Nebraska State Health Insurance Plan Under Fire, Reforms Considered

Nebraska State Health Insurance Plan Under Fire, Reforms Considered
November 2, 2012

Nebraska state lawmakers are considering changes to the state health insurance program after an audit found the program’s per capita cost to be the highest in the nation.

Nebraska’s Legislative Performance Audit Committee has discussed possible legislation to address some of the concerns raised in the audit, including adding teeth to the law to get more cooperation from state departments being audited.

The audit found the state employee health insurance plan costs about $27,000 per employee—nearly $12,000 more than the national average. The audit attributed the high cost to inefficient plan design, excessive administrative expenses, poor program monitoring, unnecessary stop-loss insurance coverage, and a huge reserve fund.

State Auditor Mike Foley fought for two years to get data from the Department of Administrative Services (DAS) to complete the audit.

High-Cost Government Plan

The audit found the cost of administering the state plan was $9.3 million in 2010, compared with $4.4 million for a comparablu sized plan at the University of Nebraska. And even though the plan has a much larger reserve fund than its actuary recommended, it also spends millions for stop-loss insurance coverage that the state auditor says is unneeded. This coverage guards against catastrophic claims or an unusually high number of claims.

Foley said the state didn’t conduct a cost-benefit analysis for the stop-loss coverage—which most large insurance plans don’t have—and the state lost $4.3 million buying the coverage from 2007 to 2010.

“It’s not a good bargain for the state,” Foley said, especially when the plan has a cash reserve of $65 million—enough to pay five months’ worth of claims rather than the two to four recommended.

DAS Director Carlos Castillo, who was appointed by Republican Gov. Dave Heineman, disagreed with many of the audit’s findings, noting many plan design changes have been made since the audit was done. A few years ago there was no cash reserve at all, Castillo noted.

Foley said he doesn’t think the plan has changed much, aside from the state choosing a new administrator for it and a university purge of ineligible participants.

‘It’s Out of Control’

Nebraska offers a self-insured plan in which premiums collected from the employer and employees are used to cover claims. The plan covers about 29,000 state employees and dependents. Foley said the self-insured plan only works if it’s properly monitored, but the plan has a “total lack of oversight,” with all key decisions being made by Castillo.

Sen. Bob Krist (R-Omaha) said he’s bothered by the fact that one person in DAS who “knows nothing about insurance” is making key decisions. Krist said he intends to introduce legislation to reform the system, similar to how lawmakers passed multiple bills last session to fix the child welfare system.

“It’s out of control,” Krist said. “We need to bring it into control.”

Failure to Monitor Claims

Auditors found $1.2 million in questionable claims and a DAS failure to open the spreadsheets with detailed claim information. The department’s employees didn’t even know how to open the files, Foley said. Amazingly, after the audit, the department told the administrator, Blue Cross Blue Shield, to stop providing the claim information.

Castillo emphasized the DAS has tried to cooperate with the committee.

“We were very cooperative with him,” Castillo said. “We want to have a good working relationship with him.”

Foley says lawmakers are considering whether to require state agencies and cities to cooperate with state auditors and their requests for information, perhaps by requiring them to share data within four days, similar to the open records law.

“We’re more than willing to sit down with them and provide them with information that they need,” Castillo said.

But Foley criticized the DAS for failing to cooperate with auditors.

“It took us two years to do this audit. It should’ve been done in six months,” Foley said. And he said the “cancer is spreading,” with the Department of Health and Human Services taking 110 days to respond to a routine request for access to a database of accounting records, including unpaid invoices. He called that absurd.

“We just can’t have this,” Foley said.

Lawmakers Consider Reforms

Lawmakers such as Krist are considering measures that would move the University of Nebraska’s $104 million insurance trust fund under the control of the state treasurer. It would return control of the State Law Enforcement Bargaining Council’s health insurance plan money to the state treasurer.

The council came under fire for using health insurance funds to finance construction of a $1.2 million building that it was unable to sell and now leases. Foley called it a “horrible investment.”

Foley says lawmakers may also study whether the state should continue to run a self-insured health insurance program, switch to a fully insured plan, or consolidate all plans into one plan for public employees, and will work to improve oversight and monitoring of the state health insurance plan. Foley said one person at the DAS should not be making decisions about the plan and premiums.

Sen. John Harms (R-Scottsbluff), chairman of the Performance Audit Committee, said the insurance problems are a “huge issue” that lawmakers need to come to grips with.

Deena Winter (deena@nebraskawatchdog.org) writes for Nebraska Watchdog, where an earlier version of this article appeared. Reprinted with permission.