Here’s something of a cautionary tale involving public-private partnerships offering health insurance benefits at the state level.
North Carolina’s State Health Plan, which provides coverage to 667,000 state employees, retirees and dependents, lost $79.7 million in the fiscal year ended Aug. 31, 2008, according to an audit released this month by the Office of the State Auditor.
The audit blamed the loss on significantly higher-than-expected medical and administrative costs in the state’s self-insured PPO administered by Blue Cross Blue Shield of North Carolina (Durham, NC). The loss represented a huge variation from the plan’s original expectation of a $57.9 million net profit in fiscal 2008. To address the shortfall, the plan has asked the state legislature to appropriate $250 million.
The state began offering a PPO in 2006 (until July 1, 2008, it also offered an indemnity plan) with the goal of reducing costs through discounted PPO provider network payments. According to the audit, more members joined the PPO and used more medical services than expected because care was more affordable under the PPO. The result was that the plan underestimated total fiscal 2008 claims costs by $163.8 million. “PPO network discounts offset some of the increased use of services cost, but not nearly enough to offset the increased claims expense,” the audit said.
The plan also underestimated total administrative costs by $36.3 million, the audit said, largely because its payments to BCBS-NC were based on a cost-plus-profit contract that “provides no incentive to control costs,” wasn’t reviewed by an outside attorney, and “does not allow access to cost data necessary to manage the plan.”
The auditors made several recommendations, including improved oversight, documentation, monitoring, transparency and forecasting. It also urged the state legislature to consider ending cost-plus contracts. Etc., etc.
Call me crazy, but I can’t help but imagine scenarios in which similar unforeseen consequences play out on a national level if the wrong type of healthcare reform is passed. Not a pretty vision.
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