The Senate Retirement Committee held its third consecutive week of public hearings on the Jindal administration’s proposed privatization of the Office of Group Benefits (OGB). The only things missing were witnesses and a second request for proposals (RFP) that was substantially different from the first.
Commissioner of Administration Paul Rainwater, Deputy Commissioner Mark Brady, and new OGB CEO Scott Kipper all were no-shows for the hearing, choosing instead to snub their noses at legislators.
Rainwater, who already has been grilled by legislators during the first hearing two weeks ago, vowed to staff members that he would not attend another of the hearings being conducted by committee Chairman Sen. Butch Gautreaux (D-Morgan City), according to sources within the Division of Administration (DOA).
Mark Brady has not attended any of the hearings and Kipper reportedly has been told to stay away from Gautreaux’s committee meetings.
Only DOA Chief of Staff Dirk Thibodeaux bothered to show up for the administration. The only other witness was former OGB CEO Tommy Teague, who testified at length on the history of OGB, the latest RFP which appears to conflict with testimony by Rainwater last week, and of the disadvantages of privatizing the agency or contracting with a third party administrator (TPA).
Teague also disputed administration claims that privatization of OGB would save the state some $10 million per year be reducing the number of OGB employees by half.
The latest RFP was released late last Friday and if anything, appears to reinforce the administration’s determination to sell OGB outright despite claims to the contrary by Rainwater a week ago who said the state would retain control of OGB. “At the end of the day,” he told the committee last week, “we will still have the Office of Group Benefits with 149 employees.”
Teague’s testimony, however, shed considerable light on the language of the RFP that he indicated was misleading and which he said provides insights into the administration’s not-so-well-hidden agenda to keep certain information from the public as well as possibly forestalling any financial audits for a period of three years after signing of a contract with a financial advisor.
He said OGB was created in 1969 by executive order of then-Gov. John McKeithen. “Up to then, each agency more or less shopped for its own health coverage,” he said.
Nine years later, in 1978, OGB was sold. “Overnight, state employees became employees of AdServ Corp., a California software company,” Teague said. “One day they worked for the state and the next day for an out-of-state company.”
The following year OGB was brought back in-house and placed within the Department of the State Treasury and in late 1979, an executive director was hired.
In a scenario that has become all too familiar of late, an employee of the California company testified before the Appropriations Committee and the next day was fired, he said. “Of course he was immediately re-hired by OGB,” Teague said.
Teague’s wife, Melody, was fired in October of 2009 one day after testifying before the Commission for Streamlining Government but it took her six months to get her job back. Then, less than a month ago, on April 15, Teague himself was fired as OGB CEO by Brady. Rainwater attributed the decision to Teague’s lack of leadership even though the agency flourished under his six years as director.
Teague said in late 1980, the decision was made for OGB to go self-funded. “That means that OGB was on risk for all claims,” he said. “With a TPA, you simply pay a third party to answer the phones. The state is still on the hook for risks.”
He said it has taken OGB 30 years to build a network that now includes contracts with every hospital in the state except one. “The most critical component of a TPA is to assess the value of their discounts with medical providers. But all discounts come back to OGB. The TPA is simply paid an administrative fee,” Teague said. “OGB pays the TPA a per employee fee each month, in this case, we pay Blue Cross/Blue Shield $26 per month per employee member.
“With OGB, there are no taxes and no profit and there is no need for a TPA because we have already built our network,” he said.
Teague said he first to OGB in 1980 as an OGB attorney. “I was with the department for eight years and was acting director for one-and-a-half years,” he said. “In early 1990 I was named special counsel for the board and helped set up the PPO network. I left in 1995 to run the Pennsylvania state plan.”
He returned to OGB as CEO in 2006 when former Gov. Mike Foster moved OGB back under DOA. DOA took all power from the OGB board and now it only serves in a planning and policy capacity and the CEO served at the pleasure of the governor.
He said that prior to 2006 OGB was fully insured by Ochsner Health Plan, meaning the insurer (Ochsner) assumed all risk.
“When I was named CEO in 2006, there was a negative fund balance of $36 million,” he said. “As a result of becoming self-insured, we now have a $520 million fund balance because we beat the actuary projections every year.
“Had we stayed with the fully-insured plan in 2006, we would not have the fund balance we now have.”
Teague also debunked the $10 million in savings that Rainwater said the state would realize with the reduction in payroll that would accompany privatization. “We already pay Blue Cross $26 per member per month. A similar arrangement for a Preferred Provider Organization (PPO) with its 41,825 actual employees and retirees would more than offset the $10 million savings realized by cutting staff,” he said.
Sen. Ben Nevers (D-Bogalusa) asked about the other states cited by Rainwater as being more efficient than Louisiana by providing benefits to more people with lower costs and fewer staff but Teague was quick to say it is impossible to fairly compare Louisiana to other states “because we don’t know what the other states are providing. We’re not really seeing what it costs other states. OGB, for instance insures levee boards 50 school systems.”
He said OGB deals with 110 different payroll systems and various commissions. “OGB does a big part of the TPA work because only OGB can. A fully-insured plan is always going to cost more and OGB has some of the best contracts out there right now because of the network we’ve established over three decades.”
Teague questioned the intent of the administration when he said, “If you’re going to remain self-administered and the $520 million fund balance is staying as Mr. Rainwater claimed last week and if you’re looking for a TPA to administer the program, then why do we need an RFP to assess the benefits of OGB? It’s irrelevant. If you need a TPA, why do you need to know the net worth?
“The RFP attachments are all OGB financial statements. A TPA doesn’t need to know the financial statement. A TPA needs to know the monthly call volume, the monthly claim volume, monthly correspondence volume, how eligibility is transmitted, and the vendor payment schedule. The net worth is immaterial.”
“You would want to provide that if you were looking for a buyer,” Gautreaux interjected. “I asked Mr. Teague here today because I don’t understand why we need to hire a financial advisor to contract with a TPA.”
Teague also said one part of the RFP grading system for bidders said cost of services would be worth 25 points but in another section it said the lowest cost proposal would be awarded 30 points. “Which is it?” he asked.
He said the current RFP also left unanswered several questions about when proposals would or would not become public record and that the wording of the RFP would appear to prevent the legislative auditor from examining records for a period of three years following the signing of a contract with a financial advisor.
“It’s really not clear just when the legislative auditor would have immediate access to records,” he said.
Legislative Auditor Darryl Purpera last week testified that Rainwater had refused to provide documents that Purpera’s office is constitutionally entitled to have in order to conduct proper assessments.
The latest version of the RFP was written completely in-house with no assistance from outside as was the first version when Goldman Sachs was heavily involved in the drafting of that document.
The new RFP, however, contains no fewer than four separate references to the sale of OGB and bidders’ experience in sales.
It also provides that OGB’s acting actuary, personnel in the governor’s office, DOA, and the Office of Contractual Review may review any of the proposals and that if contract negotiations exceed 15 days, OGB may cancel the award and award the contract to the next-highest-ranked proposer. Extension of this and other deadlines may be extended at the discretion of OGB.
Conceivably, if the administration does not want the contract to go to the highest-ranked bidder, it could draw out negotiations beyond the 15-day limit as a ploy to awarding the contract to the next-highest-ranked bidder.
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