State projects $203M health-plan revenue and modest reserves after FY26 plan design and premium changes

Commissioner Darren Seely and Sarah Delaney of Marsh McLennan Agency presented the state employee health-plan outlook to the Joint Committee on Appropriations on Jan. 30, outlining plan-design changes, premium adjustments and vendor negotiations intended to contain health-care cost growth.

Seely described South Dakota’s health plan as self-insured and said the program currently covers “a little over 12,000 employees” and “nearly 26,000 lives.” He told lawmakers the state built about $20 million in reserves since moving to a third-party administrator arrangement and that the FY26 proposal aims to keep the plan solvent without a surprise appropriation.

What changed and why: The administration recommended modest plan-design changes to the two lower-deductible plans (Jefferson and Roosevelt), small premium increases for most members and tighter copay/co-insurance on certain services. The changes are targeted to shift part of projected FY26 cost growth to plan members while preserving employer contribution; the administration said the split of added cost would be approximately 65% employer / 35% employee on the projected FY26 change.

Major details presented - Plan types: The state offers four plans. Washington (high-deductible, lowest premium; employee-only remains premium-free), Lincoln (HSA eligible, lower deductible than Washington), Jefferson (traditional low-deductible plan) and Roosevelt (richest plan with $0 deductible and higher co-pays). Seely said the variety reflects different employee needs and the administration’s effort to offer choice. - FY26 design changes: For Jefferson the single deductible would rise from $1,750 to $2,000 and family deductibles from $3,510 to $4,000. On Roosevelt, office visit copays would rise from $30 to $40 and specialty copays from $60 to $75. High-deductible plans were left unchanged. - Premiums and projected revenue/expense: The administration presented detailed premium changes by coverage tier. The FY26 projection anticipates $203 million in plan revenue (including employer contribution, COBRA and rebates) and $202 million in expenses, yielding a projected overage of about $638,000. The estimated employer-per-benefited-employee cost would rise from $11,851 to $12,388 annually. - Reserves and risk: Seely said the plan now holds roughly $20 million in reserve; FY26 projections would leave the reserve near $21.5 million if projections hold. He told the committee that a catastrophic or unpredictable claims spike could still require legislative action.

Cost-containment programs - Clinical programs: Marsh McLennan highlighted recent clinical initiatives, including a musculoskeletal program with vendor Hinge Health that offers virtual physical therapy and devices for pain management. Marsh estimated 970+ members had enrolled in musculoskeletal programs and projected about $2.5 million in avoided claims annually from that initiative alone. - Pharmacy benefit negotiations: The state renegotiated pharmacy arrangements in partnership with Wellmark; Marsh said guaranteed rebate improvements and better PBM terms (CVS) reduced projected pharmacy expense for FY26.

Why it matters: The health plan is a major component of total state compensation and a significant budget item. Committee members asked for documentation of the cost-benefit analysis for premium changes and concession details from vendor negotiations. Senator Howard requested cost-benefit analysis of related facility lease economics (Sioux Falls one-stop); Seely said those agreements are signed by agency heads and the commissioner and that further documentation could be provided.

Next steps: The administration expects to present the health-plan budget recommendation for final FY26 adoption and return to the committee as needed. Seely and Marsh McLennan said they will continue to monitor utilization and vendor performance and report back if trends deviate from projections.

Ending: The committee recessed with instructions to reconvene for further budget and compensation hearings; no formal committee vote on plan design or rates was recorded that day.