Here & Now

Look Ahead: Health Care Specialist Explains Self Insurance

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.