By Deena Winter | Nebraska Watchdog

FOLEY: The state health insurance plan needs to be monitored to avoid mismanagement of funds.

LINCOLN — State lawmakers could make changes to the state health insurance program, after a state audit found the program’s cost to be the highest in the nation and poorly managed.

The Legislative Performance Audit Committee talked Wednesday about possible legislation to address some of the issues raised in the audit, including adding teeth to the law to get more cooperation from state departments being audited.

State Auditor Mike Foley fought for two years to get data from the Department of Administrative Services to complete the audit.

Lawmakers may consider measures that would:

• Move the University of Nebraska’s $104 million insurance trust fund under the control of the state treasurer.
• Return control of the State Law Enforcement Bargaining Council’s health insurance plan money to the state treasurer. The council came under fire for using health insurance funds to finance construction of a $1.2 million building that it was unable to sell and now leases. Foley called it a “horrible investment.”
• Study whether the state should continue to do a self-insured health insurance program, switch to a fully insured plan or consolidate all plans into one plan for public employees.
• Improve oversight and monitoring of the state health insurance plan. Foley said one person at the DAS should not be making decisions about the plan and premiums.
• Require state agencies and cities to cooperate with state auditors and their requests for information, perhaps by requiring them to pony up data within four days, similar to the open records law.

The audit found the state employee health insurance plan costs about $27,000 per employee — nearly $12,000 more than the national average. The audit attributed the high cost to inefficient plan design, excessive administrative expenses, poor program monitoring, unnecessary stop-loss insurance coverage and a huge reserve fund.

For example, the cost of administering the state plan was $9.3 million in 2010, compared with $4.4 million for a comparable sized plan at the University of Nebraska.

And even though the plan has a much larger reserve fund than its actuary recommended, it also spends millions for stop-loss insurance coverage that the state auditor says is unneeded. This coverage guards against catastrophic claims or an unusually high number of claims.

Foley said the state didn’t conduct a cost-benefit analysis for the stop-loss coverage — which most large insurance plans don’t have — and the state lost $4.3 million buying the coverage from 2007 to 2010.

“It’s not a good bargain for the state,” Foley said, especially when the plan has a cash reserve of $65 million— enough to pay five months’ worth of claims rather than the two to four recommended.

DAS Director Carlos Castillo, who was appointed by Republican Gov. Dave Heineman, disagreed with many of the audit’s findings, noting many plan design changes have been made since the audit was done. A few years ago, a cash reserve did not exist, Castillo noted.

Foley said he doesn’t think the plan has changed much, aside from the state choosing a new administrator for it and a university purge of ineligible participants.

Nebraska offers a self-insured plan in which premiums collected from the employer and employees are used to cover claims. The plan covers about 29,000 state employees and dependents.

Foley said the self-insured plan only works if it’s properly monitored, but he said the plan has a “total lack of oversight,” with all key decisions being made by Castillo.

Sen. Bob Krist, R-Omaha, also said he’s bothered by the fact that one person in DAS who “knows nothing about insurance” is making key decisions. After the meeting, he said he was referring to Castillo, because the buck stops with him, as head of the department. Castillo said he doesn’t make decisions in a vacuum; he gets input from others, including the governor.

Krist said he intends to introduce legislation to reform the system — similar to how lawmakers passed multiple bills last session to fix the child welfare system.

“It’s out of control,” Krist said. “We need to bring it into control.”

Auditors found $1.2 million in questionable claims and a DAS failing to open the spreadsheets with detailed claim information. The department’s employees didn’t even know how to open the files, Foley said. Amazingly, after the audit, the department told the administrator, Blue Cross Blue Shield, to stop providing the claim information.

Foley also blasted the DAS for failing to cooperate with auditors.

“It took us two years to do this audit. It should’ve been done in six months,” Foley said. And he said the “cancer is spreading,” with Department of Health and Human Services taking 110 days to respond to a routine request for access to a database of accounting records, including unpaid invoices, which he called absurd.

“We just can’t have this,” Foley said.

Castillo disagreed, saying, “We were very cooperative with him” but did not think the auditors should have access to people’s medical histories, for example.

“We want to have a good working relationship with him,” Castillo said.

Sen. John Harms, R-Scottsbluff, chairman of the Performance Audit Committee, said the insurance problems are a “huge issue” that lawmakers need to come to grips with.

“We’re more than willing to sit down with them and provide them with information that they need,” Castillo said.

Contact Deena Winter at deena@nebraskawatchdog.org or follow her on Twitter @DeenaNEWatchdog.