Morgan Keegan to Advise Louisiana on Health Insurance Privatization Effort

Louisiana Gov. Bobby Jindal’s administration has selected a company to offer financial advice on the governor’s proposal to privatize a state employee health insurance program, and pushed back any chance the privatization could be done this year.

Jindal’s top budget adviser, Commissioner of Administration Paul Rainwater, said Morgan Keegan was chosen to help determine the worth of the Office of Group Benefits and provide recommendations about whether a private company should manage an agency insurance plan.

“This is an important first step in what will be a lengthy, careful, and thorough evaluation process to arrive at the best possible policy for plan members and taxpayers alike,” Rainwater said in a statement.

Earlier discussions involved a possible privatization in the current budget year, but Rainwater’s office said no changes would be made until Jan. 1, 2013.

The proposal has generated criticism from state lawmakers and from current and retired state employees who worry their health benefits might be cut, their premiums increased and a health insurance trust fund raided.

The Office of Group Benefits provides health insurance and life insurance to about 255,000 current state workers, retirees and their dependents. Some of group benefits’ insurance plans already are run by private companies. Jindal’s proposal would affect about 62,000 employees, retirees and their dependents.

Lawmakers would have to approve parts of the arrangement.

Morgan Keegan offered the lowest bid of the three companies vying for the work, at $900,000. But the Division of Administration says the terms of the contract are still being discussed. Barclays Capital’s bid was $5.5 million, while Goldman Sachs offered a $3.5 million proposal.

“Those were the maximum amounts included in the proposers’ bids, and the actual cost of the contract will be determined through negotiation of the contract with Morgan Keegan, and, importantly, will depend on actual work completed,” Rainwater spokesman Michael DiResto said.

Jindal has said privatization could cut the 300-employee group benefits office in half and generate $10 million in annual savings for the state, in addition to an upfront, lump sum payment that could top $150 million. But it’s unclear how those numbers were estimated.

It’s also unclear how a $500 million trust fund filled with premiums paid by covered employees would be handled if a private company was hired to run the insurance plan.

Rainwater’s office said any privatization effort would have to maintain the current level of benefits and eligibility rules for plan members. The group benefits’ office fund balance couldn’t be diverted to fill budget gaps and could only be used for health care coverage, the Division of Administration said.