Markell, legislators in tug-of-war over health care
by Matthew Albright & Jen Rini
April 10, 2016
Source: Delaware Online
In the showdown over state workers' health insurance, each side says they cannot afford to lose.
Gov. Jack Markell says something has to be done to stem skyrocketing costs. State spending on employee health insurance has soared from $527.4 million to $708.1 million from fiscal year 2010 to fiscal year 2015. By 2020, that figure could grow to more than $1 billion.
To stem the budgetary implosion, Markell has proposed raising employee premiums and switching to a health savings account model for new employees.
But he is going to have difficulty getting those changes through a Legislature that does not want to balance the budget on the backs of 122,000 employees, retirees and their dependents.
Joan Kelley, a nurse with the state’s Child Death Review Commission, took a job in the public sector to make a difference, but she has to teach an online legal nurse consulting course in her off hours to make ends meet.
Kelley is proactive, learning the ins and outs of her health insurance, partially because of her knowledge of the healthcare field, but also because she has to be.
She pays out of pocket for holistic treatments such as massages to manage lingering pain from a car accident and spends time scheduling check-ups for her son, who is on the autism spectrum and needs special care.
“I think the state of Delaware has consistently put the employees on the front line whenever there is a budgetary crisis and it is very disturbing,” Kelly said. “The public has a view that we are overpaid and we don’t work hard. And I can tell you as a person who works very, very hard…I give 110 percent to my job.”
Instead of tapping state workers, lawmakers want the administration to squeeze more savings and better prices out of healthcare providers and insurers.
“I don’t think they’re charging us what they think we should pay,” said Sen. Harris McDowell, D-Wilmington. “I think they’re charging us what they think they can get. And I think the difference between those is very significant.”
Markell’s financial administrators say, while there are some savings to be had by negotiating with healthcare providers, the budget problem simply cannot be fixed until employees pay a greater share.
Delaware part of nation-wide struggle
Markell made employee health care a centerpiece of his proposed budget for the next fiscal year, which starts July 1.
His administration estimates that the state’s health care bill could exceed $1 billion by 2020 and could pass $1.2 billion by 2022. The state’s entire operating budget is just over $4 billion now.
If this runaway growth is not controlled, the state will soon struggle to pay for anything else, like schools, public safety or infrastructure, Markell said in his State of the State speech.
This dilemma is one that employers have faced for years, said Devon Herrick, health economist and senior fellow in health policy at the National Center for Policy Analysis in Dallas.
Both governments and private businesses have taken steps to reduce costs when faced with budget constraints. Private employers started increasing employee contributions and high-deductible plans years ago, Herrick said.
The public sector has found it harder to make those changes, he said, because of formidable resistance from unions. Delaware is no exception; union leaders here have blasted Markell's proposal, saying it balances the state's budget at the expense of workers.
Just how much would state employees lose if Markell gets his way?
The governor has sought increases to health insurance premiums of between $1.98 to $19.48 a month, depending on the plan.
The more drastic change would be replacing the plans with a health savings accounts into which the state puts money. Existing employees would keep their old plans, but new employees’ only option would be the new one.
For a single employee, the state would put in $1,000 toward a $2,000 deductible, while for families the state would contribute $2,000 toward a $4,000 deductible.
That plan is significantly less generous. About 95 percent of state employees are in HMO or PPO plans that have no deductible.
Ann Visalli, Markell’s budget director, who announced her resignation Friday to take a job with St. Andrew’s School in Middletown, said changes to the health care plan would ask employees “to be good consumers and have a stake in how their healthcare dollars are spent.”
McDowell, D-Wilmington and co-chair of the powerful Joint Finance Committee, doesn’t disagree that action needs to be taken to cut costs.
McDowell and many of his colleagues are hesitant to ask more of state employees, who have gone largely without raises for the past few years.
Health care plans are one of the main attractions to working for the state, lawmakers say. If the state eliminates that incentive, it could find it harder to attract qualified employees.
“In our state, we are really pushing and valuing education, and we want to hire the best and the brightest teachers,” said Rep. Debra Heffernan, D-Bellefonte, who sits on McDowell’s finance committee. “How are we going to do that, hire them in Delaware rather than a neighboring state, if we aren’t offering a good benefit plan.
“I think that Delaware has to flex its muscle as the biggest employer in the state to negotiate better prices,” Heffernan said. “As opposed to putting it on employees who have already been asked to shoulder more costs in the past couple of years and haven’t seen raises.”
Is Delaware getting ripped off?
When a state task force recently took a deep dive into healthcare, McDowell found ammunition for his argument that state government is being overcharged.
Medical claims in Delaware are, on average, 18 percent higher than those Highmark Blue Cross Blue Shield Delaware processes in Pennsylvania and West Virginia, according to internal data from Highmark. The insurer manages over 90 percent of state workers’ plans.
Tim Constantine, president of Highmark Blue Cross Blue Shield of Delaware, acknowledges that difference is significant.
“We do strongly believe that transforming the payment model is an important step forward,” he said.
On average, each state employee and non-Medicare retiree costs the state $13,234 in medical costs from May 2014 to April 2015.
Hospital payouts cost the state $379 million in 2015, 53.5 percent of the total allocated for state employee health plans.
Christiana Care, Delaware’s largest healthcare system, was paid over $142 million for providing care to state workers and retirees from May 2014 to April 2015, doubling and in some cases tripling what Delaware’s other five hospital systems added to their bottom lines from the state.
The state is self-insured, which means that there is a special fund made up of employee contributions to pay claims.
Dr. Janice Nevin, chief executive officer of Christiana Care, said that the higher costs makes sense, as the hospital is the largest in the state with a level one trauma center, two campuses with more than 1,100 patient beds and an expansive labor and delivery hospital.
Renegotiating hospital rates or increasing regulations will not solve the state’s budget problems, Nevin said.
“I understand why it’s easy to look for what appears to be an easy solution, but solving this problem will require a complex approach and a complex solution,” she said. “I don’t think adding additional regulation to the hospitals at the end of the day would get the kind of results the state is looking for.”
Providers and insurance companies agree that the health care payment system needs to be changed; they disagree on how to get there.
“I understand the politics of this,” said Wayne Smith, president of the healthcare association. “Unfortunately, there is kind of a battle between us and Highmark.”
The state sets premiums and deductibles, but its two insurers, Aetna and Highmark, price administrative procedures such as enrollment and medical claims processing.
Delaware has a much higher cost of living and cost of employees, Smith said. For example an average nurse salary in Delaware is $70,820 while in West Virginia the salary is $54,490.
Since there are no designated “indigent” hospitals in Delaware that provide care at no cost for people lacking insurance, hospitals must build into their budget a fallout for charity care, he added. Christiana Care, for instance, spent $26 million in fiscal year 2014 to provide unreimbursed care.
Lawmakers maintain the state should use its enormous leverage as the largest employer and a self-insured entity to squeeze better prices out of providers.
“I think they’ve been a little reluctant to leave a very complicated, Rube Goldbergian machinery that they know and go into the unknown,” McDowell said.
“I think there is a significant concern among both Republicans and Democrats that we really need to look at this before we move forward with it,” said Rep. Joe Miro, R-Pike Creek Valley, who also sits on the finance committee. “Some of these contracts are getting out of hand. An [premium increases] of the magnitude we’re talking about to those individuals makes a difference in terms of what they can put on the table.”
Promoting employee health
The state has tried to cut costs without changing the health plan co-pays in the past.
Under the federal Affordable Healthcare Act, health plans are required to offer preventive care, such an annual physicals, for free. The state also provides incentives for workers to exercise and eat healthier, in hopes of heading off more expensive treatments.
Engaging the employees, however, has been difficult.
In one program, state officials paid employees $100 or $200 to undergo biometric screenings. But turnout was slim.
Less than 10 percent of employees participate in DelaWELL, the state’s overall health management program.
That’s why state officials say it is necessary for employees to take up a bigger share of their costs. If someone has to pay little or nothing to get medical treatments, they have little impetus to make decisions with cost in mind.
Brenda Lakeman, statewide benefits director, said the state can’t pin its hopes on reducing costs simply by getting providers to charge less. At some point, she worries that could lead to decreasing quality of care, which would only make things more expensive in the long-term.
“We all want to pay less for health care but we don't want to get lower quality health care,” she said. “It makes no sense to reduce costs and be back in the hospital next month because you were discharged too early.”
This article has been updated to correct and clarify two facts: state spending on employee health insurance has grown from $527.4 million to $708.1 million from 2010 to 2015; each state employee and non-Medicare retiree costs the state $13,234, including medical costs.