HOUSE BILL REPORT

HB 1537

BYRepresentatives Braddock, Holland, Grimm, Sprenkle, Peery, Brooks, H. Sommers, Bristow, Wineberry, Winsley, Locke, P. King, May, Silver and Lux; by request of Governor Gardner

Authorizing the state employees' insurance board to self-fund, self-insure, or enter into other methods of providing insurance coverage.

House Committe on Health Care

Majority Report:  Do pass.  (9)

      Signed by Representatives Braddock, Chair; Day, Vice Chair; Brooks, Cantwell, Lewis, Lux, D. Sommers, Sprenkle and Vekich.

Minority Report:  Do not pass.  (1)

      Signed by Representative Bumgarner.

House Staff:Bill Hagens (786-7131)

AS REPORTED BY COMMITTEE ON HEALTH CARE FEBRUARY 3, 1988

BACKGROUND:

The purpose of HB 1537 is to permit State Employee's Insurance Board (SEIB) to "self-fund" or "self-insure" its health care coverage for state employees.  These terms, simply put, mean that the state would bear the risk of paying for the health benefits directly, in lieu of paying a fixed premium per employee to an insurance company.

There are several advantages to self-funding.  1) the SEIB would have control of the funds and, theoretically, any reserves could be invested and thus earn interest; although under its current agreement with Blue Cross, the SEIB presently has access to those funds. 2) If the SEIB desired to contract for "administrative services only" (ASO), it would have potentially a greater number of bidders. 3) However, the most important advantage in self funding is that the SEIB would have complete control over the design of the benefit package and could gather comprehensive data on enrollee unitization, provider performance, cost, etc.  Thus, it could make wise decisions about further health care purchasing.

The major disadvantage of self-funding is the burden of risk shifts from the contractee, i.e., the insurance company, to the state.  However, this is less of a burden for the SEIB than for smaller employers, because the large number of SEIB enrollees permits a greater spreading of the risk within the employee pool.

There are about 69,000 employees covered under the SEIB benefits; 47,000 in the Blue Cross Plan and 22,000 with health maintenance organizations (HMOs).  The present state contribution is $167 per month per enrollee; this covers medical, dental, life, and disability insurance.  The actual cost of this coverage based on current premium is $176.71. The $9.71 difference is paid through the SEIB revolving fund--the retention account.  The total annual SEIB expenditure is about $147 million.  These figures do not include common schools, which is about $127 million for approximately 64,000 school employees.

SUMMARY:

SEIB is permitted to self-fund or self-insure employee health benefits and contract for administrative services.  Any reserves are required to be held in a trust account under the state treasurer.  The state investment board shall be the investor for the account.  All earnings shall be placed in the SEIB reserve fund created by this act.  Savings resulting from self funding shall not be used to increase benefits, unless authorized in statute.  Self-funding shall be subjected to the insurance commissioner's examination.  SEIB is required to keep adequate records of self-funded programs.  An annual report is required.

Fiscal Note:      Available.

House Committee ‑ Testified For:    Ralph Wilhelmi, OFM; Gary Moore, Washington Federation of State Employees; George Masten, State Employees Insurance Board; Lars Hennum, Pharmacists of Washington.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    The self-funding insurance option is needed to make SEIB more efficient.

House Committee - Testimony Against:      None Presented.