Panel evaluates moving employees to self-insurance

The “devil is in the details” on whether a move to self-insurance would be good for Wisconsin, a UW-Madison School of Business professor says.

A panel in Madison yesterday, organized by the faculty group PROFS, sought to explain potential impacts to faculty members.

Justin Snydor, the UW-Madison risk and insurance professor, pointed to some concrete savings that the state would see from moving its employees to a self-insured model. That includes taxes that don’t apply to self-insured plans and reducing administrative costs and profits to insurers.

With a program as big as Wisconsin’s, where premiums total around $1.4 billion, shaving off any percentage in savings “equates to real money.” But other factors are still unclear, he said.

The state’s Group Insurance Board last week voted to develop an RFP that would clear up the impacts of such a move. That’s because the two consulting firms it hired wildly disagreed on what the move would mean.

The disagreement from the two consultants, Deloitte and Segal Consulting, largely centered on whether the state would be able to keep the discounts on medical claims it negotiates with providers.

The state’s current system, Snydor said, “appears to actually work fairly well,” pointing to another Deloitte study that compared Wisconsin to other states. Segal, however, has raised concerns over how Deloitte reached its figures.

Other potential concerns include the financial risk the state could take in self-insuring employees. The system would require the state to pay employees’ medical claims directly, rather than paying insurers premiums to pay for those claims.

But the current system also includes risk for the state, he said. If employees “turn out to be sicker” than insurers projected, they will pass on excess costs to the state the following year anyway. The state employee pool, he added, is so large that it’s easy to predict how healthy they’ll be.

“As an insurance economist, I’m not overly worried about the financial risk,” he said.

The panel included Lisa Ellinger, who directs the Office of Strategic Health Policy at the Department of Employee Trust Funds, which manages employee benefits. Also on the panel was Mike Bare, the research and program coordinator for the liberal-leaning Community Advocates Public Policy Institute.

The two agreed state employees likely won’t see changes right away if the state does decide to go the self-insurance route. And as Snydor pointed out, benefit changes are “on the table in the current system, as well.”

But Bare raised long-term concerns.

“The question all of us as taxpayers probably have to ask is do we want government employees’ health care premiums competing with roads and tax cuts and schools and everything else that state government has to fund?” he asked.

Ellinger said any decisions will “come down to the results of the [RFP] evaluation,” which she will present to the Group Insurance Board in November. That decision-making process, she said, will include evaluating concerns about disrupting employees’ care or the health insurance industry.

Segal, for example, suggested breaking the state up into three regions, as well as consolidating the number of health plans the state works with to up to two in each region.

That might work in one region, Ellinger said, but another such as one including Dane County might be better served by keeping more health plans in the state program.

Those kinds of conversations, she said, are distinct from conversations relating to employee benefits.

“When we are talking about self-insuring, we’re really talking about the financial model,” she said.

— By Polo Rocha,