Monday, March 20, 2017

Walker self-insurance scam shows a $112 million budget hole

No doubt, the big news in the country is that, the Director of the FBI admitted that the new president*’s election campaign was being investigated for back-channel collusion with Russia. But there was another bit of news closer to home that will likely blow apart the plans of another Republican – Scott Walker.

You may recall that Walker proposed that the State of Wisconsin go away from its current competitive marketplace of health plans for its employees, and start self-insuring state workers in 2018. Bids were received by the Group Insurance Board earlier this year, but the deal still has to be signed off on by the Legislature’s Joint Finance Committee before it takes effect.

Today, the Legislative Fiscal Bureau released its analysis of the budget-related provisions on this self-insurance plan, and revealed it to be a scam which unravels a lot of Walker’s 2017-19 budget.

First of all, the Walker Administration claims that $60 million will be saved by switching state employees to a self-insured plan- $20 million for the last half of Fiscal Year 2018, and $40 million for FY 2019. That’s questionable enough, but let’s just assume it happens. The first $30 million of these savings are taken out of the Compensation Reserves part of the budget, which deals with fringe benefits like health care costs. Risky if the savings don’t happen, but no other problem there.

Here’s where things get really sketchy- the Walker Admin then DOUBLE-COUNTS these savings when it comes to increasing funds for public education. Instead of the reported figures of a $200 per-student increase for 2017-18 and $404 per-student in 2018-19, it turns out some of that increase assumes money saved from self-insurance then being funneled back into K-12 public education. Note the “ifs” in the LFB’s statement.
…if a contract to provide self-insured group health plans is executed and if there are lapses to the general fund associated with self-insurance, school districts would be eligible for an additional per pupil aid amount of $12 in 2017-18 and $24 in 2018-19. The additional $12 and $24 would not be ongoing and would only be provided if the school district met the same two conditions required for the increases of $188 and $380. The budget bill estimates that the $12 and $24 increases require $30.3 million GPR, which would be associated with the projected lapse indicated above.
In other words, somehow the Walker folks thought that they could add $30 million in health care savings to K-12....without ever counting that money in the first place. That’s not how "saving" money works, Scotty.

And it gets worse in this LFB memo, as the Walker Administration is also counting on the UW System to save money from self-insurance. UW System funding is done by a block grant that assumes all costs, including the fringe and benefit costs in the Comp Reserve. So the Walker budget simply reduced the money the UW System would get in their block grant, regardless of whether self-insurance ever saved any money.
The bill would provide funding directly to the UW System in order to support general wage adjustments of 2% on both September 30, 2018, and May 26, 2019,and estimated fringe benefit costs for employees. The bill assumes self-insured group health plan savings of $9,853,000 GPR in 2017-18 and $19,705,900 GPR in 2018-19 for the UW System. Funding for salary and fringe benefit adjustments provided to the UW in the bill are net of assumed savings, and total $126,500 GPR in 2017-18 and $11,517,900 GPR in 2018-19.The bill specifies that the Board of Regents could not request any funds from the state's compensation reserves during the 2017-19 biennium to fund salary and fringe benefit costs.
To turn that around, if self-insurance is not approved or if it results in not savings in the next two years vs the current health care system, then the UW either LOSES $17.9 million in funding and has to figure out how to handle that cut themselves, or $29.5 million will have to be added back to the UW budget to pay for those 2% pay raises for 2018 and 2019.

All of this is bad enough, and will lead to a significant hole in the budget if self-insurance is either not adopted, or doesn't lead to any of the promised savings. But there is another assumption that the Walker Administration threw into the budget involving the repeal of Obamacare. Of course that is also up in the air, and we certainly don't know what the law will look like this time next year. But that didn't stop the Walker Administration from banking on an Obamacare repeal to balance its budget.
Health Insurer Fee Savings. Under the bill, savings associated with the anticipated repeal of the federal Affordable Care Act's health insurer fee (otherwise known as a market share fee or premium tax) are accounted for separately from a decision to self-insure for group health plans. Compensation reserves for state employees other than UW System employees assume expenditure reductions of $4,082,700 GPR in 2017-18 and $8,165,300 GPR in 2018-19 associated with eliminating the fee. The amount appropriated to the UW System for compensation, described above, assumes expenditure reductions of $3,247,000 GPR in 2017-18 and $6,494,100 GPR in 2018-19 associated with eliminating the fee.
So if that health insurer fee doesn't get repealed for 2018, then that's another $22 million that we have to come up with (or cut) in order to make the numbers add up. Remember, Scott Walker's proposed budget has less than $7 million of breathing room even with all of these phantom savings baked in.

Let's add up the tab, and see what we need to put back in, shall we?

$30.44 million cut from Comp Reserves
$30.3 million to keep $200/$404 per-pupil addition to K-12
$29.55 million cut from UW funding
$12.25 million for removal of ACA health insurer fee
$9.74 million for removal of UW System health insurer fee

And we're not even discussing the economic disruptions that would be caused from layoffs of Wisconsin health insurers as the plans change to national companies, along with questions about who the providers would be. Oh, and if public employees have to pay more in premiums and/or have to add more in FSAs or HSAs, then that's going to lower tax revenues (since those costs can be written off). Oddly, those revenue effects aren't a part of this budget. Funny that.

So it looks like the roads aren't the only place where Scott Walker is relying on magical thinking to make the numbers add up in this budget.

I don't see the media jumping on this analysis too much so far (you might want to drop them a line), but I bet the members of the Joint Finance Committee will when budget hearings start in the near future.


  1. Oh, and Walker was just in Green Bay this weekend claiming the following:

    ""We believe conservatively $60 million and that's money I committed a year ago, more than a year ago, would go entirely into public education and that's what we put in this budget."

    We know from the LFB's release today that THIS IS A LIE. And it needs to be pointed out to these outstate media outlets.

  2. One follow-up. In today's meeting before LFB, it turns out the $22 million in ACA health insurer fees do NOT get paid if the state self-insures. Again, those savings are baked into the budget, meaning that turning down self-insurance creates at $22 million hole.

    Also not mentioned- what happens with the ACA's "Cadillac tax", which is still slated to hit in 2020. How would that affect the next budget (you know, the one with the $1 billion deficit)?