The state could save millions and exert more control over health benefits for state workers if it self-insured them, but administrative costs could increase and the risk for large medical claims could be substantial, a new state report says.
Consultants have said self-insurance could save $42 million a year or cost $100 million more a year. The new report, by state officials, says the current health insurance program for state workers, which uses 17 HMOs, saves an average of more than $30 million a year through competitive bidding.
The new report, by staff at the state Department of Employee Trust Funds, will be presented Wednesday to the Group Insurance Board, which oversees the $1.4 billion health benefits program for 250,000 state and local government workers and their family members.
The board is expected to discuss bids from companies seeking to participate in a self-insurance program in closed session Wednesday and act on the matter publicly Dec. 13. A move to self-insurance would then go before the state Legislature’s Joint Finance Committee.
The move could take effect in 2018. The Wisconsin Association of Health Plans opposes the idea, and other groups including the Wisconsin Hospital Association and the Wisconsin Medical Society told Gov. Scott Walker this month to consider how the change could impact the state’s health care market and economy.
Currently, nearly all state workers and dependents, almost 100,000 of whom are in Dane County, are covered by the 17 HMOs, which receive premiums and accept the risk for claims.
Under self-insurance, the state would pay benefits directly and take on the risk. One or more companies might help administer the program.
By switching to self-insurance, the state could avoid an Affordable Care Act fee and an insurance risk charge, which compensates insurers for taking on the risk of health benefit costs, according to the new report. The report acknowledges, however, that “recent political events have called into question” the future of the health law and its fees.
The report doesn’t quantify the potential savings from insurance fees, but a previous report by Segal Consulting said the state could avoid $18 million a year in Affordable Care Act fees by shifting to self-insurance.
Self-insuring could also allow the state to save more money through wellness and disease management initiatives, the new state report said. “Because (self-insuring) employers bear the financial risk of claims cost, they also receive all of the rewards when they are better able to manage their claims cost,” the report said.
Administrative costs by companies that run self-insurance programs generally are less than those charged by insurers, but the state’s own administrative costs could rise because more staff would be required, the report said.
Other concerns about self-insurance include assuming the risk for state workers’ relatively high disease burden. About 64 percent of state workers have chronic medical conditions, compared to 50 percent of workers nationally.
“The full amount of this risk will be borne by the state” under self-insurance, the report said.
Legal liability also could increase, and insurance companies may not be able to pass on certain savings as much if they’re acting as administrators and not insurers.
In the current system, HMOs submit bids each year. Those with the lowest bids — and to some extent, those with the best quality scores — are assigned the lowest premiums for employees. Health plans can lower their bids to move into the favored status.
Over the past nine years, the state has saved $283 million through the bidding process. “The current structure has served as a powerful negotiation tool,” the report said.
However, the current program is hard to administer because it involves so many insurers, and the state has little leverage to influence health plans for which state workers make up a small percentage of members, the report said.