Report says state’s unfunded health care liabilities down, but by how much?

The Malloy administration Thursday announced a “dramatic” reduction in Connecticut’s future unfunded employee and retiree health care liabilities, but Republicans said the state should count on only a fraction of that.

The figures at issue are part of an actuarial report by The Segal Co., which said the state has a $17.9 billion unfunded liability for health care costs, referred to as “other post-employment benefits.” That’s down $8.7 billion from the previously reported value, and $13.3 billion less than had been expected, according to the report.

Gov. Dannel P. Malloy and state Comptroller Kevin Lembo issued a joint press release touting the reduction as the result of “several collaborative health care cost control initiatives implemented across state government over the last few years,” including those related to a concessions deal with state employee unions, as well as initiatives involving the comptroller’s office and a joint labor-management committee on health care costs.

“This future savings is extraordinary, resulting from partnership among state agencies and state unions in controlling costs, while maintaining quality services,” Lembo said in a statement included in the release. “This report reveals that creativity and collaboration, all accomplished in remarkably short time, will save us billions. This is a powerful incentive to continue these efforts to reduce costs for Connecticut.”

But Rep. Vincent J. Candelora, R-North Branford, said that much of the reported decrease in unfunded liabilities appeared to come from methodology adjustments, not changes to health benefits. He called the administration’s press release “overly optimistic.”

“I think it doesn’t behoove us to be overly optimistic when things are clearly going in the wrong direction. We’ve lost 4,100 jobs,” he said, alluding to employment estimates released Thursday that showed the state’s unemployment rate holding steady at 7.7 percent in April. “I think we’re creating a false sense of security.”

The Segal report said the reduction in the unfunded liability reflected savings including:

• $6.2 billion from changes to actuarial assumptions, based on lower-than-projected claims experience and the ability to use investment earnings from a trust fund established for retiree health care benefits.

• $4.94 billion in changes to state employee and retiree health care benefits, including changes in benefit design, eligibility requirements, contributions from employees and retirees, the creation of a wellness program and changes to prescription drug coverage for Medicare-aged beneficiaries.

• $2.12 billion from the expected use of investment earnings to help cover future liabilities, the result of a trust fund meant to help cover future health care costs.

Thomas C. Woodruff, director of the health care policy and benefits services division at the comptroller’s office, said the lower-than-expected claims experience, included in the $6.2 billion reduction Segal reported, reflected efforts to control health care costs. Efforts to do so have included encouraging the use of primary care and patient-centered medical homes aimed at coordinating care and reducing the use of specialists and emergency room visits. Most of those changes preceded last year’s concessions agreement with state employee unions, Woodruff said, although he said that deal, which included a new wellness program that requires people covered by the state employee and retiree plan to get routine preventive care or pay higher premiums, likely gave the actuaries more confidence in the state’s ability to control health care costs.

Woodruff said the bulk of the $4.94 billion figure — $4.5 billion — came from changing the way the state handles prescription drug coverage for Medicare-age workers and retirees.

And he said the additional $2.12 billion in reduced future obligations reflected the ability to cover more of the liability through investment earnings from a trust fund for future health benefits. The more the state pays toward its future obligations up-front, the more it can use investment earnings to help cover the future costs. The state employee union concessions deal reached last year requires all state employees to pay 3 percent of their salaries for 10 years into a trust to fund future health care benefits.

But Candelora, a veteran member of the legislature’s finance committee, said the report seemed to include “a lot of ifs,” and warned that the $6.2 billion and $2.12 billion figures appeared to reflect changes to projections and valuations that could change with the stock market.

It needs to be clear how much was saved as a result of benefit design, eligibility and contribution changes made to health plans, Candelora said; he said that appeared to be reflected in the $4.94 billion figure, but not the rest.

“I think it’s good that the state has made some changes to provide some savings,” he said. “And it’s a small step toward the solution. And I hope everybody recognizes that it’s a very small step.”

“I just think the rest of it is window dressing,” he added. “It may in fact be correct, and I hope to God it is because that’s the direction we need the [health care] liabilities to go in. However, all those other savings are not a result of what we did in the past two years. The savings that we achieved in the past two years is the $4.94 billion number.”

In addition, Candelora noted that the state’s net obligation for the health care benefits rose for the previous fiscal year, with the state contributing less than its annual required contribution.

“We need to increase our contributions in order to sort of play catch up and avoid the potential of future liabilities growing as the result of either a, more retirements, or b, an underperforming stock market,” he said. “I still think there are certainly many challenges ahead.”

Candelora said the administration’s characterization of the health care liabilities reflected a theme of “cloaking and being overly optimistic with the numbers.”

“We saw it in the budget process where we were told we were going to end the year in the black as we continued to go into the red,” he said.

Roy Occhiogrosso, Malloy’s senior adviser, bristled at the criticism.

“I love this. First of all, they’re wrong. I think what confuses them is that an administration — and a Democratic one, at that — has actually found a way to save taxpayers billions of dollars,” he said. “Second of all, even if they were right, I love the fact that they’d be criticizing the governor for saving $4.94 billion. As in, ‘gee Governor, you’re doing a bad job; by making these changes you’ve only saved taxpayers $4.94 billion. Bad, bad Governor.'”

The projected savings from last year’s concessions package has been a source of dispute between the administration and Republican critics.

The agreement included a two-year wage freeze, pension restrictions and efficiency savings to be found by labor-management panels. In addition, the deal added a wellness program that requires workers, retirees and their dependents to get regular preventive care and manage certain chronic conditions or pay higher premiums. It also required them to participate in a mail-order system for “maintenance drugs” for chronic conditions.

The eligibility requirements for getting retirement health coverage also changed; to qualify, a state worker now needs 15 years of service, up from 10.

Woodruff said changes in the agreement that make retiring early less palatable could also reduce the future health care liability, although he said those potential savings were not included in the Segal report.