Numbers point to substantial state insurance plan savings

As some special interests seem unable to understand the logic and math behind it all, this space (as it is wont to do) will bring some clarity to the savings the state will achieve by contracting out the book of health insurance business it current self-ensures, and where the process is headed.

A Gov. Bobby Jindal Administration met with Louisiana’s State Civil Service Commission yesterday to give an update on where the effort is headed. The decision has been made to get the state out of the business of running its own plan, which only one other state does, impacting the roughly one-quarter of state employees and retirees and their families who choose what is called the Preferred Provider Organization plan. As the latest statistics show that over half of the money spent by the state agency administrator Office of Group Benefits goes to running this plan, logically savings should result if run more efficiently by the private sector as with other state plans (and, because PPO rates are higher for the same service provided and there’s a taxpayer match, this could save clients and taxpayers an estimated $55 million above and beyond savings in administrative costs).

The procedure to implement requires that a request for proposal go out soon, followed by a contract letting anticipated in June. The Jindal Administration may hope to catch the Joint Legislative Committee on the Budget while the Legislature remains in session (until Jun. 4), which would have to approve of a contract of this size in the millions of dollars (even as the state can expect a one-time gain much higher than an annual contract by making available to a private entity the right to do this business.) This assumes (pretty safely) that a bidder will come in below the current rate structure.

Once granted, then a layoff plan of an estimated 177 of the 307 employees of OGB would have to be put to the SCSC, at its July meeting. This presentation in April was for informational purposes, estimating annual savings of nearly $30 million. Actually, this may end up underestimating savings; Tennessee, for example, with approximately one-third more insured participants has only a staff of 75 running it all.

An interest group representative hostile to the idea from the start, perhaps never having fully versed himself in the relevant statistics, wondered where all of these savings came from. Actually, it’s pretty simple: currently, the state spends over $70 million to oversee all of its plans, so, on a per employee basis, downsizing by over half would cut it down to the $30 million range or a savings of nearly $40 million. But, after having backed out the portion attributable to the self-insured operating expenses, you need to add in the contract amount to administer the newly privatized portion. If currently 72 percent of the total people insured through contracts cost $30 million to operate, adding in another 28 percent is close to $9 million, dropping overall savings to $31 million annually. So the Administration’s numbers seem reasonable on this account, but it all depends upon the winning bid. And, again, the Tennessee example shows it could be done even more efficiently.

The SCSC is involved because it must approve any layoff plan when numbers that high are involved. It typically concurs with agencies on these matters and the majority of its appointees have been made by Jindal himself, although he is allowing two appointees not his to continue serving past the end of their terms and he may wish to reappoint them or put new appointees on there before then. (This is not the only set of expired appointments left hanging; while some boards and commissions provide comprehensive information on their appointees’ terms, most do not, but anecdotal evidence, such as witnessed by the several prospective appointees to the Louisiana Developmental Disabilities Council whose terms should have begun six months ago suggests Jindal has been lax in catching up on making his appointments for the bodies.)

The new contract ought to be in place by the beginning of the next plan year, 2013. It’s been awhile coming, needlessly slowed by special interests who gained through the present inefficient system. But all indications, reinforced by the presentation, are beginning next year Louisiana’s citizenry should be reaping the rewards of this overdue reform.