The State Health Plan expects to save $22.4 million a year after awarding new contracts to administer the plan, which is currently handled solely by Blue Cross and Blue Shield of North Carolina, to three different providers.
Blue Cross, the state’s largest insurer, retained the biggest piece of the state’s business. The State Health Plan covers 663,000 state employees, teachers and retirees and their dependents.
The new contracts announced Monday by the state Treasurer’s office, which assumed oversight of the health plan as of Jan. 1, don’t affect the benefits of members. The state is self-insured but farms out the plan’s administration.
“It was determined that splitting the contract into three components was the best way to achieve the highest level of service and quality for members,” Julia Vail, a spokeswoman for the Treasurer’s office, said in an email.
The Treasurer’s office said that the savings represent a 19 percent reduction in overall costs – from $118.3 million that the state paid to Blue Cross in fiscal 2012 to a total of $95.9 million under the new contracts to the three providers. The new contracts are for three years and will take effect July 1. The dollar breakdown of the individual contracts wasn’t immediately available.
“We would hope those cost savings ... will be put back into the State Health Plan itself,” said Dana Cope, executive director of the State Employees Association of North Carolina. Cope was upbeat about the new contracting system.
SEANC was a leading critic of the old system, which featured no-bid contracts that weren’t disclosed to the public.
“It was sweetheart deals being done in back rooms by three or four members of the legislature,” Cope said.
The secrecy ended last year, when legislators required that the contract be made public, and the new contracts were the product of a competitive bidding process. In addition, the legislature moved oversight of the State Health Plan to a new board of trustees housed in the state Treasurer’s office.
Another source of controversy was that the previous contract with Blue Cross was a “cost-plus” contract that called for the profit to be a percentage of total costs. Critics complained that was a built-in incentive to boost costs. Blue Cross’ profit under the contract it is operating under today, which was awarded in 2006, is 0.625 percent of billed costs.
The new contracts, however, are for flat fees. New cost-plus contracts are prohibited by state law.
The three providers
Blue Cross was awarded the contract for processing claims, handling billing and providing a network of health care providers.
A second contract for handling enrollment of active and retired state employees went to Benefitfocus of Charleston, S.C.
The third contract, which calls for administering COBRA plans for employees who are laid off, was awarded to Kansas-based COBRAGuard.
Blue Cross also bid for the COBRA contract but not the enrollment contract
“Under the new contract, we will continue to serve the great majority of State Health Plan members,” Blue Cross CEO Brad Wilson said in a statement. “Employees across our company worked hard to put together a competitive proposal emphasizing cost and quality, and we faced tough competition for this business. The state continues to have confidence in us, and that’s a testament to our commitment to the people of North Carolina.”