family members are subsidized at 73% for the base plan and 67% for all other plans. The subsidization formula approved at the September meeting would set the active employee percentage according to the rate structure adopted in February, and reduce the percentage of subsidy for family members in the CDHP by 20%, and 15% for those in an HMO. In other words, and hypothetically, if the active employee subsidy percentage required to balance the budget is determined in early 2011 to be 90%, then the dependent subsidy for the CDHP would be set at 70% (90-20), the HMO subsidy for an active employee would be 75% (90-15), and 55% for HMO dependents (75-20). The magnitude of the amount of premium increases that will be necessary to balance the plan’s revenues with its costs will not be clear until the rate setting process occurs in early 2011.

A proposal that would have severely limited, and in some cases eliminated, healthcare coverage for retirees was defeated. However, this issue is not dead and the Governor’s office has said they might introduce the proposal in the Governor’s final budget. The SAGE commission is also going to bring some sort of retiree healthcare reform to the legislature and there are many legislators who are scrutinizing these costs as a way to help balance the state’s budget. Vigilance on the part of ALL NSHE employees is critical as the next legislative session convenes.