Department of Civil Service
Management of the Health Insurance Fund Balance The New York State Department of Civil Service administers the Empire Plan, a health insurance program covering nearly 1.1 million State and local government employees, retirees and their dependents at a cost of more than $5.1 billion a year. The employers that participate in the Plan pay monthly premiums based on the Plan’s estimated costs for the year. At the end of the year, the Department compares the costs actually incurred by the carriers against the estimates on which the premiums were based, and settles the differences with the carriers. In most years, the premium payments exceed the actual costs, and the carriers return the surplus payments to the Department. The Department keeps these surplus funds in its Health Insurance Fund, and uses them to reduce future years’ premiums.
We analyzed the year-end balance in the Fund to determine whether it has been maintained at an appropriate level by the Department. The year-end balance needs to be high enough to enable the Department to cover any carrier costs not covered by the prior year’s premiums, but not excessively high, because that would mean public employers (and, by extension, taxpayers) were paying higher premiums than necessary. We found that the balance had become excessively high, rising from about $142 million at the end of 2004 to an expected $711 million at the end of 2009, an increase of nearly 400 percent. On the basis of our analysis, we concluded that the balance had risen to a level that was about $600 million higher than it needed to be.
We recommended that the Department return this $600 million in premium overpayments to State and local government employers in the form of reduced monthly premiums commencing as soon as possible. In addition, to keep the Fund balance at an appropriate level, we recommended the Department work with the carriers to ensure that their annual cost estimates were reasonable. One of the reasons the Fund balance became so high was that the carriers were consistently overestimating their costs by significant margins and the Department accepted the large overestimates.
For a complete copy of Report 2009-S-48 click here.