Public workers brace for higher premiums as lawmakers raid health insurance fund

March 21--FRANKFORT -- To help them balance the state budget, lawmakers plan to sweep hundreds of millions of dollars from a health insurance fund that covers 263,913 public workers and their relatives -- 6 percent of Kentucky's population.

How deeply they carve into the Kentucky Group Health Insurance fund won't be known until House and Senate members reach a compromise on the state's two-year, $22-billion spending plan, possibly as early as next week.

"They've told us, 'Be prepared. Your premiums are gonna go up,'" said David Smith, executive director of the Kentucky Association of State Employees.

"What they're trying to do right now is find that magic number that's not quite high enough to make us storm the gates -- they've got enough headaches with the teachers protesting the pensions everywhere -- but just high enough to let them keep the shell game going with their budget numbers," Smith said.

In its budget proposal last month, the House wanted to grab $481 million, which critics warn would force painful premium hikes on public workers to compensate for the lost money. The Senate countered Tuesday with its own budget plan that would drain $310 million from the fund.

Lawmakers already have taken more than $700 million from the insurance fund over the past decade to balance previous state budgets, giving them a steady source of cash without the political risk of raising taxes. While "fund transfers" are common in the budget, as money supposedly dedicated to a specific purpose gets diverted into the General Fund, the sums shifted in this case are larger than most.

Public workers complain that their health insurance, originally meant to pay for prescription drugs and doctor visits, has turned into Frankfort's cookie jar.

"Members have told me to tell the governor and the legislature that they need to keep their sticky fingers off the health care fund before it becomes as depleted as the pension fund," said Mary Helen Peter, a retired state worker who sits on the governing board of the Kentucky Group Health Insurance fund.

Premiums already are rising for workers -- by about 30 percent since the budget raids began, to $1,737 a year on average, according to fund data. (During that period, many public workers have gotten few pay raises.) Claims started at $1.3 billion in 2009, gradually rose to $1.5 billion, and then fell back to $1.3 billion by 2016, according to fund data.

Lawmakers defend their use of the insurance fund by saying some or all of the transferred money will go to the state's ailing public pension systems, which face more than $40 billion in unfunded liabilities.

The Senate budget plan, for example, would devote the full $310 million it sweeps to shoring up the pensions of state employees. (If that happens, that would be a subsidy for state employees by teachers, local government employees and others who pay into the insurance fund who don't work for state government; they each have their own beleaguered pension funds, apart from state employees.)

Public workers grudgingly accepted those terms for years because they understood that, one way or another, the money was being used for their benefit, said Brent McKim, who represents teachers on the insurance fund's governing board.

"I wouldn't say we liked it. I would say we have not strongly objected to it," said McKim, president of the Jefferson County Teachers Association.

However, the terms are changing as lawmakers keep digging deeper into the insurance fund, McKim said. What started in 2009 with a $50 million transfer became $500 million in the 2017-2018 budget. Now, just two years later, it could be close to that much again, he said.

"Our concern is that what they asked for in (the House budget) went well beyond what is available in the fund's surplus," McKim said.

"Any fund transfer that forces an insurance premium increase on teachers and other public employees, or an increase in the co-pays or deductibles, would be absolutely unacceptable. That would essentially be a tax increase on us," McKim said.

Earlier this month, when the House called for taking $481 million from the insurance fund, House budget chairman Steven Rudy said the money was available.

"We've got an actuary that says there's enough money to pay the claims," said Rudy, R-Paducah.

As of Dec. 31, the insurance fund reported a balance of $729 million. However, the money isn't just sitting there. Before the state's fiscal year ends June 30, the fund must pay a number of outstanding bills, including $312 million to cover what it still owes on the transfers ordered in the last state budget, said Jason Bailey, executive director of the Kentucky Center for Economic Policy in Berea.

A Herald-Leader analysis of the insurance fund's premiums and claims since 2009, when the legislature first raided it, shows that surpluses have grown significantly over the last three years, averaging about $300 million. McKim attributes this to aggressive cost-containment, including a shift to generic drugs and better use of wellness plans.

Past fund surpluses were used to lower contribution costs for public workers and their employers. Now they're a target for lawmakers. But at the same time, the fund's insurance claims are fluctuating, rising or falling by about $100 million a year, according to the Herald-Leader analysis.

All of this means that lawmakers can sweep a certain amount from the insurance fund, but they can't get too greedy, Bailey said. Gov. Matt Bevin's budget plan recommended taking $201 million from the fund, which is far less than half of what the House wants and a much safer bet, Bailey said.

"If claims should come in higher than projected in a particular year and you've cleared out the entire reserves so there is nothing left to absorb it, then you've got a problem," Bailey said. "And you have fluctuations from year to year. You know you're going to need some sort of reserves."

John Cheves: 859-231-3266, @BGPolitics

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