Reducing State Employee Health Insurance Costs
By Laura Tobler | Vol . 22, No. 39 / October 2014
Did you know?
- States and their employees spent $30.7 billion on health insurance premiums for state employees in 2013.
- State employee health plan cost-sharing arrangements and premiums vary widely by state.
- Across all sectors, employer provided health insurance costs doubled from 1992 to 2012.
State employee health insurance costs represent a significant portion of states’ overall health spending, second only to Medicaid, according to a recent report from the State Health Care Spending Project, a collaboration between The Pew Charitable Trusts and the John D. and Catherine T. MacArthur Foundation. The rising cost of health coverage for state employees has some state policymakers looking for ways to not only slow increasing costs, but also to improve employees’ health.
In 2013, states and their employees spent $30.7 billion on health insurance premiums for 2.7 million active state employees and their families, a slight increase over spending from the previous two years. States paid $25.1 billion of this total. Compared to employees covered by private employers, state workers tend to be older, more likely to be female (who use health care services more often) and have a higher incidence of chronic disease, which all contribute to higher premiums. States, on the other hand, have more purchasing power than most private sector employers, which can help lower premiums. Since they often are one of the largest employers, states can have significant leverage in setting rates and contracting with providers and managed care organizations. Also, state employees tend to have a longer tenure than their private employee counterparts, which can provide the state more return on investment for health improvement, wellness and disease management initiatives.
Every state provides health insurance coverage for its employees; however, eligibility, plan benefits and employee premiums vary by state. For example, cost-sharing policies differ widely by state and contribute to significant premium variances. In 2013, at least 24 states offered a plan with no annual deductible, 19 offered at least one plan with a $1,500 deductible or more, and 11 of those contributed to a companion health savings account or health reimbursement arrangement. All but one state (Alaska) offer more than one benefits “tier”— a method of grouping health plan enrollment based on the number of enrollees in a household. Each tier has its own premium. In 17 states, the average percentage of the premium paid by employees is the same for all coverage tiers. In 29 states, employees must pay, on average, a greater percentage for coverage of dependents than for employee-only coverage. For example, state employees in Texas, South Dakota and Kentucky pay a substantially greater premium percentage for dependent coverage than for single coverage.
Mississippi and North Carolina pay a fixed dollar amount for all tiers of coverage. As a result, all or most of the employee’s cost of coverage is paid by the state while the employee covers all costs for dependents. In California, Indiana and New Jersey, the percentage of premiums paid by families is less than that for single employees.
According to the Pew report, the average employee-only premium per month ranged from $387 and $440 in South Dakota and Idaho, respectively, to $751 and $846 in New Hampshire and Alaska. The average premium for employee-only coverage is $583 (after controlling for plan richness and average household size).
Minnesota. Like more than half of all states, Minnesota bundles state employees with other public and some private groups to broaden the risk pool and increase the state’s purchasing power. Among the groups covered under the State of Minnesota’s Employee Group Insurance Program (SEGIP) are 100 state agencies, such as state colleges and universities, and more than 20 independent groups (not on the state payroll), such as the Minnesota Historical Society and Humanities Commission. In 2002, SEGIP introduced its Advantage Health Plan, which aimed to reduce costs and improve accountability and choice. Plan components included grouping providers based on their efficiency, increasing employee cost sharing for those who choose a less efficient than average provider, and instituting an aggressive health risk management program. Advantage program results include stabilized premiums, consistently lower cost trends than the private market, increased choice of affordable providers, and lower use of services. In 2013, SEGIP began implementing Accountable Care Organizations (ACOs) that will assume much of the financial risk for the care of covered populations and share in any savings.
Indiana. The state’s four-pronged approach to improve the efficiency and effectiveness of its state employee health plan includes offering consumer-driven health plans, improving transparency, improving the health of employees, and launching an on-site health and wellness center. In the belief that financially invested employees make better health decisions, the state implemented health savings accounts (HSA)—the state contributes 45 percent of the annual plan deductible into the HSA—and provided employees with information to evaluate and choose providers and to manage their health needs. Through a contractor, the state provides access to data on cost of services, physician and hospital quality, a provider directory, support for pharmacy services and health educational materials. As a result, state spending declined by 10.7 percent from 2006 to 2009. These savings were the result of fewer hospital admissions, greater use of generic drugs, less frequent use of the emergency room, increased use of outpatient rather than inpatient visits and visiting a primary care provider, instead of specialists, when appropriate.
States must abide by new provisions of the Affordable Care Act, such as the age 26 coverage extension, no preexisting condition exclusions, restricted annual and lifetime dollar limits, the employer “Free- Rider Penalty,” and the excise tax in 2018 (commonly called the Cadillac tax). Some state employees will be newly eligible for Medicaid in states that chose to expand Medicaid. States also can consider the marketplaces or health insurance exchanges for state employee coverage that will be open to do business with large employers and groups in 2017.