CHARLESTON, W.Va. -- Mandates in the new federal health-care legislation will increase costs for the Public Employees Insurance Agency by more than $30 million a year, an actuarial report released Thursday shows.

According to a report presented to the PEIA Finance Board on Thursday, additional benefits mandated under the federal health-care act will increase PEIA's expenses by $30.1 million in the 2011-12 budget year, and will continue to increase each year, to an estimated $38 million in 2014-15.

"The new health reform is going to impose $30 million [of costs] on this plan that you haven't budgeted for," PEIA director Ted Cheatham told the board, which will begin work on the 2011-12 PEIA plan in August.

Key cost factors, according to the actuarial study, include mental health parity -- which will require insurers to provide the same coverage for treating mental illnesses as they offer for physical illness or injury, including the same co-pays, deductibles and out-of-pocket maximums.

The study concluded that will cost PEIA an additional $11.2 million in 2011-12, and will increase to $13.7 million in 2014-15.

Another major expense will be to extend coverage for children of insurees to age 26, even if the children are no longer dependents.

That is projected to cost PEIA $7 million in new expenses in 2011-12, and increase to $8.6 million in 2014-15.

Because of that expense, Cheatham told the board he had decided that PEIA would not offer that extended coverage to children of insurees until it is mandated by law to do so, on July 1, 2011.

"We will not implement that change early, as some plans have done," he said.

The federally mandated expenses put a damper on an otherwise positive financial report presented Thursday to the Finance Board. Currently, PEIA's revenues after expenses are running $27.8 million ahead of projections.

Of that amount, $10.7 million is from savings from lower-than-expected increases in costs for medical claims and prescription drugs.

Costs for medical care is up 5.4 percent, but had been projected to grow by 6 percent; while prescription drug costs have increased by 5.7 percent, not the 11 percent increase built into the PEIA budget.

On the revenue side, PEIA investments managed by the state Board of Investments and the Board of Treasury Investments had grown by $16.4 million through March 31 -- well above the hoped-for $9.3 million growth in investment income.

Projections are that PEIA will finish the current budget year on June 30 with an annual surplus of about $40 million.

Cheatham said he had initially hoped those funds could be used to avoid having to impose any premium increases next year.

"The problem is, it's all going to be offset by the federal health reform," he said.

Another area where costs have come in under estimates is for wellness and disease management programs, where the $1.59 million spent to date is about $160,000 below projections.

Two employee representatives on the board -- Josh Sword and Elaine Harris -- both called for increased spending on wellness and healthy lifestyle initiatives, saying it is a good investment for PEIA.

"I'm a firm believer in wellness programs," Harris said. "Pay a little more now, and not a whole lot later."

Cheatham, however, said promoting healthy lifestyles is more of a quality-of-life issue, not a cost-savings issue. He said healthy retirees actually have significantly higher lifetime medical costs, because they tend to live much longer than retirees in poor health.

Reach Phil Kabler at ph...@wvgazette.com or 304-348-1220.