An Audit Report on Health Plan Cost Containment Measures and Contract Management at the Employees Retirement System and the Teacher Retirement System
November 2004
Report Number 05-011
Overall Conclusion
The measures that the Employees Retirement System (ERS) and the Teacher Retirement System (TRS) have implemented to reduce the amount the State pays for its health care plans have generally worked as intended. These measures primarily consisted of plan design changes that shifted medical costs from the State to members.
Additional cost savings may be achieved through strengthening efforts to detect fraud, waste, and abuse and by routinely reviewing detailed claims information. A cost-benefit analysis may indicate that more robust fraud, waste, and abuse detection efforts would be appropriate.
ERS's and TRS's daily operational administration of health care and pharmacy benefits contracts is generally adequate, but both agencies should improve certain aspects of contract management. Both ERS's and TRS's contracts contain adequate provisions to hold contractors accountable.
Because health care costs continue to rise, it will be important for the State to continue to consider adjustments to its health care plans or the funding for these plans. Our research and benchmarking of industry practices and standards identified additional cost-containment and cost-shifting strategies that could be considered. To be properly considered, each strategy would need to be evaluated from an actuarial standpoint to determine the cost and benefit to the individual plans and the effect on membership.
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