Insurance deficit angers legislators Benton details plan to reduce shortfall

November 17, 1993|By John W. Frece | John W. Frece,Staff Writer

Irritated state legislators yesterday accused the Schaefer administration of mismanagement for allowing the cost of the state employees' health insurance program to balloon into a $117 million election-year problem.

"How is it possible for it to reach this magnitude without anybody knowing about it?" state Sen. Julian L. Lapides, a Baltimore Democrat, demanded of administration officials who briefed three legislative committees yesterday.

Charles L. Benton Jr., Gov. William Donald Schaefer's budget secretary, said he was unaware of the growing debt and future liability to Blue Cross and Blue Shield of Maryland until his agency took over administration of the insurance program last month. He also said the impact on the overall $12 billion state budget would be minimal.

In a two-hour recitation of what went wrong, Mr. Benton said Personnel Department officials arbitrarily underfunded the health insurance program in 1992, mistakenly underfunded it in 1993 and did not recognize the growing cost for 1994.

He said that neither his department nor any other state agency reviewed the Personnel Department numbers to certify their accuracy before putting them into the budget.

To cover the bulk of the shortfall, Mr. Benton outlined a plan under which the state would increase its health insurance subsidy by $43 million next year, squeeze $30 million in additional savings out of state agencies this year, require employees to contribute an additional $25.5 million and delay until future years the resolution of a $38 million debt to Blue Cross.

Employees will pay more as the state reduces its subsidy for the most popular insurance program, the Preferred Provider Network, from 85 percent to 80 percent.

"The governor's main priority in all the decision meetings was looking out for the state employees," said Deputy Budget Secretary Frederick W. Puddester. "The lion's share of the cost of the bailout plan will be borne by the state budget and not placed on the backs of employees."

A big chunk of the problem -- $38 million in incurred health claims that have yet to be paid by Blue Cross -- will be delayed until future years, possibly until the current Blue Cross contract expires Dec. 31, 1997, Mr. Benton said.

Senate Minority Leader John A. Cade, R-Anne Arundel, said it was "cavalier" of the state to assume that financially troubled Blue Cross should simply wait to be paid.

His House counterpart, Minority Leader Ellen R. Sauerbrey, R-Baltimore County, suggested that the state and Blue Cross already were too cozy, that the state owed the insurer millions of dollars but Blue Cross had remained essentially mum about the debt.

"It sounds like a very interesting quid pro quo between the state and Blue Cross," she said.

Despite the deficit, Mr. Benton told lawmakers, Mr. Schaefer intends to find enough money in next year's budget for a 3 percent pay raise for all state employees and for traditional step increases within grades. It would be the first pay raise for most state workers in four years.

Budget officials think that if income tax and sales tax revenues remain above estimates into the coming year, and if the higher cost of the Preferred Provider Network prompts large numbers of state employees to switch to less costly plans, they will be able to minimize the impact of the health insurance deficit on unrelated spending programs.

Mr. Benton said that even he had difficulty getting accurate, complete or timely information from his counterparts in the Personnel Department.

For example, he said, he was unaware until recently that in late 1991, the Personnel Department had -- and later spent -- a $28.8 million reserve fund that had been set aside to cover insurance claims from the previous year. That was one factor contributing to the current problem, he said.

No one from the Department of Personnel appeared at yesterday's hearing, an absence noted with "outrage" by Ms. Sauerbrey.

Personnel Department officials have avoided legislative hearings, have been unavailable for comment or have referred inquiries to the governor's press office ever since the department proposed a fivefold increase in the premiums for the Preferred Provider Network in mid-October. Budget officials now think that huge increase was intended, in part, to cover the deficits that had been quietly building since early 1992.

Yesterday, Mr. Benton unveiled a plan to raise premiums for that program next year by 97 percent for individuals and 91 percent for families of three or more.

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