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Insuring state employees is hard on the budget.

Although recent cost hikes are far less than the 20 percent increase chalked up for 1988, employee health insurance expenses grew 10 percent in 1991. State-by-state figures for this obscure but important area of state spending growth are tracked in annual reports from The Segal Company, a New York-based actuarial firm. The most recent report compares data from the year ending January 1991 with that for the previous five years. The report is clear, well written, well organized and (like its predecessors from this group) essential reading for legislators and fiscal staff.

The table tells most of the story. Since the beginning of 1987, the cost of each of the three categories of state employee health insurance has outstripped the medical care component of the consumer price index (CPI). In the year that ended January 1989, insurance costs grew almost three times as fast as health care costs overall. Only in the year that ended in January 1992 have increases dipped to a point reasonably close to the CPI's medical care component.

Since the Segal reports include only basic indemnity plans and exclude health maintenance organizations (HMOs), they cannot be used to calculate the total cost of state employee health insurance. But the figures for individual coverage suggest the strain on state budgets.

Coverage for a single employee increased on average about $404 from 1990 to 1992; in 1991 alone the increase was $186. Family coverage on average cost $386 more in 1991 than it did in 1990. By 1992, the average cost of family coverage had increased more than $900.

States have responded to such increases with a variety of cost containment techniques. These seem to be having some effect on insurance costs: The growth of the cost of basic indemnity plans--generally considered the most expensive health insurance--is slowing down and moving toward the general growth rate of health care costs, as measured by the CPI medical care component shown in the table. (The growth in health care costs in general--more than twice that of all other costs--is a second major problem, as state policy-makers know all too well.)

The Segal report provides extensive details on what states have been doing to control insurance costs. States are beginning to move away from 100 percent employer payment for insurance: 29 states provided that in 1989; 25 do so now. Although more state governments are contributing to retired employees' health insurance than before (37 in 1991, up from 30 in 1989), the number of states that pay the entire cost has not grown.

Health maintenance organizations are another way states have been trying to reduce health care costs. Forty-two states make HMOs available to employees, and about 30 percent of all state employees make use of them. In three states--Arizona, California and Wisconsin--over 80 percent of state employees are enrolled in HMOs. Limits on the geographic availability of HMOs within a state may make that about the maximum possible participation; in those three states, participation in HMOs was almost as high in 1989 as in 1991. In 24 states participation remains below 30 percent of state employees. In states where employee costs for HMOs are higher than for indemnity programs, membership in HMOs tends to be particularly low. Geographic availability of HMOs certainly affects membership, but the evidence in the report also suggests that people choose the lower-cost alternative in health care when they have a choice.

The report also covers health insurance costs for retired employees. This is a subject of great concern to fiscal planners because states have tended to take on open-ended responsibilities without actuarial calculations of the long-term costs and without attempting to prefund future health insurance costs as they do pensions. These concerns are beginning to find expression in state policy. A growing number of states award health benefits to retirees in proportion to years of service (as all states do with pensions). In some states, the establishment of separate plans for retired employees helps to track costs.

The Segal Company's 1992 Survey of State Employee Health Benefit Plans is available free from Mary Feldman, vice president, The Segal Company, 1 Park Ave., New York, N.Y. 10016 (212) 251-5029.
 Annual Percentage Increase in State Employee
 Health Insurance Costs
 (50-state average)
 Retiree 65
 and over CPI Medical
Year Ended Employee Employee with Care
 January Only and Family Medicare Component
 1992 7.8% 10.0% 9.4% 8.9%
 1991 9.7% 13.4% 13.3 9.8
 1990 8.4 15.1 16.0 15.5
 1989 7.0 20.2 20.8 18.0
 1988 6.2 14.1 12.8 11.3
 1987 7.5 5.3 4.8 4.6
COPYRIGHT 1993 National Conference of State Legislatures
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Author:Snell, Ronald K.
Publication:State Legislatures
Date:Aug 1, 1993
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