Representing CIGNA HealthCare of Arizona, the current health insurance provider for state employees and dependents, I found the Arizona Capitol Times story on the state’s impending move to self-insurance to be most timely. During my visits with legislators, I have been asked CIGNA HealthCare’s view on this move, and I would like to share it with your readers. [State Moves Toward Self Insurance To Save Money, Improve Quality, Oct. 31, Page 4]

As a nationally recognized company that provides administrative services to many self-insured employers, CIGNA HealthCare believes that self-insurance can be a viable option if done appropriately. However, from a budgetary perspective, the current contract provides the state with strong cash flow — one of the primary benefits of self-insuring — without the greater financial risk.

It’s true that premiums have gone up for the state’s program, but not at the level you were told. From Oct. 1, 2001, to Sept. 30, 2004, CIGNA HealthCare’s premiums went from approximately $320 million to $416 million, an increase of $96 million in three years. When the 2.2 per cent jump in total subscribers, including a 17 per cent rise in retirees, is factored in the net increase falls to $89 million. That’s $21 million less than $110 million figure you were provided.

The overall average annual premium increase for the three years was just under 14 per cent. That’s less than the annual medical inflation rate for those same years, and is very favorable compared to the premium adjustments received by most private employers.

As to improved benefits, let’s look at what state members get now. CIGNA HealthCare offers some unique advantages. According to the state, when it awarded the contract in 2000, CIGNA HealthCare had the:

• Highest employee satisfaction (90 per cent) among the existing health plan options.

• Highest clinical quality ratings.

• Largest and strongest urban and rural provider network.

• Best value plan and benefits options at the lowest cost for employees statewide.

CIGNA HealthCare’s bid was the most financially attractive too at $70 million less than the next lowest viable option.

CIGNA HealthCare has an exclusive medical network — the CIGNA Medical Group — that currently cares for more than 25,000 state employees and dependents. No other bidder for the state can offer that network, so losing it would mean disruptions for about a fifth of the state’s 123,000 plan members. In excess of 12,000 state members received care last year through CIGNA HealthCare’s own after-hours and urgent-care programs, a tremendous convenience and cost saver compared to an emergency room visit. And, nearly 12,000 state members are treated each year under CIGNA HealthCare’s innovative disease management programs, receiving personalized assistance from nurse case managers for asthma, diabetes, low back and cardiac conditions.

Right now, CIGNA HealthCare offers four plan designs to state members: HMO, PPO, POS and Medicare-plus Choice. Under self-insurance, the state plans to offer only HMO and PPO plans.

If the state moves to self-insurance, we share the concern of Rep. Ted Carpenter, R-Dist. 6, about the need to set up adequate premium reserves and protect them from potential raids and sweeps. The state’s plan to get to an adequate reserve level will likely take longer than the nine months they have predicted, for several reasons.

First, because the state pays premiums 75 days in arrears, there is a deferred premium owed to CIGNA HealthCare at the contract’s end of about $76 million. Second, a “save as you go” approach to reserving only works if health care claims end up being less than premiums collected. Based on experience, CIGNA HealthCare believes the state is underestimating that future claims liability. Even if the state were correct, the projected reserve of $53 million would likely be inadequate, as it would represent less than 12 per cent of the total premium; most reserve funds are set at the 20 per cent to 25 per cent level. And, there is still no simple way to “lock box” the reserves.

Sadly, if the state proceeds with its self-funding plans and awards contracts under the RFPs issued last December, it will mark the end of its more than 30-year working relationship with CIGNA HealthCare.

CIGNA HealthCare did not bid on the state’s RFPs because the they were not well crafted and divided the program into far too many small pieces and geographic areas.

CIGNA HealthCare wasn’t alone, as most of its competitors including Aetna, HealthNet, Humana, PacifiCare and United declined to bid as well. Under the circumstances, we believe the state should re-bid the program — which would not require a delay in the planned Oct. 1, 2004, start-up date — but do so in a way that will attract bids from all the top providers.

Steve Barclay, Advocates West, Inc.