The State of Wisconsin, through the Department of Employee Trust Funds (ETF), provides health insurance benefits to nearly all state employees and many local public employees. This program has for years relied upon a “managed competition” model, which allows any health insurance company or health plan that can provide the required benefits to compete for the business of each employee. The state then pays the required premium to each participating company. Wisconsin enjoys an unusually competitive and vibrant health insurance market, with many relatively small, Wisconsin-headquartered health insurers competing in the commercial health insurance space. In any given year, approximately 18 different health plans and insurers participate in the state’s program. The state pays these insurers about $2 billion in premium annually.
For more than four years, the administration of Governor Walker has been studying and planning to potentially switch this program from fully insured to self-insured. Most large employers self-insure their employee health benefits. In a self-insured model, the state would in effect take on the risk of bad claims experience in any given year, as opposed for insuring against that risk. On May 8, ETF submitted contracts to the Joint Committee on Finance to switch to self-insurance on January 1, 2018 utilizing six third-party administrators to process claims on a statewide and regional basis. According to ETF’s consultants, this revised program would save $60 million annually.
The plan has received a cool reception in the Joint Committee on Finance, whose leaders are concerned that a switch to self-insurance will have a negative impact on the overall commercial insurance market in Wisconsin. In addition, the committee’s leaders believe there are other ways to generate the $60 million in savings that would not risk destabilizing the state’s competitive commercial insurance market. It remains to be seen whether the committee accepts the governor’s plan and approves the contracts submitted by ETF, but public comments from the committee leadership would seem to make approval unlikely. The more likely course appears to be requiring ETF to generate equivalent savings through other plan changes. This is one of the lesser-known, yet important areas of spending that the Legislature will address as the state budget process proceeds.