Audit: State employee health plans short of money

HELENA - State employees will pay more and get less from their health insurance plan to remedy serious financial problems revealed in a legislative audit.

The state employee group benefits plan gobbled up $28.5 million in reserves since mid-1998 and ended February in the red by $2.7 million, auditors said.

They concluded that ''rates are inadequate to maintain the state employee benefits plan on an actuarial sound basis'' as required by state law. The plan has no extra money to cover catastrophic events or pay employee claims that surpass predictions, the report said.

Department of Administration officials said Monday the problem will be remedied by increasing state and employee premiums and cutting benefits to the 31,000 workers, retirees and family members covered by the insurance plans.

''We have less reserves than we are required to have,'' said Steve Bender, deputy director. ''We've got to make up some lost ground here.''

The auditors' findings, which will be presented to the Legislative Audit Committee next week, said the state kept employee insurance premiums lower than they otherwise would have been by spending a large reserve.

While medical and prescription drug costs continued to rise, ''the state and its employees did not see the full effect of those increases because premiums were partially subsidized by the reserves,'' the report said.

The reserves continued to dwindle, to $20.7 million in 2000, then to $16.8 million a year later and to $6.8 million a year ago.

The audit recalled department officials saying they were caught off guard by an unexpectedly steep climb in claims and costs during the last three months of 2002. But, auditors said their review of medical claims showed a gradual increase throughout the year and no sudden spike.

Bender said officials may have had hints of the trend earlier, but that they did not get a clear picture until the latter half of the year.

He disputed the audit's conclusion that the benefits plan is in the red, calling them ''shoot-from-the-hip numbers'' that didn't consider that the program was due for a $5.5 million infusion with the next payroll.

Bender said he believes the plans have $1.7 million extra, although he acknowledged that's far less than the $12 million in reserves it should have by end of this year to comply with the law.

The department's decision to use some of its surplus became a matter of bad timing, said Connie Welsh, chief of the department's Employee Benefits Bureau. The downturn in the stock market that siphoned off investment earnings and a return of big increases in health care costs combined to leave the program in a financial hole, she said.

''In hindsight, it certainly was a mistake,'' Bender said of the decision to start spending reserves.

The solution to restore financial stability to the program begins July 1 when the state will increase its contribution by $44 per month for each employee. Another $50 increase will occur a year later.

Welsh said employees probably will face comparable increases in their premiums beginning Jan. 1, but that decision won't be made until September.

Beginning July 1, benefits will be reduced by adding a $100 deductible for prescription drugs, a $50 deductible for certain dental services and a $1,000 annual limit on all dental care.

The changes should restore financial soundness by the end of 2005, she said.