Administrative Services credits Medicare Advantage, plan changes for major retiree health savings; PFML rollout under way

Commissioner Charlie Arlinghaus told the House Finance Division I on Feb. 12 that the Department of Administrative Services’ (DAS) general-fund allocation is down from 2019 levels even as most state agencies’ budgets rose, and that a large portion of DAS’s recent budget reduction stems from retiree health savings achieved through changes to how Medicare-eligible retirees are insured.

Nut Graf: DAS officials described a multi-year strategy that moved Medicare-eligible retirees onto fully or partially insured Medicare Advantage plans and introduced premium contributions for retirees; they said the changes produced large budget reductions but warned federal reimbursement uncertainty could reduce future savings. Officials also reviewed the state’s new paid family and medical leave (PFML) program, which the department helps administer for state employees.

The savings story centers on shifting Medicare retirees’ medical coverage into Medicare Advantage contracts. Deputy Commissioner Cassie Keene said the department’s retiree health population includes about 12,486 retirees and spouses, of whom roughly 10,906 are Medicare-eligible and about 1,580 are not. Keene told the committee that the state procured Medicare Advantage coverage beginning in 2019, first with Anthem and later with Aetna; the 2022 procurement produced a $0 premium for medical coverage because the carrier expected to offset costs with federal reimbursements. Keene said the state kept pharmacy coverage self-insured through a vendor while contracting medical coverage, and later asked bidders to price both options (medical only and medical plus pharmacy) in competitive bids.

Keene and Assistant Commissioner Sherry Rockburn explained additional steps that reduced costs: extending premium contributions to Medicare retirees (a 10% contribution now applies to many Medicare retirees, with age-based grandfathering for the earliest retirees), changing eligibility rules over the years to limit access, and moving large portions of the Medicare population to fully insured arrangements in which carriers rely on federal money to offset premiums.

DAS officials cautioned that those savings may not continue automatically. Keene said the department is watching federal policy closely and called Medicare Advantage “our last rabbit to pull out of the hat.” She said federal reimbursement changes could tighten payments to insurers and make the current premium-free medical coverage or the $0-rate outcomes harder to sustain in future procurements.

On pharmacy and vendor transitions, Rockburn summarized last year’s disruption after a new vendor moved retirees onto an in-house pharmacy benefit manager (PBM). Rockburn said the contract start led to customer-service failures and medication-delivery problems that required the department to suspend payments, assess performance guarantees and collect more than $2 million, and use a third-party auditor to review the PBM’s operations. She described an extended intervention that restored most services but said customer service remains an ongoing management issue.

Paid family and medical leave: Keene described the PFML program that the 2021 law established and that DAS and the Division of Employment Security implemented. The statute required the state to purchase PFML insurance for state employees and to stand up a voluntary market for other employers. Keene said the basic benefit is six weeks of wage replacement at 60% of salary (employers may buy up to 100% replacement or extend the number of weeks), that the law creates a 50% business enterprise tax credit (BET) incentive for employers that contribute, and that the state’s procurement selected MetLife as carrier for the state-employee plan. She told the committee the state’s portion of the employer charge is small (about 0.2% of payroll, roughly under $4 per week for a $100 weekly wage example) and that as of September 2024 about 6,964 employees were covered through employers while 1,152 individuals had purchased coverage in the individual market (individual open enrollment had just ended and numbers were rising).

Keene said the program used consultants, a marketing vendor and a website vendor to implement outreach, and that an annual report is required by statute. She said outreach included mass-media advertising, radio and digital campaigns and employer engagement with chambers and business groups. She described the program as voluntary for employers and noted the law permits individuals to purchase coverage on their own if an employer declines to participate.

What the committee asked and what DAS confirmed: Committee members pressed on who pays retiree Part B premiums, what happens to co‑pays and out‑of‑pocket maximums under Medicare Advantage (Keene said copays and maximums were not changed without legislative action), and procurement cadence (DAS told the committee major health-purchase contracts are typically bid for three-year terms, commonly with extension options). Rockburn explained the enterprise frequently centralizes procurement for commodities and contracts but that agencies may retain single‑agency procurement authority for limited classes of work.

Ending: DAS officials asked the legislature to note that some savings are one‑time or contingent on federal policy, and that labor‑market and vendor risks remain (for example, pharmacy PBM transitions). They also said plant-and-property costs, enterprise system upgrades and other non‑health obligations remain part of DAS’s operating picture. The department said it will continue monitoring federal policy affecting Medicare Advantage and will report to the committee if anticipated federal changes threaten projected retiree health savings.