Rep. Jim Fannin (D-Jonesboro) has authored a bill that would alter current law by allowing Gov. Bobby Jindal to use much of the current $500 million Office of Group Benefits (OGB) surplus to help plug the gaping $1.6 billion state budget deficit.
Fannin is Chairman of the House Appropriations Committee.
Controversy has swirled around Jindal’s attempts to privatize OGB because of the manner in which the administration brought Wall Street banking firm Goldman Sachs in on early efforts to draft a request for proposals (RFP) for a financial assessment of the agency and to marked OGB to potential buyers.
Goldman Sachs, after helping draft the RFP, turned out to be the only company to submit a proposal and now stands to reap up to $6 million for its work in helping to sell the agency.
The law that created OGB stipulates that benefits for about a quarter million state employees, retirees and their dependents may be paid by any provider. That language would allow Jindal to sell the agency without the necessity of legislative approval, said a source within the Division of Administration.
Commissioner of Administration Paul Rainwater said there would be no financial impact on OGB members.
But if OGB is sold, it would eliminate about 150 jobs in the agency and would also allow any purchaser to raise premiums, reduce benefits, or both, contract with a third party administrator or re-sell OGB to another buyer. Either way, once sold, all state control of OGB would be lost.
Besides the $500 million surplus currently on the OGB books, the agency also collects about $1.1 billion per year in premiums. State Sen. Butch Gautreaux (D-Morgan City), chairman of the Senate Retirement Committee and a member of the OGB board, has made no secret of his opposition to the auctioning off of OGB.
He said if premiums are worth $1 billion and the agency has a $500 million surplus, then the selling price should be at least $1.5 billion. “I support getting rid of a state agency that doesn’t work,” Gautreaux said. “But this (OGB) isn’t costing the state. This is a great value.”
Rainwater acknowledged as much when he said the OGB $500 million reserves are an attractive selling point because the private company that ultimately purchases the agency would not have to dip into its own capital to pay claims.
He said the current surplus exists because of initiatives overseen by former OGB CEO Tommy Teague, whom the administration abruptly fired on April 15. No reason has been given by Rainwater for Teague’s firing.
Teague was only six months away from qualifying for retirement when he was shown the door.
Gautreaux said he fears that privatization will drive up costs for state workers who are already facing increased contributions to their retirement plans. He charged that Jindal is targeting state workers, who could lose their jobs if they object publicly to the sale. “I call it predatory politics,” he said. “You go after the weakest of the herd.”
Preliminary estimates indicate that whoever purchases OGB would receive about $300 million to $350 million of the agency’s $500 million surplus with the state receiving the remainder.
But R.S. 42:854(C) has stood between Jindal and his desire to reap any political hay in the form of a cash influx. That statute says, “Not withstanding any other provision of law to the contrary, any money received by or under the control of the Office of Group Benefits shall not be used, loaned, or borrowed by the state for cash flow purposes or any other purpose inconsistent with the purposes of or the proper administration of the Office of Group Benefits.”
Now, Fannin’s bill, if approved by the legislature and signed by Jindal, the governor’s signature being a virtual certainty, would change all that. Jindal’s signature, of course, would be a virtual certainty.
HB-32, already assigned to Fannin’s Appropriations Committee, reads in part:
“After satisfying the requirements of the Bond Security and Redemption Fund as provided in Article VII, Section 9(B) of the Constitution of Louisiana, the (state) treasurer shall, notwithstanding R.S. 42:854-(C), transfer into the Overcollections Fund provided for in R.S. 39:100.21, the proceeds generated as a result of the sale or other transaction by the Office of Group Benefits which has the effect of transforming its operations.
In general layman’s terms, that means the legal prohibition of using OGB funds for the state’s general budget would be removed, making it legal for much of the OGB surplus to be used by the state to plug its budget hole.
Though the two statutes clearly conflict, under rules of construction, the new statute would take precedent, or overrule the older law, according to Terry Hessick, a retired attorney for the Louisiana State Board of Private Investigator Examiners.
Hessick wrote a letter to Richard Manship, manager of the Baton Rouge Advocate, taking the newspaper to task for its lack of coverage of the OGB controversy.
The Baton Rouge paper ran a brief story on April 16 on Teague’s firing but nothing about details of the proposed sale until a week later, on April 23.
The text of Hessick’s letter:
Dear Mr. Manship:
As we edge ever closer to the anticipated privatization of the Office of Group Benefits, with its probable huge negative impact on state employees, retirees, and their dependents, I am amazed that the Advocate, as well as our local television news departments, has given little or no exposure to this potential catastrophe. As a subscriber, each morning I look for any articles on the sale of OGB, but the only thing I found recently was the announcement that Tommy Teague had been fired. The stories about this sale have been available on the internet for weeks, but not in the Advocate.
You may not think that the OGB sale is newsworthy or is of little interest, but the sale would affect about 150,000 state employees and retirees, and another 100,000 or so of their dependents, all of whom depend on OGB for their health, medical and prescription coverage. Also, the attempts of the Jindal administration to put the deal together in relative secrecy; the fact that Goldman Sachs wrote the RFP for doing the deal and was the only bidder for the services; the fact that Goldman Sachs stands to make $6 million for doing who knows what; the fact that the half-billion-dollar surplus or reserve which the OGB has accumulated would be divvied up between the state treasury ($150-200 million) and the eventual purchaser ($300 million); the fact that the OGB members and their dependents can only watch while the monies set aside to pay their medical expenses are plundered and carted off by the administration and some private party; the probability that those members will have to make up the missing monies by paying ever-increasing premiums for what can only be reduced services; and, the probability that increased premiums required by a private insurer will, in the near future, place additional burdens on the state treasury and on all Louisiana taxpayers; should induce the Advocate and other credible news sources to at least investigate, ask questions, and demand answers. In other words, send out your reporters to do their jobs, instead of sitting on this story.
To allow you to catch up with this ongoing story, I have attached several articles from the internet, including those published by TPM, louisianavoice.com, winzerinsurance.com, politicslaforums.com, and devtimessw.com. I have also attached a copy of my recent letter to the editor, which the Advocate chose not to publish. I understand that others have written letters to the editor on this subject, including the Louisiana Retired Employees Association, none of which have been published. It seems that the Advocate thinks it is more relevant to publish the endless bickering about the Baton Rouge to New Orleans passenger railway, which is unlikely to be funded or built in our lifetimes, than to publish letters which would bring to the attention of your readers an event which will impact the lives and health of a quarter of a million Louisiana citizens.
I do not know why the Advocate has chosen to ignore the privatization (sale) of OGB unless it fears the wrath of the Bobby and his henchmen or it actually approves of the disservice which this administration is doing the state employees. For many years, the New York Times has had as its motto, “All the news that’s fit to print.” Maybe the Advocate should adopt a similar motto: “All the news that’s SAFE to print.” I am disappointed in the Advocate.
Very truly yours,
Terry F. Hessick
Attorney at Law
Retired State Employee
Louisiana Voice 
You wrote above “The law that created OGB stipulates that benefits for about a quarter million state employees, retirees and their dependents may be paid by any provider. That language would allow Jindal to sell the agency without the necessity of legislative approval,”
I disagree with your conclusion. I would interpret this in the same way that Medicare can opt to have a third party assume the liability to pay participant claims under the Medicare Advantage program. Medicare remains primary in the event of default by a third party and the third party is directed by Medicare as to what minimums their plans must offer. Thus, Medicare remains as a viable entity regardless of who is paying claims and it is the rule making and primary plan administrator.
Thus, OGB can contract with third parties to conduct the day-to-day plans and operations of the primary OGB plan, but that by no means constitutes the elimination of OGB as the primary Medical Care Provider for all involved plan participants.
All Jindal and Fannin and others of like mind can do is dabble in the operations of OGB, but they cannot disolve OGB nor move current escrow funds ($500+ million) to the State’s General fund.
Everyone involved MUST understand Medicare Advaantage plan operations and then apply that same logic and understanding to the OGB plan.
Mr. Sachs, you can interpret it any way you want, the language in the bill is self-explanatory. The proceeds from the sale of OGB wil be transferred into the Overcollections Fund, which makes it State General Fund-equivalent and makes it available to be used any way the administration and the legislature see fit. And there is no equivalence between OGB and Medicare. I don’t know where you are getting that comparison from but it is apples and oranges.
It wasn’t my conclusion, John. The statement is attributed to a state official. I merely reported what he said. I would hope that you are correct and that our state leaders would not be that short-sighted.
Do you know of any attorneys willing to file a class action suit in support of state employees? Maybe Tommy can take the lead on this or find somebody who will.
Tommy Teague is an attorney. But to answer your question, there are any number of attorneys who would be willing to file a class action. The question should be are there any plaintiffs willing to initiate the action? An attorney would need only one person to step up and volunteer to serve as the lead plaintiff to represent a class of plaintiffs. Of course a judge would have to grant class status, but that should not present a problem. Any member of Group Benefits could do that for certain and perhaps even a concerned citizen who is not a member of Group Benefits but who wants to protect the public fisk. Disclaimer: the above statements are not meant to be interpreted as legal advice, just observations.
I’d be happy to stand up for the OGB. What do I do?
There are so many things wrong with this picture. Ethics……What ever happened to a good code of ethics? This action just goes along with Gov. Jindals violation of his own promise when he campaigned…which was to support and protect state employees.
When something is going right in state government why would you want to mess with it? When you have an employee that is doing a good job, why dismiss him?
When you have so many dedicated state employees, why destroy them?
I believe someone will step up to file against the action being taken with OGB.
The way this was handled is a slap in the face to all the people of Louisiana and if this is going on then what else is happening that we have not found out about yet?
Jindal does not care about anyone but himself and lining his pockets. He wants to show that he can balance the La. budget no matter whose toes he steps on and who’s jobs he gets rid of. He wants to look good when he runs for President and we all know that is his goal. Why would he go out of state all the time on taxpayers dollars to do fund raisers.
If he would stay in Louisiana long enough he would see that OGB is running very smoothly. It is sad that all he wants is our surplus money for a short term fix. I work for OGB and Mr. Tommy Teague was the best CEO we ever had. I have been with this agency for over 25 years and our agency is in the best position we have ever been in. Now he wants to privatize our agency and all of the employees that have helped OGB get where it is today will be out of a job just like Mr. Teague.
Why if it is not broken does he need to try and fix it? For his own personal gain is the only reason…to use some of the surplus money to balance his budget.
Look out retired and active employees! Your health insurance premiums will be going up if a private company takes us over because they will be out for a profit.
Talk to your Legislatators and help them see that the surplus money to help the La. budget will be a one-time, temporary fix (like a band-aid) but will be drastic in the long run.
this would make health insurance unaffordable for retirees without medicare. Heck it would be unaffordable for everyone. How can we stop this. And to throw Tommy out; that was a horrific mistake. He is dedicated, loyal and honest and the governor and legislature don’t want those kind of people in charge. Tommy, the Lord is with you and all will come out well. What can us retirees do to help?
I think I will be contacting an attorney about a class action lawsuit. If there are any others out there who want to join, contact the attorney when or if it hits the press….or maybe Mr. Aswell can help us connect.
LEAVE OUR HEALTH INSURANCE ALONE!!! The last time they tried this the Edwards adm. went to jail for stealing our monies. How do we stop this?????
2angels,
I will join you.
In the meantime, ALL state employees, active and retired (are teachers with OGB?) need to write their legislators. THIS IS CRITICAL. You will not lose your job. This is not a campaign. You can speak up about this. PLEASE do not be intimidated or apathetic! Only a couple thousand people voted in the civil service election (I voted for Tom) . . . C’MON!!! WAKE UP!!! If not, then don’t complain when you are paying more for less. Your retirement is next!!!!
Yes, some school boards (teachers) are in OGB.
Do I understand this correctly?
R.S. 42:854(C) has prevented our Governors in former cash-strapped years from taking possession of OGB reserves to add them to the State General Fund.
However HB 32 as filed in this Regular 2011 Legislative Session would transfer into the Overcollections Fund (and thus to the State General Fund) the proceeds of an OGB sale.
HB 32 is the Appropriations Bill but it includes a special clause about the Overcollections Fund and OGB:
“…the proceeds generated as a result of the sale or other transaction by the Office of Group Benefits which has the effect of transforming its operations.”
It is expected that the OGB sale price would account for the surplus OGB funds formerly protected by R.S. 42:854(C).
Thus, the sale price, exceeding but including an amount equal to the OGB surplus, would be placed into the State General Fund.
To me this means the existing legal prohibition of using OGB funds for the State’s general budget shortfall would be removed, gutted by HB 32 (at page 5) making it legal for the OGB surplus to be used by the state to plug its budget hole.
Do I understand this correctly?
I do believe you understand the situation correctly. HB-32 would invalidate the current law that prohibits the looting of the OGB surplus, or as some in the industry would more properly call it, the escrow.
Senate Retirement Committee is holding a meeting this morning at 8:30 AM regarding the possible sale of OGB. I’ve already submitted my leave request so I can attend and ask questions!!!!!
Given the gov’s campaign promises re: state workers, I can’t believe that we are so foolish as to vote for him next time. If state workers (including the powerful teachers’ unions/membership) vote en masse against any legislator voting for this bill of for Jindal, this would speak volumes. It’s also the only language they understand.
This whole administrations ideas are out of touch with what we need. Governor Jindal has eliminated thousands of state jobs, wants to eliminate more, take the health insurance that people worked hard for and leave us with nothing. If he wants ideas on how to balance the budget, call me. I would be happy to help…..