Gov. Laura Kelly supports moderation — perhaps a reduction — of state employee health insurance premiums following years of massive rate hikes that covered diversion of millions of dollars in state payments from the health insurance fund to shore up a state budget ravaged by declining tax revenues.

Three years of premium spikes in excess of 30 percent initiated during the administration of Gov. Sam Brownback followed an 8.5 percent reduction in the state government's annual commitment to the state employee health insurance fund. The decision to diminish state aid and escalate employee premiums freed up cash to help balance the state budget. But the arrangement placed on state workers added burden for consequences of tax cuts championed by Brownback that nearly crippled state government.

During the past five years, the state's contribution to the state employee health insurance account climbed a total of 8.5 percent. Premium payments by state employees with policies that included spouse or family ballooned 115.5 percent in that period — 36.7 percent in 2016, 30.4 percent in 2017, 31.7 percent in 2018 and 16.7 percent in 2019. Premium increases for state retirees in the health insurance system went up 74.1 percent.

"I’m deeply troubled by what we have learned about the mismanagement of the state employee health insurance plan over the last four years," said Kelly, who took office in January. "We have been reviewing options to give state employees some relief from the year-over-year increases and will be implementing changes."

On Monday, the Kansas State Employees Health Care Commission is expected to consider premium adjustments for 2020 that include up to a 6 percent reduction in rates for participants in plans featuring a spouse or family. Options under review for the employee-only plan range from no increase to a 3.5 percent reduction. At the same time, the state employer contribution to the fund could rise 3.5 percent to 7 percent.

 

Commissioners' views

Vicki Schmidt, the Republican elected state insurance commissioner in November, is one of five members of the commission responsible for making decisions on policy and premiums of state employee health insurance plan. She's prepared to explore rates that more fairly distribute financial obligations of health insurance benefits offered state workers.

"It was shocking to see those numbers in print," Schmidt said of the five-year trend. "Health insurance used to be a reason for people to work for the state. Now, it's a reason not to work for the state."

Schmidt, a former Topeka senator and pharmacist, said she received many complaints over the years about health insurance costs. Membership on the commission, she said, put her in position to do something about it.

J. Scott Day, an Ozawkie insurance salesman appointed in 2011 to the commission by Brownback, was recently removed by Kelly. Day had remained on the commission despite a finding by state insurance regulators in 2014 that he made unfair or deceptive statements in print about health insurance. He was fined $1,000 and ordered to enroll in an ethics course.

Day said he wasn't interested in being interviewed about the state employee health insurance program. He said there was "nothing nefarious" about the commission's decisions and there was "very good reason" for past directives regarding the self-insurance fund.

Ximena Garcia, a retired Topeka physician appointed by Kelly to replace Day on the commission, said she was eager to learn about opportunities to amend the rate structure.

"I think the reason I'm part of the commission is there's been a lot of burden placed on state employees and their families in terms of the cost of health care," she said.

 

Real-life consequences

An indication of the strategy for limiting state contributions to the employee health insurance plan and boost payments by employees resides in a 377-page budget document submitted by Brownback for the 2016 fiscal year. It made reference to the 8.5 percent state contribution reduction in 2015 and estimated it would produce savings of $26.4 million in 2016 and $27 million in 2017.

State workers, however, didn't celebrate depletion of the state's subsidy for health insurance. Years of spikes in insurance rates would repeatedly nullify salary increases, if provided at all, and made recruitment and retention of personnel difficult across Kansas government.

Neil Diediker, an information technology employee in the Kansas Department for Children and Families, said state workers were left with less disposable income due to surging insurance costs. A 2.5 percent raise can't compete with a series of double-digit insurance rate hikes for people on the family or spouse plan, he said.

"By sheer luck and grace of God," Diediker said, "my wife got insurance through her work and I am on the individual plan."

Sarah LaFrenz, president of the Kansas Organization of State Employees, said 7,300 Kansas employees in 300 job classifications represented by KOSE were severely impacted by health insurance decisions initiated in the Brownback era.

Consequences can be illustrated in the Kansas Department of Corrections, which still has hundreds of job vacancies. Corrections officers have said their pay raises have been repeatedly swallowed by insurance costs, she said.

"It was a de facto pay cut every single time," she said. "It makes it so it is unaffordable to work for the state of Kansas."

 

Budget scramble

The state's budget woes were amplified, Republicans and Democrats said, due to Brownback's supply-side policy eliminating state income tax for 330,000 business owners and slashing individual income tax rates. Revenue fell hundreds of millions of dollars below projections and led to heavy borrowing, spending cuts, sales tax hikes and other stop-gap measures.

Part of the solution was implemented by the five-person health insurance commission that gradually transferred from state government to individual employees a greater slice of responsibility for maintaining Kansas' employee health insurance fund.

In Kansas, the fund collects employer contributions from state agencies on a per-employee basis. The commission authorized lower state agency payments to the plan fund starting in 2015, but those savings were swept from agency budgets to soften the blow of multiple budget cuts. The associated cuts included an allotment of $66.4 million in January 2015 that trimmed most state agency budgets by 4 percent. There was a $97 million allotment in May 2016.

Reductions in the state agency, or employer, contributions caused the health plan fund to become unbalanced with expenses exceeding receipts. In a two-year period, balance of the fund was eroded by $160 million. Despite increases to employee participant rates, and raising health plan deductibles, the fund continued to struggle financially.

State's contributions to the fund were $344 million in 2015, fell to $327 million in 2016 and reached $343 million in 2019. Insurance plan participants paid $108 million in 2015, but $136 million in 2019. The annual fund balance was $125 million in 2015, dipped to $24 million in 2017 and stood at $47 million in 2019.

 

Legislative reaction

House Minority Leader Tom Sawyer, D-Wichita, said the five-year record of health insurance costs faced by state employees was the legacy of a GOP administration shifting the burden of financing state government onto backs of its own employees. It is unfair the administration had employees pay more for health insurance while state contributions stagnated, he said.

"Over the last year, we are finding more and more things about the way the Brownback tax program hurt state agencies and hurt state employees," Sawyer said.

Rep. Tom Cox, a Shawnee Republican and vice chairman of the House Insurance Committee, said masking budget cuts by raising premiums was "bad public policy." Lowering the insurance reserve fund reflects poor management, he said.

"That's a terrible way to do it," he said. "I love when people say run government like a business. Well, that means you need to pay people competitively. You can't say run government like a business except don't pay them or compensate them because they work for the government. It's a mind-numbing contradiction."

He said raising state insurance contributions and trimming employee rates deserved consideration, but the cost of such moves cannot be taken lightly.

"It's a great idea if we can afford it. We can't just do things like that because it sounds good," he said.