Analysis of the 2004-05 Budget Bill Legislative Analyst's Office February 2004

Health and Dental Benefits For Annuitants (9650)

The state contributes toward health and dental insurance premiums for annuitants of the Judges', Legislators', District Agricultural Employees', and Public Employees' Retirement Systems, as well as specified annuitants of the State Teachers' Retirement System. Annuitants have the option of selecting from up to eight state-approved health plans depending on where an annuitant lives.

Budget-Year Costs Not Yet Completely Determined

We withhold recommendation on the $856 million General Fund request for annuitant benefits pending final determination of health insurance premium rates for calendar year 2005.

The budget proposes total expenditures of $856 million from the General Fund for health and dental benefits for annuitants in 2004-05. This is $153 million, or 22 percent, more than estimated expenditures for this purpose in the current year. This increase mainly reflects 2004 health insurance premium increases of 18 percent for basic managed care plans and almost 27 percent for Medicare managed care plans, on average. It also assumes similar changes in health insurance premiums that would go into effect January 1, 2005. Figure 1 displays General Fund expenditures for annuitant health and dental benefits for the three fiscal years starting with 2002-03. Although these costs are initially paid from the General Fund, the state recovers a portion of these costs (about 33 percent) from special funds through pro rata charges.

The actual amount needed in the budget year is dependent on negotiations over health insurance premiums currently underway between the Public Employees' Retirement System and providers. These negotiated premium rates, which will cover the 2005 calendar year, should be available for review during legislative budget hearings. Pending receipt of the new rates, we withhold recommendation on the amount requested under this item.