As state studies self-insurance, critics say evaluation is ‘not enough’

Gov. Scott Walker’s administration has rolled out another step in evaluating whether it’s a good idea to self-insure state employees.

But last week’s release of a draft request for proposals for potential vendors is raising questions as to whether the administration’s evaluation will be thorough enough. And critics are knocking a video the state produced as too one-sided.

The switch to self-insurance would directly affect the more than 250,000 people covered under the state’s group insurance program. It also would be a significant development for the state’s unusually competitive health insurance market, which critics say the state isn’t properly studying.

The state, though, said its RFP process is appropriate and will provide an answer to whether the switch would save money.

“While we recognize there are numerous other factors affecting the insurance industry, a comprehensive analysis of the marketplace is beyond the scope of this evaluation,” said Mark Lamkins, a spokesman for the Department of Employee Trust Funds, which manages employee benefits.

The decision would start with the 11-member Group Insurance Board, which is largely made up of Walker appointees and is expected to vote on the issue in November. But under a law Walker signed last year, the Legislature’s Joint Finance Committee would get the final say on whether to adopt the move. The change would take effect in 2018 at the earliest.

Leading the push against self-insurance has been the Wisconsin Association of Health Plans, which says a request for proposals is “not enough.”

“They’re looking at the RFP and looking to see the outcome of that — that is one element,” senior executive officer Phil Dougherty said. “They also need to take a look at the broader consequences.”

The association represents 11 of the insurers that could lose customers if the state decides to go the self-insurance route.

In doing so, the state would scrap its current fully-insured model, under which the state pays premiums to 17 health plans that then pay employees’ medical claims. Instead, the state would pay for employees’ medical claims directly, likely with the administrative help of a third-party payer.

Wisconsin has several options to consider, including potentially giving a contract to a single statewide insurer, but any option seems likely to reduce the number of health plans ETF works with.

That could be a blow to some of the health plans participating in the current program — and potentially to private-sector customers who might see higher rates to make up for losses. Dean and Unity, for example, cover nearly 40,000 people each, while WEA Trust covers almost 25,000.

While observers say those three are large enough to handle potential customer losses, smaller insurers appear to be more at risk.

And that, said UW-Madison economist and insurance expert Justin Snydor, would be a problem, especially because Wisconsin, by all measures, has the most competitive health insurance market in the country.

“What you have to worry about here is if changes in the state health insurance plans ripple through and reduce the numbers in the overall health insurance marketplace,” he said. “It can make the entire system less competitive.”

The current RFP process, though, isn’t focused on such considerations. Instead, the GIB wants to find out if switching to self-insurance would save the state money.

Two consultants the state hired have split wildly on that, with one saying the state would save $42 million and the other saying it could save $20 million or lose at least $100 million. ETF, then, is releasing an RFP next month so vendors can give data on how much their plans would cost. The agency also wants to limit the amount of disruption to patients who’d have to switch plans and doctors.

Last week, ETF released a draft of the RFP to get feedback from vendors, which State Budget Director and GIB member Michael Heifetz said shows stakeholders are getting several chances to weigh in. The release follows an earlier comment period for possible vendors and years of input because the question has been on the table for some time, Heifetz said.

“This is a very high degree of transparency,” Heifetz said. “That is rare, if not unprecedented.”

Dougherty, meanwhile, says the administration’s focus on waiting to find out what the RFP says was undercut by a video ETF put together explaining self-insurance to those who’d be affected by the move.

Most of the video explains the concept of how self-insurance works, but near the end, it highlights the potential benefits, such as increased transparency of costs and the ability to better manage wellness programs.

It doesn’t, however, bring up the possible negatives from the move, Dougherty pointed out.

“It’s a video fit for a political campaign,” he said. “The formal selling of self-insurance has begun even before the state gathers the data it says is needed to make the decision.”

Lamkins, the ETF spokesman, said the agency made the video because the topic “can be confusing” yet is “simply a way to finance insurance.”

“The video is intended to increase awareness about self-insurance and how it may affect program participants, not refute different points of view,” Lamkins said. “We also felt it was important to talk about the very deliberate next steps the Group Insurance Board is taking to fully evaluate the impact of self-insuring medical claims.”

See an earlier story on why the consultants made different cost estimates

See the ETF video on self-insurance

See the draft RFP

— By Polo Rocha,