Why Delaware is eying a 27% premium hike on state employees' health insurance

Editor's note: This story has been updated to correct for the fact that the state appealed the Medicare Advantage lawsuit on an order issued in May by Superior Court Judge Calvin Scott Jr.

Delaware is eying a 27% increase in state employees’ health insurance premiums to help bridge regular gaps in funding that often leave the state’s health benefits fund in the red.

The proposal before members of the State Employee Benefits Committee seeks to close the looming deficit in 2025 by increasing insurance premium costs on both the employer and employee by 27%, according to the state Department of Human Resources.

Gov. John Carney’s proposed fiscal year 2025 budget sets aside $200 million – which includes the state's share of the 27% premium hike – to address future deficits with the benefits, which Human Resources Secretary Claire DeMatteis said totals $232.1 million. While Carney's budget allocates $93.9 million to partially fund the deficit, DeMatteis said the proposed premium increase would fully fund it.

The state also is grappling with a current $41.1 million deficit in the health benefits fund that officials say will be closed with unspent funds from other departments.

“This is a significant cost that the state has to take on,” said Cerron Cade, director of the state’s Office of Management and Budget. “Health care costs have been increasing every year, even in years where we have not raised rates because we were able to dip into our surplus, and that is just not a sustainable model. Eventually, we have to get to a point where we pay the piper.”

Delaware leaders say the tenuous situation with state health benefits makes this a primary focus for lawmakers this budget season, and Carney’s proposed budget underscores how the growing deficit makes the fund a primary driver of state expenses.

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Tackling past deficits

Delaware, which spends about $2 billion on health care annually – accounting for nearly 40% of the state’s total operating budget, has faced multimillion-dollar deficits with its employee health benefits for years.

Although rates were increased 7.7% in 2017 despite revenues in excess of expenses that year, employee rates remained flat for five years while health care costs continued to grow, DeMatteis said.

Premiums increased 8.7% for fiscal year 2023 and 9.4% for fiscal year 2024, she said. Lawmakers also added $48.6M to the 2024 budget last year to bridge the gap Delaware faced.

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The health benefits fund has often run a deficit while health care costs have soared, with state officials avoiding premium hikes by finding savings or other available funds to cover the gap. DeMatteis said the last time the fund was in the black was 2018 and in the two years before that.

Employee pay increases amid deficit

Delaware leaders acknowledged that a 27% premium hike is significant, but noted that since 2017, state employee pay has increased 31%, which hopefully will help lighten the financial burden for state workers.

“Our hope is once you factor in the increased salaries, that this increase – though for some definitely may be significant – will be overcome by the amount of pay that has gone to each individual,” Cade said.

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During the Joint Finance Committee meeting on Jan. 30, several people called on lawmakers to avoid increasing premiums, particularly on retirees, during the public comment period.

Shelley Meadowcroft, spokeswoman for the Delaware State Education Association, said the union has advocated through the retiree subcommittee to ensure no coverage changes are made to the benefits promised to members.

"Part of our work on that committee was to encourage the state to look at why we pay more in Delaware than in other states," Meadowcroft said. "We will continue this advocacy on behalf of our members who may be affected by any price changes causing rate increases. While we are actively working to increase their pay, we are also focused on ensuring the benefits they were promised when hired are maintained. We are especially concerned about our lower wage earners, like our Education Support professionals, who will be hit the hardest with these premium increases."

The actual dollar amount increase employees may face will vary depending on the plan they have opted into, but if the 27% proposed increase were implemented, state workers would see a $4.46 to $43.73 per paycheck jump in insurance costs.

Long-term solution to deficit sought

State lawmakers who have been at the forefront of conversations on how to address ballooning health care costs say, “Everything needs to be on the table.”

State Senate Majority Leader Bryan Townsend, who was part of the retiree subcommittee tasked with providing recommendations on retiree health benefits, said the state has to figure out how to “spend money to keep Delawareans well on the front end” rather than waiting until they’re already sick.

“The state employee health plan has got to step up more and exert its muscle in the health care marketplace to insist on lower pricing from hospitals, to insist on investments on keeping people well on the front end,” he said.

Delaware officials say the top three contributors driving increased costs are outpatient medical procedures, specialty drugs and emergency room visits. DeMatteis said post-COVID-19 health care utilization has also increased costs.

Recent reports on the state health benefits fund cited an unexpected surge in weight loss and diabetes management medication along with bariatric surgery treatment as a significant contributor, too.

When the state opted to cover the medication and procedures, it was estimated to cost Delaware $1.9 million for 2024, but the state has spent $15 million on the coverage in the first six months of the fiscal year, DeMatteis said.

“Adjustments to weight loss medication coverage and the SurgeryPlus (bariatric surgery) benefit would potentially be considered regardless of the current deficit,” she said. “The considerations to carve out additional procedures to SurgeryPlus are being reviewed to help lower costs to the plan and members, while also producing high quality outcomes more consistently for all members who receive those procedures.”

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Committees and task forces formed in recent years have provided a host of recommendations to reform the system and reduce costs, from potential adjustments in prescription and insurance coverage to policy and regulation changes on how the state makes decisions on health benefits.

House Rep. Paul Baumbach, who also was part of the retiree subcommittee, said he has two bills proposed that reform how the employee benefits committee operates, aiming to make it more transparent – changes sparked after a group of state retirees sued Delaware over its abrupt switch to Medicare Advantage.

House Bill 282 outlines rules for the employee benefits committee to ensure they follow Open Meetings laws; adjusts the makeup of the committee; and ensures any planned changes are made publicly available for review prior to a decision being made.

“I’m hoping that when it’s law the public will get to see before it is set in stone what kind of plans the state is asking for and how they will be deciding amongst applications,” Baumbach said.

State continues fight against Medicare Advantage lawsuit

RISE Delaware, a group of state retirees, filed a lawsuit against the state in Superior Court over Delaware transitioning their health care plan to Medicare Advantage without following administrative procedures when implementing the change and not allowing retirees to offer input.

Delaware argued the switch would decrease the state’s ballooning unfunded liability, but retirees feared it would result in being denied care.

A Superior Court judge ordered the transition to be temporarily blocked in October 2022, which prompted Delaware authorities to extend state retirees’ health care plan, Medicfill Supplement, to 2024 due to the ongoing litigation.

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In April 2023, the Delaware Supreme Court denied an appeal from the state, which sought to overturn the temporary block. The appeal stemmed from a Superior Court order in February that denied RISE Delaware’s application to cover attorney’s fees.

While Supreme Court Justice Gary Traynor wrote in his April decision that the Superior Court's early decision was not a final order and therefore couldn’t be appealed, an order issued by Superior Court Judge Calvin Scott, Jr. in May prompted the state to appeal to the Supreme Court.

Those appeal efforts continued Wednesday with attorneys appearing in Delaware Supreme Court to give arguments on the state’s appeal. No decision was made.

Meanwhile, the state rebid its Medicare supplement portion and the State Employee Benefits Committee is expected to weigh in on those requests-for-proposal in March.

Got a tip? Contact Amanda Fries at afries@delawareonline.com, or by calling or texting 302-598-5507. Follow her on X at @mandy_fries.

This article originally appeared on Delaware News Journal: Why Delaware is eying a 27% hike on state employees' health insurance