HD7 - A Review of the Efficacy and Administration of the Commonwealth's Employee Benefits Program

  • Published: 1992
  • Author: Department of Personnel and Training
  • Enabling Authority: House Joint Resolution 421 (Regular Session, 1991)

Executive Summary:
I. INTRODUCTION

House Joint Resolution (HJR) 421 directed the Department of Personnel and Training (DPT) to study the administration and efficacy of the state's health benefits program. Specifically, HJR 421 required the Department to: 1) review the health insurance options currently available to state employees; 2) assess the advantages and disadvantages of the health insurance options; 3) examine the recent increases in premiums; and 4) evaluate the effectiveness of the program's administration.

To respond to the issues presented in HJR 421, DPT employed several major study methods. DPT analyzed historical data regarding premiums, procurement practices and program administration; surveyed state employees; surveyed other states and local employers; and requested its independent benefits consultant and actuary, William M. Mercer, Inc. (Mercer), to analyze and comment on various aspects. of the program.

II. FINDINGS

A. Health Plan Options

1. Active Employees (see page III-1)

• The health benefits program is designed to provide every state employee, regardless of geographic location, a choice of at least two health plan options. The Basic plan is available statewide to all employees, at no cost to them.

• In addition to the Basic Plan, optional plans (KeyCare and Cost Awareness), which provide a higher level of benefits, also are made available to employees.

• In the Richmond, Tidewater, and Northern Virginia areas of the state, employees also have the option of obtaining coverage from private Health Maintenance organizations (HMO's).

2. Retired Employees (see page III-6)

• Retirees under the age of 65, or who otherwise are not eligible for Medicare, may continue to participate in any of the options available to active employees.

• Retirees who are eligible for Medicare may enroll in an HMO, if they reside within the HMO's service area. DPT also provides two other Medicare complementary plans, option I and Option II, on a statewide basis.

B. Relative Advantages and Disadvantages of Health Plan Options (see page IV-1)

• In any health benefits program, employees' views on the advantages and disadvantages of a particular benefit plan vary according to the medical needs of each employee.

• An analysis of the relative advantages and disadvantages of the state's health benefits plan options is presented on page IV-2.

C. Comparison of Virginia's Health Benefits with Other Employers

1. Comparison of Virginia's Health Benefits with Other Virginia Employers (see page IV-1)

• Mercer advised DPT that, overall, the Commonwealth's health benefits are comparable to other large Virginia employers.

• Mercer concluded that the structure of the program, which incorporates a variety of health plan options, is equal to or better than most large Virginia employers.

2. Comparison of Virginia's Health Benefits with Other States (see page IV-3)

• Unlike the Commonwealth's health benefits plan options, many states have instituted lower cost "comprehensive" benefit plans (i.e. plans that require employees to pay a $100-$300 deductible and 20% co-insurance) as a means of holding down health insurance costs.

• In its 1991 Survey of State Employee Health Benefits Plans, the Martin E. Segal Company reported that 28 states had adopted comprehensive benefit plans. Virginia is one of 22 states which has retained a higher level of benefits as its statewide standard plan for employees.

3. Employees' Views About the State's Health Benefits Plans (see page IV-7)

• Based on a survey of state employees, 43% of the Commonwealth's employees are "very satisfied" with their health benefits, and an additional 43% are "somewhat satisfied." Only 10% of employees reported being "somewhat dissatisfied" with their benefits, and 2% reported being "very dissatisfied."

D. Health Benefits Premiums

1. Premium-Setting Process (see page V-1)

• For the Basic, KeyCare, and Cost Awareness plans offered to state employees, the premiums are based on two actuarial estimates, one by Mercer (DPT's independent consultant) and the other by Blue Cross and Blue Shield of Virginia (BCBSVA).

• Premiums for HMO coverage are determined as part of the competitive procurement process used to select the HMO plans. Annual increases in the premiums charged by each HMO are limited to the percentage increase which the HMO files with the State Corporation Commission's Bureau of Insurance each year.

2. State and Employee Premium Contributions (see page V-2)

• Section 2.1-20.1 of the Code of Virginia mandates that the Commonwealth pay the cost of employee-only coverage under the statewide plan (Basic). This same amount is paid toward the cost of the optional coverages (i.e. KeyCare, Cost Awareness, and the HMO's).

• In addition to paying 100% of the cost of the employee's coverage, the Commonwealth also pays 52% of the cost of dependent coverage under the Basic plan.

• Overall, the Commonwealth pays approximately 75% of the total cost of the health benefits program.

E. Recent Premium Increases

1. General (see page V-6)

• The total amount paid by the Commonwealth for employee health insurance has increased from approximately $121.5 million in fiscal year (FY) 1988, to $228.9 million in FY 1991, an increase of $107.4 million.

• The total amount paid by employees has increased from approximately $26.3 million in FY 1988, to $62.6 million in FY 1991, an increase of $36.3 million.

• In 1990, the premium for employee-only coverage under the Basic plan increased 20%. In 1991, this premium increased another 30%. Premiums for family coverage and the optional plans also increased significantly in 1990 and 1991.

2. Reasons for Premium Increases (see page V-8)

• Two key reasons for the Commonwealth's premium increases in 1990 and 1991 were medical cost inflation, and increases in the utilization of health care services by employees.

3. Managing Claims and Supplying Provider Networks for the Self-Insured Health Plans (see page VI-7)

• DPT pays an administrative fee to its current program administrator, Blue Cross and Blue Shield of Virginia (BCBSVA), to manage claims and supply provider networks for the self-insured health plans.

• The administrative fee paid to BCBSVA for these services is a fixed price per contract unit administered each month, and is not related to the number of claims processed, the amount of the claims, or the premiums charged to employees.

• Approximately 97% of the premiums paid by the Commonwealth and employees are used to pay medical claims incurred by employees. Only 3% of the premiums are used to pay for administrative expenses.

III. RECOMMENDATIONS

A. Program Design and Cost Containment

1. DPT should continue to evaluate and implement effective cost-containment programs to help control the rising cost of health insurance.

2. As required by Item 61 of the 1991 Appropriation Act, DPT will present a plan to the Governor and the 1992 General Assembly to revise the design of the health benefits program.

B. Program Administration

1. Prior to establishing new provider networks, particularly in rural areas, DPT should verify that BCBSVA has met all of its criteria for ensuring that employees have adequate access to network providers.

2. DPT should implement the recommendations made by the Auditor of Public Accounts following its review of the health benefits program's financial controls and accounting procedures.

3. DPT should ensure that BCBSVA implements the necessary modifications to its claims processing systems such that all contractual performance standards are being met.

4. DPT should work with its consultant, William M. Mercer, Inc., and BCBSVA to revise the financial performance standards contained in its contract with BCBSVA to reflect more competitive performance levels.

5. The Commonwealth should increase the state's contribution to family coverage for those families with two state employees such that the contribution represents 100% of the cost of each employees' coverage plus 52% of the cost of the dependents' coverage.

C. Communications and Education

1. DPT should make available more information regarding the health benefits program so that employees and others understand the administration of the program, the procurement process, the premium-setting process, and other critical aspects of the program.

2. DPT should conduct an annual survey of employees to determine their views and satisfaction with the benefits and services provided through the program. DPT should give careful consideration to the results of the survey when changes to the program are being contemplated.