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Reports confirms desirability of pursuing privatization

The news about the possible privatization of Louisiana’s Office of Groups Benefits’ health care offerings to state employees and retirees, courtesy of a report issued by the Legislative Auditor is … there’s no news. But between the data it presented and other information omitted, continued pursuit of this option must proceed.

The report, requested by the Legislature, piggybacked on another study compiled months ago, which was supposed to have been kept confidential among state policy-makers until leaked by a state senator (Senate Insurance Committee chairman and past failed lieutenant governor candidate Sen. Butch Gautreaux has been raving against the idea from the start). Therefore, much of it contained nothing new.

Thus, it dutifully repeats that the business could yield the state up to $217 million as a one-time bonus, deriving from granting a non-government insurer the ability to earn money off the administration of the state’s Preferred Provider Organization – in other words, turning it into a similar arrangement as with the state’s Health Maintenance Organization where the vast majority of employees and retirees already have their insurance.
A small number of them have enrolled in plans that actually are connected to the state only in that OGB acts as a pass-through for premium collection, but are self-insured totally by third-party operators.

It also reiterates state law that the reserve fund for the PPO, now in the neighborhood of $500 million, would have to be used for solely for health insurance purposes, although it adds that this law may not restrict the sale or lease proceeds. In addition, it reviews the several parts of the process where legislative approval of some kind must occur, and that contractual arrangements would have to be put into place in order for the state to maintain sufficient cost and quality control. Again, none of this is new.

Nor were its conclusions about costs and benefits of such a move. Really going out on a limb, the report notes expenses could be higher than if government runs the PPO, but that they also could be lower because the job likely is to be done more efficiently. Aside from this astoundingly precise formulation, the only mention of cost figures comes from reported expenditures considered administrative, and a budgeted figure for personnel reductions in OGB presumed to apply if privatization occurs.

No mention was made that PPO premium rates historically have averaged roughly five percent higher than those of the HMO for what legally must be comparable service. Neither does it mention therefore that taxpayers assume additional cost for the state match. Without knowing the exact mix of kinds of coverage (single, vs. family, for example), the additional costs to ratepayers and taxpayers cannot be computed precisely, but a rough estimate is $55 million a year.

Further, because Louisiana runs such a comparatively extensive self-insurance, self-administered system, its personnel costs are much higher with many more employees. As the report notes, to use a state with comparable lives under insurance, Tennessee with 300,000 (Louisiana has about 225,000), it uses 75 employees at a cost of $5.1 million, while Louisiana’s cost is over $70.6 million using 309 employees, of which about $39.8 million is directly attributable to the PPO. Another way of putting it is about 62,000 lives are enrolled under the PPO, at an average member administrative cost of $64.19, while the remainder under other plans cost $18.90. That means annual average savings would approach $17.4 million if the PPO was run as efficiently by OGB as the other plans were by the third-party administrators.

These numbers strongly suggest the cost savings are there for the privatization option, both in costs and premiums, but such conclusions are not investigated in this report. Instead, it looks as if interested parties must wait until another study planned of the issue comes through later this year. But there’s nothing in this one that should discourage continued pursuit of the option.

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