State’s health fund shrinks

OLYMPIA – The fund that covers state workers’ health care is strapped for cash because the state cut its premium payments by hundreds of millions of dollars, using that money for other things while the insurance fund spent down a large surplus.

But the Health Care Authority’s surplus disappeared faster than state officials expected. At the end of 2009, the balance sheet of the authority’s Public Employees Benefit Board fund showed “stunning declines in assets, capital and surplus, net income and cash provided by operations,” Insurance Commissioner Mike Kreidler warned in a letter to Gov. Chris Gregoire.

The figures were so bad that if the authority’s fund were a private insurer that he regulated, Kreidler said he might order it into receivership. Because the state controls the fund, he could only warn of the fund’s “financial deterioration.”

The preliminary year-end statements for the fund showed total assets were down nearly $200 million in 2009, and its liabilities for the year exceeded its assets by more than $3 million. Because the fund started the year with a balance of about $329 million, it’s still in the black. But Kreidler was worried about a poor ratio of money coming in to money going out.

The state employees union is worried, too. It sent out a call to action this month, urging members to contact Gregoire and legislators about the financial condition of the fund, and warning of one way the state might try to fix it: jacking up their health insurance rates.

Gregoire and the state’s budget agency, the Office of Financial Management, were aware of the problem before Kreidler’s Dec. 4 letter, Nick Lutes of the OFM said.

“We’ve been working on it all fall. We knew we were running into a very serious fund balance,” Lutes said.

The governor has proposed a $60 million fix in her supplemental budget, but the final number will depend in part on the Legislature.

The fund collects the premiums for state employees and pays out their medical and dental claims. Under the current contract, the state pays 88 percent of the premium and employees pay 12 percent.

The problem began in the previous biennial budget cycle, when the economy was strong and the benefit board fund had a large surplus. The budget for the 2007-09 biennium cut back on the state’s payments into the fund, keeping more money in whichever fund pays an employee’s salary.

Having too big of a surplus is a problem for federal agencies that monitor the fund, and the governor and Legislature opted for a “pay as you go” approach, Lutes said.

“They turned the revenue stream down to use up the fund balance,” he said.

About half of all employees are paid from the general fund, which covers a wide range of state programs and services. General fund money that wasn’t used to pay the workers’ insurance premiums was available for other programs.

Last spring, the Legislature continued to let the benefit fund surplus drop. It also used a low estimate of how much the demand for services would grow. Instead, Lutes said, the demand was higher than expected, the payouts greater and the surplus disappeared faster.

Partly that’s from rising health care costs, he said. Some of it might be a result of people not delaying medical or dental care because they fear they could be laid off and lose insurance.

Now Gregoire wants the Legislature to raise the per-employee contribution to the fund. Her supplemental budget calls for an average monthly increase of about $85 per employee. The Legislature, which like the governor is scrambling to fill a $2.8 billion budget gap, could propose a different number, which would be added to the many things to be negotiated in coming weeks.