Tuesday, June 13, 2017

Self-insurance scam to die on Thursday. Not a moment too soon

We already knew that even Scott Walker’s fellow Republicans on the Joint Finance Committee weren’t planning to go along with Scotty’s scheme to self-insure state employees. But some others that may be wavering have a fresh bit of evidence ahead of Thursday’s JFC meeting.

That’s because the Legislative Fiscal Bureau took a deeper look at Scotty’s plan, compared it to reality, and says that “several calculation errors were identified.”
Specifically, errors resulted when estimated ACA and self-insurance savings for all expenses of group health plans administered by the Department of Employee Trust Funds (ETF), including local plans and contributions from retirees and employees, were converted into the amounts of GPR savings that would be realized by state employers. In total, savings were overestimated by approximately $16.8 million GPR over the biennium (difference of $0.1 million shown in Table 4 is due to rounding). Table 4 shows the overall GPR funding that was reduced under the bill and a reestimate of the amounts based on a corrected application of budget allocations: 36.9% is equal to the state employer share of total program costs noted previously (81.8%) multiplied by the percentage used by the administration to budget for state employer GPR expenses for health insurance (45.1%). As shown in Table 4, the bill estimates were based on Segal's midpoint projections of savings. [Segal Consulting is the GIB's consulting actuary for health benefit programs.]…

8. Corrected figures for the Governor's recommended budget provisions, which are based on Segal's calculation of the ACA health insurer fee and self-insurance savings as well as DOA's budget allocations of GPR funding for state employers, are provided in Table 5 below. Amounts are separately indicated for compensation reserves and the UW System. It should be noted that the figures in Tables 4 and 5 only represent a correction to the bill's calculations based on assumptions of the state's actuary and the administration. The figures do not represent projections or assumptions made by this office. If the Committee approves the Governor's recommendation to self insure and adopts the administration's estimates, an additional $16,832,400 GPR over the biennium would be needed.
OOPS! Looks like Scotty’s scheme will require nearly $17 million more in taxpayer dollars to add up. Then add in another $2.2 million in stop-loss insurance that may be prudent to avoid having to pay massive medical bills, and the total additional money becomes $19 million! Not a good thing when Walker’s 2017-19 budget had only $12 million in breathing room to start.

Also, this jeopardizes the last $30 million of Walker’s proposed increases to K-12 per-pupil aid, as that was based on the state lapsing $30 million of the self-insurance savings, and then adding that $30 million to the K-12 totals. That majority of that $30 million now wouldn’t be there to send to K-12, and it’s hard to see a source of funds where they come up with the difference.

In addition, Walker’s Department of Administration estimated that staying with the old system would result in a 10.4% increase in premiums over the next 2 years, which helped to explain the “need” for the switch. The LFB says that would be above than recent history indicates.
Final premium increases for calendar years 2009 to 2017, which would include any cost shifts to employees or draw-downs of reserves, averaged 3.7%. The only years in this period in which significant draw-downs of reserves and cost shifts to employees did not occur were 2011 and 2017. The average preliminary bid increase for these years was 7.5%, and the average final premium increase was 4.0%. Additionally, based on information in Table 6, negotiations with participating health plans reduced estimated premium expenditures by $19 million to $56 million each year (approximately $31 million annually on average). State health program reserves were used in seven of nine years to reduce program costs. Due to the dynamic nature of negotiations, health program reserves, and other factors, it is difficult to predict the final percentage increase in health program expenses.
To further keep costs to taxpayers down, LFB notes that legislators could choose to tap the reserves in the state health program, which current total $144.0 million, and well into the safe zone where some of that money could be taken to cushion premium increases.
The Group Insurance Board approved a program reserve policy in August, 2011, recommended by the state's health program actuary at the time, Deloitte Consulting, to maintain a fund balance that equals 15% to 25% of the sum of: (a) 100% of annual self-funded medical claims; and (b) 20% of annual fully-insured medical claims. The policy has not been modified since its adoption in 2011. Table 7 provides the actual amounts of year-end reserves (2016 figures are unaudited) for the past five calendar years and the estimated amount of year-end reserves that would correspond to the Board's reserve policy based on actual or estimated medical claims expenses for the same years. As shown in the table, as of the end of calendar year 2016, program reserves were $18.4 million greater than the maximum 25% medical claims benchmark and $68.8 million more than the minimum 15% medical claims benchmark.
So if the Joint Finance Committee chose to take enough reserves to get down to that 15% minimum level, the costs to taxpayers to stay in the current system would be $1.4 million less than what it would cost to self-insure ($3.6 mil if you include the stop-loss insurance).
And if the anti-Obamacare Walker Administration want to claim that self-insurance keeps the state taxpayers from potentially paying some of the ACA’s fees that are scheduled to hit (which LFB has estimated down to $21 million)? That theory seems pretty damn stupid, since we have no idea what the ACA will look like (or what any replacement might look like, since the GOP Senate is hiding it from the public), so why would we have those potential fees even enter in the equation?

Thankfully this dog of a self-insurance scheme is going to be put down tomorrow before we find out about more hidden costs and overstated savings. But again we see more money going out the door to cover things when we don’t have any funds coming in to replace them. Even scarier, dealing with self-insurance and Corrections (Thursday’s main topics) are the “easy” items left for JFC. The real train wrecks are yet to come.


  1. I'm pleased the reserves are in such good shape, but I think we should keep that fund near its top limit. We're in good times at the moment. There will no doubt be a greater need down the line.

    I'd be surprised if government employees don't see a significant premium bump next year to help fill the hole. It's an easy well to tap for the Gov and Leg, and with the manufactured crisis of Obamacare premiums in the news, they really won't pay any political price for doing it.

    In the end, it will likely cost me more, but I think the state's health care market will be better off with self-insurance off the table.

    1. Largely agree with all of this. When I mention "premiums", those are split between state taxpayers and state employees, so legislators can decide how much they want to shift onto employees as a result.

      I'm counting on paying more, but it beats getting jacked by self-insurance in a couple of years