The Benson administration's experience with moving to self-insurance to provide heath benefits for state employees has been a troubled one. In the spring of 2003...The initial bidding process was judged to be so flawed it was terminated. And government officials had to start again from square one. Now NHPR has obtained an internal report from the Governor's office that says even that second round contained a major error that understated the state's expected health care claims by 20 million dollars.
The state's first run at finding a carrier to handle the state employee health insurance contract was something of an embarrassment. In a transcript from an interview with government investigators a lawyer in the attorney general's office said '"everyone looked at it and everyone unanimously was like, this thing sucks." A key flaw was that the two bidders -- Cigna and Anthem -- were working with different dollar amounts for the estimated claims under contract. Amid fears of litigation, state officials were told to start the bidding process all over. At the end of the second round, Governor Benson commissioned a study to make sure this second attempt would pass legal muster. In that report, Benson's analyst found that both companies were dealing with the same estimate for overall claims, but that the number was wrong. In the words of the analyst, "they were forced to make bids that could have seriously confused them." Concord lawyer Marty Honigberg is a former senior assistant Attorney General who latter served as special counsel to former Governor Jeanne Shaheen. He believes the report raises serious issues.
"When you use bad data, you get bad results. Its the same kind of thing with your computer - garbage in garbage out. And if you give the vendors incorrect information on which to base their proposals, their proposals aren't going to reflect reality. So no one is going to know whether that's a good contract for the vendors a good contract for the state, a fair contract for both, no one can tell."
The amount in error was about 20 million dollars in estimated claims -- a 24 percent difference from what the companies should have bid on. The Governor's Analyst, Gary Monnin of Austin, Texas declined to be interviewed on tape. But Monnin's report concludes the discrepancy left both carriers "likely disadvantaged but equally disadvantaged." The state official in charge of the bidding process was Administrative Services Commissioner Don Hill. Hill insists the vendors were treated in a reasonable manner -- and that an error in estimated claims -- regardless of size -- will not cost the state money.
"The total cost of the contract is a fixed price contract. The administrative const of the contract is set and the utilization will have no effect on the cost for that 21 month period."
The specific terms of the contract called for Cigna to receive 11 million dollars to administer coverage for the state workers and retirees. Cigna was also paid an additional two million dollars for supplemental insurance that would kick in to cover expenses if claims went over expectations. According to the Monnin report, the level at which that additional coverage would take effect was modified after Cigna was told it had won the state's business. Commissioner Hill admits such after the fact changes are quite rare.
"There are times when the low bidder you will negotiate a few minor points in you relationship with the terms and conditions, but usually there is no negotiations after the bids are received."
Hill says that the only alteration was a correction of the state's error. He allows, however, that Cigna sought further changes to increase the state's outlay for administrative costs if claims came in above projections. The state refused. Cigna's top local official, Don Curry declined requests to be interviewed for this story, but through a spokesperson, Curry said he neither recalls the company asking to modify its agreement with the state, nor was he aware of changes made after bids were in. Cigna spokesperson Lindsay Sheerer stresses that the state's flawed numbers have not hindered the company's ability to administer the contract -- and that Cigna knew what it was getting in to.
"We've had a long term very positive relationship with the state of NH, and there has been only one year in the last seven where we did not have the state of NH account and so we had some experience and we based the bid on the number of members and when you get to an account of that size our costs are pretty much fixed."
Governor Benson, for his part, says he's satisfied the bid process was legal. He says additional scrutiny of how his administration managed the transition to self-insurance is a waste of time.
"We are going to pay whatever the claims are so it's not costing the state of NH any different amount of money based on a different claims amount. It's going to cost us based on how many people get sick and what the processes are they need to get better on and all that other stuff. So looking deeper into the process I don't think -- I know it would not get you any better result."
Benson's view does not appear to be shared by lawmakers. Last month, the legislature authorized an audit of the process by which the state chose the carrier to manage the self-insurance program. And the concerns don't end there. At the Governor's behest, the current state budget banked on the move saving a quick 25 million dollars. Instead, the state has seen a 29 percent rise in state employee health costs. Estimates on possible savings, meanwhile, are now predicted at around 5 million dollars.
Monnin's invoice to the governor's office
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