PEBB Moves Forward With Three Budget Cut Options

“There was never an intent to pick a plan,” says Rocky King, board vice-chair and interim director of healthcare purchasing for the Oregon Health Authority.

 

There are several advantages to proceeding with these three funding scenarios, which assume cuts in healthcare benefits for state employees and their dependents ranging from $51.1 to $149.8 million, King said.  

 

PEBB staff intends to do further research and gather more detailed pricing information for each cut, which appears on a list of 26 potential changes PEBB decided on in early March.

The legislature will also be able to “see what the options are” as it considers how much money to allocate to PEBB through the state general fund and other funding sources.

 

Ultimately, King said, PEBB couldn’t have make a different recommendation—such as choosing one funding scenario, or even two—because the board doesn’t know what action the legislature will take, nor does it know how the collective bargaining process with the unions will go.

 

“We have to figure out what collective bargaining does,” King said. “It’s going to be tough.”

 

Mercer, the consulting firm which provides financial services to PEBB, presented the board with the three scenarios March 23. They are: a 5 percent increase in funds for employee healthcare costs (Scenario A), resulting in a $20.5 million deficit; keeping the current funding level (Scenario B) and having a $56.7 million deficit; and Governor Kitzhaber’s proposal to return to the 2010 funding level (Scenario C), which would represent a $104.5 million dollar funding gap.

 

The board has to recognize “that to avoid making deeper cuts, someone is going to have to come up with additional money,” said board member Diane Lovell, who previously described the cuts as “wholesale slaughter.” She represents the Association of Federal, State, County and Municipal Employees on the board. 

 

“The models assume some sort of new money coming from somewhere. That’s not our problem,” she continued. “If it doesn’t materialize, there are going to be more cuts.”

 

The legislature could appropriate additional revenue to PEBB, or the unions could agree to steeper cuts during collective bargaining, King said.

 

Additional funding could also come from PEBB’s stabilization fund, which represents its reserves. Mikel Grey, Mercer’s actuary, predicted that PEBB’s stabilization funds “will be directly impacted by the deficits.”

 

What the funding scenarios ultimately show, King said, is that “simply cutting benefits doesn’t make sense” to solve PEBB’s budget hole.

 

Before deciding to move forward with the three scenarios, the board redesigned the priority list of cuts, and increased the out-of-pocket maximum each member must pay from $1,000 to $1,500 not $2,000 that had been recommended earlier.

 

Paul McKenna, research director at the Service Employees International Union 503, made that suggestion.

 

“It was already going up 50 percent,” he said, by increasing from $1,000 to $1,500. “Moving it to $2,000 was going a little bit too far.”

 

To make up for the loss in savings by cutting the out-of-pocket maximum, the board made the following changes to the priority list in Scenario A: increase the spouse/domestic partner surcharge from $35 to $50; establish a monthly $25 tobacco surcharge; reduce chronic care coinsurance, and establish a $50 deductible for prescription drugs (excluding chronic care medication).

 

Two changes were made to Scenario B and C to preserve the $1,500 out-of-pocket maximum: reducing chronic coinsurance and implementing a $50 deductible. The board also removed the provision that would have placed retirees in a separate pool. Before that occurs, more research needs to be done on the fiscal impact of such a move, the board decided.

 

For prior PEBB coverage, go here