Nevada officials have approved monthly premium increases for the state worker health insurance program, concluding a monthslong saga that included revelations of a budget deficit, misallocated money and criticisms raised against former board members who used to set premium levels.

The changes approved Thursday by the board of the Public Employees' Benefits Program (PEBP) mean that those enrolled in two health insurance plans will see considerable increases to premiums starting in July. Enrollees will be able to change their health insurance plan in May. The program covers 70,000 state workers and retirees as well as their dependents.

The board approved the changes, 4-3.

Monthly premium increases as high as $380 will be coming to enrollees on a plan that offers more coverage. They'll also disproportionately affect people enrolled in a popular plan with much lower annual deductibles — the amount someone pays out of pocket before insurance coverage kicks in.

People enrolled in a plan with higher deductibles but lower premiums — the amount paid monthly to maintain coverage — will see minimal changes. This plan is not seeing a sizable increase because it is already financially sustainable and state officials want more people to use it. 

On top of these premium increases, state workers enrolled in the two most popular plans will also see increases in out-of-pocket maximums and deductibles — as high as $1,000 and $500, respectively — beginning in July. State worker unions had asked for these out-of-pocket maximums to be reduced, but the board opted to keep them in place to boost revenue and reduce potential volatility down the line.

Employees have testified in meeting after meeting that these changes will significantly affect their livelihoods and could cause them to reconsider their employment with the state.

"These increases will cripple the state's ability to recruit and retain employees," said Paul Lunkwitz, the president of the union that represents state correctional officers. "Employees are already seeking other insurance options to opt out of the current plan."

State officials have acknowledged the burden on state workers, but they said the health insurance program is suffering from a "perfect storm" of problems — all against the backdrop of rising health care costs.

Notably, previously board members did not set premium levels high enough to cover costs, so the hikes are now all coming at once. 

"Instead of the incremental [increases], it's sort of a slap in the face, and it's not fair," said Laura Rich, the former head of PEBP and a current board member.

Participants also began moving en masse to a plan with low premiums that was bringing in much less revenue to the state.  

Additionally, money meant for the program's reserves instead went to buy down premium rates, and program officials made several mistakes in crafting its latest budget.

Moving forward, the state is considering bigger changes to the program, which recently moved under the jurisdiction of the newly formed Nevada Health Authority, by looking at the financial viability of the existing plans.

How the decision was made

An outside group, Segal, provided nine proposals to PEBP board members Thursday.

The decision largely revolved around whether to stick with higher out-of-pocket maximums that they previously approved. These changes provide the system with up to roughly $3.2 million in revenue.

Deborah Donaldson, a senior vice president at Segal, said getting rid of these could lead to more volatility that eventually spurs higher premiums in the long-run.

"You want the lowest premium to have the highest out-of-pocket maximum," she said. "Part of my concern is … member behavior and the unintended consequences with not having appropriate out-of-pocket maximums that align with premiums."

It went against the wishes of state worker unions and board member Blaine Harper, a state worker and member of the American Federation of State, County and Municipal Employees Local 4041.

She argued the $3.2 million in revenue gains from raising out-of-pocket maximums was not sufficient justification and that the board should wait to gather more data on how people are moving among plans.

She worried the higher out-of-pocket maximums will mean that "participants are really going to feel stuck" in deciding how to move forward.

Board members also weighed whether the premium hikes should be phased in or occur immediately. With a phased-in approach, the immediate cost hikes would be lower for state workers, but it would cost the state more because state workers would not be paying the full share yet.

The board ultimately decided to move forward with a three-year phase-in for two of the plans, but a two-year approach for the third plan, which is more expensive because of more coverage offerings. 

This plan is highly subsidized by the other plan, so there was a desire to increase the premiums at a faster rate.

Where things went wrong

Too-low premium rates have meant the most financially sustainable plan — the one with higher deductibles but lower premiums — has had to subsidize the other two plans for years. In the ongoing year, those two plans are projected to operate at a roughly $26 million deficit.

Because this creates cash flow issues, the board's decisions Thursday aimed to have each plan be financially sustainable on its own. This leads to premium increases.

Money has also been mismanaged.

Program leaders recently learned that for the ongoing budget year, the state's contributions were loaded incorrectly into a financial database, which resulted in less revenue being collected. 

A recent audit into the program uncovered about $18.4 million that should have previously been collected, which was transferred to the program's operating budget. But there is still an estimated budget deficit of more than $40 million.

Additionally, the revenue assumptions to build the program's ongoing budget inflated the number of projected participants and underestimated vacancy rates, leading to significant discrepancies in how much revenue was expected versus how much actually comes in.

And on top of all that, Segal said last month that it had inaccurate information on how much money the state would be covering per employee.

State workers were frustrated that they would be the ones to suffer as a result of the mistakes.

"To balance that shortfall on the backs of state employees is the height of treachery," state employee Kevin Salls said. "It is absolutely unfair."

But board members said all of this left them no choice but to increase the premiums.

"We're between a rock and a hard place, unfortunately," Rich said.