Nebraska auditor raises alarm over 'downward spiral' of state health insurance fund

Nebraska State Auditor Mike Foley sounded the alarm Wednesday on what he called a “precipitous decline” in the health insurance fund for state employees.

In a letter, Foley said an audit by his office showed the fund declined to just over $7 million at the end of the last fiscal year, a stunning drop from more than $83 million just three years earlier and the lowest level in at least a decade.

He attributed the decline partially to an increase in medical expenses starting in fiscal year 2023 but also to “inadequate oversight” by the Department of Administrative Services’ Wellness and Benefits team, which Foley said allowed errors to occur.

“Those inaccuracies have helped to drain a once-thriving fund by allowing, among other problems, duplicate payments to medical providers as well as coverage for individuals clearly ineligible to participate in the health insurance program,” Foley said in the letter.

He highlighted what he called an “alarming trend” of increases in medical and prescription claims for the approximately 13,500 people covered by the plan, which rose from about $209 million in fiscal 2022 to $293 million in fiscal 2025. The state is self-insured, meaning it pays for all of its own health expenses.

The Department of Administrative Services increased the state’s share of premiums paid this year by $24.8 million in an effort to shore up the fund.

While Foley acknowledged that effort, he said that is not a long-term solution.

“Fundamental administrative renovations are needed,” Foley said in the letter.

Among the problematic issues Foley highlighted was the payment of nearly $12.8 million in claims for the 20 highest cost state workers and their dependents, including more than $1 million for a single insured person and dependents.

He noted that the state’s share of those claims would have been greatly reduced by a stop-loss policy, something the state chose to drop in 2017.

Foley also criticized DAS for relying too much on an outside claims processor and not directly negotiating fees paid to health care providers.

“The downward spiral in the State employee health insurance program’s fund balance is almost certain to continue, if not actually gain momentum,” Foley said in the letter, “unless DAS can get a handle on soaring coverage costs.”

DAS officials could not be reached for comment Wednesday afternoon, but in a response included with the audit, they said that in the past couple of years the state has “seen a sudden well above market cost trend in the State’s Program, driven in part by increased utilization and a string of large, catastrophic health claims and related pharmacy costs.”

The department said it will continue to work with partners to make adjustments “in the context of the overall State budget and operations.”