Nevada workers enrolled in the state’s health insurance program could see significant plan changes starting in July as the system faces a dire financial situation that officials say is the result of holding off too long on raising premiums.

The Public Employees’ Benefit Program (PEBP) — the insurance provider for more than 70,000 Nevada state workers and retirees and their dependents — is suffering from a “perfect storm” of problems, according to state officials, who haven’t made any decisions on how to ensure the program emerges from a deep deficit but expect to set new premium rates by March.

The only way to fix the issue is through raising revenue, which raising premiums would do, or decreasing costs, which would mean cutting benefits or changing certain plan terms, said state officials, who added they do not plan on significant program cuts.

It is not clear yet what the changes might look like, and they could differ depending on the health insurance plan. The program’s board is set to meet in February to discuss different scenarios.

The program has a decreasing pool of reserve dollars, the state’s funding of the program is decreasing starting in July and more Nevadans are moving to an insurance plan that brings in less revenue to the state.

It’s all happening against a backdrop of rising health care and insurance costs. And on top of that, the program is operating at a loss financially — across the first five months of the fiscal year, it was $16.5 million underwater.

Independent financial analysts determined that premiums would need to increase by 84 percent to cover expected shortfalls in the upcoming fiscal year, but state officials have emphasized nothing is set in stone and that a potential increase was solely meant to illustrate the scope of the budget issue.

The situation — which came to light during a January program meeting and a hearing last week before state lawmakers — reflects the difficulties the state faces in providing affordable health insurance plans to its workers, while also having a program that is able to sustain itself financially.

“The way that each of these plans is designed now is not profitable,” Theresa Carsten, the executive officer of PEBP, said at Tuesday’s legislative meeting.

It also calls into question earlier decisions made by the PEBP board, the program’s decision-making body, which has seen recent turnover. Current members have said the board previously established premiums that were too low, bringing in less revenue to the state.

“The votes [were] to keep costs at the largest minimum to the member and not really reflective of what would balance the budget the fastest,” Carsten told lawmakers.

The program is under the newly created Nevada Health Authority. In the long run, state officials said they are focused on creating a system that is financially sustainable, which could include big-picture changes so the program is not reliant on legislative bailouts.

Changes to plan terms could be a tough pill to swallow for state workers.

Trisha Lindauer, who has worked for the state for more than 16 years and now does IT support for the Division of Social Services, said she was “very frustrated” by the possibility of more changes.

Because of health issues she faces, Lindauer has met her plan’s out-of-pocket maximum for the past 13 years. Out-of-pocket costs are already set to increase for the upcoming fiscal year.

“Increasing the premiums, as well as increasing the out-of-pocket maximums, you would be getting double hits,” said Lindauer, who was speaking as a member of the American Federation of State, County and Municipal Employees Local 4041. “State employees are always the last thought.”

The situation prompted concerns from groups representing state employees.

Kent Ervin, a lobbyist for the Nevada Faculty Alliance, a union of higher education employees, told lawmakers on Tuesday that the Legislature must get to the bottom of “how PEBP got to this crisis point.”

“Placing the full burden on employees must be avoided,” Ervin said.

However, any changes made in the coming weeks will have to come at the expense of workers, state officials said.

That’s because the program is funded through state and employee contributions. The state’s contribution to the program is set during legislative sessions, and the next one is not set to convene until 2027, so the state’s funding share cannot be changed until then.

How we got here

Emerging from the pandemic, PEBP had about $33 million in excess money that it could use at its own discretion. It chose to spend this money across a three-year period to buy down premiums and increase member benefits.

However, there were no corresponding policy changes — such as premium hikes — to offset the cost increases.

“Once that money was depleted, the board continued to select low premium rate options rather than return them to what would have been appropriate to continue to cover the costs of the program,” Casten told lawmakers.

In hindsight, the board should have increased premiums or reduced benefits so that there was more long-term financial stability, said Laura Rich, the former head of PEBP and a current board member.

“When you’ve got that much money, you’ve got to do something with it,” said Rich, who is now director of the Department of Human Services. “But it's a long-term strategy, and I think this kind of fell off the radar in ’24-25 where we just didn’t raise those rates.”

Making incremental changes could have avoided the current situation, Rich added.

“I think it’s very important for the board to understand that little tweaks are necessary, otherwise you end up in a situation like this, where you have to make big tweaks, and you’re blindsiding employees,” she said.

There are other driving factors.

In fiscal year 2022, the state rolled out a new type of health insurance plan for employees that has a higher monthly premium but much lower annual deductibles. However, state officials said the plan’s premiums are still too low, bringing in less revenue to the state and attracting thousands of Nevadans.

In the most recent fiscal year, the plan operated at a $26 million deficit.

“We are in essence putting ourselves in two problems,” said Jim Wells, a board member and former deputy chief of staff to Gov. Joe Lombardo. “One, we didn’t set the rates correctly. Two, everybody’s moving to a plan that costs more.”

Industry trends aren’t helping either, especially nationwide increases in pharmacy and insurance costs. In Nevada, pharmacy costs for PEBP recipients are slightly outpacing the national averages, which state officials have said is in part because of the emergence of weight loss drugs such as Ozempic, which is covered by PEBP.

And the program is set to experience a drop-off in funding from the state.

Last year, lawmakers approved an increase in state funding for the ongoing fiscal year in an effort to replenish the program’s reserves. However, the increase in funding did not fully achieve that goal, and now there will be a decrease in dollars coming in for the upcoming fiscal year.

What comes next

When the PEBP board meets in February, it will be shown different scenarios on changes to health insurance plans to alleviate the financial pickle.

The board is also still deciding on a plan on how the reserve dollars can reach a stable level.

“None of those are ideal solutions, especially for the participant,” said Assm. Daniele Monroe-Moreno (D-North Las Vegas), the chair of the interim committee that oversees PEBP, “so we need to work on a [new] plan.”

Officials have also emphasized that they are open to larger changes to how the state’s health insurance system works. 

They do not want to be reliant on the state bailing the program out in the event of financial difficulties and are set to bring in outside experts to conduct research into other potential health care plans.