Thursday, April 18, 2002 | 9:15 a.m.
CARSON CITY -- Nevada's free insurance program providing prescription drugs to low-income senior citizens may be headed for financial trouble, Assembly Majority Leader Barbara Buckley said.
In testimony presented Wednesday to the House Subcommittee on Health, Buckley said the number of enrollees, now at 7,500, might have to be reduced to 6,600 because of a lack of funds.
Buckley, D-Las Vegas, also said the private contractor that runs Senior Rx may have made more than $1 million in profits from the program in the final six months of last year.
Her testimony was faxed to the subcommittee, where she had testified last year about the program, started in 1999 by Gov. Kenny Guinn using tobacco settlement money.
Buckley suggested to the subcommittee that prescription drug coverage be added to Medicare benefits so more elderly persons could qualify for benefits nationally.
Buckley also raised the possibility of the state running Senior Rx, instead of a private insurance company.
But Michael Hillerby, Guinn's deputy chief of staff, told the subcommittee that using a private insurance company eliminates a risk to the state that could be as high as $35 million, and it saves the state on staffing needs.
Fifteen percent of the tobacco settlement money, or about $6 million a year, goes to finance Senior Rx.
But Buckley said that amount "will not support 7,500" members. Due to a slow start in 1999 and 2000, a reserve of funding built up, which was later spent to increase the number of those enrolled.
"If reserve funds were not available, the ongoing funding stream would only support approximately 6,600 participants at the current premium cost of $85.27 per member per month," Buckley said.
In a related development, state Treasurer Brian Krolicki said Wednesday the tobacco settlement's annual payment this year will be $30.7 million, about 5.6 percent less than predicted. He said that will mean less money for Guinn's Millennium Scholarships and less money for health programs that are financed from the fund.
In Senior Rx, those 62 or older with incomes of less than $21,500 are eligible for the program, in which no premium is assessed. A co-payment of $10 is charged for generic drugs, $25 for preferred drugs. The maximum benefit for an individual is $5,000.
The system is managed by PRAM Insurance Services and is underwritten by Fidelity Security Life Insurance. From July through December last year, the state paid the private company $106.34 per month per enrollee. But the average direct pharmacy cost per member was $37.64.
Buckley noted the average drug cost did not include administrative expenses for PRAM such as premium taxes paid to the state, reinsurance costs and payments made to the pharmacy benefits manager. But she said it "is clear that the contractor made a significant amount of money during this six-month period."
"Even if the contractor's total administrative costs amounted to 35 percent of the per-patient costs, the contractor would have received in excess of $1 million over the total program costs incurred during the six-month period between July 2001 and December 2001," Buckley said.
The premium paid by the state to PRAM was reduced to $85.27 per month this calendar year, down from $106.64 in the prior year.
Buckley has been a proponent of having the state run the system, which she maintains would reduce costs and allow more people to be covered.
But Hillerby, who appeared at the subcommittee hearing, defended the hiring of private insurance companies for the program. Hillerby noted the maximum benefit available to each person is $5,000.
He said not every senior would use the full $5,000 but the "theoretical risk to the state is over $35 million," and that would be the burden of PRAM, not the state.
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