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Gov. Scott Walker's budget directs any savings from a switch to self-insurance for state workers to public education.

Wisconsin will move to self-insure state workers beginning next year after the controversial plan was adopted Wednesday by the Group Insurance Board, but it still must be approved by the state Legislature’s budget committee.

After years of discussing the idea, the insurance board voted 10-1 to change the way the state finances a $1.5 billion health insurance program that covers about 250,000 state and some local government workers and their dependents.

Instead of paying premiums to 17 HMOs, which accept the risk for medical claims, the state intends to pay benefits directly and take on the risk.

“We’ll be leaving money on the table if in the end we do not move to (this) model,” said Michael Heifetz, a board member who is state Medicaid director. “What the board is doing is controlling more of what it can control, rather than ceding that authority to folks with whom we contract.”

Under the plan, Dean Health Plan, part of SSM Health, and Quartz, which includes UW Health’s Unity Health Plan, will administer the self-insured program in Dane County and surrounding counties.

Network Health Administrative Services and Compcare Health Services Insurance, run by Anthem Blue Cross and Blue Shield, will serve the eastern part of the state.

Security Administrative Services will operate in the north and HealthPartners Administrators in the west. Compcare will run a statewide option.

The move should save $60 million over the next two years and retain access to 98 percent of medical providers, the insurance board said.

Gov. Scott Walker’s 2017-19 budget proposal, released Wednesday, incorporates the anticipated savings. Walker has said savings from self-insurance will be used on public education.

Consultants hired by the state have said self-insurance could cost $100 million a year or save $42 million a year, largely by avoiding $18 million in Affordable Care Act fees, cutting $11 million in administrative costs and eliminating $11 million in insurance company profits.

Rick Badger, executive director of AFSCME Council 32, which represents thousands of front-line state workers, criticized the insurance board’s action.

“At a time when the future of health care in the U.S. could not be more unpredictable, Wisconsin is preparing to take a dangerous leap of faith,” Badger said. “Appointees of the governor are pulling numbers out of thin air to help the governor pretend to balance his next budget.”

The Wisconsin Association of Health Plans, which represents many of the 17 HMOs in the current system, opposes self-insurance, saying it would disrupt the state’s competitive insurance market and regional health care systems, which own many of the HMOs.

“The Group Insurance Board chose to abandon market competition and consumer choice in favor of consolidation, more government control and new financial risk for the state,” said Phil Dougherty, spokesman for the health plan association.

Other health care groups, including the Wisconsin Hospital Association and the Wisconsin Medical Society, asked Walker in November to consider how the shift to self-insurance could impact the state’s health care market and economy.

The state worker program makes up about 15 percent of the state’s fully insured health insurance market, in which insurers carry the risk. Removing that business could drive up insurance costs for others, critics of self-insurance say.

Heifetz said, however, such a cost shift could mean the state is currently overpaying for benefits to state workers.

“We have a fiduciary responsibility to our members and to the taxpayers, not to our stakeholders out here in the audience,” he said.

Dane County is home to nearly 100,000 of the 250,000 people in the program. The county residents are mostly covered by Dean Health Plan, part of SSM Health; Group Health Cooperative of South Central Wisconsin; Physicians Plus, part of UnityPoint Health; and Unity, part of UW Health.

Physicians Plus is merging with Unity, so Group Health is the only company not included under the self-insurance plan. Officials with Group Health, where about 15,000 of its 75,000 members are part of the state worker program, declined comment Wednesday.

WEA Trust, which is based in Madison and involved in the state worker health plan outside of Dane County, bid for self-insurance business but was not selected.

About 22,000 of WEA Trust’s 82,000 members are in the state worker health plan. Losing the business could have a “fairly sizable impact,” spokesman Kyle Humphrey said. But, he said, “there’s a lot of opportunity that this kind of uncertainty can create.”

WPS Health Insurance in Monona, which administers a small state worker health plan that is already self-insured, didn’t bid to be in the new program.

The Legislature’s Joint Finance Committee has oversight over any self-insurance contract for state workers.

The committee needs to approve self-insurance contracts by May 1 in order to implement the change by January as planned, according to the state Department of Employee Trust Funds.

Leaders of the budget committee have expressed skepticism about self-insurance.

“We have only scratched the surface on improvements to the current fully insured state health insurance program that can be made without causing significant disruption in Wisconsin’s insurance marketplace,” Sen. Albert Darling, R-River Hills, and Rep. John Nygren, R-Marinette, wrote in a letter in December to Michael Farrell, chairman of the insurance board.

The insurance board, which is largely controlled by the governor, had several options to consider, including leaving the existing system largely in place. All options would include some changes, however, such as establishing more quality measures for insurers and requiring three-year contracts instead of annual contracts.

The options were structured to achieve comparable cost savings, ETF staff said.

Walker’s proposed budget contains another item affecting some state workers. Domestic partnership benefits would be eliminated because all couples can now get such benefits through marriage, Walker said.

The move would save $6.9 million over two years, the budget says.

In other action, the insurance board delayed a vote on whether to drop one of four health plan options offered to local governments that join the state worker health program. Two of the remaining three options mirror those offered to state workers, and the other is a richer, more expensive plan with no deductibles or co-payments.

Local government workers and dependents, including about 7,000 City of Madison employees and family members, make up about 39,000 of the 250,000 people in the state worker program.

Trimming options for local workers would make the program easier for the state to administer, ETF staff said. But staff said Wednesday the move should be done in 2019, not in 2018 as originally proposed.

Madison Mayor Paul Soglin said the change could cause the city to leave the program.

Switching to the expensive plan would cost the city $2.4 million, and shifting to one of the other plans would cost the city $600,000 and increase out-of-pocket costs for employees, Soglin said.

The other option would be a high-deductible plan that would cost workers even more.

“In this time of great uncertainty surrounding health care in our nation, the elimination of this option for health insurance by the Group Insurance Board seems less than well thought out,” Soglin said Monday in an email to city employees.

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David Wahlberg is the health and medicine reporter for the Wisconsin State Journal.