The House budget will more than drain the Kentucky Employees’ Health Plan trust fund of surpluses built up in recent years – resources that have accumulated due in part to reductions in the health benefits provided teachers and public employees. Transfers from the fund are a major way the House budget prevents some of the cuts to K-12 education included in the governor’s proposal.
This concerning practice has become a standard way the legislature balances the state budget in recent years. It could lead to even more cost shifting to public employees.
The House budget transfers $481 million out of the trust fund over the years 2018-2020. As of Dec. 31, 2017, the trust fund had a balance of $729 million. However, another $312.5 million will come out of the fund by June 30 to fulfill transfers ordered by the General Assembly to help balance the 2016-2018 budget. Based on the current balance, that will leave $416 million in the fund — less than the $481 million the House plans to take out.
To close this gap and make the transfers possible, the House budget apparently depends on the trust fund replenishing over the next two years — with revenues received from teachers and state employees continuing to exceed medical claims paid out. Transfers usually happen on the last day of the fiscal year, or June 30 of 2019 and 2020.
The plan may need to rely on additional premium increases or more cost sharing to make the transfers possible. Those could be large, The Courier-Journal reports.
The Kentucky Employees’ Health Plan provides coverage for 109,000 active teachers, state government and other employees. It also covers 37,000 retirees of the Kentucky Employees Retirement System and Teachers Retirement System. The plan is funded primarily by employer contributions but also by employee premiums, the latter of which totaled $256 million in 2017.
Surpluses have existed (and been swept) in recent years in part because the plan has shifted more of the cost over to workers, first from an increase in premiums and then from an increase in deductibles and co-insurance. Between 2008 and 2011, employee premiums went up 55 percent. Then between 2013 and 2015, claims dropped 17 percent due to a combination of greater cost sharing by employees and lower utilization. The share of medical claims paid by the plan has dropped from 88 percent in 2009 to 84 percent in 2016.
As the resulting surpluses have grown, so has the legislature’s use of them to balance the state budget. In 2009, the state took $50 million. That ramped up to $157 million in the 2014-2016 budget and $500 million in the 2016-2018 budget (Of that $500 million, $125 million was supposed to go to a so-called pension “permanent” fund, but both the House budget and the governor’s budget propose taking those monies back to shore up the 2018-2020 budget.)
If the legislature moves forward with these transfers to balance the budget, the opportunity to do so again will be extremely limited given the size of the transfer relative to what is in the trust fund. That creates a large structural imbalance moving forward that must be filled with new revenue — or even more budget cuts.