wfn.org | BOP Eyes Rising Health-Care Costs

[PCUSA.NEWS@pcusa.org]

16-July-1997 
97282 
 
                Board of Pensions Nervously Eyes  
                     Rising Health-Care Costs 
 
                      by Jerry L. Van Marter 
 
PHILADELPHIA--Rising health-care costs, including increased major medical 
claims and a hike in renewal rates for health maintenance organizations 
(HMOs) for 1998, sounded a cautionary note as the Presbyterian Church's 
Board of Pensions met here July 10-12. 
 
     While the Board is far from the days in the late 1980s when its major 
medical fund showed a deficit of some $18 million, the "most favorable" 
income projections for 1997 have been reduced from nearly $14 million to 
just under $10 million.  Early projections for 1998 show net income of $1.6 
million on the same basis. 
 
     "The results are down a bit," said the Board's medical actuary John 
Cookson, "but the major medical fund is still very healthy."  The projected 
year-end major medical fund balance is just under $40 million on claims 
that in 1997 are expected to reach nearly $75 million. 
 
     According to Margaret Mellen, vice president for health care, major 
medical income fell $800,000 short of "best estimate" projections in 1996 
and "we have seen a further cost acceleration in the first quarter of 
1997."  She attributed the lower-than-expected income to a significant 
increase in catastrophic claims -- three times higher in the first five 
months of 1997 than during the same period last year -- and overall medical 
claims that are expected to be 10 percent higher than last year "versus 
about 5 percent the previous couple of years." 
 
     Added to those pressures are hefty premium increases being quoted to 
the Board for renewal of HMO options in 1998.  The initial quote from 
Coventry in Pittsburgh is up 35 percent for 1998 and Anthem and Humana HMOs 
in Louisville are up 25 percent and 10 percent, respectively.  While those 
are just initial quotes, the negotiation of 1998 rates is clearly going to 
be a difficult matter for the Board's staff. 
 
     The Board authorized its staff to negotiate HMO renewals that will 
increase the total cost of HMO enrollment by plan members by no more than 7 
percent.  Proposed increases above that limit will be further reviewed by 
the Healthcare Committee of the Board in October. 
 
     The most critical aspect of the Board's major medical operations is 
the prescription drug program, where costs continue to escalate 
dramatically -- up some 30 percent in the first six months of 1997.  John 
Jasin, director of health-care delivery systems, said the drug program will 
cost the Board $4 million more this year than last if the pattern 
continues.   
 
     The prescription drug cost increases are particularly difficult for 
the Board's Medicare Supplement program because drug costs represent more 
than 50 percent of total claims.  Because the Medicare Supplement program 
is funded solely by vacancy dues, which are predicted to remain flat, and 
by participant subscriptions, another increase in the Medicare Supplement 
premium is almost inevitable. The pressures on the program have been 
ameliorated somewhat for 1998 by the transfer of $2 million from other 
assistance funds to the Medicare Supplement program. The current Medicare 
Supplement subscription is $76 per month. 
 
     Jasin said the options for fixing the program other than by premium 
increases are to increase or eliminate altogether the out-of-pocket limit 
(already scheduled to increase from $200 to $500 annually in 1998) for 
prescription drug purchases or to further restrict the list of eligible 
drugs.  "The trouble is there's no good answer," said Jasin, noting that 
every other denominational major medical program is facing the same 
difficulty. 
 
                  Pension Fund continues to grow 
 
     "I'm thrilled we were so wrong in February," Christopher (Kit) Smith, 
chair of the Board's Investment Committee, commented as he told the Board 
that its investment portfolio has returned an estimated 11.7 percent so far 
in 1997.   
 
     At the Board's February meeting, Smith cautioned that the market would 
inevitably take a downturn.  Not yet.  Instead, he reported here, the 
second quarter of 1997 "was the best second quarter since 1938 and the 
fourth best quarter since World War II." 
 
     The Board's investment portfolio is now valued at approximately $4.7 
billion. 
 
                          Other business 
 
     In other business, the Board 
 
       heard a panel discussion of the "community nature" of the 
Presbyterian Church's benefits plans (see story in next week's "NEWS 
BRIEFS") 
       heard a progress report from Detterick about the creation of 
"regional service teams" in the synods of South Atlantic and Trinity and 
the projected expansion of teams into the synods of Mid- Atlantic, Covenant 
and Lincoln Trails 
       heard preliminary reports from a survey of plan members who have 
chosen the HMO option for medical coverage and concurred with a staff 
recommendation that HMOs not be offered in New York City and the Puget 
Sound area because of their projected costs 
       heard that a comprehensive demographic study of plan members will be 
presented at its Oct.  23-25 meeting in Duarte, Calif. 
       heard plans for a series of regional consultations on the "Relief of 
Conscience" program, which seeks to address the concerns of plan 
participants who are opposed to abortion 
       bade farewell to retiring Board members John MacMurray, David Greer 
and D. Eugene Sibery, who has served as chair for the past six years. 
 
 

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