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Blumenthal Says New Insurance Pool Possible for Towns

By DIANE LEVICK | Courant Staff Writer

May 27, 2008

There are high hopes for new legislation that would let Connecticut towns, small businesses and nonprofits join the state employees' health plan, but it has been hard to gauge how much relief they'd get from high premiums.

Predicting the outcome is going to get even tougher.

Attorney General Richard Blumenthal is about to release a legal opinion that could blunt a major concern of Gov. M. Jodi Rell about the cost to the state, but raises more uncertainty about what towns and others would end up paying for insurance.

The legislation, passed by the House and Senate, is aimed at giving towns and others access to the same rates, broad insurance benefits and low co-payments that the state plan has — presumably a better deal than some towns could get on their own.

Expanding the insurance pool, which has 200,000 state workers, family members and retirees, would give the state even more negotiating power with insurers, proponents believe.

But the legislation, passed without any Republican votes, lit a fiery debate about how well the expanded pool would work. The bill's supporters have been waging a media blitz to pressure Rell — who's considering a veto — to sign the measure.

The Republican governor is concerned because insurers want to raise rates for the whole pool if it is opened to municipalities and others, and the deficit-ridden state wants to avoid paying higher premiums for its workers.

Blumenthal, who was asked for a legal opinion by House Majority Leader Christopher G. Donovan of Meriden, says neither the state nor insurers can unilaterally change the existing three-year contracts. The contracts keep rates for state employees the same as they are now for the state fiscal year starting July 1, and insurers had also agreed to various caps on rate increases in the following two fiscal years.

Blumenthal says the new legislation allows an arrangement that would preserve those terms for state workers, dependents and retirees. Instead of pooling town employees and others with state workers, the state could create a separate pool for municipalities, small employers and nonprofits, Blumenthal said.

The state would then need to obtain separate rates for the new pool for "equivalent" or "substantially the same" coverage as state employees have, he said.

The state could either negotiate rates for the municipal pool with the same insurers covering state employees, which include Anthem, Health Net, and UnitedHealth, or solicit bids in the open market, Blumenthal said. Formal bidding might attract additional insurers, heightening competition.

Either way, "there's no additional cost to the state," said Blumenthal, a Democrat who advocated the bill. "The governor's concern is understandable, but it's the product of scare tactics that are legally completely unfounded."

The state would still have the option of negotiating contracts to pool its employees with those of towns and other groups, he noted.

Meanwhile, even if concern over state costs is assuaged under Blumenthal's scenario, questions remain about how good a deal the state can obtain for towns and other groups and how many would really benefit.

Insurers' major concern has been that opening up the state pool would result in higher claim costs. As a result, Anthem Blue Cross and Blue Shield said it would need to increase rates July 1 for the state health plan and whatever groups are in it by 4 percent, about $24 million.

A small part of that increase would be for added administrative costs because, for instance, each town and other employer that joins the pool would have to be billed individually, said David R. Fusco, president of Anthem in Connecticut.

By raising the specter of a 4 percent increase, "they're trying to influence the governor and scare the governor off from signing the bill," Donovan said in an interview last week. "Who's to say schoolteachers and city employees would drive up the cost?" He said he has heard that municipal workers are younger and possibly healthier on average than state employees.

Insurers aren't saying claim costs for town or small-business employees are higher on a statewide average than for state workers. They're worried, though, that the specific towns and other employers that decide to join the state pool would be higher-risk because rates for them outside the pool would likely be higher.

"If you look at who would be attracted to the opportunity to move to the state plan, our assumption is that it would be only those who have a higher medical cost structure," Fusco said last week before Blumenthal's legal opinion was known. "Rates are a function of medical costs."

Donovan points to the existing state plan to show the power of pooling in negotiating the lowest possible premiums. Fusco, though, said that leverage affects a small portion of the premium — the part that covers administrative costs and other overhead — and profits.

Anthem and Health Net have said they will exercise their contractual right to renegotiate rates for July 1 if the state plan is opened up because that could significantly alter the level of claims.

UnitedHealth has said it would cover municipalities in the state plan at the same rates as for state employees for the first year. That commitment doesn't extend beyond the 2008-09 fiscal year and wouldn't apply to small employers and nonprofits.

It is not known how much interest insurers would have in covering a separate rating pool that would combine towns, small businesses and nonprofits without state employees. Anthem already insures more than 80 percent of the municipal market in Connecticut.

If no insurance companies are interested in serving the new pool, the program envisioned by legislation may stall, Blumenthal acknowledged.

If the plan does proceed, it isn't likely to be the godsend that supporters hoped for or the failure some critics have predicted.

For one thing, insurers could insist on prices that offer little or no advantage to many towns and others. The current annual premium for a family under the state employees' current program ranges from $12,835 to $21,474, depending on the type of plan, with the state paying the lion's share.

Towns that have higher doctor and prescription co-pays than the state employees' plan may not want to "buy up" to the state's richer benefits, which include drug co-pays of $3 and $6. On the other hand, some small firms that are trying to attract and retain professionals with high-quality insurance may find the pool useful.

The new legislation requires towns or other employers who join the state pool to remain in it for at least three years.

It's also not clear whether the rates and benefit design in a new municipal/private employer pool would be any more or less attractive than under Connecticut's existing Municipal Employees Health Insurance Program. Operated by the state comptroller's office, the small program covers more nonprofits than town employees, but a new version is expected to bring in more municipalities.

Debate has swirled around the accuracy of estimated savings towns would enjoy by joining the state employees' plan, partly because benefits in town and state health plans often don't exactly match up. Officials of some towns, though, are optimistic about the new legislation.

Meanwhile, Windham has been told its rates could rise as much as 20 percent on July 1 and is anticipating about 12 percent. So savings through the new legislation "could be a big lifesaver" and save some jobs, said First Selectwoman Jean de Smet. "This would be a great help to our budget and our economy."