The Legislative Auditor’s Office issued a report Monday that predicts the Jindal administration’s plans to privatize a health insurance plan could increase costs for state employees.
The 17-page report characterizes the possible increased premiums as an issue that should be deliberated before decisions are made on the future of the Office of Group Benefits.
“The sale/lease may result in higher insurance premiums to state employees under a private insurer because of an increase in marketing costs, premium taxes, necessary profit margin, and reinsurance costs,” the report states.
In his response, Commissioner of Administration Paul Rainwater, the governor’s top budget adviser, dismissed the possibility of higher premiums purely as a result of privatization as speculative.
“On the one hand, it omits the fact that premium costs are regularly increasing under the current structure anyway, while on the other hand it does not factor in any of the relative cost savings that your report also says ‘may result from the efficiencies gained,’ ” Rainwater wrote.
The Jindal administration began battling criticism from legislators and others after raising the possibility of saving money by privatizing a plan that insures thousands of people.
Critics contend premiums will increase. The Jindal administration counters that premium increases only would reflect medical market rates, as they do now.
The Office of Group Benefits provides health and life insurance to about a quarter-million current and retired state employees and their dependents.
Some of the office’s health plans already are outsourced to the private sector.
The debate is over the future of Group Benefits’ preferred provider organization which is not outsourced today. The PPO insures more than 60,000 people. A PPO is a group of doctors, hospitals and others providing health care to subscribers at reduced rates.
Earlier this year the administration sparred with legislators over the release of a financial analysis by Chaffe and Associates of the Office of Group Benefits.
The report, which the administration released under the order of a legislative subpoena, concluded that premiums would increase to maintain a private company’s pre-tax operating margin.
The Division of Administration recently hired Morgan Keegan, an investment company, on a contract to help determine the market value of the Office of Group Benefits’ book of business. Morgan Keegan also could possibly help with hiring a private company to manage the PPO if the administration decides to go in that direction.
The Legislative Auditor’s Office said the purpose of the report released Monday is to provide information about the Office of Group Benefits’ administrative costs, the Chaffe report and the Legislature’s role in the privatization.
The Chaffe report, the auditor’s office said, concluded that the Office of Group Benefits’ market value on Jan. 31 was at least $133 million.
The Legislative Auditor’s Office said the Chaffe report was commissioned for a $49,999.99 ceiling. Contracts $50,000 or more are subject to statutory review.
The report also notes that a full sale of the Office of Group Benefits would entail a number of legislative hurdles, especially to deal with the office’s surplus, which stood at nearly $500,000 earlier this year.
Rainwater responded that a “full or wholesale privatization” is not being considered.
He said the state’s financial adviser will make recommendations on the Office of Group Benefits’ proper administrative structure.
The Office of Group Benefits employs more than 300 state workers. The Jindal administration contends other states employ fewer state workers on their insurance plans by relying on private service providers.
Rainwater said no changes would be implemented until Jan. 1, 2013.