Health Insurance Issues Likely to Heat Up

Pat Osborne, HFO & Associates

Mar. 21, 2002

Private and public employers alike are facing substantial health insurance cost increases.  In Dec. 2001, the Wisconsin Manufacturers & Commerce (WMC) released a member survey that showed wide-spread premium increases ranging from 11% to over 50%, with more than 41% reporting increases between 21% and 40%.  More recently, the Wisconsin Association of School Boards (WASB) issued a press release on Mar. 19, 2002, that showed an average statewide cost increase of 20% for school district employee health benefits compared to last year.  WASB is projecting even higher premium increases for next year at 35% over current cost.  While the problem may be clear, the root causes and solutions are not.

Much of the legislative action this session has focused on various attempts to provide relief to small business owners.  (Reference SB 81, AB 543 and AB 876)  None of the separate pieces of legislation passed both houses prior to adjournment, so the action has shifted to the Budget Adjustment Bill.  Budget action to date, with commentary on potential Senate action, is summarized below.

Small Business Health Insurance Initiative
The Assembly adopted a small business health insurance reform package, which incorporates many of the provisions of AB 876 as passed by the Assembly.  The Assembly version of the budget bill provides an $850,000 loan from the Office of the Commissioner of Insurance (OCI) to the Department of Employee Trust Funds (ETF) to fund the Small Business Insurance Pool. In addition, AB 876 would:

• Create a small business reinsurance program.
• Direct the Department of Administration (DOA) to study prescription drug purchasing groups.
• Require the state to offer its employees a defined contribution plan in addition to health plans currently being offered.
• Require the use of universal employee application forms and claims processing forms.

The budget proposal added provisions that federalize the tax treatment of medical savings accounts (MSA's) and direct a Legislative Council study on the rising cost of health care.

Senate Rewrite Pending
The Senate is not likely to approve the Assembly Republican package without substantial modifications.  Whether the Senate Caucus eliminates the package entirely (to resolve differences in conference committee) or selectively adopts portions of the package in the Senate Democrat Caucus remains to be seen.

The Senate has previously proposed and supported funding for the Small Business Insurance Pool and is expected to maintain that support.  The defined contribution plan and reinsurance program provisions are the two most likely to be eliminated by the Senate.  The Senate Democrat Caucus budget is also expected to include cost containment measures, particularly as it relates to hospital rate-setting and construction.  The majority caucus may also include rate-band restrictions on health insurers, which they previously adopted in both the budget bill (SB 55) and SB 81.

State Health Insurance Benefits
The Assembly version of the budget also proposes several changes in state employee health coverage and related benefits. Changes include:

• Suspend state contributions for accumulated sick leave conversion and supplemental health insurance conversion between May 1, 2002 and June 30, 2003. Provision, also adopted by Joint Finance, saves $71 million over the biennium.
• Reduce the maximum annual amount of unused sick leave an employee may accumulate for conversion from 130 hours to 97.5 hours per year, effective Jan.1, 2003.
• Require state employees insured under the state group health insurance program to contribute at least $10 per month for single coverage and $20 per month for family coverage, effective Jan.1, 2003. (The state currently covers 90% of the monthly cost of the Standard Plan or 105% of the cost of the lowest cost alternative plan. Subsequently, an employee electing coverage under the lowest cost plan currently pays zero with no minimum contribution required.)
• Reduce state premium payments by 50% for employees working half-time to three-quarter time, effective Jan.1, 2003. (Currently, if an employee is working at least half-time they are considered full-time for purposes of state contribution to health insurance coverage. Estimated savings of $7.3 million in the current biennium).
• Eliminate state employer contribution to the income continuation insurance program, effective July 1, 2002. (Estimated savings of $6 million).

All of these items are expected to be controversial in the Senate Democrat Caucus and subject to being removed or substantially modified. At a minimum, the Senate Democrat Caucus is expected to oppose the application of the above provisions to represented state employees.