Self-insuring state workers could save money by reducing overhead, but it could increase costs by weakening a competitive insurance market that has kept costs low, authorities said Tuesday.
The state Department of Employee Trust Funds, which administers health benefits for 250,000 state and local government workers and their family members, will seek bids in July for self-insurance, on a regional or statewide basis, in 2018.
The Group Insurance Board will vote on the matter in November.
Currently, nearly all of the workers and dependents, almost 100,000 of whom are in Dane County, are covered by 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.
Consultants have said the move could cost $100 million a year or save $42 million, largely by avoiding $18 million in Affordable Care Act fees, cutting $11 million in administrative costs and eliminating $11 million in insurance company profits.
Gov. Scott Walker said any savings would be used on public education.
Bids, due in September, should better define potential savings, said Lisa Ellinger, an administrator for the state Department of Employee Trust Funds, or ETF.
“Since our program is financed by the taxpayers, we also have a responsibility to explore and evaluate whether alternatives to our current structure are more cost effective,” Ellinger said during a panel discussion about self-insurance organized by Wisconsin Health News.
The average cost increase for state worker insurance has been 2.5 percent the past five years, compared to 5 percent to 7 percent nationally, Ellinger said.
Pete Farrow, CEO of Group Health Cooperative of Eau Claire, said Wisconsin has the most competitive health insurance market in the country based on a commonly used index.
That has helped keep state worker costs down, he said.
Removing 250,000 people from the commercial insurance market would change it “from a competition market to a concentration market,” Farrow said.
Group Health of Eau Claire and Group Health Cooperative of South Central Wisconsin, Dean Health Plan, Physicians Plus and Unity Health Insurance are members of the Wisconsin Association of Health Plans, which opposes a move to self-insurance.
J.P. Wieske, the state’s deputy commissioner of insurance, said it’s impossible to say how much self-insurance would cost or save, or how much it would disrupt the insurance market or care for patients, before analyzing bids from companies seeking to run the program.
“Yes, there may be some market impacts with us moving, but there also may not be market impacts,” Wieske said.
The federal Affordable Care Act “has created a fundamental instability in the market,” he said. “That’s probably a much larger impact than anything the state can do.”
Most states self-insure some or all state workers.
Many large private employers do too, but it’s not clear if it makes sense for state workers in Wisconsin, said Jerry Frye, president of The Benefit Services Group in Pewaukee.
Large employers typically adopt self-insurance because they want to avoid state insurance mandates, which ETF can’t do, Frye said. They also want to avoid a state premium tax, which ETF doesn’t pay, and they want consistent benefits, which ETF already provides with a standard plan.
“There is a reason why large employers go self-funded, but most of those reasons do not apply to ETF,” Frye said.
If the Group Insurance Board adopts self-insurance, the legislature’s Joint Finance Committee will have oversight of any contract.
The Group Insurance Board may not pursue an all-or-nothing strategy, Ellinger said.
“The model at the end of day ... could be a hybrid of what we’re talking about: self insured, fully insured, regional, maintaining certain regions as they operate today,” she said.