The chairman of the House Appropriations Committee says the state should halt its plans for self-insured health coverage until the Legislature can take another look at the program.

“The message is to stop, stop, stop,” said Rep. Russell Pearce, R-Dist. 18, who is working on a bill to repeal a legislative mandate that the state convert to self-insurance from its commercial coverage with Cigna Healthcare of Arizona by October 2004.

He said he is not against self-insurance “if it’s a good deal for the state,” but expressed concern about whether the state has the resources to build a required reserve fund. And other legislators say safeguards are needed to protect the fund from being raided by the Legislature to help balance the budget.

Under self-funded insurance, the state assumes the risk of health coverage and avoids commercial risk and some administrative costs.

The Department of Administration had planned to award contracts for the program this month, but DOA Director Betsey Bayless said, “We’re on hold.”

Thirty Arizona and out-of-state companies submitted bids (the names of the companies will be published in a forthcoming issue of Arizona Capitol Times), and the proposals were to have been reviewed by the Joint Legislative Budget Committee. But Mr. Pearce, co-chairman of committee, refused to place the bid review on the committee agenda.

“It was to stop DOA from spending money” to implement the program, he said. “They can’t go forward with something that obligates the Legislature.”

Ms. Bayless, said, “This is not the type of program you put together in three to six months. I told him planning had to be done now.”

The Legislature approved the move to self-insurance in 2001 as a way to reduce the cost of providing health benefits to approximately 140,000 state employees, their dependents and retirees. The program was to have been in effect last October, but the Legislature delayed it one year because of last year’s budget deficit.

“This is a legislative proposal,” Ms. Bayless said. “It was their idea. It would be a mistake not to go forward.”

She said the reserve fund is built from premium payments and program savings. “There’s going to be plenty of money to pay for any claims.”

Ms. Bayless said she has been meeting with legislative leaders to explain the program, and it has been “well received.” She said she had not yet met with House Speaker Jake Flake, R-Dist. 5, to discuss Mr. Pearce’s objections.

The program is strongly supported by Governor Napolitano, who, Mr. Pearce says, diminishes the role of the Legislature.

“There’s a history with the ninth floor that we’re advisory,” he said.

Sens. Dean Martin, R-Dist. 6, and Carolyn Allen, R-Dist. 8, also have expressed reservations about the program.

Savings Expected

DOA says Cigna has increased its premiums by $110 million over the past two years, and the state has paid the company more than $1 billion since October 2001.

In testimony before the Statewide Healthcare Task Force on Nov. 6, DOA said self-funded health insurance will save the state $204 million in the first five years and will provide employees with more flexible benefit plans.

Governor Napolitano, however, said on Dec. 22 the insurance program would save $132 million in five years.

Asked about the different projections, the governor said the amount of savings is “a moving target,” but she expected the amount to reach $200 million by 2009.

Cigna was denied its request that DOA rebid the self-insurance program. Jeff Terrill, Cigna CEO, said the company did not submit a bid because the state’s requests for proposals were structured to disqualify it and other major companies that provide medical, pharmaceutical and administrative services.

“Cigna is not anti-self insurance or self-funding,” Mr. Terrill told the Healthcare Task Force meeting, but he argued that a state self-insurance program will not save the state money. He said the cost of the current Cigna contract is 14 per cent less than in states that self-fund health coverage for employees.

Thirty-six states self-fund or partially self-fund their health insurance.

Susan Strickler, DOA benefits manager, told the task force that more than 30 contractors will be needed to provide flexibility in benefits to meet the needs of different areas of the state. The program would be run much like an integrated system, she said.

Ms. Strickler added that the benefits model for a state-administered health insurance program takes into account what employees want and also can look at long-term costs and avoid large “contract-to-contract” commercial rate increases. —