Impact of Kentucky House Bill 500 on Employee Health Insurance

Potential Impact on Employee Health Insurance in Kentucky

A recent legislative proposal in Kentucky, House Bill 500, could significantly alter the financial landscape for employee health insurance, affecting both state and school employees. The bill proposes capping state contributions to the Kentucky Employees Health Plan (KEHP), which is projected to create a funding shortfall of $77 million in 2027 and $202 million in 2028. This development raises concerns about potential increases in premiums or decreases in benefits for KEHP members, underscoring the importance of regulatory compliance requirements in managing future risk.

The Kentucky Personnel Cabinet warns of the potential financial consequences, predicting a substantial increase in employee premiums by up to 78% over the next two years. Such increases are necessary to address the anticipated shortfall, emphasizing the critical role of payers in maintaining stable compensation structures. The estimated premium hike could further burden approximately 310,000 KEHP members, including both active and retired employees.

Currently, KEHP's premiums and out-of-pocket costs present significant financial challenges for planholders. Many employees and retirees face monthly premiums exceeding $337.68, with an average monthly cost of $174. If enacted, changes under HB 500 will exacerbate these pressures, particularly impacting retirees who enjoy reduced premiums due to service before July 1, 2003. For instance, retirees with 30 years of service pay about $660.04 per month for a LivingWell PPO plan, with out-of-pocket costs averaging $2,437 annually.

The KEHP reports competitive costs, being 10.6% less expensive per employee compared to other public sector plans, according to a benchmark analysis by Merative. However, previous legislative actions have involved diverting over $1 billion from the KEHP to stabilize Kentucky's budget. These diversions have constrained the plan's ability to manage claims efficiently, transferring fiscal responsibility to employees and retirees, a shift that underscores the interplay between underwriting strategies and fund solvency.

The broader context of stagnant wages and constrained pension benefits creates additional challenges for public employees in Kentucky. Limited salary growth for school and state employees, alongside diminished pension benefits for retirees, highlights the critical need for proactive risk management and strategic policy adjustments in attracting and retaining skilled public sector talent. Monitoring these legislative developments closely will be essential for those in the insurance industry to understand the long-term implications on Kentucky's public workforce.