Ky. public employee health fund raided for $63M

FRANKFORT, Ky. – In one of the final actions of the 2015 General Assembly early Wednesday morning, Kentucky lawmakers raided the balance in the public employee health insurance fund for $63.5 million.

A bill amending the state budget unveiled in the session's final hours authorized the transfer from the health insurance fund to government's "rainy day" fund where it will ensure the state has money to pay for a few special appropriations made this session.

Those appropriations include up to $10 million needed to cover a shortfall in public school funding announced earlier this year, $10 million in 2015-16 to fund the new law to combat heroin abuse and $7.8 million to help cover losses due to declining gas tax revenues to county and city road programs.

The action frustrated leaders of public employee groups.

"Those savings should have been left alone and used to avoid future premium increases and/or benefit reductions, ..." said Brent McKim, president of the Jefferson County Teachers Association. "We are a self-insured fund. ... Money saved in one cycle can affect the plan design and costs in the next."

David Smith, president of the Kentucky Association of State Employees, agreed. "Here they go again shuffling money at the expense of public employees because they don't make the tough decisions to address tax reform," Smith said.

But the transfer — within a new version of HB 510 that also made the appropriations for schools and local road programs — passed by overwhelming margins: 37-0 in the Senate and 96-3 in the House.

Rep. Rick Rand, a Bedford Democrat who chairs the House budget committee, said House and Senate leaders agreed to the move because it still leaves a healthy balance to ensure all claims can be paid by the health insurance fund, and because money was badly needed in other areas.

"Maintaining funding to schools is a top priority. Of course the heroin bill is very important. And our rainy day fund is very low," Rand said. "It's not like we did this willy nilly."

The rainy day fund is used to offset shortfalls when tax revenues fall short of budgeted expectations. It is also tapped to pay for unbudgeted expenses and appropriations like the up to $10 million each authorized this session for school funding and the heroin bill.

At the start of the current fiscal year the rainy day fund had what is considered a very low balance: $77 million, or less than 1 percent of annual state General Fund revenues of $10 billion.

The public employee health insurance fund gets its money from employer contributions and premiums paid by state workers and public school employees.

McKim said, "A significant fraction of that fund represents what we pay in. So, in essence, this transfer is a selective tax on public employees."

The fund has become a regular source of funds for lawmakers when projected tax revenues fall short of reaching desired spending levels. In 2010 $50 million was transferred from the fund. Last year the fund was raided for $93 million.

The transfers from the fund, McKim said, discourage teachers and state workers from negotiating with the state to find heath care cost savings when insurance plans are being designed. "If everything you save is goes for some politician's pet project, it's much harder to convince the employees to accept cost savings measures," he said.

But McKim agreed that — now that the session is over — nothing can be done to stop the move. Such fund transfers have been upheld by the Kentucky Supreme Court.

Also part of House Bill 510 was a transfer of $3 million from a state fund that pays for the cleanup of underground gas and oil tanks. That fund gets its money from a 1.4 cent per gallon tax on gasoline .

Reporter Tom Loftus can be reached at (502) 875-5136. Follow him on Twitter at @TomLoftus_CJ.