Consultants warn school medical fund could dip below reserves by 2027; recommend contribution increases or plan changes

Segal consultants Patrick Klein and Matt Kersting told the Senate Education Committee on Sept. 6 that the state's school employee medical plan is adequate in the near term but faces growing deficits over the five-year projection horizon.

Klein said the firm's projections used Milliman's actuarial numbers (the Employee Benefits Division actuary), adjusted to reflect retirees moving into a Medicare Advantage prescription-drug plan (MAPD). "We've assumed 75 of the retirees would move to the MAPD in these projections," Klein said, noting that assumption will be confirmed at open enrollment.

The consultants identified two primary cost drivers: increasing program participation (roughly 2% per year) and medical-claims trend, which they used at about 6% year over year. Those two factors, the consultants said, account for most of the projected increase in claims through 2027.

Under the committee's chosen reserve framework (a target range midpoint of 14 percent), Segal showed that total assets would fall below the target by 2027. To restore the projected target reserve of roughly $89,000,000 in 2027, Segal estimated the $300 minimum district contribution would need to increase to about $328 per enrolled participant (kept flat thereafter) or, alternatively, both state and district contributions could be indexed to medical CPI.

Kersting summarized the indexing option: "We're using 3.7% for medical CPI," he said, and noted that indexing both Department of Education funding and district contributions to medical CPI reduces the long-term shortfall compared with keeping district contributions flat. But Segal cautioned that the medical-CPI approach (3.7%) remains below the expense trend (6%), so indexing would shrink but not eliminate the projected shortfall in the far years.

Committee members pressed consultants for alternative scenarios. Senator Chesterfield asked whether consultants could provide a plan-manager perspective and a scenario that would keep the fund in surplus for 2025–2027; the chair directed Segal and the plan manager to provide additional runs for the next meeting.

The consultants and BLR staff also confirmed several modeling caveats: most notably the assumption that a substantial share of retirees will enroll in MAPD (the final number depends on open enrollment), that no plan design changes are incorporated in the base-case projections, and that other income components (rebates, some investment income) were not assumed to grow materially in the short term. "We're not assuming any sort of investment income" was stated during Q&A, though staff said some investment and rebate income have historically contributed to "other" income.

Next steps: the committee requested Segal and the plan manager run additional scenarios showing (a) higher indexed contributions, (b) contribution increases tied to medical trend rather than CPI, and (c) options that include plan design changes to reduce expenses. The committee did not take a formal vote on any change during the Sept. 6 meeting.

Quote-at-large: "To get to a total asset level of $89,000,000 in 2027, that $300 in 2023 would need to increase to $328 per participant," Segal's presentation said.

What comes next: Segal and the plan manager were asked to provide the additional scenarios for the committee's October session so members can compare fund-effect and budget impacts before making formal recommendations.