Chapter 3 TABLE OF CONTENTS Chapter 5
CHAPTER 4
Plan Administrative Structure

 

 

Plan’s Administrative Structure
Limits Its Management Potential

 

     

 

 

 

 

Administrators

must be able to strategically design and manage the plan.

By electing to become self-funded, the state health insurance board has, in a sense, formed its own insurance company.  The potential benefits of self-funding are twofold:  reducing costs and gaining flexibility in plan design to meet specific goals and needs.  However, to optimally realize these benefits, the plan must be structured such that its administrators can adequately monitor costs and strategically design the plan. 

 

Several factors, including a lack of overall direction from state policy makers, limited administrative resources, variable board expertise, and administrative isolation,limit the current plan’s potential for realizing the benefits of being self-funded.  Further, the plan’s administrative structure has not allowed the EGI board to address the issues of high participant costs and adverse selection discussed in the previous two chapters.  These complex problems require a long-term strategic approach that the current EGI administrative structure has not been able to provide.

 

   

 

Benefit Management Requires A Combination of Planning and Administrative Approaches

 

    

 

 

 

Plan administrators need the capacity to identify problems and research alternatives.

Managing a health insurance program is a complex undertaking that requires a myriad of day-to-day administrative responsibilities and processes.  First and paramount, plan administrators must keep the plan financially solvent to meet the obligation to pay participant claims.  Further, administrators must implement processes to address transactional responsibilities such as eligibility questions, complaints, enrollment details, and claims payments.  Managing a plan that provides health insurance benefits also requires administrators to attend to an array of business responsibilities such as negotiating contracts and addressing legal requirements.

 

In addition, because of the rapid increase in health care costs and the changing workforce, administrators must strategically plan so that they can respond to current trends.  They must be able to identify problems in organizational strategies and research alternatives that might address them.  One expert summarizes that plan administrators need both the implementation skills of the practitioner and the ongoing inquiry associated with the consultant.

 

     

 

EGI Board Concentrates on Financial
and Transactional Responsibilities

 

    

 

 

 

 

Statute assigns

 a primarily transactional role

 to the EGI board.

 

 

 

 

 

 

 

 

The board has accomplished its overall responsibility of keeping the health plan solvent and meeting its benefit obligations.

We found that the EGI board focuses on its financial responsibilities and administrative duties, but little on its planning role.  Statute implicitly charges the autonomous board with full financial responsibility for maintaining the plan and assuring that it meets plan obligations.  Members and observers of the EGI board see assuring that premium revenues cover medical claims as the board’s primary responsibility. 

 

Statute (W.S. 9-3-205) also assigns the board a list of transactional duties.  These include establishing contract specifications, claims administration processes, participant eligibility rules, premium levels, and grievance procedures.  The board itself makes decisions with regard to these matters rather than delegating them to its staff.  It serves as the adjudicating body for all participant complaints relating to the allowance and payment of claims, eligibility for coverage, and other issues.  Board decisions on these issues can result in plan benefit changes.  The board also attends to such matters as approving all benefit booklet changes and all non-contractual administrative expenses.

 

Contracting responsibilities, a primary statutory assignment, occupy a good portion of the board’s time.  Statute gives the board authority to determine the intervals at which it will award contracts through competitive bidding, but requires annual review of contracts.  In 1998, the board adopted a policy to re-bid its contracts at least every six years.  Since then, the board has re-bid its major contracts twice, most recently in the summer of 2000.

 

    

 

Board Has Not Developed
A Strategic Focus

 

     

 

 

 

 

There is not a board impetus to integrate insurance benefits into the state’s emerging total compensation objectives.

 

 

 

 

 

 

Benefit organizations must have the capacity to identify and implement long-range strategies. 

Benefit experts agree that it is increasingly important to integrate benefits into overall compensation strategies.  Yet, while EGI board members and officials are aware of this objective, it is not a guiding consideration in managing the plan.  Although the head of the state’s personnel division, who serves on the board by statute, brings this perspective, there does not appear to be a board-wide impetus to integrate the insurance benefit into the state’s emerging compensation objectives. 

 

Concentrating on eligibility issues, addressing complaints, and adjudicating claims are other ways in which organizations are reactive rather than strategic.  Further, modifying benefits in response to complaints or problems, rather than to align them with an overall strategy, is another indication of a transactional approach.  EGI meeting minutes indicate that the board is most often focused at this level.

 

While all of these are important processes, benefit organizations must also work at a higher level to identify and implement long-range objectives to improve employee benefits at stable costs.  Plan observers and officials alike note that the EGI board tends to operate on a year-to-year basis, rather than planning strategically for the long-term.  Its tactical focus is not surprising, given that the board and its staff interpret statute as giving the board sole authority for all decisions affecting plan management.  One board member noted that the broad statutory authority leads to micro-management by the board, rather than a policy focus.

 

    

 

Non-Strategic Approach Leaves
Long-term Problems Unresolved

 

     

 

Although the board has accomplished its overall responsibility of keeping the health plan solvent and meeting its benefit obligations, it has not been able to address long-standing issues.  These include the low ratio of dependent coverage discussed in Chapter 3, which leads to the high participant costs discussed in Chapter 2.  In addition, the board’s outside consultant has repeatedly recommended initiatives to improve the plan, but the board has not moved forward with them.

 

     

 

Board Has Not Addressed
Low Dependent Ratios

The board has not analyzed this situation.

 

 

 

Other plan managers recognize that plans must be competitive to attract lower-cost participants.

Although board officials have been aware that many employees find it more cost-effective to insure dependents elsewhere, the board has been slow to address the problem.  It has not directed an analysis of what plan design features may be contributing to this situation, and of what might reverse it by bringing younger, healthier participants into the plan.  The board’s general sense has been that the employer contribution needs to be increased.  However, it has not determined at what level either to set the premium or to request a contribution increase to make it financially prudent for more employees to insure their dependents in the plan.

 

The board relies on increases in the state contribution to offset premium increases for all plan sub-groups, rather than strategically targeting them to change plan demographics.  This contrasts with other plan managers and experts we contacted who recognize that plans must be competitive to attract lower-cost individuals and thereby decrease costs for all participants.  Further, as noted in Chapter 3, when establishing the third tier, the board did not strategically set the rate at a level it knew would prompt employees to insure their dependents.

 

   

 

Board Unable To Implement
Consultant’s Recommendations

 

 

 

 

 

These complex issues require a long-term planning process that the current board structure cannot support.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The board regularly monitors only plan financial data.

 

 

 

 

 

 

It does not consistently track other plan data that bear on the plan’s financial status, such as health claims utilization.

 

 

 

 

 

 

 

Plan managers have not followed up with data analysis to determine the effects of benefit changes.

 

Each year, the plan consultant provides an annual report in which it makes recommendations for the board’s consideration that “may enhance the health benefit programs in the future.”  The recommendations have included:

 

  • Providing more employee choice
  • Adding voluntary benefits such as long-term disability and long-term care
  • Encouraging greater participation in the high deductible option by pricing it closer to its cost
  • Implementing a voice enrollment system
  • Establishing a way to allow employees to pre-fund retirement health insurance costs
  • Developing a website
  • Contracting for a comprehensive claims audit of claims administration

 

The board has not addressed these issues, even after repeated recommendation.  According to the consultant, these are complex issues that would take a long-term planning process.  As noted, the current EGI board structure does not supportthe strategic thinking that addressing these issues requires.

 

Board Does Not Continuously

Study All Plan Aspects

Another effect of the board’s transactional focus is that it limits its ability to study the plan.  Statute directs the board to continuously study the operation of the group plan, including such matters as costs, benefits, utilization of benefits, and claims administration.  The board continuously monitors the plan aspects that directly relate to plan solvency.  For example, members regularly receive information showing the plan’s financial status, including its retained earnings; plan claim costs; participation by subgroup; and premium income to claim costs by subgroup.  This is the information that the plan director sees as necessary to administer the plan. 

 

However, the board inconsistently tracks other trend data that indirectly bear on the plan’s financial status.  It does not use demographic information to help design plan options to improve the demographic mix of participants.  Nor does the board regularly track comprehensive health claims utilization information to determine the causes of plan health care cost increases.  Analyzing this information would enable the board to determine how plan utilization has trended and how it compares with national benchmarks.  It would also provide a basis to review plan design to see if changes could be made to control costs.

 

As the board has changed or added benefits, it has not followed up with data analysis to determine whether those changes are producing the intended results.  For example, the board substantially changed its prescription drug program in 1999 by carving it out and assigning co-pays to participants.  There was some sense among board officials that this change might have contributed to the current favorable claims experience, but no data was assembled to determine its actual effect.

 

Further, during the course of our study, board members and officials attributed lower than expected claims to the plan wellness benefits implemented in years past.  However, there had been no analysis of health care utilization information to determine if there were positive impacts that could be attributed to wellness interventions.  Nonetheless, the board increased wellness benefits for the 2001 plan year.  

 

     

 

Variety of Causes Limit Board’s

Capacity to Act Strategically

 

      

 

We found that multiple factors combine to inhibit the board’s ability to manage the health insurance plan in a strategic manner.  These include a lack of policy direction, an organizational position independent of state compensation planning, a lack of administrative resources and plan information, and variable board expertise.

 

      

 

Board Lacks Strategic Direction
From State Policy Makers

 

 

Organizations should have clear direction on benefit strategies.

 

 

 

 

 

Plan statutes provide neither policy direction nor statement of purpose.

 

 

 

 

 

 

 

 

The board has inferred policy decisions that affect the plan.

 

 

 

 

 

 

 

 

Without policy direction, the board determines how to use state contribution increases.

 

According to the professional literature, organizations should have clear and agreed upon direction with respect to their benefit strategies.  Further, these strategies or philosophies should be revisited and updated periodically to ensure that they make sense in current conditions.  Benefits experts write that many organizations are operating under benefit strategies developed years ago when completely different market conditions existed. 

 

Statutes authorizing the state group insurance plan, dating from 1967, provide neither policy direction nor statements of purpose.  Other than its decisions relating to the level of the state contribution, the Legislature does not communicate policy direction to the plan.  The Governor is positioned to have a policy role, with two appointments and a high-level executive branch employee on the board.  However, board officials and observers do not perceive policy direction coming from these appointments.  Elected policy makers appear to defer to the board’s autonomous authority to manage the plan in the manner it sees as prudent.  Further, board officials believe that elected policy makers do not relish taking responsibility for the decisions encompassed in managing a health insurance program for state employees and retirees.

  

As a result, the board has inferred the overall purpose of providing high quality health care services and containing costs.  According to professional literature, this is the purpose that most employers express in offering health care benefits.  However, lacking specific policy direction, the board has inferred many other policy decisions that affect that overall purpose.  For example, the board has made the decision to cover retirees in the plan even though statute does not include them.  Because the board has also subsidized retiree premiums, this decision has an impact on the overall plan costs.

 

Without specific policy direction, the board uses the state contribution in ways that it determines best serve the plan and its participants.  For example, the most recent increase in the state contribution was approved by the Legislature in response to the Governor’s request to offset premium increases.  However, lower than expected claims in the current year enabled the board to put part of the increased contribution toward increasing wellness benefits.  This change benefits participants, and potentially lowers future claims, but also increases overall plan costs.  However, elected policy makers’ intent may have been to offset employee premium costs rather than obligate the plan to a higher level of benefits. 

 

    

 

Autonomous Board Isolated from 
Compensation Policy Planning

 

 

Benefits controlled by EGI board are critical to a total compensation plan.

 

 

 

 

 

 

 

Board decisions may not correspond with policy makers’ compensation plans.

Also inhibiting the board’s ability to act strategically is its organizational isolation from the other state planning efforts.  For example, in the 2000 legislative session, lawmakers authorized the Compensation Commission, an advisory group to the Governor, to study state employees’ benefits for the purpose of developing a total compensation package.  The Legislature did not direct this policy to the EGI board, even though group health insurance, as well as the other benefits controlled by the EGI board, are critical to a total compensation plan, should the state eventually implement one.

 

If it moves toward a total compensation approach, the state will need the autonomous EGI board to modify its plan to fit state objectives.  As noted, the board does not oppose a total compensation approach, but its focus is on the financial solvency of the plan.  Developing a benefits package with more choice will increase the complexity of managing the EGI plan, and likely its costs.  With different objectives, the board may make decisions in managing and modifying health care benefits that may not correspond with policy makers’ compensation plans for the state workforce.

 

Already, board members have faced this dilemma.  One former member noted that the board makes philosophical decisions that, in the private sector, are typically made by management.  However, board members make these decisions with “only half the equation.”  The board member noted that it was uncomfortable increasing premiums without knowing how that affected the organization’s overall compensation strategy. 

 

      

 

Board Maintains Minimal
Administrative Resources

 

 

Administrative

costs affect plan premiums, so board purposefully keeps them low.

 

 

 

 

 

 

 

 

 

The plan has only one staff member, the director, with professional health insurance expertise.

 

 

 

 

 

 

Experts indicated

a higher level of professional staffing is more common for plans of this size.

Having insufficient administrative resources also inhibits the board’s ability to be strategic.  EGI has a goal, as part of its strategic plan, to keep administrative costs at less than five percent of revenue collected.  Board members have an incentive to keep these costs as low as possible, since administrative costs affect plan premiums.  Also, board officials note that the Legislature has not approved EGI requests to increase the amount of plan revenue it allocates for administrative expenses.

 

The EGI plan, with a current biennial authorization of more than $98 million, is considered to be one of the largest entities providing health insurance in the state.  However, only one staff member, the director, has technical expertise in the health insurance field.  As a result, the director has a varied range of responsibilities, including determining plan premiums, monitoring plan financial data, providing technical assistance to the board, responding to complaints and grievances, and interpreting policy.  Further, of the staff of seven, only the equivalent of two staff persons is fully dedicated to the health insurance program.  Extensive turnover among the staff also diminishes administrative resources.

 

According to the literature, plan policy makers need benefit personnel to analyze and summarize information and make recommendations in order to make informed decisions.  Experts and administrators of other plans indicated that a higher level of professional staffing is more common.  One expert noted, that given the size of the plan, it is more typical to have at least three professional staff positions, including the director.

 

The EGI board retains a consultant to assist it in managing the plan.  The consultant provides advice on industry practices and technical matters, an annual evaluation of the plan, and a neutral position to obtain bids and negotiate with contractors.  However, the consultant does little actuarial study specific to the plan and primarily uses national standards for its recommendations.  According to the EGI director, the board uses the consultant less because the director has the actuarial background necessary to manage the plan, and because consultant costs have increased.

 

 

     

 

 

 

 

 

Because of turnover, board members may not serve long enough to develop their own expertise.

 

 

 

 

 

 

Attending to plan management details leaves little time for the board to develop a strategic approach. 

Variable Board Expertise
Impedes Strategic Planning

Reliance on professional advice is especially important to EGI board members because only one member is required by statute to have related expertise:  the member representing the insurance industry.  Further, board members may not serve long enough to develop their own expertise.  The three elected board members serve non-staggered, two-year terms, and they reportedly tend to be voted off the board if it makes unpopular decisions, such as significantly raising premiums.  Board officials and observers noted that board turnover affects the board because it takes one or two years for most new members to develop an understanding of board operations.  Most board members with whom we spoke indicated they relied on staff and the consultant for advice in managing the plan.

 

The EGI board has struggled to develop a strategic, policy-level approach.  The board has intentions to hold retreats to develop a more strategic focus.  However, the logistics of coordinating schedules and bringing board members together from across the state have reportedly limited its ability to plan.  Dealing with plan management already takes members away from their own work and responsibilities for eight to ten board meetings each year.  Board committee work occurs, but is ad hoc.  The board chair no longer assigns a committee that earlier boards used to look at policies, issues, and potential plan changes.

 

       

 

EGI Plan Lacks
Management Information

 

 

 

Plan’s management information capacity has not improved from that reported in 1994 LSO report.

 

 

 

 

 

 

 

 

 

Information is necessary to identify plan design problems.

 

 

 

 

 

 

 

Plan managers do not request information available from the claims administrator.

 

 

 

 

 

Plan lacks sufficient professional staff to analyze and interpret available data.

 

A final impediment to being strategic is the board’s lack of plan-specific information.  The 1994 LSO report stated that EGI’s data systems “prevent the easy generation of basic information.”  We found the same situation to exist today.  To respond to our requests for basic information relating to the number of participants and financial information since 1996, EGI staff had to compile information from various computer spreadsheets and hard copy reports, some of which had to be retrieved from the state archives.  Although EGI agreed with the 1994 LSO recommendation to develop an integrated management information system, this has not been done.  EGI officials maintain that this has not been possible because the plan deals with payrolls from nine employers, and because state government lacks a comprehensive human resources database.

 

In order to strategically manage health insurance benefits, experts say that plan managers need data that allows a constant examination of the plan.  Information is necessary to identify plan design problems and develop logical changes that address them.  It is also necessary to monitor and evaluate responses to previous changes.  Tracking such information as demographics of both current and potential participants, comparisons of the plan over time and with other plans, and claims utilization experience, is also recommended.  Information helps managers decide how to adjust the plan or even to confirm the course of action being taken.

 

Although EGI lacks the system to generate this information for itself, it has access to much more information about plan participants than it currently uses through its claims administrator, Great West.  Third party administrators typically have sophisticated systems and can gather claims and participant data.  Plan managers must carefully design TPA contracts to get, in summary form, the information necessary to make decisions about the plan.  The current Great West contract requires minimal information reporting, although the board could get more.  According to the director, the board could obtain a variety of reports from Great West at no cost, but it does not request them because it does not use them. 

 

It may not be feasible for the board to use more of the information available to it because it does not have sufficient professional staff to analyze and interpret the data.  Experts maintain that while claims administrators can gather the data, the plan managers must take on the responsibility of using it to guide the plan.  Our observation is that the EGI director cannot take on additional analytical duties.  Without additional professional staff, the board is limited by the director’s capacity to request, obtain, analyze, and present information.

 

     

 

Recommendation:  The Legislature should establish a strategic framework to manage group health insurance.

 

     

 

 

 

 

 

 

High participant costs are long-standing issues that could become more problematic.

 

 

 

 

Several factors must be addressed to improve plan management’s capacity to address issues strategically.

 

 

 

 

 

 

 

 

Eliminate the current structure and create a professional plan administration function within A&I.

 

 

 

 

 

This integration will provide policy direction and coordinate benefit and compensation planning.

 

 

 

 

 

Enhancing plan administrative resources and expertise is also critical.

 

 

 

 

 

 

 

 

 

An employee advisory board could provide important participant input.

 

 

 

 

With a strategic framework, plan managers can determine whether to increase or target the state contribution to change plan demographics.

EGI plan participants have faced the high costs we discuss in Chapter 2 for at least the last decade, as two previous reports have documented.  This report, in Chapter 3, adds to the discussion by identifying plan design and demographic causes for the high costs.  These problems require a strategic resolution, something the current plan management

structure has not been able to accomplish.  Now, as the state moves toward a total compensation concept and the integrated benefit strategies it would entail, these long-standing issues may become even more problematic. 

 

In this chapter we have identified several factors that impede plan management’s capacity to address these issues strategically:  a lack of policy direction, an organizational structure isolated from other state compensation operations, minimal administrative resources and management information systems, and a board with variable expertise providing overall direction.  Addressing these factors is necessary to create a framework capable of strategically managing the plan.

 

These causes, which limit the plan’s strategic capacity, could be addressed while still maintaining the plan’s current autonomous structure.  The EGI board could increase its staffing and management information resources to more strategically use information and personnel to manage the plan.  Further, the executive branch could more purposefully use its appointments and statutory authority to provide policy direction to the board, and to reduce its isolation from other compensation planning activities.  Finally, the Legislature could modify the statutes affecting board member terms and appointments to enhance board expertise.

 

However, we believe that eliminating the current structure and creating a new framework for plan management may be the best way to address the causes that limit strategic management of the plan.  Further,because of state government’s move towards a total compensation approach, we believe the plan management should be directly combined with other compensation operations.  Therefore, we recommend the Legislature disband the current policymaking board and create a professional plan administration function within A&I.

 

We believe that this integration is critical to address both the lack of policy direction and the isolation that exists under the current structure.  Despite statutory provisions for A&I to advise the boardand serve as a liaison with the rest of state government, sufficient integration is not occurring under the current organization.

 

Taking this step will integrate the program with other compensation planning and will allow the Governor to directly provide policy direction to the plan.  However, simply moving the function, without addressing the need for enhanced administrative resources and expertise, will likely not improve the state’s ability to proactively manage this benefit.  In particular, we see the need to ensure the plan is advised and staffed by more than one person with health insurance expertise.  The plan’s organizational location has already been changed a number of times over the years in an attempt to address long-standing frustrations with plan management.  However, we believe the core of the problem is the factors identified in this chapter relating to policy direction, isolation, and insufficient resources and expertise.  These factors must be addressed regardless of the plan’s organizational placement.  

 

If the Legislature chooses to integrate the group insurance program into A&I, it should also consider how to obtain input from participants.  To ensure ongoing input, the Legislature should consider creating an employee advisory board to provide participants’ perspectives because participants fund the majority of their health care costs, when out-of-pocket as well as premium costs are considered.  Further, such an advisory board would allow the university and community colleges, which also participate in the plan, to provide input regarding their employees’ needs. 

 

In addition to identifying organizational structure as a core problem for the plan, this report suggests that the current employer contribution for dependent coverage may not be adequate to avoid adverse selection.  Once a strategic framework for plan management has been put in place, a first priority should be to conduct the necessary studies to determine if and how the state contribution might be increased and targeted to affect the plan’s demographic composition.  With that information, the plan managers would be in a position to more effectively advocate for an increase to the contribution.  Additionally, the new framework will be better positioned to address other plan disincentives that appear to be affecting the pool’s demographics and costs, as identified in Chapter 3.

 


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