Insurance may change for Medicare-eligible public retirees
By Kevin Wheatley
The State Journal
Medicare-eligible public retirees will likely see a change in their insurance as the Kentucky Retirement Systems moves closer to a Medicare Advantage plan with Humana.
The KRS Board of Trustees voted unanimously Monday to defer action on the agreement with Humana following a 3-2 recommendation by the KRS Health Plan Committee, which also met Monday, to approve the contract.
The full board tabled the agreement to its Aug. 16 meeting. The contract, if approved, will take effect in 2013.
Bobby Henson and Susan Smith, trustees on the health plan committee, voted against approving the deal during the committee meeting after a motion by Henson to postpone the matter failed.
Committee Chairwoman Jennifer Elliott, KRS Board Chairman Thomas Elliott and Personnel Secretary Tim Longmeyer voted to approve the Humana contract.
KRS Executive Director William Thielen said the new plan would include the same network of physicians that accept Medicare in the current self-insurance plan, a Medicare supplement that covers all state and municipal retirees 65 or older.
The move is expected to save KRS and retirees millions in overall costs, but an exact figure is indefinite until the number of subscribers to the plan and the claims filed in 2013 are known.
Cavanaugh Macdonald Consulting, an independent actuary based in Kennesaw, Ga., predicted KRS would save more than $16 million and retirees more than $14 million based on health care numbers as of July 6 and Humana’s 2013 rates.
Cavanaugh Macdonald’s numbers show KRS pays $76.2 million into the self-insurance plan while retirees contribute $20.3 million plus $9.7 million for optional coverage on dependents or those with less than 20 years employment with the state.
The firm, which said Humana’s rates are comparable to other private insurers, estimated Humana’s Medicare Advantage plan would cost KRS $58.6 million and retirees $15.7 million based on the most recent enrollment numbers and 2013 rates.
“Right now, it looks like this is going to be stable for the next couple of years,” Longmeyer said during the KRS Health Plan Committee meeting. “We’re going to get substantial savings.
“It takes a lot of room to make up $15 million savings to the fund. That would be the largest savings in any one given year.”
Longmeyer said the savings would help lessen the retirement systems’ projected unfunded liability, which stood at $19.2 billion as of June 30, 2011.
However, Henson questioned Cavanaugh Macdonald’s projections and said KRS would save between $10 million and $14 million with Humana depending on how many participants actually enroll in the program.
Henson also said KRS would lose some $20 million in yearly Employer Group Waiver Plan reimbursements for its self-insurance program if it switches to Humana.
“If, by chance, after one year we decide we want to come back to the (self-insured plan), we’re going to lose $20 million,” Henson told the committee. “That is going to have more impact on the unfunded liability than saving ($14 million).
“If you try to cancel and come back after one year, you’ve lost money because we’re losing the $20 million.”
Smith suggested comparing Humana’s rates to the self-insurance plan with lower retiree premiums. She noted the plan’s medical costs decreased 16 percent and prescription drug coverage decreased 11 percent last year.
Longmeyer said the costs dropped for KRS because the plan shifted costs to retirees.
Another unknown is the financial impact of the Affordable Care Act takes full effect in 2014. While Henson said KRS’s self-insurance plan could absorb higher costs, he noted that private insurance providers would likely raise rates to cover ground.
Retirees, whose cost of living adjustments were eliminated in the biennium budget, packed both meetings Monday and expressed concerns with dropping the self-insurance Medicare supplement for retirees over 65.
The non-profit group Kentucky Public Retirees passed a resolution at a meeting last week asking KRS to reconsider the health care switch, saying the self-insurance program has been “satisfactory” to some 85,000 retirees who are eligible for Medicare.
Shirley Clark, KPR’s legislative chairwoman, said retirees would see their costs rise as new requirements, such as having a doctor’s recommendation to see a specialist, take effect or the company raises rates. She also noted some had a negative impression of Humana during their employment with the state.
“Retirees are afraid,” Clark told the KRS Health Plan Committee. “We’re happy with our plan, we don’t see any use of changing it, and we do not know why you’re even thinking about doing this to begin with.”
Retirees in the audience applauded Clark’s comments.
Thielen, who attended a KPR meeting in Bowling Green a few weeks ago, said the Humana plan would maintain current benefits and allow KRS to retain its list of approved prescription drugs while lowering costs, at least in the short term.
“Given our funding situation, it’s very hard to say we shouldn’t look at saving $30 million a year (for the KRS insurance fund and retirees),” he said. “Even if we don’t save anything the second year, we’re saving $30 million.”
Thomas Elliott suggested retirees voice any concerns with the recommended insurance changes in the upcoming month.
“I think there are many of us who are comfortable with the fact of this being what is in the best interest (of KRS),” Elliott said.