2011 Legislature: Hits to benefits, compensation for state workers

State employees will see some significant changes to their pay and benefits from the budget approved by the Legislature and Gov. Brian Sandoval.

Dale Erquiaga, senior policy adviser to the governor, said the reductions were unavoidable in the face of the state's financial situation.

"No chief executive wants to make decisions that take benefits away from employees," Erquiaga said. "But after three years of this economy, Nevada had no choice."

He said the solutions developed by the Department of Administration, Public Employee Benefits Program and Public Employee Retirement System did as much as they possibly could to protect employees and, especially in the health benefits program, a better job than anyone originally thought they would be able to.

"I think the state is still a good place to work," Erquiaga said. "Given what the private sector has seen - job losses and lost benefits, we believe Nevada is doing the best it can for its employees."

The direct salary reduction was 2.5 percent, half what the administration originally proposed. But lawmakers kept six furlough days a year, equivalent to another 2.3 percent pay cut. PERS largely escaped major changes in the Legislature - in part because retirement programs are protected federally. But the PERS board had to raise the premium rate 2.25 percent, half of which comes out of the state worker's pay.

When that is added to the pay cut and furloughs, every state worker will see a 5.9 percent reduction in take-home pay.

Merit pay (step increases) and longevity pay are suspended as they were this biennium. Holiday pay is reduced and rural differentials eliminated for new employees.

But the most dramatic changes are in the employee benefits program. The governor basically told PEBP and it's board of directors that, despite medical inflation, they would have to live with no more state funding than in the current biennium.

That forced the board to convert its baseline PPO program to a high deductible plan Executive Director Jim Wells said shifts more of the cost burden to those workers who make the most use of the plan.

He said the cuts are actually less dramatic than the original changes approved in August because the plan's use experience was lower than expected, reducing its shortfall from $111 million to $85.2 million and enabling the board to add back benefits.

One of the biggest changes, eliminating retiree health subsidies for workers hired after Jan. 1 2012, won't realize any savings immediately. But after those employees start retiring 15 years later, it will save a lot of money.

Among the changes lawmakers refused to support was pro-rating the state's contribution to benefits premiums for part-time workers. Any state employee working more than half time will continue to get the full premium subsidy and benefits.

When the PEBP board approved the changes, member Julia Teska said she supported the high deductible plan known in business as "a consumer-driven model."

"We need to put more onus of responsibility on individuals," she said. "The consumer-driven model is going to drive more change (in behavior) than any wellness program."

For Fiscal 2012, lawmakers and the governor approved a premium of $645 a month per employee - about $36 less than the current year. That premium rises to $733 in 2013, in part because PEBP will get some money from the federal health care reform early retiree reimbursement program.

Participants in the program have expressed the most concern over the decision to move Medicare eligible retirees out of the plan and into a private market Medicare Exchange. That decision will save some $26 million this coming biennium but Marty Bibb of the Retired Public Employees Of Nevada described it as "a 150 mile an hour U-turn."

Even so, Wells said Friday more than 9,400 retirees have signed up.

He said the program should have multiple providers for retirees in every part of the state so they can - with PEBP's help - select a plan that best meets their needs.

Most of the changes take place with the start of the new budget cycle July 1.

Changes to public employee benefits:

Medical plan:

Preferred Provider Organization replaced with a PPO High Deductible Plan.

The deductible will rise from $800 to $1,900 for individual participants and from $1,600 to $3,800 for families. After the deductible is reached, current plan provides 80 percent, participant pays 20 percent until the out of pocket maximum is reached. Under revised plan, the state would provide 75 percent and the participant 25 percent. Executive Director Jim Wells said in effect, that just gets people to the out of pocket maximum faster.

In addition, the high deductible PPO eliminates the $25 per visit co-payment at the doctor's office. Beginning with the new plan year, participants will just pay the bill until they reach their deductible. In addition, the revisions eliminate the separate schedule of co-pays and co-insurance for drugs.

To help with the deductible, the new plan creates Health Savings Accounts for active workers and Health Reimbursement Accounts for retirees, funding them with $700 a year for each participant and $200 for each dependent to a maximum of $1,300 a year.

"That money can be used to offset the deductible," said Wells.

He said that, in effect, reduces the deductible to $1,200 a year instead of $1,900 for an individual. For families, the deductible would effectively be $2,900, or less, depending on the number of dependents.

But another change will cost some members more. Under the existing plan, any one person reached the deductible limit at $800 even if he or she had a family. Under the new High Deductible Plan, if that person has a family, Wells said he or she has to pay a $2,400 deductible before the plan starts to pay.

Members are allowed to make pre-tax payroll deductions to augment their HSAs - up to $3,050 a year for an individual and $6,150 for a family.

The out of pocket maximum - after which the plan covers 100 percent - also increases but only a little. For an individual, it will increase from $3,700 annually to $3,900. For a family, it will go from $7,400 to $7,800.

For those who prefer a Health Maintenance Organization, he said the plan received a good bid from Hometown Health for the northern plan. In July, the deductible will go back down to zero.

Total savings from the changes are estimated at $11.4 million over the biennium.

Changes to Medical Plan:

• Coverage for lab tests performed at hospitals are eliminated except for pre-admission tests, urgent care, emergency room and in-patient admissions. Wells said private, non-hospital labs have proven consistently much less expensive without sacrificing quality. Saves an estimated $675,000 over the biennium.

• Coverage for temporomandibular joint treatment and surgery is reduced from 80 percent to 50 percent. Estimated savings: $475,000 over the biennium.

• Allow purchases of up to 90-day supply of certain drugs since the plan's pharmaceutical provider can get better deals for larger purchases. Saves $1,250,000.

• Eliminates vision benefits except the annual eye exam. Members will have to buy their own glasses and contacts. More serious vision problems such as cataracts and glaucoma are still covered under the medical plan. Saves about $1.45 million.

• Puts some restrictions on how many times and when members can access certain screenings and preventative services under the wellness program. Controlling those who access those services more often than guidelines call for saves $550,000 over the biennium.

Altogether, those components of the plan saved $4.4 million over the biennium.

Spouse and domestic partner coverage:

The board eliminated coverage for spouses and domestic partners who are eligible for coverage through their own employer. Wells said that change has the potential to save the plan $9 million over the biennium.

He said analysts believe a good number of those spouses and partners in the state plan instead of their own are there because they are sicker and need expensive services the state plan covers.

He also said some employers in the state, including at least one local government, provide subsidies for their workers to go to another plan.

Dental:

Current benefits provide 80 percent of basic services and 50 percent of major work such as crowns up to $1,500 a year. The original reductions eliminated all but preventive care. The biggest add back from August's reductions was to cover basic and major dental services but the deductible will increase from $50 to $100 for individuals and from $150 to $300 for families. The maximum annual dental benefit from was reduced from $1,500 to $1,000 per person and the co-insurance for basic services was changed from 80 percent to 75 percent.

Reductions to

supplemental products paid by PEBP:

• Cut the base life insurance in half to $10,000 per active and $5,000 per retiree. Estimated savings: $5.6 million over the biennium. Additional life insurance can be purchased.

• Long Term Disability benefit remains at 60 percent of base pay instead of the 40 percent it was originally scheduled to drop to.

• Eliminate the Accidental Death and Dismemberment policies and dependent life insurance. Estimated savings: $500,000.

Medicare:

Moves Medicare Part A eligibles to a private, individual Medicare Exchange. To help pay the premiums and other costs, PEBP will fund the HRA for those members at $120 a year per year of service up to 20 years. A

20-year retiree would get the maximum $2,400 a year. The HRA replaces existing subsidies.

Those eligible only for Medicare Part B would be moved to regular retiree rates and provided a premium credit equal to the monthly premium set by Medicare - currently $115.40 a month.

Medicare eligible retirees with dependents who aren't eligible - usually because they're younger than 65 - would be moved to the regular retiree program and the primary participant would receive the Part B premium subsidy. He said once those spouses become Medicare eligible when they reach 65, both the retiree and the spouse will be covered under the Exchange.

The changes to Medicare rules are expected to save $22.2 million.

As of this week more than 9,400 retirees had signed up for private plans under the Medicare Exchange program.

Participant premiums:

In September, the board raised premiums for HMO participants and dependent tiers. Participants who select the PPO plan will see additional costs when they go to the doctor or pharmacy. HMO participants will see increased premiums.

The board also approved commingling northern and southern HMO rates to create a single statewide premium. For a single person selecting HMO coverage, the monthly amount is $116 - nearly double the current year.

Retiree subsidies:

On the last day of session, the Legislature approved AB553 eliminating retiree healthcare subsidies for state workers hired after Jan. 1, 2012. Current state employees receive a subsidy toward their health insurance premiums after they retire. For the upcoming biennium, that subsidy for non-Medicare retirees averages $418.41 per month for fiscal year 2012 and $472.64 for fiscal year 2013 and is adjusted up or down based on years of service.

After a retiree becomes eligible for Medicare at 65, the subsidy will be replaced with a monthly contribution to a Health Reimbursement Account based on $120 per year of service. The average annual amount for the upcoming biennium will be about $2,040.

As a result of AB553, employees hired after Jan. 1, 2012, will not receive the subsidy. They will, however, be able to purchase health insurance through PEBP as a retiree.

Changes to public employee compensation:

Employee Salaries:

Employees are currently taking a monthly unpaid furlough day, which equates to a 4.6 percent pay cut. The new budget replaces that with a 2.5 percent pay cut - half the 5 percent originally proposed by the governor - plus six furlough days each year - which equates to a 2.3 percent additional pay cut. The total pay cut is 4.8 percent, less than the governor proposed but more than the current budget.

Critical public safety and other workers who can't take furloughs will instead take the added 2.3 percent pay cut so that all state workers are treated equally. Lawmakers directed the cuts be taken by all branches of the government - aimed at the Supreme Court which, in the current biennium, didn't impose pay cuts on staff.

Suspension of merit (step increases) and Longevity pay:

Annual merit or step increases for state workers are again suspended for the biennium. Those increases are worth roughly 5 percent each year to workers not already at top scale for their pay grade. Throughout the state, university and K-12 system, that will save the state an estimated $228 million over the biennium.

Continued suspension of Longevity pay for workers at top scale with long service will save an estimated $12.5 million over the biennium.

Holiday Premium Pay:

State workers currently receive 2.5 times regular pay for working a holiday. Lawmakers changed that to match what private industry does in most cases, reducing holiday pay to simple double time. The change will save just under $3 million.

Rural Area Differential pay:

Rural Area Differential pay for rural corrections and forestry employees hired after July 1 was eliminated in the new budget and the Department of Corrections differential for working late swing and graveyard shifts was tightened up and reduced. That will save the state about $2.5 million.

PERS:

The Public Employees Retirement System assessment will increase with the new fiscal year to a total of 23.75 percent for regular employees. For police/fire employees, the rate also went up to just about 40 percent. For those employed by the state, half the premium is paid by the individual worker. PERS director Dana Bilyeu said the increase translates to an additional 1.125 percent reduction in take home pay for every state employee.

In addition, the new budget directs school district employees to start paying for a portion of their retirement benefit premiums, currently covered 100 percent by the school districts. Teachers and other K-12 staff would have to pay a quarter of their premiums beginning with the new fiscal year. That amounts to a 5.9 percent hit to their take home pay. The savings to the state Distributive School Account are $211.6 million over the biennium.