Ideas for State Budget Challenge

By wmadministrator

With the 2010 General Assembly under way in Frankfort, the spotlight continues to focus on the challenges Kentucky’s elected leaders face in developing a balanced budget for the next two years.

Not surprisingly, there are different opinions about just how serious the problem is and what could or should be done to solve it. But there is consistent agreement that progress in education is of critical importance to the state’s future.

As the Kentucky Chamber of Commerce has noted, the governor and members of the General Assembly are to be commended for protecting basic education funding from budget cuts.

Unfortunately, areas outside the basic funding formula – including such important programs as preschool – have been subject to significant spending reductions. And these cuts come as more and more research is showing that investments in early education result in significant returns for both families and the state as a whole.

A recent report from the University of Kentucky’s Center for Business and Economic Research concluded that Kentucky would realize a yield of at least $5 in public and private benefits for every $1 it invests in making quality preschool available to more children. That kind of return would be welcomed by any investment fund these days – and it offers the added benefit of strengthening the state by helping children become more productive adults.

But where can Kentucky find the money to make such investments in these difficult economic times? Our budget research suggests one possibility: asking the state’s public employees to make a reasonable contribution to the cost of their health benefits.

The chamber’s research has found that, at a cost of more than $1.2 billion a year, Kentucky state government pays monthly health premiums for more than 156,000 active state employees, state retirees and teachers. When their dependents are included, the Kentucky Employees Health Plan covers more than 258,000 people – or more than 6 percent of all Kentuckians.

The state’s contributions for these health benefits are growing at more than five times the rate of overall state spending. Since 2000, the total General Fund has increased by 33 percent while the average monthly contribution per employee for health insurance has increased by more than 174 percent – from $221 a month in 2000 to approximately $600 a month for 2010.

Kentucky exceeds the national average in the percentage of employees’ single coverage health insurance premiums that the state pays (97 percent versus 88 percent nationally). It also is well ahead of the private sector in this category.
Kentucky employers who offer health coverage – about 60 percent of the state’s employers – pay an average of 80 percent of their employees’ single-coverage premiums. And the state’s coverage is richer, with lower co-payments or contributions from employees, than private sector plans.

What can be done? The chamber believes some reasonable changes will lower costs while providing public employees with good coverage. Our suggestions:

• Require public employees to contribute $50 a month toward their health insurance premiums. This would generate $188 million in savings for the 2010-2012 budget.

• Provide employees with a fixed dollar amount, indexed for inflation, to use for life or health insurance.

• Provide incentives for wellness. More than half of the costs of Kentucky’s health plan result from treatment for a short list of conditions. The state should expand the voluntary efforts it has already started to cut costs by promoting wellness and improving management of chronic conditions.

Spiraling costs make it essential that the state find ways to sustain healthcare benefits while ensuring that sufficient funds are available for preschool, overall school improvement, employee salaries, road construction and other important programs and services. We encourage the governor and General Assembly to act now to develop long-term strategies to address this critical problem.

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