State, local government employees health insurance is in the hole

Friday, June 26, 1998 | 10:25 a.m.

Even more alarming was an analysis by legislative staff that the self-funded plan for 27,000 state and local government employees and dependents is suffering cash flow problems that could mean an $11 million deficit in the plan by the end of fiscal 1999.

Officials in charge of administering the plan told the Interim Finance Committee on Thursday that cuts in benefits and increases in premiums may be needed to head off the impending deficit. But core medical and dental benefits won't be touched, acting state risk manager Randy Waterman said.

Any decision to increase premiums could affect the state budget. The state currently contributes $247 per employee per month for health insurance coverage.

The discussion occurred as lawmakers approved the transfer of $1.1 million from the insurance plan's reserve account to pay some of the claims that should have been processed by the former administrator, L&H Administrators, last year.

The state has been trying for months to recover from the backlog of medical claims left over when L&H Administrators stopped processing them in June 1997.

Waterman said UICI, the company that took over claims processing in September, has caught up on the backlog. He said there were 134,000 claims awaiting processing in December, and there are 16,000 outstanding claims now.

The state Committee on Benefits, which oversees the plan, voted Wednesday to retain the services of UICI to process medical claims.

Lawmakers learned for the first time what the collapse of L&H Administrators has cost the state health fund.

Mikel Gray, the actuary for the state plan and an employee of a consultant, William M. Mercer Inc., said the state plan lost $2 million because discounts with medical providers couldn't be taken when bills weren't paid on time.

Another $2 million has been charged to the plan because the amount of deductibles paid by employees couldn't be determined during the period L&H Administrators handled the claims processing. So bills were paid on the assumption that deductibles had been paid in full, he said.

The final $1.5 million is being paid to UICI to process old medical claims that should have been handled by L&H Administrators, Gray said.

These costs have brought the health plan reserve down to an unacceptable level of $1.1 million, but they are one-time expenses that won't continue to drain the reserve, he said.

But Waterman said that even when these one-time costs are factored out, a deficit is looming for the plan. One issue is the high number of claims, about 90,000 a month, that are being incurred by the plan, he added.

It's not yet known if any of the $5.5 million can be recovered from L&H Administrators.