While the cost of pensions and retirees’ health care have been hot topics in the public sector for years, a similar and vital funding issue has gone virtually unnoticed: current employees’ health plans. It was brought to light, though, by the nine-day teachers’ strike in West Virginia last month.
The problem: The state is required to keep 14 percent of its anticipated health care payments for current employees on reserve but was running $29 million short. The legislature’s solution: Increase deductibles and copayments for state employees, who currently pay for 20 percent of their plans.
The West Virginia teachers’ union argued that asking them to pay more for health care was equivalent to a pay cut, and members walked. Ultimately, the teachers prevailed, and the state used general fund revenue to pay for the $29 million that was needed. The teachers also got a 5 percent pay raise.
But, Ted Cheatham, director of the West Virginia Public Employees Insurance Agency, warns that “the basic problem is not unique to West Virginia. It’s a challenge to every state as health care costs continue to go up.”
In the last decade, states have increasingly opted to fund their employee health plans rather than turning to an insurance company. Currently, 29 states self-insure all their employee health plans, while another 19 self-insure a portion of them. According to the Self-Insurance Institute of America, states that self-fund insurance commonly keep funds for employee health care on reserve because claims can fluctuate from one year to the next. That way, even when faced with an unexpected rise in costs, employee claims can still be paid.
But faced with other budget problems, some states are neglecting to fully fund these reserves -- and that could lead to more labor unrest outside West Virginia.
The problems caused by an underfunded health plan have been particularly severe in Illinois. Not only did the state allow its reserves to dry up, but it's running a $1.6 billion backlog of unpaid health claims, according to the Illinois Office of Management and Budget.
In Fiscal Years 2016 and 2017, when Illinois was operating without a budget because of partisan gridlock, University of Illinois employees were hit particularly hard. According to the Chicago Tribune, some doctors and dentists were requiring them to pay their full medical bills upfront, while others simply refused to accept the state’s insurance.
“It’s been devastating for higher education [hiring] in Illinois,” says Thomas Harnisch, director of state relations and policy analysis at the American Association of State Colleges and Universities. “The best and the brightest job applicants don’t want to go into a situation that’s unstable. And more broadly, it is hurting the reputation of the entire university system.”
One glimmer of light: The state is now putting enough money into the plan to pay its current bills -- though the backlog of overdue bills remains.
Even when health care reserves are well-stocked, employees may have cause to worry.
In Kentucky, for instance, the reserves have reached a healthy $729 million, partially because the state has made employees pay more for their health care. But now, lawmakers want to use some of those reserves to help balance the state budget. The state House proposed taking $480 million out, and the Senate proposed $310 million -- chunks so big that unions worry employee contributions could go up again.
"It's unfair," says Jason Bailey, executive director of the Kentucky Center for Economic Policy. "It's balancing the budget on the backs of employees."
Whatever the legislature decides to do could have big consequences: Kentucky was one of several states where talk of protests increased in the wake of West Virginia’s successful strike.
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