Monday, September 13, 2010

New Costs to Taxpayers

Last week, the Joint Liaison Committee on State and Education Employees Group Insurance Benefits held a hearing to review next year’s rate schedule for the health insurance the state provides to various Oklahoma government employees.

This is always an interesting topic because these rate increases affect the government agencies (state, county and schools) which must pay much of the insurance premiums, the state employees who have the insurance, and ultimately the taxpayers who foot the bill.

It became clear during the hearing that unless reversed, the recent federal health care proposals will have a dramatic affect on state insurance offerings. This cost will eventually either be paid for by state employees in the form of a reduced benefit allowance surpluses, or by taxpayers in the form of higher insurance costs.

Earlier this summer I wrote a series of articles concerning the Legislature’s actions during the past session where we attempted to learn from the free market and apply some of its best practices to drive down health insurance rates and save taxpayer money.

While approved by the Legislature, this legislation was subsequently vetoed by the Governor.

Now, with the advent of new federal legislation, it appears that our ability to incorporate some of these ideas will be greatly hampered. The federal legislation includes various mandates and limitations on insurance plans which make it much more difficult for the plans to act independently in incorporating best practices without incurring substantial costs.

At our hearing, we heard testimony that the preferred provider organization (PPO) plan offered to government employees was able to meet some of the initial federal mandates with a small cost increase by utilizing reserves which had built up as a result of investments gains by the state insurance fund reserve fund. These funds may keep the state insurance plan PPO costs under control for one more year, but I believe this to be a very temporary solution. If there is a downturn in the market and these reserve funds are not available in the future, the plan could then be hit with multiple years of health care cost inflation. This inflation could be substantial in size because of the federal mandates.

We were also told that some of the state’s health maintenance (HMO) insurance plans could be experiencing significant increases in the area of 10 to 13 percent. This will come at a time when the state employees’ benefit allowance will actually be decreasing. In other words, state employees may have less money available to spend on significantly more expensive HMO plans.

Some of the federal requirements which are driving up the cost of insurance are because of wellness and prevention mandates. While the policies are well meaning, they are taking away the freedom of health insurers from being able to independently design their own plans which will work for the participants of the plan while keeping costs under control.

In other words, those free market best practices which we were trying to apply and drive down the cost to the taxpayer, will now be much more difficult to implement as we struggle to fit within the federal government’s one-size-fits-all approach.

Oklahoma taxpayers, state agencies, school boards, rural water districts and county governments will eventually be forced to pay the increased cost in meeting the new federal mandates on health insurance polices for the thousands of covered Oklahoma government employees.

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