Boots & Sabers

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0729, 26 Jan 16

The case for self-insuring state employees

My column for the West Bend Daily News is online. I’ll warn you… it’s a bland topic. I tried to spice it up as much as I could.

Gov. Scott Walker’s fifth State of the State speech last week was primarily a defense of his leadership to date and was most notable for its lack of grand ideas that have defined his tenure. Walker did, however, highlight one initiative that should be advanced. Wisconsin should self-insure its employees’ health care.

Wisconsin spends about $1.1 billion per year to provide health insurance for its employees in 18 separate health insurance plans. A study by Segal Consulting commissioned by the state Department of Employee Trust Funds last year determined the state could save about $42 million per year by self-insuring.

In doing so, the state takes on the responsibility of collecting premiums, managing health plans and paying claims. This puts the state at financial risk should the cost of claims exceed the premiums collected, but it is a small risk given the number of state employees to be covered.

This is why governments and businesses self-insuring their employees has become a very common and increasing trend — especially since the passage of Obamacare.

In 2013, 58.2 percent of American workers with health care coverage were in self-insured plans, according to the Employee Benefit Research Institute. That is up from 40.9 percent in 1998. Most of the businesses that self-insure are large companies with 1,000 or more employees. These include some of Wisconsin’s keystone businesses like Briggs & Stratton, Kohler, Kwik Trip, S. C. Johnson & Son, Schneider National and others.

Self-insurance is also common in governments. According to the National Conference of State Legislatures, 46 states self-insure at least some of their employee health care plans and 20 states self-insure all of their health plans. In Wisconsin, many of the larger cities and other governments self-insure, including Madison, Milwaukee, Appleton, Green Bay, Brown County, Milwaukee County, Washington County, Waukesha County, Milwaukee Metropolitan Sewerage District and others.

The switch to self-insure is not an easy one. For the state to accomplish it, it would have to triple cash reserves to cover claims and either build a department to administer the plan or contract one or more private companies to do that administration. But while transitioning the state to self-insurance is not a task to be taken lightly, it is certainly not an untrodden path.

While state taxpayers stand to save millions by selfinsuring, the source of those savings is more interesting. According to the study, the state would save $11 million in administration fees and $11 million that constitutes the current insurance providers’ profits, the lion’s share of the savings — $18.3 million in 2018 and more in subsequent years — would come from the state avoiding Obamacare fees. The study did not include savings from the Obamacare excise tax on health insurance that is scheduled to start in 2018 on some of the state’s current plans. Yes, the vaunted “Affordable” Care Act is anything but affordable.

The opposition to the state self-insuring is coming primarily from the folks who stand to lose out if the state takes this step. The organizations representing the insurance companies that provide health insurance plans for the state’s employees and some union leaders who fear a decline in coverage are voicing opposition. But some folks are also concerned about disrupting Wisconsin’s private health care market by such a huge shift in the landscape. Such points are not without merit, but they do not justify state taxpayers spending at least $42 million per year more than they should to provide health care insurance for their employees.

In Walker’s State of the State, he expressed his goal to take savings generated by self-insuring and spend that money on K-12 education. Doing so is likely a political calculation by Walker to gain support from Democrats for the change in health insurance and to give legislators a spending boost for education as most of them ask the voters to re-elect them in November.

While politically smart, it is bad policy. Dumping more money into government spending for the sake of spending more money is never good policy. Given that Walker has increased state government spending in each budget he has signed, this is an opportunity to return savings to the taxpayers. If taxpayers want to spend more on their local K-12 schools, we can do so through our local school districts via referendum, if necessary.


0729, 26 January 2016


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