Self-Insurance Switch Could Save Wisconsin Millions

Upcoming Obamacare fee, “Cadillac Tax” forcing state to look for health insurance savings

December 14, 2015

by James Wigderson
Special Guest Perspective for the MacIver Institute

As Wisconsin discovered with Act 10 and with prevailing wage reform, government isn’t just too big, we’re paying too much. A recent study requested by Governor Scott Walker presented to the state’s Group Insurance Board says the $1.1 billion we’re currently spending on insurance for public employees is way too much. Instead, the state could save $42 million annually.

The promise of Act 10 was that state and local governments could change benefits like health insurance in order to reduce costs. Many local governments have taken advantage and some, like the Waukesha School District, have found savings by moving to a self-insured model. The question is whether Republicans in the legislature will stop the move to self-insurance at the state level.

The change to self-insurance would be a little more complicated than making a call to the Geico gekko. The study by Segal Consulting says Wisconsin should move away from the 17 different insurance plans currently used to cover state employees and move to a self-insured model instead. In the self-insured model, the state would be responsible for paying claims. The program would likely be administered by a private company. Because of the size of the population that would be covered, Wisconsin should expect little variation from year to year for claims.

Under the current system, the state is divided into regions and employees are able to purchase insurance from the plans available in those regions. The cost of the plans vary widely from region to region. For example, the report points out that state employee health insurance premiums in the Madison market are actually more expensive than similar plans found on the Obamacare health insurance exchange.

Making matters worse, the misnamed Affordable Care Act, otherwise known as Obamacare, will begin imposing an excise tax on health insurance starting in 2018. Wisconsin policies are either close to or exceed the threshold that causes the tax to go into effect. The tax is on the total value of the policy and therefore can’t be shifted to the insured through higher premiums, and could be as high as $118 million by 2027. Moving to a self-insured model would help the state bring down the insurance costs to either avoid or reduce the tax burden.

Moving to self-insurance will also mean avoiding the Obamacare “Market Share Fees.” The fee is approximately 2 percent of health care premiums, which means the state could save $18.3 million annually, a number that is expected to climb after 2018.

Despite the potential savings, some members of the legislature have expressed concerns in the past about self-insurance. By moving to a self-insured model, the state would be cutting out private insurers, affecting their bottom line. There could also be an effect on the private market for insurance.

The co-chairman of the Joint Finance Committee, state Rep. John Nygren, was quoted as saying, “My concern (is) the potential disruption to the private market, not just the state employee plan.”

That echoes the statement by the Wisconsin Association of Health Plans, which represents twelve different health care plans:

“Eliminating 14 percent of Wisconsin’s competitive health insurance market through self-funding would deal a serious blow to Wisconsin’s vibrant health insurance market…It will create disruption and instability in local markets, limit the ability of state employees to choose their own doctors and place the state at greater financial risk by turning fixed costs into variable and unexpected costs.”

Less-than-coincidentally, Republicans pushed through a measure in the last legislative session that requires any contract for self-insurance by the state to be examined by the Joint Finance Committee, effectively giving them veto power over the cost-saving move. Walker vetoed an earlier attempt to require his appointees on the Group Insurance Board to be approved by the state Senate. The same measure would have added representatives from both the Senate and the Assembly.

But Obamacare is already a major disruption to the healthcare market and will impose real costs if the state does not do something now. Rather than give into fear, Wisconsin legislators should look to Minnesota.

Sure Minnesota has lousy football teams and their governor just came out against the Civil War, but in 2002 the state did something right and moved to a self-insurance health care program. Similar to Wisconsin, Minnesota had 12 plans competing to provide coverage. After moving to self-insurance, Minnesota has a multi-tiered program with three administrators. As the Segal report points out, the full funding rate for single coverage is actually 24 percent less than in Wisconsin. Benefit levels for Minnesota employees are actually higher than Wisconsin’s benefit levels.

Under Governor Scott Walker’s leadership, Wisconsin is a national leader in health care coverage availability for its citizens. Now, Wisconsin has the opportunity to catch up to best practices of the 20 states that self-insure all of their employees. The report offers a transition plan to implement self-insurance by 2017. With the other $45-70 million in savings identified elsewhere in the report, Wisconsin’s health care plan could save $85-$120 million.

But only if the legislature doesn’t try to stand in the way.