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Public perk: Some state employees get free health insurance coverage for families

If you're state government employee in Virginia, you pay nothing for health insurance for you and your family. The state coughs up every penny. Yet that perk comes with some strings attached.

In Virginia, state employees haven't had much of a bump in pay since 2007. Sara Wilson, director of the Virginia Department of Human Resource Management, says the state dips into its health insurance trust fund to keep the rising cost of health insurance from being passed along to state workers.

The state of state health insurance

When it comes to health insurance, state employees in Virginia and seven other states are better off than their counterparts in other states. In 2011, Virginia as well as Alaska, Delaware, North Dakota, Oklahoma, Oregon, Pennsylvania and Utah covered 100 percent of the premiums for low-cost family health insurance plans.

Generally, in terms of health insurance, state employees everywhere are better off than Americans working in other sectors.

In a comparison of 42 states, the National Conference of State Legislatures (NCSL) found that it cost $1,101 a month for basic family health insurance in 2011 for the average state employee, with the state picking up about 85 percent of the tab. These figures are based on the lowest-cost option in 2011 for family health care coverage in those 42 states. Bottom line: The average state employee forked over about $170 a month for basic family coverage, the NCSL review showed.

What state workers pay for health insurance is dwarfed by the national average that all workers in employer-sponsored plans pay each month for family coverage -- about $350, according to the Kaiser Family Foundation and the Health Research & Educational Trust.

'Volume means discounts'

Experts say one of the reasons that states are able to offer cheap or free health insurance is that they bring more insurance customers to the table, thus securing better rates from insurance companies. “Volume means discounts,” says Wilson, the Virginia official.

But there are other reasons as well. Many states underfund or put off funding pension or health care benefits for retirees. In fact, there's about a $1.26 trillion gap between what states had promised to set aside for pension, health care and other retirement benefits and the actual money they had on hand, according to a report by the Pew Center on the States.

“State legislatures just keep kicking the can down the road,” Bob Williams, president of the think tank State Budget Solutions, tells InsuranceQuotes.com. “They put that off, knowing when the bill comes due, they don’t have to deal with it. It’ll be left to future legislatures. And this allows them to curry favor with current teachers and state employees to keep insurance premiums low. This probably won’t stop until you see more and more municipalities filing for bankruptcy.”

The NCSL report pointed out that the average state worker had about $20 a month in payroll deductions for low-cost individual health insurance; state employees in 10 states pay nothing for individual coverage. NCSL obtained information about individual health insurance from 24 states. The average payroll deduction for an employer-sponsored plan is about $80 a month, according to the Kaiser Family Foundation and the Health Research & Educational Trust.

About 3.4 million state government employees and retirees are covered by state government health plans, according to NCSL. If you include covered family members and dependents, the number rises to about 7 million.

The effect of health care reform

When the federal health care reform law takes full effect in 2014, some private-sector employees could see a drop in what they pay for health insurance. Under the law, companies with at least 50 employees must offer health insurance whose premiums do not exceed 9.5 percent of a worker's income.

Many states are unsure how the federal law will affect their ability to keep health insurance premiums for their employees at low levels.

“Everything is still a big unknown,” says Williams, the State Budget Solutions president.

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