With his state facing a $1.6 billion budget hole, Governor Bobby Jindal is pushing to privatize the agency that manages Louisiana state employees’ health insurance, even though — or perhaps, because — it’s managed to amass a half billion dollar surplus. The Jindal administration is keeping quiet on the move, while critics are blasting it as a shortsighted plan that will benefit private interests, at the expense of the state’s.
Last week, just as questions about Jindal’s push to privatize the state’s Office of Group Benefits (OGB) were getting louder, the agency’s chief executive officer, Tommy Teague, was dismissed. This despite the fact that the agency had racked up most of its sizeable reserves during Teague’s tenure at the top.
The OGB, a state agency within the Office of the Governor’s Division of Administration (DoA), provides health insurance, accidental benefits and life insurance to nearly 150,000 active and retired state employees and more than 100,000 of their dependents. But the bulk of the agency’s work is the health insurance.
Late last year, as the Jindal administration was looking at a projected $1.6 billion state budget deficit, it began dropping hints that it was considering privatizing part of the OGB to help plug the hole. At a press conference in December, Jindal said the state stood to save $100 million by privatizing just the Preferred Provider Organization, or PPO, portion of the agency’s services. When the group’s Policy and Planning Board next met on January 19, 2011, board members questioned Teague about the plans. The meeting’s summary paraphrased Teague’s response:
[Teague] said OGB is providing data to the Division of Administration (DoA) to aid DoA in determining if the “sale” of OGB to a private company is appropriate, and DoA will seek outside expertise to determine a valuation. He characterized OGB’s operations as “a significant book of business—we cover about 250,000 plan members and dependents and collect $1.1 billion in premiums per year.”
At the end of the meeting, in the time allotted for public comments, Frank Jobert, executive director of the Retired State Employees Association, addressed the board to express his concerns.
“If a private contractor buys OGB, active and retired employees would likely end up paying higher premiums,” Jobert warned.
In response, according to the summary, “the board asked Mr. Teague to request that Commissioner of Administration Paul Rainwater attend the next board meeting to discuss the issue.”
The board hasn’t met since. A meeting scheduled for March 16 was canceled, and board members told TPM that at least one other meeting had been nixed because quorum couldn’t be reached. The 16-member board is made up of private and public sector professionals, representing the state’s active and retired employees, the insurance sector, the governor and the Legislature.
But board meetings or not, things were still moving ahead. On February 4, the OGB issued a Request for Proposals For Services of a Financial Adviser, essentially a help wanted notice looking for a company to assess the market value of their “tangible and/or intangible assets” and to help negotiate a potential sale on the agency’s behalf. The request states the agency “wishes to explore alternative methods of carrying out its statutory responsibilities through contract(s) for the provision of basic health care services and other health care services to the OGB program’s covered persons,” and adds that “[t]his may include the sale, lease, or other transfer of tangible and/or intangible assets of OGB.” Financial reports included with the request show that, on June 30, 2010, the agency’s assets included $529,498,647 in cash.
In early March Jindal unveiled his budget to the legislature — it included information about the potential sale of OGB. A briefing to the Joint Legislative Committee on the Budget says the transaction “will unlock value and mitigate risk by providing the state with instant access to state-of-the-art technology improvements, a higher probability for reduced claims costs, and additional flexibility in program management” and “is expected to result in the reduction of 149 positions, and recurring savings of $10.2 million, which could increase in future years.”
But critics of the governor’s plan contend that any financial benefit will be a one-time thing. In the long run, they charge, privatizing will result in higher costs for employees, the state and, therefore, the taxpayer. Some have even suggested that the plan is a way for the state to get its hands on part of the agency’s sizeable surplus, which Louisiana law prohibits from being used for “cash flow purposes” or any other purpose “inconsistent” with the administration of the department that generated it.
A few days after Jindal unveiled his budget, blogger and local reporter Tom Aswell, who was at the time still an employee of the state’s Office of Risk Management (which was itself privatized last year), reported that investment bank Goldman Sachs had helped write the OGB’s Request for Proposals. He says the only bid that came back for the advisory role — and the $6 million fee — was from Goldman. Among the questions TPM has posed to DoA, with no response so far, is what, if any, involvement Goldman Sachs had in the request for proposal. TPM has also reached out to Goldman for comment. Aswell also wrote that an employee at the DoA, who did not want to be identified, had informed him that, as part a sale of the OGB, the state would receive $150 million to $200 million of the surplus, with the rest going to the purchaser.
It’s not clear if, or even why the money would be divided that way. TPM called both the OGB and the DoA to ask what would happen to the surplus in the event of a sale. After initially telling TPM she would look into the matter, an OGB spokeswoman referred TPM to DoA Director of Communications Michael DiResto. TPM spoke with DiResto on Tuesday, but as of press time he had not offered any response to our questions.
But several board members contacted by TPM said that they believed the surplus was — at least in part — motivating the move to sell.
“They want to raid that fund,” State Senator D. A. “Butch” Gautreaux (D), an OGB board member, told TPM. “That’s the carrot that the governor is waving out to insurance companies.”
Nancy DeWitt, who represents retired state employees on the board, agreed.
“I’m trying to be nice, but I see no benefit in this,” she said. “I just see this as a way to get the money.”
Aswell, who makes no secret of his resentment for the changes that took place at Office of Risk Management after it was privatized, has continued to blog critically about the proposal. On April 9, he reported that the Louisiana District Judges Association had drafted a resolution opposing the privatization plan at their Annual Spring Judges conference on April 7.
“[T]here have been no assurances to district judges or others that the proposal would not unduly increase health insurance rates or reduce benefits for thousands of state employees and their dependents,” the resolution reads. “At a minimum, the Governor and the Legislature should carefully study privatization proposals before taking action.”
On April 15, Judge Sharon I. Marchman, president of the Louisiana District Judges Association, also sent a letter to the chairman and vice chairman of the Joint Legislative Committee on the Budget, reiterating the thrust of the association’s resolution, and calling for a “transparent and open process.”
Eric Lach is a reporter for TPM. From 2010 to 2011, he was a news writer in charge of the website’s front page. He has previously written for The Daily, NewYorker.com, GlobalPost and other publications. He can be reached at ericl(at)talkingpointsmemo.com