June 13, 2008

The Honorable Susan Bysiewicz

Secretary of the State

18-20 Trinity Street

Hartford, CT 06106

Dear Madam Secretary: 

I am hereby returning without my signature House Bill 5536, An Act Establishing the Connecticut Healthcare Partnership. The Connecticut Healthcare Partnership would allow municipalities, nonprofits and small businesses to buy into the state employees’ health insurance plan. It has been offered as a partial solution to covering uninsured persons and the rising costs of health care insurance in Connecticut.

However, as currently conceived, the Connecticut Healthcare Partnership is not the panacea it purports to be. The Partnership would, instead, do relatively little to increase the number of insured in the state while largely duplicating an existing program at a substantial – and potentially enormous – cost to taxpayers.

I must stress the phrase “as currently conceived.” Not only do I believe the measure is well-intentioned, I also believe the concept has real potential to help at least some cities, towns, nonprofits and small businesses reduce their health care costs. Although there are a number of outstanding issues that must be addressed prior to implementation, I would welcome an opportunity to work with supporters of H.B. 5536 to develop a revised and workable proposal for consideration in the next regular legislative session.

Legal Concerns

The language of the legislation raises significant questions as to how the state Comptroller is authorized to proceed in implementing the Partnership. The state is bound by existing health insurance contracts that did not contemplate an expanded employee pool of insured persons. In fact, two of the state’s three health insurance providers indicated that the enactment of H.B. 5536 would require them to rerate the costs of providing coverage and the third indicated it would do so within a year – all of which would lead to substantial increases in the state’s costs.

On May 27, 2008, the Attorney General issued a formal opinion stating that the employers the Partnership is designed to assist (municipalities, nonprofits and small businesses) could not immediately be part of the state employee health plan’s pool. It was the Attorney General’s opinion that – until the state employee plans are renegotiated at the expiration of the current contracts – the bill could only be effectuated through the Comptroller’s administration of a second health plan with a separate pool of insured and separate contracts with some or all of the current state plan contractors.[1]

This statement is wholly unsupported by the language and legislative history of the bill. H.B. 5536 specifically states the Comptroller “shall offer coverage under the state employee plan to nonstate public employees, municipal-related employees, employees of small employers and employees of nonprofit employers and shall pool such employees with the state employee plan.”[2] The legislation clearly states “shall,” not “may,” and does not offer other options; it simply identifies a single plan – “the state employee plan.”

Proponents of the bill have repeatedly lauded the singular nature of a vastly enlarged pool and argued that it would give the Comptroller increased leverage in negotiating lower insurance prices. The Attorney General’s opinion belies this argument and his opinion took a great many legislators and advocates by surprise. In fact, several legislators have publicly remarked that the Attorney General’s opinion was the first time they had ever heard of the concept of creating separate pools, even if only temporarily.

The only mention of other plans in the bill is later in subsection 2(a), which states that nothing in the act shall “(1) require the Comptroller to offer coverage to every employer seeking coverage under sections 1 to 7, inclusive, of this act from every vendor providing coverage under the state employee plan, or (2) prevent the Comptroller from procuring coverage for nonstate employees from vendors other than those providing coverage to state employees.”

In no way do these provisions suggest the Comptroller should negotiate separate contracts. Nor is it likely that a separate plan would be able to match (let alone exceed) the economies of scale achieved by the state employee plan due to the exclusion of the roughly 200,000 members of the state pool.

Finally, it must be noted that the Comptroller already offers a separate plan for municipalities, nonprofits and small employers pursuant to Section 5-259(i) of the Connecticut General Statutes (the Municipal Employees Health Insurance Plan, or MEHIP). Creating a separate pool of MEHIP-eligible employers to negotiate yet a third insurance plan appears duplicative.

Savings to Employers

The purported cost savings for municipalities, small businesses and nonprofits cited by proponents are largely unsubstantiated and, indeed, have been challenged by some of the very employers H.B. 5536 seeks to benefit.

No detailed, independent and comprehensive study of the potential benefits is currently available. And although supporters of the legislation have claimed, for example, that the City of New Haven could save more than $8 million under the Partnership, the city’s own independent medical benefit consultant reviewed the proposal and concluded that enrollment in the State’s plan would likely cost the city.

“The estimated savings of $8.6 million that was reported in the media is completely inaccurate,” New Haven Mayor John DeStefano’s Chief of Staff wrote state Rep. Bill Dyson of New Haven.[3]

Similarly, Danbury Mayor Mark Boughton has said that – contrary to assertions that his city could save $2.8 million – it would actually cost the city some $5 million, not including costs for the coverage of retirees.

These results are consistent with several other estimates indicating that enrollment in the benefit-rich state plan would actually cost most municipalities, small businesses and nonprofits more than they currently pay for employee health insurance.

An October 2005 report by the Legislature’s Office of Legislative Research found that the average cost for a MEHIP participant was $7,252 as of March 2005, while the comparable cost for an employee of a small business was between $4,653 and $4,930.

The MEHIP rates as of January 2008 were $9,644, while the small business plan, inflated to 2008 dollars, is estimated in the range of $5,945 to $6,300. The current average annual cost of the state employee plan is approximately $12,300.

Costs to the State

Another significant concern with the legislation is its potential cost to the state, especially at a time when revenues are declining and estimates of a potential shortfall in the Fiscal 2009 budget have increased.

Whether one accepts the Attorney General’s interpretation of H.B. 5536 insofar as the creation of separate pools is concerned, administration of the Partnership plan would require significant resources on behalf of the Comptroller. These would include actuarial consultants to evaluate the risk of groups applying to the plan and at least two additional positions in the Comptroller’s office to take applications, monitor claims data from the insurers and manage plan coordination and implementation issues.

These additional resources would cost more than $500,000 a year, according to the Legislature’s own Office of Fiscal Analysis. No monies were appropriated to the Comptroller’s Office to cover these additional administration expenses in Fiscal 2009.

Separately, there is the deeply disturbing possibility that $54 million in savings, achieved in negotiations with the current contractors to the state employee plan, could be jeopardized if the Attorney General’s interpretation of H.B. 5536 is incorrect and current health insurance vendors increase their premiums to accept new enrollees.

Anthem Blue Cross and Blue Shield has advised the Comptroller that adding a large, unknown group of employees to the current state pool would drive changes in utilization rates and claim costs. Anthem has said it would recalculate its rates if H.B. 5536 became law, increasing the annual premium cost to the state by more than $24.2 million.[4]

HealthNet has said it would consider increasing the state pool through H.B. 5536 a material change of its contract with the state, requiring renegotiation of the agreement.[5] UnitedHealthCare has said it would be able to guarantee its negotiated premium only for the first year of the three-year contract.[6]

It is quite possible that only groups with higher underlying utilization and cost structures than the current state employee population would be attracted to the Partnership plan, inasmuch as municipalities, nonprofits and small businesses with lower cost structures would likely have no reason to join.

The addition of these higher-risk groups would have a direct effect on the state’s fiscal health, particularly because H.B. 5536 specifies that individual premium payments for the new group “be the same as those paid by the state.”[7]

Unclear Benefit to Overall Market Coverage

The Partnership would do little, if anything, to increase the number of insured in Connecticut. Most of the employers it seeks to benefit already offer health insurance to their employees. It seems unlikely that a large number of those that do not would be able to afford to do so under the Partnership – even if economies of scale were achieved – given the current average annual cost to the state of $12,300 per employee.

The underlying difficulties affecting the ability to provide health insurance to the uninsured and under-insured – in particular, ensuring affordability of coverage, avoiding adverse selection and guaranteeing that carriers are ready and willing to assume the risk – are not addressed by H.B. 5536.

I strongly believe that every person in Connecticut should have access to basic health care. Numerous state programs presently in effect and the Charter Oak Health Plan, expected to begin accepting enrollments July 1, will do more to meet that goal than the Partnership proposed in H.B. 5536.

Conclusion

As leaders of Connecticut, all of us share the goal of providing quality, affordable and accessible health care to every resident of our state. For all of its good intentions, this bill in its current form does not effectively accomplish that goal.

While there can be, if planned well, cost savings realized through pooling, trends over recent years suggest the costs of claims will continue to rise in years ahead. This is true for both active employees and retirees. In fact, our state faces a massive unfunded liability of $21 billion or more related to Other Post-Employment Benefits, largely involving retiree health insurance. This liability, on a per capita basis, is among the highest in the country.

Unfortunately, simply comparing health insurance costs ignores the very real impact that benefit levels, regional cost differences, claims experience, demographics and local purchasing practices have on rates. Any state law that impacts billions of dollars in costs and liabilities needs to be based on a firmer analytical and actuarial foundation.

This is particularly true when both regional and national financial conditions argue decisively against incurring the certain costs of administering the Partnership or risking the far larger downside to the state – and its taxpayers – if the Attorney General is incorrect and the current health insurance vendors increase their premiums.

Given the lack of appropriate cost data combined with a lack of other in-depth information, H.B. 5536 offers an approach that is more experimental than analytical in an area that affects billions of taxpayer dollars and – equally importantly – the future of our health care delivery system.

Nevertheless, I strongly believe the underlying concept of the bill merits further consideration and analysis. Like any other systemic change, analysis must be done to ensure that savings for the intended beneficiaries of such a Partnership are substantiated and that any potential cost to the state is both minimized and anticipated in the budget.

I also believe the recommendations to be made later this year by the HealthFirst Connecticut Authority, a legislative panel charged with studying ways to contain health care costs and increase access to care in Connecticut, should be considered in further developing the concept.

It is my hope that legislative leaders and supporters of H.B. 5536 will work with my Administration to address these issues and further refine the Connecticut Healthcare Partnership proposal and determine the best methods to achieve its worthy purpose.

For the reasons outlined above, and pursuant to Section 15 of Article Fourth of the Constitution of the State of Connecticut, I am therefore returning House Bill 5536, An Act Establishing the Connecticut Healthcare Partnership, without my signature.

Very truly yours,

M. Jodi Rell

Governor