Self-insurance might not save state $60 million, UW panelists say

By David Wahlberg, State Journal

Shifting state worker health benefits to a self-insurance model may not save $60 million as planned, and could increase costs by reducing competition, a UW-Madison business professor said Thursday.

“Just a move towards self-insurance, especially in our market, where we already have a lot of competition — it’s very unlikely that that’s going to really move the needle,” Justin Sydnor said at a forum sponsored by the faculty group PROFS.

“Integrated health systems, the type of systems that we have a lot of here in the state, have some of the best possible avenues forward to saving health care costs,” said Sydnor, an associate professor of risk and insurance.

Gov. Scott Walker’s proposed 2017-2019 budget says self-insuring workers and using fewer insurance companies to run the program, which the Group Insurance Board approved in February, would save $60 million.

The Legislature’s Joint Finance Committee, which has expressed skepticism about the proposal, is expected to decide on it next month. Under self-insurance, the state would take on the risk for medical claims for 250,000 people, using six companies to administer the program, instead of paying premiums to 17 HMOs.

Self-insurance is common among large employers. But the estimated $60 million in savings is unclear because it is based on many variables, said Peter Farrow, CEO of Group Health Cooperative of Eau Claire.

“Miss those estimates by 2 or 3 percentage points, and the savings are gone,” Farrow said. “Miss them by 5 percentage points ... and you’ve added to the state budget.”

Farrow’s health plan abandoned much of its state worker business four years ago because it lost $12 million on an $80 million contract in one year, he said.

Lisa Ellinger, an administrator with the Wisconsin Department of Employee Trust Funds, which runs the health benefits program, said many health insurers oppose self-insurance because they’d lose money.

“The biggest change is that we’re doing it with fewer insurers,” Ellinger said. “A lot of the political opposition is coming from those insurers that see the savings to the state as lost revenue to them.”

Ellinger said that after increasing worker premiums and adding co-insurance and deductibles in recent years, the state is looking to self-insurance as a way to reduce costs without shifting more of the burden to employees.

“We are trying to find a way to save cost, maintain benefits, improve quality that does not continue to shift cost to our members,” she said.