Benefits cuts: What's in store

The head of Nevada's Public Employee Benefits Program said Friday he expects many state workers and retirees to be confused and concerned about the changes to their benefits approved by the program board this past week.

But Jim Wells said the actual changes were less damaging to the program than he had expected and will help reduce the amount premiums must increase to cover the rest of PEBP's shortfall.

"None of the decisions were easy," he said. "These decisions were bad, but they were the best of the bad decisions. We were put in a corner with no money and how do we get out of it."

Under Gov. Jim Gibbons' mandate that PEBP hold the state's share of costs flat for the coming two-year budget cycle, Wells said the plan would have needed $111.2 million more to support existing benefits.

The laundry list of plan changes approved Thursday, he said, will save $75 million to $80 million over the biennium. The exact number isn't known because of changes the board made to the staff recommendations and the fact that most of the savings are projections by him, his staff, consultants and plan providers.

The wild card, he said, is moving spouses and domestic partners to their own plans since the state currently has no idea how many of them are in PEBP.

Wells said he expects the Medicare changes to be the most controversial because the option approved by the board "privatizes their coverage."

Medicare eligible members would move to a Medicare exchange such as that provided by Extend Health.

The provider that ends up being selected, Wells said, will find Medicare plans based on the needs of the retiree including medical conditions, drug needs, location and physician preferences. That plan, he said, can be different for the member and spouse if their needs are different.

"This privatizes their coverage," he said.

But he said that doesn't mean worse benefits.

"That was our intent, to bring an option that would be less expensive and better benefits."

He said an exchange can do that because it represents millions of people compared to just 5,000 Medicare retirees in the Nevada plan and it tailors coverage to each individual rather than one-size fits all.

The state plan provides benefits to more than 16,000 state workers through the PPO program and 9,000 more under the two HMO plans.

Wells said after staff refines estimates of what those changes will save, they will be able to calculate how much premiums must rise to cover the rest of the $111.2 million shortfall.

Those figures will be presented at the board's September meeting when they will vote on final changes needed to balance the PEBP budget.

Also on that agenda, he said, will be to have the board set priorities for what it would add back if state revenues improve or the governor and lawmakers decide to add to the PEBP budget.

Medical plan:

PPO replaced with a PPO (Preferred Provider Organization) High Deductible Plan.

Deductible will rise from $800 to $2,000 for individual participants and from $1,600 to $4,000 for families. After the deductible is reached, current plan provides 80 percent, participant pays 20 percent until the out-of-pocket maximum is reached. Under revised plan, the state would provide 75 percent and the participant 25 percent. Wells said that just gets people to the out-of-pocket maximum faster.

In addition, the high deductible PPO eliminates the $25 per visit co-payment at the doctor's office. Beginning with the new plan year, participants will just pay the bill until they reach their deductible. In addition, the revisions eliminate the separate schedule of co-pays and co-insurance for drugs.

To help with the deductible, the new plan creates Health Savings Accounts for active workers and Health Reimbursement Accounts for retirees, funding them with $600 a year for each participant and $200 for each dependent to a maximum of $1,200 a year.

"That money can be used to offset the deductible," said Wells.

For an individual, that would bring the deductible back down to $1,400 a year instead of $2,000.

But another change will cost some members more. Under the existing plan, one person reached the deductible limit at $800 even if he or she had a family. Under the changes approved this week, if that person has a family, Wells said he or she has to pay the entire $4,000 family deductible before the plan starts to pay.

Members are allowed to make pre-tax payroll deductions to augment their HSAs - up to $3,050 a year for an individual and $6,100 for a family.

The out-of-pocket maximum - after which the plan covers 100 percent - also increases but not as much, rising from $3,700 annually for an individual and $7,400 for a family to $3,900 and $7,800.

For those who prefer a Health Maintenance Organization, Wells said the board voted to keep the existing Southern Nevada HMO and is going out with a request for proposal this week for a Northern Nevada plan. With the tight economy, he said he has high hopes for some excellent bids to serve the north. HMO rates, he said, are inflation adjusted by contract and may increase somewhat.

Total savings from the changes are estimated at $28 million over the biennium.

Changes to Medical Plan Components:

• Coverage for lab tests performed at hospitals is eliminated except for pre-admission tests, urgent care, emergency room and in-patient admissions. Wells said private, non-hospital labs have proven consistently much less expensive without sacrificing quality. Saves an estimated $675,000 over the biennium.

• Coverage for temporomandibular joint treatment and surgery is reduced from 80 percent to 50 percent. Estimated savings: $475,000 over the biennium.

• Allow purchases of up to 90 day supply of certain drugs since the plan's pharmaceutical provider can get better deals for larger purchases. Saves $1.57 million.

• Eliminate vision benefits except the annual eye exam. Members will have to buy their own glasses and contacts. More serious vision problems such as cataracts and glaucoma are still covered under the medical plan. Saves about $1.45 million.

• Put some restrictions on how many times and when members can access certain screenings and preventative services under the wellness program. Controlling those who access those services more often than guidelines call for saves $1.12 million over the biennium.

Spouse and domestic partner coverage:

The board eliminated coverage for spouses and domestic partners who are eligible for coverage through their own employer. Wells said that change has the potential to save the plan $14.9 million over the biennium. "And that's conservative," he said.

Wells said analysts believe a good number of those spouses and partners in the state plan instead of their own are there because they are sicker and need expensive services the state plan covers.

He also said some employers in the state, including at least one local government, provide subsidies for their workers to go to another plan.

Dental:

Current benefits provide 80 percent of basic services and 50 percent of major work such as crowns up to $1,500 a year. Revisions eliminate dental benefits except for routine preventative services: Cleanings, annual exams and X-rays, fluoride and sealant treatments. Cleanings are normally twice a year but members can still receive four a year if the dentist recommends. Potential savings are $16.6 million over the biennium. To reduce costs for crowns, major fillings and other expensive work, Wells said the plan's network will remain in place and members will remain eligible for discounts.

Reductions to supplemental products currently fully paid by PEBP:

• Cut the base life insurance in half from $20,000 per active and $10,000 per retiree to $10,000 and $5,000. Estimated savings: $3.4 million. Rates for buying additional insurance remain the same. 

• Cut the long-term disability benefit from 60 percent of base pay to 40 percent but offer the employee the right to buy up to 60 percent. Wells said the change won't affect those workers already out on long-term disability, only those who are disabled in the future. Estimated savings: $1.8 million.

• Eliminate the accidental death and dismemberment policies and dependent life insurance. Estimated savings: $500,000.

Medicare:

Move Medicare Part A eligibles to a private, individual Medicare Exchange. To help pay the premiums, fund the Health Retirement Account for those members at $120 a year per year of service up to 20 years. A 20-year retiree, for example, would get $2,400 a year. The HRA would replace existing subsidies.

Those eligible only for Medicare Part B would be moved to regular retiree rates and provided a premium credit equal to the monthly premium set by Medicare - currently $96.40 a month.

Medicare eligible retirees with dependents who aren't eligible - usually because they're younger than 65 - would be moved to the regular retiree program and the primary participant would receive the Part B premium subsidy. He said those spouses become Medicare eligible when they reach 65.

The changes to Medicare rules are expected to save $26 million.