What's health care inflation? Understanding the value of your health insurance amid rising costs

The 89th legislative session has ended and health insurance premiums will go up September 1, which is the start of the new plan year. The hosts talk with Blaise Duran, director of group benefits at ERS. They discuss why premiums are increasing, who's affected and the ways ERS works to help keep those costs low. 

Chapters

• 1:28 What ERS' Group Benefits Divsion does to keep health plan costs low
• 8:04 What health care inflation is and how it affects the plans
• 10:22 What exactly is changing with the premiums?
• 16:06 ERS' cost management efforts
• 19:00 How members can help lower the costs

Transcript

Intro The fact is that we have not had a significant premium increase since 2017. And in addition to that, we have not had a negative benefit change since 2011. So those two factors combined have put us in a pretty unique place. On today's episode of Money Talks, we're joined by Director of Group Benefits Blaise Duran. He'll talk about the premium increases some members will see in the new plan year, and what ERS is doing to address rising health care costs.

Crystal Olvera Hi everyone, and welcome to the ERS Money Talks podcast for State of Texas employees. I'm Crystal Olvera and I'm here with Suzanne Krause. And we're both editors of the Money MattERS newsletter. We're here to give you advice on how to save and get the most out of your state benefits. Now that the 89th legislative session has ended, you've probably heard that health insurance premiums will be increasing September 1, which is the start of the new plan year. We know a lot of folks out there might have questions. So in today's episode we're going to address those questions. We're talking with Blaise Duran, director of group benefits here at ERS. And we'll talk about the reason the premiums are increasing and the ways ERS works to help keep those costs low. Welcome, Blaise. Can you tell us about what you do at ERS?

Blaise Duran: Yes. Thank you. So I'm Blaise Duran, the director of group benefits. and what the Group Benefits Division does is it manages primarily our health plans, dental vision, life plans. We also manage operations for Texas Saver, the defined contribution plan TexFlex, which is a flexible spending account program, and so that we have responsibility for managing contracts with the various administrators for those programs. We work on monitoring the performance of those plans, going out for request for proposals in order to support our competitive bid strategy, which is a key part of how we keep costs down. And then also, prior to serving in this role, I was the group benefits actuary. And so we work on monitoring claims data, doing data analysis, setting rates reserves and all of that along in conjunction with our consulting actuaries. 

CO: All right. So you have basically a front row seat to when we actually go out for, whether it's contracting with a new administrator, adjusting the rates and all of those things. Now here at ERS, I know I like to tout our benefits. I think you're doing a great job. I have a lot of friends who are always looking for work with the state, and I like to say our benefits are the best. These plans are tailor-made for us as active employees. But how do they compare to someone who's working in the private sector? I like to say they're better, but how would you say they compare to someone who is working? Not with the state? 

BD: Yeah, absolutely. And that is actually something that we look at annually, because that's part is our statute is that we are required to provide benefits that are competitive to those in the private sector. So we have, you know, consultants who provide us market information that we look at. And we one of the ways that we track that is by looking at the total value of the benefits to our members, essentially, how much of for like a big health care program like ours, how much of that is funded by the members versus how much the state and employer is funding? And we do compare favorably by that measure, both on the money coming from member contributions. These are the monthly premiums that everyone is paying. Those are lower on average than what you see in the private sector, but then also the value of the benefit as you go and get services. So you're out of pocket costs. Those are also lower as a percentage of total health care costs than typically what you would see in the private sector. And so you combine those together and net our members are paying a much lower percentage of total costs than what you would typically see in the private sector. And just to give some context to that about right now, almost for out of pocket costs. I mean, almost 90% of health care costs are funded by the plan versus the member with a little over 10%. 

Suzanne Krause: And between 2015 and 2024, the member premiums and other employer plans have increased an average about 45% nationwide. But HealthSelect of Texas and Consumer Directed HealthSelect premiums have only increased 16%. So that's pretty incredible that we are holding steady and also that we're not cutting benefits. 

BD: Yeah, absolutely. I mean, the fact is that we have not had a significant premium increase since 2017. It was less than 1% each year in ‘18 and ‘19 and then flat since. You pretty much don't see that anywhere else. And that's why, our total increase over that time frame has been so low. In addition to that, we haven't done that by, you know, reducing benefits in order to keep those premiums down, those we have not had a negative benefit change since 2011. So those two factors combined have put us in a pretty unique place compared to the market. 

CO: Right? And for some of us, like myself, who've only been with the state for like five years, I'm not used to a premium increase. I know we spoke about that earlier, and you said that it was kind of a common occurrence for every year. And so for those of you who might be new, you know, are probably thinking, well, why are they increasing? They haven't in, in the past. And that's only because ERS has done such a good job, right, with cost management. Can you talk a little bit about that, how you were able or ERS is able to keep those from increasing? 

BD: Yeah, absolutely. So I mean, as you mentioned, this last, you know, this time period since 2017 is not typical. Prior to that, we were routinely every year going to the legislature asking for increased funding in order to pay for the increasing costs of health care. You know, as we just talked about a second ago, we've seen that in the market as a whole, they are having annual increases every year. What happened with us? Well, we've been able to be in this position is because really of our really, really strong competitive bid process. In 2017, we switched our pharmacy benefit manager, and we got a much better contract than we had previously. And that generated a lot of savings, estimated about $1 billion over six years. 

CO: Right. And you're talking about Express Scripts, right? 

BD: No, this is, prior to that. So this would have been when we switched from, Caremark to Optum. 

CO: Okay. And then again, we also save money. When? 

BD: Recently when we switched from Optum to Express Scripts. 

CO: Got it.

BD: But then we saved even a bigger impact was this switch of our HealthSelect third party administrator. Prior we'd had United in 2017 and in 2018 we switched to Blue Cross Blue Shield and they as part of their bid, they had gone out and contracted a very cost effective but still broad network of providers. And that primarily due to that network, that really highly cost effective network, that contract saved us over just over $2 billion over six years. And so those really cost effective networks have allowed us to really, is what's allowed us to maintain this level of premium and benefits for so long. 

SK: So let's talk a little bit about healthcare inflation in general. What is it and how is it impacting our health plans? 

BD: Yeah. So really like when we talk about health care inflation here we say health care cost trend. And what this is talking about is the per capita increase in the cost of care that's going up every year. And so the things that are driving this is the increases in the cost of services. This you know, the inflationary impact. Also broader inflation is affecting this because, you know, hospitals have to employ people and so the salaries have to go up. You know when the job market is really tough, then they have to pay more people to get, to hire, new nurses and doctors than ultimately that gets passed on to the consumers of healthcare. Also, there's new products and services, new drugs. You've heard a lot of things in the news about the new, GLP one drugs for treating diabetes and obesity. Very, very good drugs, but also really, really expensive with a price tag of around $1,000 a month. You've also got an aging population, right? So as people get older, they consume more health care. So this causes an increase in the utilization of health care services. And so that's also increasing our costs. And then the last is the fact that, because of our way our benefits are structured, we have limits on what members pay. They have fixed co-pays or co-insurance max. And they have an out of total out of pocket max. And so therefore, as the cost of care increases, that increase in cost is disproportionately borne by the plan. And so therefore that causes a relatively larger increase in the total cost of care paid by the plan. That's why we're at 90% now as what the plan is paying for total cost of care. We were closer to 80% in 2011 when we last made a negative benefit change. 

SK: So you're talking about how the plan shields the member from the increasing cost? 

BD: Yes. 

SK: And so what exactly is happening with the premium increases? Can you talk about what are we looking at? 

BD: Yeah. So every year or every biennium when the legislature is in session, we put together a legislative appropriation request in order to request the funding that we need, to maintain our health care plan. And so this year, we asked for an 8% increase each year. And this is really because effective, you know, starting this year for the first time in a long time, we're actually we'll have less revenue than expenses in the plan. So we're going to start paying down some of our reserves. And so we need to make up for some of that loss. Plus, in general, health care rises at around 7.5% every year. So that combination is what puts us at 8%. And the legislature was great. There was. We went and we talked with them. They were very supportive. They it was never really contentious. They funded the plan at the 8% that we asked for. There was a $520 million exceptional item request. And so we were really happy with that. But the way that we draw down funding means that we have to have an increase in the premiums, because the way we draw down funding is we calculate, okay, well, the legislature appropriated a certain amount of money. In order to get that money, we have to charge premiums to members and the employers, and that's how we get funded. And so if there's an 8% increase in the appropriation, then that means there's an 8% increase for those individuals who do pay a member premium. 

CO: So for those of you who are unfamiliar with how these requests work, they happen every other year during a legislative session. And ERS does submit a legislation appropriations request and we call it an LAR for short, because that is a very long word or a long title. And this is a proposal that we submit ERS, not just ERS, but other state agencies, every two years. And it basically outlines the funding that is needed for the upcoming biennium. So that is what we're talking about. And this year we, for the first time in a while, asked for help with our health plans, in paying for our health plans. 

SK: And just to get specific about the premiums that are changing. This is for those who pay for dependent care coverage. So the state is still covering the member's own premium. And if you're covering a spouse, for example, under HealthSelect of Texas, the difference is about $28 per month from last year. If it's you and your entire family, it's about $48 from last year. 

CO: Right. But not everyone is going to see this in their premium. If you're an active employee, like let's say for myself, I don't have dependents on my or a spouse or anything on there. So and I am covered still at 100%, am I going to see an increase? 

BD: So if you’re a member only, the state pays 100%. There is no impact to a member in that situation where you're going to see individuals who have, who see the 8% is anyone who covers a dependent because the state contribution is 50% and the member portion is 50%. And so both of those will go up by 8%. If you're a part time employee who's paying currently part of your contribution. The cost of health care yourself, then you will see an increase. Also, now we do have retirees in general are getting 100% contribution from the state for the member portion of the coverage. However, you know, several years ago we did start, tiering. If you don't have 20 years of service, you don't get 100%. If you have 15 years of service, you get 75%. And if you have ten years of service, you get 50%. Currently, we have about just under 2,000 retirees who are no longer getting that 100% contribution for member only coverage. And so they would also see an increase. 

CO: What about survivors? COBRA participants? Is it affecting them at all? 

BD: Yeah, absolutely. So they pay 100% of the cost of their coverage. So if you're a survivor, you'll see the 8% increase in the cost and same with COBRA. 

CO: So for people who had probably heard the news, they were probably worried about being affected, but it actually will not be affecting the majority of folks. Only folks who have dependents that are on their health insurance or spouses. So the majority of folks will not see a change in their premium come September 1st if they don't have dependents on there. 

SK: But the really great thing is that coverage is not changing. Co-pays, deductibles, and the coverage of the health plan is not changing. Right, Blaise? 

BD: That's right. Obviously that's really important to our members as well. And as I said before, and I'll probably say again, we have not had a negative benefit change since 2011. I think that's just really important information that people need to understand. And it's also really unusual. And so and the and despite the fact that we haven't had that in a long time, the legislature again agreed to fund the 8% and maintain these benefits for at least two more years. So that is really, really important and really grateful to be in this position. 

CO: And earlier you talked about some of ERS' cost management efforts. Can you talk a little more about the efforts and how they impact the health plan? 

BD: The number one thing that we do is that competitive bid process, right. That's going out into the market and getting the administrators to help run the program and the most cost effective manner possible, and to give us the best deals. That's what drove the big savings. That's why we're here today. That's the number one thing. But we don't just, you know, limit it to that. We don't just do the competitive bid process. I mean, we are constantly for example, we're digging through our claims data to look for unusual spending, maybe in drug patterns to try to help manage our formulary, because sometimes there's some very costly but very inefficient  formulations of drugs that maybe we see a spike in, that we don't want in the plan anymore. And so we'll make a move to not cover those anymore. We're also, as an agency, we're really invested in wellness and trying to improve member health, and increase preventive care, which also has a positive impact on costs. We look at, you know, fraud, waste and abuse with all of our vendors and really doing, you know, we try to look under every rock in order to save what we can. You know, saving $1 million is really, really important on a $4 billion plan. Not everything is the $2 billion in savings over six years. We're trying to do it all another way in which we which is really key and important in controlling health care costs is utilization management. So this is the world of this is prior authorizations. This would be step therapy on a drug side. This is referrals to go see, you know, a specialist. We think that these are all key components, although they can be sometimes a bit frustrating for members because it feels like a hoop to jump through. But they're key components to these savings. You know, a lot of times, um, if a, if a member self refers to a spinal surgeon, then that surgeon may recommend surgery because that's what they do. That's their tool. And really what I think the studies show is that you're most people are better off first going to their PCP, going through physical therapy and trying, um, other interventions before going to that surgery. A lot of those people won't end up needing surgery. Surgery is not the right thing for them or the best thing for them. And of course, physical therapy is also a lot cheaper than surgery. So these types of arrangements are really, really important. Also, PCP's we feel like are a key component of managing the total health of individuals. And so having that PCP patient relationship is really, really important. 

SK: In addition to those cost savings that you just mentioned, there's a lot of things that the member can do to both prevent serious health problems and save themselves some money. 

CO: Yeah, we have a lot of really great programs that are offered through our health plans, and I'm talking about HealthSelect of Texas and Consumer Directed HealthSelect, which are the two plans that ERS does offer to all retirees and employees. All of these plans, both of these plans cover in-network preventative services at 100% preventative means, basically like immunizations or vaccines, um, certain vaccines, uh, annual checkups. I went in this year for my annual checkup, and I got it all done, checking my cholesterol and blood pressure. A mammogram was done and it was all covered at 100%, which was pretty cool because, I mean, these are very important, um, things that can help you, you know, figure out if you might need maybe something more and you can find problems that you need to address early on before they get worse. So we are so thankful that that we do have those covered. They're able to catch those serious issues and save us some money from spending a lot.

SK: If you're in consumer directed health Select, that's the high deductible health plan. You can get a tax free health savings account or an HSA, and the state makes contributions to that. And you can use that money to pay for qualified health expenses. Right. And then once it gets to a $2,000, um, amount, you can start to invest it. And even if you leave the state, you continue to keep that health savings account with you. You can carry it to whatever other employer that you have. It stays with you and that is with Optum Bank. That's pretty cool. We also have the many wellness programs including Hello Heart for cardiovascular issues, Buena Vida, which is an overall well-being program with an app and a community behind it. Hinge Health is for joint and mobility issues, which is one of the primary health problems that state workers tend to have. And we have Virtual Visits you can get care from home. You can get the Catapult Virtual health kit if you can't make it into a PCP. 

CO: Yeah. One thing I want to highlight about Virtual Visits is if you are doing any kind of therapy, those are those are covered at zero. I mean, you're paying nothing for a virtual visit. When it comes to like therapy with mental health stuff. I also did Hello Heart as well. I got my free blood pressure checker. And so it's really cool. I actually really like it. You have an app that it connects to, and it will remind you to take your blood pressure and tell you if it's going up or down. So I really, really like that. It's a free blood pressure monitor that you can get in the mail if you just sign up. 

SK: So and then there's also a newer program called Omada for diabetes, which is another one of our members’ top concerns. And that's type one and type two diabetes. But it's uh, kind of an at home monitoring kit. Also with an app, you can share the information with your PCP. So check that out on the HealthSelect website. And then of course always stay in network when you can. You'll always pay the least amount if you stay in network. If you do go out of network, you will sometimes pay a lot more than in network. So that's an important way to save.

CO: And the group benefits team is actively monitoring ways to help our members. 

BD: Right. Absolutely. I mean, we're looking at the data. We're trying to tracking our top conditions high blood pressure, diabetes, musculoskeletal issues. You know, your joint stuff, and then high cholesterol as well. Those are, those are the conditions that you see the most. We want to definitely implement programs and things that, you know, have an impact. 

CO: Right, right. And so you want to look at the things that are affecting our members today, which explains why we have all of these great wellness programs that target those issues. 

BD: One thing I wanted to also mention, as I was listening to you talk about all of our programs, because I think we've made a big effort to expand access and make things easier for our members to get health care. You know, that reminds me back to the referral conversation. We've also been looking at that because while referrals are really important, we don't want them to be a barrier, an unnecessary barrier. And so, you know, we've always had for that reason, no referral requirement to go see an optometrist and get your annual vision checked. Recently we've been looking at where are other opportunities to streamline that process. And so we have now waived referral requirement to see you dermatologists. That way you can go and get your annual skin check. No need to go to your PCP first. You can just schedule that. And we're just always trying to figure out it's a balancing act right? You've got to have the controls and the cost efficiency controls in place in order to manage that total cost of health care. But you also, we really want our members to go get health care. And so we're looking at, you know, what's the best way to balance those two things and make the experience as member-friendly as possible. 

SK: Everything Blaise has said has been really driving home. How much ERS cares about the members and really puts a lot of thought and effort into creating a health plan that serves our particular needs and is affordable. So thank you, Blaise, for explaining all this stuff to us and our listeners, because there's a lot to know, and it's been a very interesting discussion. 

CO: Right. Yeah. Thank you so much. And we hope that you were able to learn a little bit about how ERS works and how we choose these benefits to implement and make these decisions. 

SK: If you've enjoyed listening to Blaise, you can hear more about the activities of Group Benefits during an upcoming meeting of the Board. Find the schedule at our website ers.texas.gov. And as always, if you'd like to send feedback, send it to story_ideas@ers.texas.gov, because we'd love to hear your thoughts on Money Talks.

Disclaimer This material is for informational purposes only and is not intended to provide investment, legal or tax recommendations or advice.