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Real reform of the state health plan

By Adam Searing and Adam Linker

Legislation to reform the State Health Plan that would shift more costs onto struggling state workers is currently rushing through the General Assembly. This would amount to a salary cut in a time of economic crisis. Legislators must carefully consider proposed changes to the State Health Plan before further burdening thousands of families across the state.

If maximum co-insurance is increased to $2,750, for example, the maximum cost for families with dependent coverage is three times that amount. Therefore, a state employee faces the very real threat of $8,250 per year in out-of-pocket expenses in the event of a serious illness. That is a distressing prospect.

Legislators must ensure that any reforms to the State Health Plan do not make coverage any more unaffordable and result in more North Carolinians losing health insurance. We should certainly not imitate the broken private insurance industry by charging young workers less and older workers more, as suggested last week by State Health Plan executive director Jack Walker. This sort of proposal will only exacerbate the problems facing the State Health Plan. Sharply higher deductibles and coinsurance now under consideration may also force unhealthy people off of the State Health Plan, and many of these state employees would be unable to obtain coverage in the private market. And making dependent coverage more expensive will chase off more of the healthy children who keep the State Health Plan viable.

Several lawmakers have proposed charging a premium to state employees to make dependent coverage less expensive. But a small premium for state workers would not make coverage through the State Health Plan cheaper than an individual policy through Blue Cross Blue Shield of North Carolina.

And charging a premium to state workers would open the door for large premium increases in the future as lawmakers try to balance the state’s books. This is not a solution.

Any workable reform must start with nonprofit Blue Cross Blue Shield of North Carolina. The group is being paid over $100 million in administrative fees. Legislators must negotiate with the insurance company that administers the State Health Plan to get increased savings and not, as was done last year, simply renegotiate to pay Blue Cross even more money under existing contracts. Also, legislators should call on Blue Cross to help cover the State Health Plan’s cash shortage. The insurance company was given a no-bid contract at attractive rates to administer the State Health Plan. Blue Cross should now use some of its $1.3 billion in reserves to help the state. Blue Cross makes enough money from the state to quickly replenish its reserves.

Legislators should also commission an independent audit of the State Health Plan to identify potential overpayments. Finally, if Blue Cross will not work with the state to close current funding gaps, then State Health Plan officials should immediately re-bid the contract to see if another company can provide the same services as Blue Cross at a better rate.

Additionally, State Health Plan officials want to push wellness initiatives that will actually cost the state more money without any guarantee of long-term savings. The proposal to shift state employees and their dependents into a bottom-tier health plan if they are caught smoking by random tests is invasive and will likely result in some families losing insurance coverage altogether.

Also, according to documents provided to legislators: “Aon Consulting, consulting actuary for the Plan, estimates the smoking cessation program will save approximately $3.4 million in claims cost for the FY 2010-11.

However, the administrative costs to begin implementation are estimated by Aon to offset any first year savings …Hartman and Associates, consulting actuary for the General Assembly’s Fiscal Research Division, does not project any financial impact to the Plan from the proposed smoking cessation program.”

While the threat of heavy financial penalties or the loss of health insurance would persuade some state workers to stop smoking, the potential downside and the tenuous savings projections make the costs of implementing this program too great. Instead of invading the privacy of state workers with random nicotine tests, legislators should create positive incentives for employees to stop smoking and step up efforts at smoking-cessation programs. The General Assembly should concentrate on the short-term cash problems at the State Health Plan instead of policing the private behavior of state employees.

Legislation to reform the State Health Plan is currently speeding through the General Assembly without proper consideration. But lawmakers have bailed out the State Health Plan many times before and simply putting more money into the plan and shifting more costs to state workers did not make the plan financially sound. This time around, legislators need to think creatively about longer-term solutions.

First, lawmakers should focus on solving the short-term cash shortage at the State Health Plan and work with Blue Cross to get additional savings.

Legislators should then create a Blue Ribbon Commission of health-policy experts to study the long-term viability of the State Health Plan.
That will allow all interested parties, including health and finance experts, to examine potential options and understand how other states operate. The commission could quickly begin operations before the end of the current legislative session and have a report ready for legislators well before next year. This is far preferable to pushing ill-considered reforms crafted by a small group of people.

If lawmakers follow these recommendations, we can solve the short-term cash crisis and put the State Health Plan on firm financial footing for the long-term without hurting state workers.

Adam Searing and Adam Linker are policy analysts with the N.C. Justice Center’s Health Access Coalition.

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