Who Benefits When State Sells Group Benefits Office

By: Steve Spires

A recent report by the Legislative Auditor’s Office calls into question the wisdom of Governor Jindal’s proposal to privatize the state’s Office of Group Benefits (OGB), which currently administers the life and health insurance plans of nearly 226,000 state employees, retirees, and their families.

According to the Auditor’s report, privatization could lead to increased health insurance premiums for state employees due to a private insurer’s higher administrative and marketing costs and its need to make a profit. The Jindal administration claims no such increase would occur because a private insurer would run the office more efficiently, despite OGB’s long history of low-cost administration.

A privatization plan would leave the state with less control over employee benefits, and privatization “savings” for the state would come, in part, from laying-off some—if not most—of the three hundred state employees who now work for OGB.

Earlier this year, the state contracted with New Orleans-based Chaffe & Associates, Inc. to determine the “fair market value” of OGB’s business. Chaffe concluded that it was worth between $133 and $217 million. The Chaffe report—like the Legislative Auditor’s—also noted that a private insurer would have to build in the extra cost of making a profit when setting premiums.

On a troubling side note, the Jindal administration initially refused to release any of the Chaffe report to the legislature, until forced to do so by a legislative subpoena. This raises serious questions about transparency, particularly since legislative approval and new legislation would be needed to implement any privatization plan.

The Auditor’s report raises a number of other stumbling blocks. First is what to do with OGB’s existing fund balance of nearly $500 million. Currently, there are legal restrictions on how the money can be used. Further complicating any privatization deal, OGB currently helps the Department of Health and Hospitals (DHH) with administering parts of the state’s Medicaid program, and provides limited assistance to LSU’s health insurance plan. How these arrangements would be affected by a privatization deal and at what cost have not been adequately addressed publicly.

Despite these questions and concerns, the Jindal administration is moving forward with the plan. Just last month, the state announced it had signed a contract with investment firm Morgan Keegan & Co. to assist the administration on OGB privatization.

While the state would receive some cash upfront for privatizing the Office of Group Benefits, it is hard to see how potentially higher premiums for state employees and retirees, reduced state control over employee benefits, and more government layoffs is a good deal for Louisiana. The big winner would be the private insurer chosen to take over OGB’s business.

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