Louisiana Voice

Commissioner of Administration Paul Rainwater told the Senate Retirement Committee at least half-a-dozen times last week that Louisiana was “one of only two states” to run a completely self-funded Preferred Provider Organization (PPO) that pays claims exclusively from premiums paid in by members who are state employees or retirees.

Rainwater also said the elimination of 149 jobs that would occur if the Office of Group Benefits (OGB) is privatized would mean a savings of about $10 million to the state.

Both comments bear closer scrutiny.

Yes, Louisiana is indeed “one of only two states” to have a fully-funded PPO. Utah is the other.

But what Rainwater failed to say was that virtually all states self-fund at least one employee health care plan. So says the National Association of State Personnel Executives (NASPE) in its July 2010 white paper on the “Challenges and Current Practices in State Employee Healthcare.”

Researched and written by Katie Meyer, Colleen Schlect, and Betta Sherman of the University of Chicago, the publication also directly contradicted claims by Rainwater (and Jindal), that privatization would be more cost efficient than the PPO plan presently being run by OGB.

Quoting “Combined Public Employee Health Benefit Programs,” a March 2010 health care containment and efficiencies brief for the National Conference of State Legislators, the NASPE publication said self-funded plans “can typically save between five and six percent in administrative costs relative to fully-insured plans.”

Rainwater has insisted that the state’s PPO which now operates at a 3.5 percent administrative cost—not paid by the state’s General Fund, but out of premiums collected from members—could be improved upon by a private company even though he admitted in last Tuesday’s committee hearing that private companies generally experience administrative costs of 10 to 15 percent and some even as high as 20 percent.

Several members of the Retirement Committee, including Chairman D.A. “Butch” Gautreaux (D-Morgan City) had some difficulty with the math in Rainwater’s claim.

The “other” of the two states that presently have fully-funded PPOs is Utah and that state’s program has administrative costs of about 4 percent, according to agency Director Jeff Jensen.

Rainwater also did not mention that other states are moving in the direction of self-funded PPOs—a contra-flow, as it were, to the direction Jindal and Rainwater are attempting to force the state health benefits program.

So, what is it that Jindal and Rainwater know that other states do not? Or, rather, what is it the other states know that this administration refuses to acknowledge?

Here’s what some state administrators have to say about self-funded programs—programs like Louisiana’s that Jindal is trying so desperately to sell:

“In return for assuming risk, we get rewarded from favorable experienced, said Frank Johnson, Executive Director of Employee Health & Benefits for the State of Main. “Being self-funded allows us greater flexibility in terms of benefit design and collaborating with providers in partnerships.”

Debbie Cragun, Human Resource Administrative Director for the State of Utah, says, “You are potentially looking at hundreds of thousands, if not millions saved by going self-funded from fully insured.

Anne Timmons, Director, Employee Benefit Division for the State of Maryland, said cost trends have been below the national average and self-funding has been a major benefit. “If we were fully insured, our costs would be significantly higher,” she said.

Paula Fankhauser, Employee Benefits Administrator for the State of Nebraska, said her state’s plan is sufficient self-funded now that that was not always the case. When it first transitioned to self-funding, it did so with sufficient financial resources. “The state was literally waiting for employees to pay their premiums so we could pay their claims,” she said. A major legislative overhaul of the program rectified those problems and Nebraska now boasts a positive account balance that can cover all claims under virtually any circumstance, she said.

Doug Farmer, Deputy Director of the Kansas Health Policy Authority said that state re-evaluates its program on an annual basis. “Every time we re-examine it, we come to the same conclusion,” he said. “When you have the resources to manage your own pool the size of a state, it is a benefit to be self-insured.”

The NASPE study also said that among self-funded states, there is generally a higher level of satisfaction with current funding practices and claims payment. And most state officials seem to agree that self-funding health plans affords greater flexibility in terms of design and administrative cost-savings.

For example, self-funding has helped states implement wellness programs. “Being self-funded provides an incentive to implement wellness programs, since we pay the bills while someone else does the implementation and day-to-day management of the program,” said Daniel Hackler, Director of the Indiana State Personnel Department.

As for the elimination of those 149 jobs creating a $10 million savings to the state, Rainwater also forgot, or neglected to mention that those 149 salaries do not come out of the state’s General Fund. They are paid from the premiums paid by state employees and is part of the agency’s 3.5 percent administrative costs.

And any OGB surplus, by law, “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.”