Costs, Benefits Of Merging State And School Health Plans Considered

There are no legal issues standing in the way of combining the public school employee and state employee health programs, but there would be financial issues to work out.

That was one of the takeaways of a meeting Tuesday of the State and Public School Life and Health Insurance Task Force.

The task force, chaired by Sen. Jim Hendren, R-Gravette, and co-chaired by Rep. Harold Copenhaver, D-Jonesboro, was created by the Legislature to study changes to both systems – primarily the school employee health insurance system, which has seen such sharp increases in teacher premiums that legislators twice have met in recent special sessions to add money and make changes.

This summer legislators changed the system so that part-time school employees and school employee spouses able to obtain health insurance through their own employers would not be eligible for benefits. The benefit structure has been changed in recent months so that the most generous plan is less generous and the cheapest one for employees has been made more expensive.

Alix Stephens, a staff attorney with the Bureau of Legislative Research, told legislators that there are no state or federal laws that would prevent a merger between the two plans. More than 18 states combine their plans, and some allow local government employees to participate.

Public school employees pay higher premiums than state employees in large part because the state subsidizes more of the costs than schools do. The state employee plan currently funds $427 a month per participant while school employees receive a $310.95 monthly subsidy.

Bob Alexander, executive director, Employee Benefits Division, said equalizing the rates would result in state employees paying $17 million more while public school employees would pay $13.7 million less.

Alexander said taxpayers in 2015 contributed $171 million to the state employee health plan and $187.5 million to the school employee plan. More was contributed to the school employee plan because there are more school employees. If the state were to equalize funding by reducing state employee subsidies to current public school employee levels, it would reduce state employee subsidies by $39.1 million. Increasing school employee subsidies to state employee levels would require an additional $59.4 million in state funds.

Alexander said combining the two plans would increase the size of the risk pool between two different populations that have about the same claim costs. State employees are older, which tends to increase claims, but a greater percentage of school employees are females, whose claims tend to be higher than males. “The costs are the same. The pools are different,” he said.

Alexander said that both the school employee and state employee plans are performing better financially this year than last. He projected the school employee plan will have $8-9 million in surplus at the end of the year, all of which will be saved in a catastrophic fund. Last year, there were no catastrophic reserves.

The meeting drew a standing room only crowd because one of the topics covered was a discussion about combining the school employee and state employee retirement plans. Prior to that part of the meeting, Hendren said the committee was merely trying to gather information about the possibility of combining the two plans.

George Hopkins, executive director of the Arkansas Teacher Retirement System, and Gail Stone, executive director of the Arkansas Public Employees Retirement System, both said merging would be a bad idea because the two systems serve different types of clientele.

While ATRS serves mostly teachers who enter the system at about age 22 and work until retirement, the average state employee retiree leaves the system at about age 62 with about 19 years of service. Hopkins said the goal of his system isn’t to provide teacher retirement but to support the public school system, so the benefits have been designed to recruit, retain and reward teachers. Stone said that combining the system would do little to make it more efficient.

Both indicated their systems are financially healthy. Hopkins credited legislators for giving his board of directors greater flexibility to enact needed changes.