Lawmakers Question Louisiana Governor’s Insurance Privatization Plan

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Louisiana Gov. Bobby Jindal’s top financial advisor has defended the administration’s proposal to hire a private company to run a state worker and retiree health insurance program, rebutting complaints the privatization would boost health care costs to generate short-term cash for the budget.

The proposal has rankled current and former state employees and lawmakers who say the Office of Group Benefits runs its insurance programs with low administrative costs and who call the privatization plan a bid to raid the $510 million trust fund filled with premiums paid by covered employees.

Jindal’s commissioner of administration, Paul Rainwater, said Louisiana shouldn’t be in the day-to-day business of running an insurance company, noting the only other state to run its own health insurance plan is Utah. He said a private company would be required to offer the same type of health care plan to workers and retirees. He said an outside firm would be more efficient and offer better claims management, though he offered no data to support those assertions.

“If we don’t get to terms that make sense, we won’t sign a contract,” Rainwater told members of the Senate and House retirement committees.

Lawmakers, who would need to approve pieces of the privatization plans, questioned how a private company with a profit motivation would keep state costs low and suggested an outside firm would have to either raise premiums or reduce claims payments to make the numbers work.

“Is there any data or statistical analysis to make sure this is going to work, or is this a trial balloon?” asked Rep. Rogers Pope, R-Denham Springs.

Sen. Butch Gautreaux, chairman of the Senate Retirement Committee, said any deal seemed likely to be unfair to the employees who paid for health care coverage.

“I don’t really trust that the industry’s not going to get the upper hand,” said Gautreaux, D-Morgan City.

The Office of Group Benefits provides health insurance and life insurance to more than 148,000 current state workers and retirees and more than 107,000 of their dependents. Some of the insurance plans already are run by private companies. The privatization proposal from the Jindal administration would affect about 62,000 employees, retirees and their dependents.

Rainwater said the privatization plan could cut the office’s 300-person work force in half. It’s unclear if a private company would get the full $510 million trust fund containing money paid by workers in health care premiums in any privatization deal.

The governor’s 2011-12 budget proposal anticipates saving more than $10 million next year from laying off group benefits workers and shrinking the office size, but it doesn’t include the use of any one-time money generated by the sale, estimated to be up to $150 million or more.

But the plans are moving more slowly than first anticipated by the administration.

Negotiations with Goldman Sachs Group Inc. to be a financial adviser on a possible sale fell apart. Rainwater said the administration instead will reissue a request for proposals for a financial adviser and look for someone else to determine the worth of the health insurance program. He estimated it could take up to two months to choose an adviser.

Rainwater accused a handful of people from spreading misinformation “that is needlessly stirring fear” about the privatization effort, but lawmakers said the administration hadn’t offered enough details about its proposal or the five-year contract it would enter with any outside firm.

“I guess you can understand the apprehension that state employees might have,” said Sen. Ben Nevers, D-Bogalusa. “Certainly, I would not want to criticize them for being concerned.”