Gov. Bobby Jindal’s attempt to sell the Louisiana Office of Group Benefits (OGB) appears to have been sidetracked for at least 60 days, a Senate committee was told in Baton Rouge on Tuesday.
Commissioner of Administration Paul Rainwater attributed the delay to the necessity of drafting a second request for proposal after negotiations with Wall Street banking firm Goldman Sachs bogged down.
A parade of current and former state employees, including one active and one retired state district judge made known their opposition to the proposed sale of OGB to the Senate Retirement Committee here Tuesday.
The committee, chaired by State Sen. A.D. “Butch” Gautreaux (D-Morgan City), heard testimony for more than two hours and, as Gautreaux noted on two occasions, no one present asked to speak in favor of the sale of the state agency that provides medical coverage for 220,000 active and retired state employees and their dependents.
Rainwater, Division of Administration spokesman Dirk Thibodeaux, and newly-appointed OGB CEO Scott Kipper attempted to explain the rationale behind Gov. Bobby Jindal’s desire to place OGB on the auction block in an attempt to garner up-front money to help close a projected $1.6 billion for Fiscal 2011-12.
Members of the committee, along with several state representatives who sat in on the proceedings peppered Rainwater with questions about promises that the sale would not adversely affect OGB members. Those questions were met with vague, indecisive responses that frustrated Gautreaux and at least one member of the House.
State Rep. Rogers Pope (R-Denham Springs) at one point referenced a popular television show to express his frustration at Rainwater’s evasive answers.
Pope, a retired school administrator, is a member of OGB, and asked at one point, “Did I not hear it said here this morning by Mr. Kipper that OGB has a very low administrative cost, like 3.5 percent?”
“That does not mean a private provider cannot do it better,” Rainwater said, adding that the purchase contract would likely stipulate a limit on premiums for five years.
“What happens after five years?” Pope asked. “You and I won’t be here and we both know that. I also heard you say that this has never been done before. Is this (the proposed sale) a trial balloon?”
“We won’t know that until we sit down to negotiate a contract,” Rainwater said.
“Well, if there is no supporting data, how did you analyze this to reach your conclusions?”
“We just think it makes sense to look at something different and more efficient,” Rainwater said.
“You need to be on Dancing With the Stars,” Pope quipped.
State Rep. Hollis Downs also sat in on the proceedings and asked a number of insurance-related, technical questions.
Both Rainwater and Thibodeaux conceded that a private provider would probably have administrative costs of at least 10 to 15 percent because of the need to realize a profit on its investment as well as tax liabilities not faced by OGB.
Rainwater said on at least three separate occasions that there would be “no negative impact on those covered” by OGB but made no mention of any possible impact on any future state employees not now covered.
He said that Louisiana and Utah are the only two states in the U.S. that have their own state administered PPO.
Rainwater said there has been much misinformation bantered about in recent weeks that reports took on the flavor of “a John Grisham novel.” He said the confusion may have cost the administration its opportunity to sale OGB and to involve smaller companies in the process. He denied that Wall Street banking firm Goldman Sachs had any input in the drafting of the recent request for proposals for a financial advisor to do an assessment of OGB and to market the agency to potential buyers.
“Unfortunately, we did not finalize the contract with Goldman Sachs. We have since notified Goldman Sachs that we will not issue a contract because we could not agree on terms,” he said.
Capitol News Service reported last week that it was Goldman Sachs that pulled out of negotiations after the state refused to indemnify Goldman Sachs from any litigation stemming from the sale of OGB.
Gautreaux and fellow Retirement Committee member Sen. Ben Nevers (D-Bogalusa) tag-teamed Rainwater in attempts to learn how the administration could guarantee that state workers would be protected from increased premiums and reduced benefits.
Efforts to elicit guarantees met with only general, vague responses. “We would only negotiate a contract that would favor state employees,” Rainwater said at one point. “We’re not going to create a plan that causes a spike in premiums.”
Rainwater also said there was a “high probability” for reduced claim costs. He said that while 149 OGB jobs would be eliminated, the administration was trying to be creative in its efforts to protect employees.
“There’s nothing creative about selling something,” Gautreaux said. “The state is in the education business and we’re in the hospital business.”
“We’re addressing education with charter schools in New Orleans,” Rainwater said.
“Your belief is not universal as to any improvement in education with your charter schools,” Gautreaux interrupted.
Gautreaux also revealed his growing irritation at his inability to elicit answers to specific questions when Brady, Rainwater, and Kipper repeatedly said they did not have information at their fingertips but would get back to him with it.
“Each of you has a letter from me that I sent notifying you of this hearing. In that letter, I instructed each of you to have this information available today and to have someone here who could address these questions,” he said. “Did you bring anyone with you who has this information?
When told no one was there, he then told Brady, “I want you to get up, go out in that hallway, and call someone who has the answers to these questions. And I want you to get them over here now.”
At one point in the questioning, Rainwater told the committee, “It’s clear in the statute that the Division of Administration has the authority to move forward.”
The law creating OGB does provide that the agency may be sold by the governor without legislative concurrence. But to execute the sale, DOA would need to contract with a financial advisor to assess the value of OGB in order to attract an accurate bid on its purchase.
Any contract with a financial advisor, however, would need legislative concurrence, a point not lost on committee members.
Also testifying before the committee were Judge Bob Morrison of the 21st Judicial District (Livingston, St. Helena, and Tangipahoa), representing the State District Judges Association, retired Judge Ronnie Cox, vice president of the Retired Judges Association, Fred Foret or the Retired State Employees Association of Louisiana, former OGB CEO Tommy Teague, his wife, Melody Teague, and James Taylor, president of the Retired Teachers Association.
Cox said the retired judges were unanimous in their opposition to the sale of OGB because OGB pays claims within 48 hours and the judges are satisfied with the service provided by the agency.
Foret pointed out that Teague took over OGB when it had a $100 million deficit and took it to its current $520 million surplus. “He must have been doing something right,” he said, “so they fired him.”
Teague was fired from his position on April 15. He said no reason was given him by Brady when he was terminated.
Taylor, whose organization has 22,000 members, said he first became aware of the intentions of the administration to sell OGB last fall “before it was even an issue when I began getting phone calls from Ruston retirees.”
He said his membership “is satisfied that this effort is not based on sound judgment. My members are not interested in efficiency if it’s not effective.”
He said a private company would necessarily be driven by profit. “Why change on of the most effective operations in state government? Some of us are too old to buy hope,” he said. “They tell us they’re going to take care of by ‘writing it into the contract.’ I know better than that. I’m also an attorney and I’ve read too many contracts to fall for that line.”
“What’s the rush?” asked Morrison. “The money from the sale is not even in the administration’s proposed budget, so it’s not going to help this year. Title 42.854(C) says in clear terms that money from OGB may not be used for the general fund. That’s the law.
“Now comes HB-32 which would direct the state treasurer to divert any OGB surplus into the general fund. If you amend HB-32 to delete those four lines, we will have time to study this more thoroughly.”
As testimony wound down, Nevers said he hoped there would be “full legislative debate” before executing the proposed sale.
Nevers asked Rainwater when a new RFP would be issued.
Brady said a final draft was expected “within a few days.”
“Did you have any consultants working on the draft?”
“No, it’s being done in-house,” Rainwater said.
“When will it be available?”
At that point, Gautreaux jumped into the discussion. “What part of this process don’t you want known?” he asked. “What are you keeping from us? What’s the secret?”
“We will do this under Office of Group Benefits rules,” Rainwater answered.
“What part of this RFP will have legislative oversight?” Gautreaux then asked.
“What RFP has ever had legislative oversight?” Rainwater said.
“Thank you,” said Gautreaux.
When Rainwater tried to say that he did not know of a single state that does not provide benefits, Rep. Jack Montoucet (D-Crowley) shot back, “Wisconsin. Ohio,” in apparent reference to controversies that have swirled around employee benefits in those states in recent months.
“You’re going to do a study after you do the RFP? Maybe you don’t need an RFP to see that you have $500 million in the bank. You don’t need an RFP to know that OGB has been doing a good job,” Montoucet added.
Gautreaux expressed his skepticism of Rainwater’s promise to protect OGB members in any contract negotiated. “I’ve looked at a few contracts in my day. The state’s contract with the Saints is a good example of the state’s ability to negotiate,” he said of the contract that obligates the state to pay the Saints millions of dollars per year to keep them in New Orleans and the state’s questionable contract to lease office space from Saints owner Tom Benson at rentals considerably higher than agencies had been paying.
“The way I see it,” Gautreaux said, “we’re gonna take the best run agency in the state and sell it and fire the man who made it the best run agency. We’re moving forward with moving forward, as near as I can see it.
‘I find it curious that the CEO who did such a great job is now on the street. I am at a lever of extreme dissatisfaction. This is not our last meeting on this,” he said.
“You talk about transparency but I haven’t seen that. The public is not satisfied with this proposal. There is no public support for what you’re doing. We are going to turn the fire up even more until we get to the bottom of this,” he said.