State workers, UM drive insurance market

By Mike Dennison of The Standard State Bureau - 08/07/2007

One of the biggest health-insurance players in Montana isn’t a company, a politician or a lobby group.

You might call it the largest health care “consumer group” in Montana: The two health plans that cover state and university system employees.

With an annual budget approaching $150 million that covers 50,000 people, the two plans are a powerful force in Montana’s health insurance markets.

“We don’t sit in the back seat of (private insurers’) car; we sit in the front seat,” says Paul Bogumill, director of benefits for the Montana University System. “And occasionally we reach over and grab the steering wheel.” It was the state in 2000 that chose fledgling insurer New West Health Services as a new provider of “managed care,” the insurance product that pays for preventative care up-front and has patients “co-pay” for all other procedures.

That choice essentially kept New West in business as a competitor to Blue Cross/Blue Shield of Montana and made managed care a viable product in Montana. Now, 36 percent of people covered by the state and university-system plans have managed care.

“We stacked up (the private insurers) and made them compete against each other, with our employees,” says Connie Welsh, head of the state Health Care and Benefits Division.

Montana also is one of only a few states where public-employee health plans team up with private businesses to buy health-insurance products. NorthWestern Energy and First Interstate Bank are among the private firms that have joined with the state to buy things like prescription-drug benefits.

The state and university system plans are self-insured, which means they assume the risk to pay health care claims instead of buying insurance.

The “premiums” paid by employees and the state finance the health benefits, which then are administered by private companies like New West and Blue Cross.

The private companies process claims, offer products and arrange “networks” of health care providers that can be used by those covered by the plan.

Welsh calls it “private health care that lives in the government world.” The administrative costs for the health plans run about 5 percent, compared to 12 percent to 15 percent for private health insurance.

The two health plans design their own benefit package, under guidance by councils appointed by the commissioner of higher education and the director of the state Department of Administration.

The council membership includes employees, union members, retirees and legislators. Notably excluded are insurers and health care providers, and employee unions aren’t allowed to bargain for specific benefits in the plan, Welsh says.

Welsh says the Schweitzer administration and governors in general have given the plans wide leeway to design benefit plans and make decisions on where to buy the services they need.

This independence allows the plan administrators — all 16 of them for 50,000 customers — to make the best decisions for employees covered by the plans, she says.

They can bargain down prices for expensive procedures and drug purchases, while keeping costs down for the plan, which means less expense for employees and the taxpayer, they say.

For example, in January, a state-plan administrator negotiated a $47,000 discount on a procedure in a cancer-treatment case.

“With that one case, she paid for her salary,” Welsh says.

Welsh says this “case management” of costly sicknesses wasn’t a priority for Blue Cross when the Helena-based insurer was the only administrator of the state plan. So the state started doing that job itself — and brought in other insurers, and sometimes asked them to do the same.

Whatever influence the plans have on the health-insurance and health care market flows from their desire to help employees negotiate an increasingly complex and expensive forest of services, says Welsh.

“There is no health care ‘system,”’ she declares. “It ain’t a ‘system.’ It’s a collection of services. What we are trying to do is help the employees through that.”