Zac Schultz:

I’m Zac Schultz filling in for Frederica Freyberg. Tonight on “Here and Now,” we’ll get some Capitol Insight on Governor Walker’s state budget proposal. Then we’ll look ahead to what self-insurance means for state employees and what the Madison school district needs to do to get additional state funding. It’s “Here and Now” for February 10.

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Scott Walker:

The state of our state is strong and the state of our budget, well, it’s outstanding. We are working and winning for Wisconsin.

Zac Schultz:

That was Governor Walker at Wednesday's budget address. We should mention that Wisconsin Public Television is partially funded by state dollars. So is Public Radio. And that brings us to tonight’s “Capitol Insight.” We welcome back Wisconsin Public Radio’s Capitol Bureau chief Shawn Johnson to talk about the governor's budget. Thanks for being here.

Shawn Johnson:

Thanks for having me.

Zac Schultz:

I want to start with another clip from the governor's speech in which he sums up his impression of this budget.

Scott Walker:

Overall our common sense reforms brought us here to the point where we have a significantly better budget outlook. We call this the reform dividend. And wow, as the Fiscal Bureau pointed out. That’s a lot of money.

Zac Schultz:

Governor Walker says, “That’s a lot of money.” Where is it being spent?

Shawn Johnson:

Yeah. It is a lot of money. I’m not sure the Fiscal Bureau said, “Wow, that is a lot of money,” but that is, compared to his previous budgets, this is the most you’ve seen the governor come out of the gates proposing to spend on public schools. The increase in per-pupil funding is taking up the bulk of it. Roughly $200 increase in each of the tiers of the budget. So to put that in perspective, it’s more than the Department of Public Instruction was asking for. So in that context, it’s a lot of money.

Zac Schultz:

And that’s not the only place he’s spending money, either. I mean, the University of Wisconsin system’s getting an increase in their budget and other places. I mean, as Todd Berry told us after the budget, President of the Taxpayers Alliance, the governor is spending all of the money that’s in the budget, too, spending down the reserves.

Shawn Johnson:

Yeah. He starts out with a surplus and ends with very little money at the end of the budget to kind of address all these constituencies that you haven’t really seen the governor address in this way in previous budgets. It’s not that he would not talk about schools. Certainly that wasn’t the case. He always has said that his Act 10 was about helping schools, gave them the ability to, you know, more freely decide how to spend their budget. But in previous budgets, his first budget, for example, he cut roughly $800 million from schools. In his previous three budgets, he’s cut the University of Wisconsin system. He would increase them by either by $100 million or roughly $140 million depending on how you score it in this budget. So a change of tune in a variety of areas for Governor Walker, and, you know, we are under different circumstances now. The economy is in a different place than it was back in 2011, the national economy, the Wisconsin economy. We also have a gubernatorial election right on the horizon, 2018 election, in which many people believe that Scott Walker is going to run for a third term.

Zac Schultz:

Yeah. And Governor Walker’s had Republicans in control of the legislature his entire time in office and this session Republicans increased the majorities, but that doesn’t mean complete harmony at the capitol. Assembly Speaker Robin Vos has been very blunt in his request for more transportation funding and Governor Walker said he’ll veto any increase in the gas tax that the Assembly may try and put in when they get the budget in their hands. Let’s watch Speaker Vos’s reaction at the end of this clip while Governor Walker was talking about transportation funding in the budget address.

Scott Walker:

Our budget includes more funding for local governments to fix roads and bridges and potholes than they’ve seen in more than a decade and a half. It also includes the largest amount ever, ever for the rehabilitation of state highways.

Zac Schultz:

Now, that was not a very subtle eye-roll when you’re sitting right behind the governor on public television.

Shawn Johnson:

No. It’s kind of unheard of for a speaker from the same party to react to something the governor is saying in that way on that stage. You might be tempted to kind of write it off as, whoops, he didn’t mean to do that, but then you look at everything else that Robin Vos said on the day the budget came out. He was at the Wisconsin Counties Association meeting that morning, very clearly wanted to send a message there. We had a quote from the speaker. He said, quote, sometimes I think that folks forget that we are co-equal of the governor. He gets to put the budget out, but it’s not like we just salute. He used that word again later when talking about the governor. We’re not going to just salute. He said that the governor was trying to buy off local governments with this increase in local road aids at the expense of a cut to state funding for road projects like the one in Speaker Vos’s district. So he’s not being subtle here. He’s coming out saying pretty firmly that he wants changes to this budget specifically as it pertains to transportation.

Zac Schultz:

And he’s not the only one. Usually the budget address is filled with applause lines and standing ovations. And this one should have been too with–he has a lot of tax cuts were in here. This is red meat for the conservative base. But we actually saw a relatively lukewarm reception from both parties. Clearly Democrats aren’t happy with just about anything that Governor Walker proposes, but even the Republicans were slow to rise on a lot of soundbites that sounded like they were waiting for an applause line.

Shawn Johnson:

Yeah, take for example, the tuition cut is probably the biggest example of something where the governor probably feels like he’s got this populous message that he wants to roll out there. The tuition freeze has been popular with Republicans lately. The tuition cut would seem is not at least with Republican legislative leaders. They feel like that the money that the state would spend backfilling that tuition cut or the revenue that the university would lose could be better off spent somewhere else. And so they’ve said they’re not onboard with that. But even the income tax cut. I mean, Senate Majority Leader Scott Fitzgerald, though not as outspoken by any means as Vos this week on the governor’s budget, said that he didn’t care for that income tax cut, thought there was a better way to get bang for your buck if you’re going to cut taxes.

Zac Schultz:

So what does this mean in terms of how long this budget will take a pass? Obviously, it goes to the Joint Finance Committee next. Then each chamber has to pass a version. They could even have dueling version there which is extremely rare for one-party control.

Shawn Johnson:

Yeah. When Republican control began in Wisconsin, they got budgets done by July 1, which is when the next fiscal year begins. You don’t have to do that in Wisconsin because, you know, the current budget will carry over to the next budget if you don’t have a new one in place. So that pressure is not exactly there. But they’ve done it. You saw that start to erode last session over transportation. Republican lawmakers didn’t like what the governor put out there. It took them a while to come to terms. You heard Speaker Vos this week say it’s not my goal, but I'll take it to October if we have to, basically throwing it out there that he’s willing to stand his ground in some type of a dispute over transportation funding. Seems unlikely that Republican-controlled legislature and governor’s office would take this fight to October, but, you know, again, this is a message that the speaker wants to send early in negotiations.

Zac Schultz:

And you’ve mentioned it before, but a lot of people are calling this a re-election budget. And Governor Walker has been relatively clear without coming out and saying it that he’s going to run for a third term in 2018 and this would appeal to a lot of the base that he has in southeast Wisconsin, but also maybe a new base that Donald Trump opened up when he ran for president and won Wisconsin.

Shawn Johnson:

Rural Wisconsin. You see hints of that all over this budget, from the way that he would include money specifically for rural schools, schools with declining enrollment, schools with high transportation costs. The way that he includes some money, not much by the speaker’s standards, but some money for local governments to repair local roads, which are in bad shape compared to other states and getting in worse shape here in Wisconsin. Those seem like nods to part of the state that has become more important politically just in this last election. If you look at how Donald Trump won Wisconsin, it wasn’t by just dominating southeast Wisconsin, which has been the path to victory for Republicans in previous years. It was by winning this swath of smaller counties, rural counties. And so that’s a constituency that I think the governor wants to make sure he addresses.

Zac Schultz:

We've only got about a minute left, but we’ve heard him use some of those phrases we heard from Donald Trump. I haven’t checked the record but I don’t remember Scott Walker talking about winning nearly as much as he has since Donald Trump won.

Shawn Johnson:

Yeah. Working and winning for Wisconsin made ten appearances in the governor’s budget speech. He mentioned it–and that’s a 24-minute speech. Clearly he wants to hit that home. He said the same thing in his state of the state speech. You’re seeing it in his campaign material now, too. So it does seem like he’s kind of borrowing from what’s worked for Donald Trump in that regard.

Zac Schultz:

What role do Democrats have to play in this budget if any? The last time around, on Joint Finance the Democrats were in play to help release some additional bonding for some road projects. Do they have a small unsung role to play in this process?

Shawn Johnson:

I would think practically speaking it’s all about message for them. You know, probably they’re going to try to position themselves as the Scott Walker alternative going into 2018 and they got to find a way to do that. There is a chance they could become relevant if — and it’s a big “if” — if Republicans decided they wanted to try to override a governor’s veto on transportation for example. They’d need democratic votes but that’s something Republicans have not been willing to do so far during their control of state government. It seems unlikely that they’d want to do that now.

Zac Schultz:

Shawn Johnson, thanks for your time.

Shawn Johnson:

You're welcome.

Zac Schultz:

In our “Look Ahead,” we’re focusing on the governor’s proposal to move to self-insurance for state employees. For that we welcome Lisa Ellinger, who is with the Department of Employee Trust Funds, which administers the health insurance plans. Thanks for being here.

Lisa Ellinger:

Sure.

Zac Schultz:

What does self-insurance mean for state employees and their family members? What changes are they likely to see?

Lisa Ellinger:

Sure. So what self-insurance refers to is a structure where the employer pays directly for medical claims costs. I think that might be easier to understand by explaining how that it is different from what we do today. Currently in our fully-insured environment, each year we establish premium rates with the insurers that participate in our program and every month we pay that premium and insurers pay the medical claims as they come in. As part of that relationship, those insurers also build in a risk charge in the premium to compensate themselves for the fact that they are absorbing the risk. In a self-insured environment, what would change is we would still be working with third-party administrators to process claims, handle customer service, oversee the provider networks that deliver services but the big difference is that in that environment those TPAs would be billing the state directly as those medical claims come in. So the state would be assuming the risk. And if I could just add to that, I think this is the most important part of the discussion and the concern that is maybe out there, because I think when people hear the term self-insurance, a lot of times they start to think about questions such as, “Will I still be able to see my doctor? Will my benefits change? Will my costs go up?” And those are very important issues, but they are not impacted by whether or not the state self-insures. And I also think that people either forget or maybe aren’t aware that we already self-insurance significant aspects of the state employee program. Our pharmacy benefit, which is about 20% of our overall cost, has been very successfully self-insured since 2004. And last year we moved to self-insure our dental program and our nationwide access medical plan has been self-insured for decades. So these aren’t new concepts for the state employee program.

Zac Schultz:

But what we have seen from the insurance companies that are electing to bid to offer some of that coverage is that not everyone that’s currently in the program is electing to bid and there will be a lower number in some areas. So there will be changes.

Lisa Ellinger:

There will be changes.

Zac Schultz:

And what that looks like is yet unknown, right?

Lisa Ellinger:

So there are some knowns and some unknowns. I will say, to go to the point about the fact that some of our current insurers did not compete, I think that’s important because we should point out the fact that for many of them, our membership represents a very small part of their book of business. It might be 1,000, 2,000, 4,000 members. So for those insurers, not participating in our program will not have a dramatic impact to them. To go to your point about the changes, yes, some of our members will have to change health plans, but the important point about that is we’ve found that our members are really interested in whether they can maintain access to their primary care provider. And the analysis that was done as part of this decision shows that 98% of the providers available today will still be available in the restructured system. In addition to that, more providers than are available today will be available in the system. And those are real numbers. So while our members may have to change health plans, the vast majority will not have to change their providers.

Zac Schultz:

Governor Walker says he expects to save about $60 million in just the first year and a half on this. But past studies have shown that this could actually cost the state tens or hundreds of millions depending on the number of claims come in because the state takes on the risk if there’s a lot of claims.

Lisa Ellinger:

Right.

Zac Schultz:

So how realistic is the governor’s number? Is it just the most optimistic case?

Lisa Ellinger:

So let’s start with those dueling actuaries studies. You’re absolutely right. We’ve studied this issue a number of times over the past several years and they did come up with wide-ranging estimates, but what those actuaries agreed on was the fact that the only way you could get at what the real potential cost savings were would be to do a request for proposals or a competitive bid process with binding contractual and cost information. So that’s part of the reason we did this. With regards to the biennial budget estimate and what our board has also suggested, $60 million over the biennium, I think it’s a very realistic target. And where that comes from is our actuary provided a range of estimates on the high end, low end and the midrange end based on those bids that came in, but also their projections about future health care costs and also assumptions about where our members will move with these new vendors that are available. And the $60 million number comes from that middle of the range estimate. So I think it’s conservative and very realistic.

Zac Schultz:

With the state picking up the risk, we know in terms of Medicaid if there’s more claims, the state just has to pay more money and that affects the rest of the budget. In this case down the road if there’s a bad year or a bad couple years, will that just affect GPR spending and where money comes from from the budget? Because the state will have to pay it, right?

Lisa Ellinger:

I think focusing on the claims is the exact right area to focus because that’s the vast majority of health care costs. Administrative fees are just a fraction. So, first of all, we have several provisions in the contracts that are focused on performance guarantees to focus on future claims costs growth, and as we go into negotiating the contracts in the weeks and months ahead, this is also going to be an area of focus where we want to put protections in place to make sure the state is protected from that future cost growth.

Zac Schultz:

One of the other concerns that a lot of Republicans in the legislature have and outside groups specifically insurance companies, is disruption to the private health care marketplace. By taking this many employees away from what had been a private marketplace and putting them under this plan, there may not be as many customers left for some of their companies, which could cause them to raise their prices for everyone else or go out of business.

Lisa Ellinger:

Right. And we’ve talked about this a little bit already but I pointed out earlier that several of the insurers that chose not to compete, we’re very small to them in terms of the membership that we steer their way. But I also want to go back to that 98% of provider access number because what that means is all those providers we work with today will still be participating in our program, as well as the hospitals they work with, the health systems they work for. And so the vast majority of participants that participate today in our program will still be part of that. We’ll just be doing it with fewer insurers than we do today.

Zac Schultz:

And if there are big claim years in the future, will that affect premiums? Will the state look to raise premiums on their employees?

Lisa Ellinger:

So the hope is no. We are establishing a reserve policy, and currently the fund already has a very stable, healthy reserve that we have built over the past couple of years in anticipation of moving toward a self-insured program. So that reserve is there to help in the event that we do experience blips in claims costs.

Zac Schultz:

And we’ve only got a few seconds left, but — this is kind of a broad question, but there’s a lot of uncertainty in health care today with the possible repeal of the Affordable Care Act in Washington and obviously Wisconsin moving to self-insurance. What are people thinking? How concerned should they be about what it means for them and their access for their families to get the care they need?

Lisa Ellinger:

That's an excellent point because I think there’s a lot of focus on our program today and the changes that maybe we’re causing in the health insurance market. But the truth of the matter is the different mergers, acquisitions, partnerships we’re seeing have been happening for years and will continue into the foreseeable future and are caused by things that are above and beyond the state employee health insurance program.

Zac Schultz:

All right. Lisa Ellinger, thank you for your time.

Lisa Ellinger:

Thank you.

Zac Schultz:

On paper some of the big winners in the governor’s budget are public schools. The governor wants to invest an additional $650 million over the biennium. But for some schools there’s a catch. Joining us now to talk about that is James Howard, President of Madison Metropolitan School District. Thanks for your time today.

James Howard:

Thanks for having me.

Zac Schultz:

Governor Walker is calling for an increase in funding of $200 per student in the first year and $204 in the second year. After six years of proposed cuts from the governor, that’s got to be good news, right?

James Howard:

Well, it’s good news, but you have to really think about the fact that we have been working really with quite a bit of a deficit. I just want to make sure everyone understands that although it’s good news that it’s really hard to make up for the deficit we’ve been under the last six years.

Zac Schultz:

And of course there’s a catch with that as we mentioned because the governor’s budget says school districts must be in compliance with Act 10 before receiving that aid and Madison School District is not.

James Howard:

Well it depends on how you define it. Under the original definition of compliance, we have been compliant. And under the new definition which we’re just studying, seems as though, yes, there is a little bit of a catch. But we feel that we will be able to come into compliance with the new definition. It’s something we have not studied and talked about yet with administration and board. This is all new. But we feel that, yes, we should be able to come in compliance with the new definition. But we need to study it a little more.

Zac Schultz:

And that word “compliance” is interesting because ever since Act 10 came onboard the governor and his allies have talked about it as the “tools” of Act 10, to allow school districts to handle the cuts in state funding that were coming their way and allowing each district to make their own choices in how they use that. You felt you’ve been in compliance with what the law required.

James Howard:

We've been in compliance. What we really want to acknowledge and really make a point of is that we have over the last six years worked with our staff and we’ve had this collaborative process in place and we feel that through that process that we’ve really come into agreement and come to a point where we’re getting the best agreement between staff, administration that’s possible. And we have to understand that if you were to place an entire say 12%, which is called upon in the request in terms of Act 10 compliance, that’s a big hit for our staff. And we have worked hard to work with our carriers, our insurance carriers, keep costs down and we think that we’re in a good place. The only thing we’re asking is allow us to continue to be able to manage it on the local level and not really mandate how we should take care of our staff.

Zac Schultz:

And just to clarify for our audience that may not be familiar with the deal, the area that’s in concern here with Madison is the amount that teachers and staff pay towards their health insurance premiums. Act 10 required it to be around 88% and Madison staff does not pay that much. The school district pays more, but obviously making them pay more would mean a pay cut for them.

James Howard:

Well, let’s understand that the requirement was really on municipalities, on city government. It really was not on school districts from the beginning. And so this is what’s new. That he’s now–the governor is now placing the requirement on school districts. Six years ago when Act 10 came into existence, it was for city government. It was not for schools. We had the option of requiring up to 12%. For a few years we didn’t require anything. But as of today we do require between 1.5 and 10% from our staff.

Zac Schultz:

It seems like Act 10 had been in the past. Most municipalities and school districts had moved on with whatever agreement they had. Does it feel like the governor is ripping open old wounds here?

James Howard:

We like to refer to it as the re-election budget. And we think that some of this is political. Let’s face it. School districts, if you look at, for example, referendum as an indicator, many districts across the state have been going to referendums. And the reason that is is that districts, especially rural districts, have not had the funding that’s needed to provide for programming. We’re wondering if this is not a little bit of politics and this is a pretty much a re-election budget. Yes, we’re more than happy to receive funding, but we’ve been really on a tight purse over the last six years.

Zac Schultz:

And obviously there’s a long way to go in this budget before it becomes law, but if it does as written, if the Madison School District didn’t come into this new definition of compliance, they wouldn’t receive some of this per pupil increase which affects students and local taxpayers. That would be pitting a lot of groups against each other at the local level if you didn’t ask teachers to pay up to the full 12%.

James Howard:

I think the way we’re going to proceed is to come to the table with staff, come to the table with our teachers and really talk about — and this is the process we’ve had in place, really talk about — use a collaborative process and say how do we move forward. How do we move forward with the requirement now that we require you all to pay up to 12%? How do we really do that? We do know there are also some legislators that are saying that they’re not really pleased with these numbers. And so it may not really come to pass. So we’ll sit down with staff, and we’ll talk about this and see through our collaborative process where is the best — where should we end up? What’s the best path forward?

Zac Schultz:

And less than a minute left, but is it a possibility that you ask the staff and teachers to take the cut and pay more for their insurance but then make it up in a pay raise somewhere else so they are made whole in the end of the process?

James Howard:

Well, we do believe in making the entire situation, making our staff whole. That’s a possibility. Again, it’s something we’ll have to talk about. This has only been on the table for a day or two and we haven’t had a chance to vet it properly. Again though, you’re right. It could come to that. We could figure out a way to make it up in some kind of a pay increase. That’s correct.

Zac Schultz:

Have you heard a lot from your staff?

James Howard:

Not as of yet. We haven’t gotten any feedback from staff at this point. Maybe a few emails. But we know from the past that we already have staff that’s hurting. Our lower-paid staff are only making the 20s, 20 some thousand a year. As you know, that’s barely subsistence. When you talk about increasing the amount they pay in to any fund, that’s going to be a big hit for them.

Zac Schultz:

James Howard, thanks for your time today.

James Howard:

Thanks for having me.

Zac Schultz:

Now we have a quick update to the ongoing problems at Lincoln Hills. That’s the youth prison in northern Wisconsin that’s under investigation by the FBI. Governor Walker wants to add more staff to comply with federal standards instead of shutting it down as many critics have suggested. Walker has proposed adding eight new counselors. Lincoln Hills is currently the subject of two federal lawsuits, one of which alleges extensive use of solitary confinement as punishment for misbehavior. Former and current inmates claim as much as 20% of the juvenile prisoners are in solitary confinement at any given time. Finally tonight, a “Look Ahead” to next week. We had promised you a check-in with a refugee program manager in Milwaukee tonight, but due to state budget coverage we are rescheduling that for next week. That’s also when Frederica Freyberg will return. I’m Zac Schultz. Have a great weekend.

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Funding for “Here and Now” is provided, in part, by Friends of Wisconsin Public Television.