The market value of a state worker health insurance program that Gov. Bobby Jindal is considering privatizing has been pegged between $133 million and $217 million, according to an audit released Aug. 29.
The assessment by New Orleans-based Chaffe & Associates Inc., a firm hired by the Jindal administration earlier this year, had been kept secret from the public and had only been released to senators and the legislative auditor’s office after senators voted to subpoena it.
Legislative Auditor Daryl Purpera included the information in his review of issues that should be considered by lawmakers before the insurance program in the Office of Group Benefits is privatized or sold outright to a private company, an audit released publicly.
The privatization effort has generated strong criticism from lawmakers and state employees and retirees who worry their health benefits might be cut, their premiums increased and a health insurance trust fund raided.
Purpera’s review says the sale or lease of the group benefits office or plans could cause higher insurance premiums because a private company would have marketing costs, premium taxes, profit margins and reinsurance costs that OGB doesn’t have.
The review also says the sale of group benefits could diminish legislative and state control over costs, benefits and insurance plan changes.
“These issues would need to be addressed in the contract,” the audit says.
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.
Commissioner of Administration Paul Rainwater said no decision has been made about whether to proceed with the privatization or sale of group benefits.
The administration has chosen financial adviser Morgan Keegan to determine whether structural changes should be made to group benefits and whether a private company should be brought in.
“The possibility of providing quality service in a manner that’s also more efficient is precisely why we have begun this evaluation of OGB, and we owe it to taxpayers to evaluate it fully,” Rainwater wrote in a response to Purpera’s review.
In its June 3rd report, Chaffe said group benefits’ book of business is worth up to $217 million, assuming a five-year privatization time, according to Purpera’s review. It’s 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.
To do its work, Chaffe was given a contract from the Jindal administration just under $50,000, one dollar below the threshold that would have required statutory review.
Rainwater called the legislative auditor review’s suggestion that privatization could result in higher insurance premiums a speculation that “cannot be supported based on the research in your report.”
“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 by using an established health provider,”‘ Rainwater wrote.
Earlier discussions involved a possible privatization in the current budget year, but Rainwater said if the administration pursues privatization, no changes would be made until Jan. 1, 2013.
Lawmakers would have to approve parts of the arrangement. Purpera’s report outlines several steps that would require legislative backing.
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