State benefits plan hits rough financial water

An unexpected increase in claims has cut the Public Employee Benefits Program's reserves in half and could force a mid-year rate increase.

As program manager Woody Thorne told the Interim Finance Committee Wednesday, "We've gotten clobbered."

Thorne said not only did the number of claims jump unexpectedly, there were delays in processing them so that his staff didn't see the increase coming. Unfortunately, he said, they set rates for this claims year artificially low because they weren't aware of the claims backlog.

He said the third party administrator has since caught up on the backlog but after paying them all off, "the fund has experienced significant cash flow depletions."

In addition, he said there was an unexpected increase in large medical claims -- those over $25,000.

As a result, Thorne said the program's reserve, which should have about $22 million, is down to $10.9 million and, by the end of this year, could be down to $6.5 million.

"If we do not have any more large surprises, we'll survive until the end of the plan year," he said. "If not, we won't survive and we'll have to go for a mid-year rate increase."

The benefits board will get more information on what may be causing the increase in claims at its May meeting. He said he would keep lawmakers advised of the situation and do everything possible to avoid a rate hike.

The benefits program was left bankrupt after the third-party administrator, the contractor who actually processes benefits claims, collapsed. When the state stepped in, there were more than 120,000 unprocessed claims to deal with and the system's reserves had disappeared.

Fixing that took a cash infusion of more than $20 million from Gov. Kenny Guinn and the 1999 Legislature.