'Battle of reports' a prelude to possible self-insurance move by state
Switching employees to a self-insurance model either could save the state $42 million or put it at risk of losing much more than that, depending on which of two consultants makes the prediction.
Segal Consulting last year offered the optimistic prediction, saying there’s no “compelling reason” for the state to stick to a premium-based model with outside insurers. The other consultant, Deloitte, presented a broad spectrum of costs and savings tied to a state self-insurance model, under which the state would pay employees’ medical claims directly. Deloitte’s amount landed anywhere between saving $20 million and losing more than $100 million.
State officials will have to decide which is right, and a key decision-making board is meeting tomorrow on the issue. Any change would affect the more than 250,000 people participating in the Department of Employee Trust Funds’ group health insurance programs; that number includes a mix of active and retired state and local employees and their dependents.
But it also would affect the broader health insurance market, with some health plans losing significant numbers of enrollees and potentially increasing everyone else’s premiums. The latter point deserves attention because neither consultant accounted for it, said Rep. John Nygren, R-Marinette, an insurance agent who co-chairs the Legislature’s Joint Finance Committee.
“I think it probably could save money,” Nygren said. “My concern is the greater impact on the market in Wisconsin.”
Deloitte was the first to take a crack at the issue, writing three reports in 2012 and 2013 that cost the ETF upwards of $100,000. The department, which manages state employee benefits, later contracted with Segal for two broader reports that also took a closer look at self-insurance. The state paid $400,000 for those reports, presented in March and November last year.
The initial decision of whether to switch to self-insurance now rests with the 11-member Group Insurance Board, which meets tomorrow. A vote on any change isn’t expected until at least February.
“It’s a battle of reports,” Nygren said.
If the board approves a change, it next would go to the JFC, which now has the final say under a law signed last month by Gov. Scott Walker.
“We believe that the significant potential savings identified by Segal Consulting warrants continued review, which is why we will thoroughly review the recommendations included in the report,” Walker spokeswoman Laurel Patrick said. “Our focus remains on continuing to provide the same great benefits to state employees at a good value to our state’s taxpayers.”
For most of the people ETF covers, the department pays premiums to 17 health plans that compete for enrollees. A self-insured model would shift the risk of coverage to the state because it would pay directly for any medical claims, likely with some logistical help.
Wisconsin already uses a form of self-insurance, although only in a minor way. The state covers pharmacy benefits for enrollees on a self-insured basis and recently chose to do the same for dental.
The state was among 46 in the country in 2010 that used self-insurance in some way, ranging from the full model to bits and pieces, according to the most recent data from the National Conference of State Legislatures.
Self-insurance also is picking up momentum in the private sector, particularly among employers with 1,000 or more workers, according to the Employee Benefit Research Institute. The group found almost 60 percent of U.S. private sector workers were in self-insured plans in 2011, an increase from about 41 percent in 1998.
A Madison-based cooperative of self-insured employers called The Alliance, for example, has more than 240 members, including Trek Bicycle, Lands’ End and Rock County. The group’s advantages include access to a wide network of providers, said President and CEO Cheryl DeMars.
Still, a state move to self-insurance would face opposition from groups such as the Wisconsin Association of Health Plans, which represents some of those competing for state enrollees. The association sent a letter to the Group Insurance Board raising questions about the Segal reports’ findings and saying Wisconsin’s competitive market has helped cut costs to the state.
But supporters of self-insurance make similar cost-savings arguments. They say a switch would help the state avoid Affordable Care Act fees, reduce administrative costs and cut into health plans’ profits.
More importantly, said John Torinus, chairman of West Bend-based Serigraph Inc., self-insurance would let the state better manage its health programs, allowing for improved wellness initiatives that make employees healthier and eventually lead to more savings. Torinus, who wrote a book about how he managed health costs at his company, said health plans have the “old business model in their head.”
“They need to think about a new business model for the delivery of health care in America,” he said. “We need a new business model, and it is forming up in the private sector.”
Consultants differ on potential loss of discounts and competition
The state’s current managed competition model has insurers vying for members in different areas of Wisconsin, an approach supporters say ensures health plans keep prices low. On top of that, they say, several of those health plans are owned by the health care systems patients visit, leading to significant discounts on medical claims.
Deloitte found in its April 2013 report Wisconsin’s costs are 4.1 percentage points lower than the national average, which the consultant said is “very strong evidence” the current system contains costs. That report, the second from Deloitte, examined the different ways states across the country manage health costs.
Deloitte also wrote a more detailed confidential report to the GIB in August 2013. An executive summary of that report says the state saves some 5 percent in premiums under its current structure.
“This model makes use of multiple HMOs and inherently drives competition between health plans to promote cost efficiency for the State,” Deloitte wrote. “Without adequate safeguards and controls to maintain competition, the financial benefits to the State of the current model could be lost in changing to a self-insured arrangement.”
Segal, however, said Deloitte reached that percentage partly by taking the difference between the preliminary premiums health plans propose to ETF during negotiations and the actual premiums the department pays. Segal’s first report says those preliminary rate bids “are at risk of being artificially high” because health plans have an incentive to start negotiations with a higher proposed premium.
Segal also received more information from health plans for its analysis, from information on discounts to where health plans and providers operate. That data led Segal to conclude the state could see higher discounts under a new structure.
Segal suggested ETF should break up the state into three regions, working with up to two health plans in each region along with one statewide plan. Moving to that consolidated structure alone would save Wisconsin between $45 million and $70 million, Segal estimated, not counting the separate savings the state would see under self-insurance.
"This provides a uniform option across the entire membership, while enabling ETF to leverage the very best of the regional health plans,” Segal wrote.
But the Wisconsin Association of Health Plans said that suggestion would mean “many of Wisconsin’s highest quality, lowest cost health plans would be eliminated from participation” in the program that insures state employees. The health plans covering the greatest number of those employees and dependents include Dean Prevea, Unity, WEA Trust, Humana, Physicians Plus, UnitedHealthcare, Security Health, Network Health and Group Health Cooperative of South Central Wisconsin.
“Reducing competition and eliminating choice will increase the state’s costs and disrupt doctor-patient relationships,” said Phil Dougherty, the association’s senior executive officer. “Forcing health plans into gerrymandered regions is inconsistent with the regional structure of health care in Wisconsin.”
AFSCME Council 32, the union representing public employees, also has raised concerns Walker’s administration is “considering blowing up the health care system for state employees” without including them in the discussion.
Segal’s first report already led to the GIB doubling the limits of out-of-pocket costs and adding deductibles for members.
Reports agree on short-term savings
Despite their differing conclusions, Segal and Deloitte generally agree on the short-term savings the state could see just from moving to self-insurance.
The most significant savings came from the following areas:
*Eliminating a premium tax on health plans. The two consultants had differing findings on the tax, which doesn’t apply to self-insured plans. Deloitte estimated $23 million in savings; Segal found only $900,000.
*ACA market share fees. Segal found $18.3 million in savings from the annual fee on health plans because self-insured plans aren’t subject to it. Deloitte doesn’t explicitly mention the fee, but Congress has suspended it for a year.
*Administrative costs and risk charges paid to health plans. Deloitte lumps the two together and estimates the state would save between $0 and $60 million. Segal’s finding of $22.2 million in savings comes within that range. Of that, $11.2 million comes from lowering administrative costs health plans charge, and $11 million comes from reducing their profits.
Some of those savings could go toward ensuring ETF has enough money to pay for claims under self-insurance, Segal wrote.
Yet those savings would be short-term, said Jon Rauser, an insurance agent and president of Milwaukee’s Rauser Agency. The long-term question is whether the health plans are doing a good job holding costs down through population and disease management, he said.
That management, which includes data analysis and specific messages to specific areas of the state, is often easier to do in self-insured plans, over which employers have more control, said DeMars, the Alliance CEO.
“What ETF decides to do with their health benefits program is obviously important to state employees and their families, and it also impacts the market,” DeMars said. “Our advocacy is that the state make a careful data-driven decision.”
-- By Polo Rocha