NEWPORT, VT- Actuaries for the Vermont National Education Association working with the Vermont Education Health Initiative (VEHI) and Blue Cross Blue Shield are recommending a 14% increase in health care costs this next fiscal year. The increase is due in part to implementation of the Federal Patient Protection and Affordable Care Act, popularly knows as “Obama Care.” There are several factors driving the highest rate increase proposal since FY '04, which are outlined in a VEHI letter to the business offices of Orleans Central Supervisory Union and North Country Supervisory Union.
From FY '01 to '04, health insurance premiums increased an average of 16.3% before rates stabilized over the next seven years for the non-profit market. With an average rate increase of 2.9% over the last five years, NCSU Business Manager Glenn Hankinson expressed surprise when he was initially notified in October to expect a recommended increase in rates of between 10 and 15% for the next fiscal year.
One expense cited in the report is an increase of medical utilization following several years of lower than expected usage. The rise in claims coverage is not as severe as it could have been due to the implementation of wellness and chronic disease management programs, and providing access to low cost primary and preventative care initiatives. More alarming to the actuaries' report is that 24% of recent claims are for high end, specialized treatment for cancer diagnosis and treatment.
VEHI invests surplus revenues into reserve funds to ensure financial viability when an increase in claim coverage exceeds anticipated revenues. The economic recession, which started in the fall of 2008, has had a negative impact on the interest bearing accounts. VEHI made it clear that because funds are invested conservatively, they have not lost any money due to the economic downturn. The funds are used to defray administrative costs, pay excess claims, and support wellness programs.
The biggest hit is due to the rise in benefit mandates and the cost of health care reform assessments. Mandates are defined as health care benefits that are required to be covered by insurance companies while assessments are the fees either the Vermont State Legislature or Congress levy to pay for the new initiatives.
Extending coverage to children up to the age of 26 on a parents health care plan is a feature of the Affordable Care Act, which VEHI decided to add to the plan a year prior to a mandate that would require coverage. The additional unfunded expense for this fiscal year is $1.7 million, which will be included in the next budget.
Investment into wellness and risk management programs is budgeted at $4.9 million in FY '12; 12,000 employees participated in these programs that year.
The biggest area of concern for the VEHI actuaries is the unknown cost of implementing the Affordable Care Act. During the transition from private insurers to a health care exchange, two programs have been created, but the federal government has yet to assess the costs of the programs. The Federal Transitional Re-Insurance Fee and a Federal Insurer Fee, which are designed to stabilize premiums when the new exchange goes into effect. Because the school district's fiscal budget ends six months into the 2014 calendar year, VEHI must budget for the assessments based on guesswork. Without the two new programs, VEHI had estimated a budget increase of 12.8% but added an extra margin to take them into account.
Funding for mandated programs can't be reduced so VEHI has addressed other areas of the budget to find savings. The wellness program will realize a cut of $6.4 million spread out over the next two years, but rather than cut the programs themselves, VEHI will cut the cash incentives and grants to employees and school districts. Local wellness leaders will continued to be paid to organize activities with school districts.
Slightly higher out of pocket costs including deductibles, co-pays and office visits will go into effect next year. Grandfathered medical conditions will still apply.
Going forward, the exchange will change the way people, businesses and non-profit organizations choose and pay for health benefits. For example in 2014 the Small Group Association which VEHI is a member of will be eliminated; the same will be true of the Large Group Association in 2017.
VEHI will explore a role on the exchange as a means to continue to serve the VNEA and Vermont's school districts.