Govt group health privatization ‘dead’

The Babauta administration’s plan to privatize the government’s group health insurance program is now a dead issue.

According to NMI Fund Retirement Fund board chair Joseph Reyes yesterday, the inter-agency privatization committee has decided to reject the proposal offered by lone proposer SelectCare, represented locally by Calvo’s Insurance.

The privatization committee consists of governor senior policy advisor Bob Schwalbach, budget and management director Ed Tenorio, Fund administrator Karl T. Reyes, Group Health and Life Insurance program director Dolores Moore, Procurement and Supply assistant director Bob Florian, and Public Health executive Joe Santos.

The group’s decision was presented before the Fund board members Friday.

“It [privatization plan] didn’t work out. It’s now a dead issue,” said Reyes yesterday.

In a Nov. 14 memorandum, privatization health plan consultant Karen Bauder said the government only received one responsive proposal from Calvo’s Insurance for SelectCare Plan, which is underwritten by Millea Holdings, a large Japanese insurance group.

Bauder said the committee met with representatives from Calvo’s and Millea on Nov. 8, 9, and 10, 2005.

“The government’s negotiating team recommends against contracting with Millea,” said Bauder.

Calvo’s rates for single, two-party, and family packages increased by over 50 percent than the initially proposed rates, she said.

Calvo’s reportedly stated that the increase was due to updated experience data, but the negotiating team said that the initial rates were unrealistic from the start.

In addition, the team said that as Calvo’s suggested “restrospective rating”, a form of self-funding, “at several points during the negotiations, it appeared that Calvo’s may have hoped to obtain a third party administration contract without having to bid…”

Further, Bauder said in her report that Millea refused to guarantee its rates for more than one year or put maximum cap on the renewal rate increase for the second year.

“Therefore, at the time of the negotiations for the second year, there would be no sufficient data for calculating the renewal rates, leaving the team with virtually no negotiating power to prevent an extremely high increase,” said Bauder.

The Governor’s Office hired Bauder at $90,000 a year package in middle of last year to assess the proposed privatization plan.

The Babauta administration formally asked the Fund board to pursue privatization about two years ago, with an idea of introducing a cafeteria-style service where members could choose services from more than one health care provider.

In her memorandum, Bauder recommended that the Fund keep its existing third party administrator, Hawaii Pacific Medical Referral, “as opposed to self-administered by the government.”

It cited the following reasons:

* The TPA can be held responsible for HIPAA compliance as compliance is difficult and non-compliance can result in severe penalties.

* The TPA should be able to negotiate more favorable provider contracts because of its large enrolment base, and

* The TPA may have access to reassurance, which could protect the plan from catastrophic losses in exchange for a premium.

“It is unlikely that the government could obtain reinsurance on its own,” said Bauder.

The Fund entered into a three-year agreement with HPMR in 2001.

It terminated the contract in July last year in view of the privatization proposal.

For continued lack of preparation to privatize the program, HPMR’s contract eventually got extended on a monthly or quarterly basis.

The latest contract extension would expire on Dec. 31.

Meantime, the board has approved to re-issue an RFP seeking for a third party administrator and an RFP for prescription drugs services.

While this is pursued, HPMR will continue to provide services.