Lawmakers weigh optional insurance overhaul

Posted October 7, 2015

— State lawmakers are considering making big changes to optional insurance policies offered by state agencies next year, following a report by the Program Evaluation Division that shows little oversight of the policies.

According to the study unveiled Wednesday, in addition to the pre-tax supplemental options offered by the state's human resources department, each of the state's 46 agencies and entities offer their own post-tax options.

Senior Evaluator Jeff Grimes found that only 22 of the 46 agencies even have an employee insurance committee as required by state law to vet the supplemental offerings. Of those 22, only 13 had committees that met in 2014.

Grimes said many agencies don't know whether their offerings were ever competitively bid – many of those optional policies have been around longer than the employees who now oversee them. Some agencies don't even have contracts with their providers, so they don't have information such as loss ratios to help them determine whether the policies are a good value for their employees. The lack of oversight allows vendors to sell unauthorized policies that compete with the state's official offerings, he said.

Setting up a vendor to receive payroll deduction in the state's payroll system costs $1,080, Grimes said, offering the example of a supplemental pet insurance policy offered by one agency and used by only one worker.

Additionally. he said, most agencies don't have the ability to verify that the amounts being deducted are correct, to advise employees if they're enrolled in duplicative plans or to make sure that employees are getting what they're paying for.

For example, according to the report, the state Department of Transportation continued payroll deductions for 93 employees for a CIGNA supplemental life policy for nine years beyond the date the department canceled its contract with CIGNA. None of the employees died during that time, he said, so none were left without coverage they believed they had and were still paying for. But the resulting legal mess cost the state $225,000 to resolve.

Lawmakers on the Program Evaluation Oversight Committee called the report "damaging" and "embarrassing."

Sen. Ralph Hise, R-Mitchell, wondered how many of the unvetted policies offer benefits that are actuarially sound in relation to their cost.

"This is an absolute example of how state government has failed and has failed its employees and allowed them to be taken advantage of," Hise said.

"My favorite quote is that there’s an endless supply of stupid in state government, and this proves it to the umpteenth degree," said Sen. Jeff Tarte, R-Mecklenburg. "Change is absolutely required. The status quo would be completely unacceptable as we go forward."

What that change should look like, however, isn't clear.

Grimes and the PED say the best solution would be to centralize all supplemental benefits under a committee of the state's human resources and insurance experts – a recommendation, they say, that was made by then-State Treasurer Harlan Boyles in 1995. Policies without contracts would be phased out within six months. Those with contracts would be allowed to expire. Employees could either replace their optional coverage with a state-vetted offering or with policies purchased on the private market.

That solution caused some heartburn for some committee members, including Rep. Nelson Dollar, R-Wake.

"There’s no question that the system of committees – employee committees in these agencies – need to be worked on. The question is, what do we lose when we centralize?" Dollar asked. "There are differences between the variety of things that employees do."

Individual agencies can offer policies tailored to the needs of their workers, he said, adding that some agencies may offer benefits that are a better deal than the state option.

“That analysis needs to be done by somebody,” he said.

Rep. Pat Hurley, R-Randolph, said lawmakers should be included on the oversight committee, while Sen. Don Davis, D-Wayne, said state employees should also be represented.

The committee voted to delay taking any action on the report until its Oct. 21 meeting. They agreed to invite representatives from the agencies, who were not given an opportunity to respond to the report, to speak to the panel at that time.


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