Dropping drug coverage for retired state employees who are on Medicare would save $20 million a year for state employee and retiree health plans and lower the overall health care costs for 82% of the retirees, a consultant told an advisory panel on Friday.
Such a change would lower the health insurance premiums paid by the retirees to what retired public school employees on Medicare pay, amounting to a reduction of about 40% for an individual state government retiree or 34% for a retiree and spouse who are both on Medicare.
The retirees would then be able to enroll in stand-alone Medicare drug plans, which have monthly premiums for individual coverage ranging from about $17 to $97, John Colberg, an actuary with the consulting firm Cheiron of McLean, Va., told the State and Public School Life and Health Insurance Board's benefits subcommittee.
The change would offer most of the retirees the chance to lower their spending on drugs and insurance premiums while also eliminating the need for the state employees' plans to raise their rates next year by double digits, Colberg said.
But Chris Howlett, director of the Department of Finance and Administration's Employee Benefits Division, stressed that the presentation was meant merely for educational purposes and that he is not recommending that the board adopt the change.
"The intention of today was based on questions from committee and board members, and those questions came from those groups to explain what the plan is paying and how does that relate to what we could pay" by dropping the drug coverage, Howlett said.
Such a change would require an effort to educate retirees, who "feel it's a fundamental right of their retirement to have those benefits," he said.
Colberg presented the idea as the board and subcommittee explore ways to reduce the need for a rate increase for the plans, which cover about 26,000 state employees and 13,000 retirees, including 10,300 retirees who are on Medicare.
For those retirees, the state plan provides drug coverage and fills in gaps, such as deductibles and copayments, in Medicare's medical coverage.
Without a change in benefits, the plans for employees and retirees will need to raise rates by 16% next year to cover projected expenses for drugs and medical care, Colberg said.
The plans covering public school retirees who are on Medicare stopped providing drug coverage several years ago, Howlett said.
School retirees who are on Medicare pay $100.78 a month for individual coverage or $263.04 for a retiree and spouse who is also on Medicare.
Retired state employees on Medicare pay $166.82 a month for individual coverage or $399.66 for a retiree and spouse.
Even after reducing retired state employees' premiums to what school retirees pay and forgoing the $5 million in annual federal subsidies the plan receives for Medicare retiree drug coverage, dropping coverage for the state government retirees would save the plan about $20 million a year, Colberg said.
Through coverage in stand-alone drug plans, 82% of the retirees would be able to reduce their monthly drug and insurance premium expenses, he said.
An additional 5% of retirees would pay about what they do now.
Most of the others would pay $10 to $50 a month more under a stand-alone Medicare drug plan. But about 1% of retirees would see their monthly costs rise by $200 a month or more.
In one example, examined by Cheiron, a retiree taking Humira, an arthritis drug that costs more than $5,000 a month, and seven generic drugs would end up paying about $353 more per month.
Instead of dropping coverage, the state could offer a customized Medicare drug plan, but the savings would be lower -- about $10 million or $15 million a year, Colberg said.
That option would be more complex and likely wouldn't be ready to implement by Jan. 1, he said.
Committee and board member Herb Scott, an assistant personnel administrator at the finance agency, said he would "probably be against" taking away retiree drug coverage because of questions he has about the idea.
"If we go this route, how do we educate everybody to the point that they understand it?" he said. "A confused mind will always say no."
The subcommittee did recommend conducting an audit to verify the eligibility of employee and retiree spouses and children who are covered by the plans.
Howlett said that idea could save the plan several million dollars.
He said he expects the board will ultimately be able to keep the rate increase in the single digits by making other changes, such as increasing the deductible on the plan covering most state employees.
Meanwhile, the plans covering school employees likely won't need to be increased next year, Colberg said.
Last month, he said he expected those plans, which cover about 46,000 employees, to need an increase of about 3%.
He said Friday that the need for an increase had been offset by lower expenses during the first part of this year and planned initiatives that are expected to reduce drug expenses by about $12 million a year.
The board is expected to set rates for the state and school employees' plans next month.
Metro on 05/18/2019