Analysts: $80M in concession savings would have come anyway

The legislature’s non-partisan Office of Fiscal Analysis has identified more than $80 million in projected savings ascribed by the Malloy Administration to the union concession deal that don’t actually depend on the contract changes ratified in late August.

In its first analysis of the concession deal since ratification, the Office of Fiscal Analysis also raised questions about whether the $241 million biennial savings from the Health Enhancement Program projected by Gov. Dannel P. Malloy’s budget office can be fully achieved.

The nonpartisan analysts didn’t question the administration’s ability to achieve savings in connection with drug patents and negotiated rates for medical and dental care. But they also noted that these savings had nothing to do with the concession deal with the State Employees Bargaining Agent Coalition.

That package–which also reduces costs through a two-year wage freeze, new restrictions on benefits,  a wave of new retirements, an employee wellness program, and budget cuts to be identified by labor-management efficiency panels–projects savings of $1.5 million this fiscal year and $12 million in 2012-13 tied to pharmaceuticals coming off patent. As expensive brand name drugs become available in less costly generic form, “it is reasonable that savings may be realized,” the legislative analysts wrote.

But OFA added that “savings attributable to prescription drugs coming off patent are not contingent on an agreement between the state and SEBAC.”

Similarly, the deal also calls for an existing labor-management panel, the Health Care Cost Containment Committee, to find $40 million in savings this fiscal year and $35 million next year in health care expenditures.

OFA noted in its report that the administration is projecting $36.3 million will be saved this year and $33.6 million in 2012-13 in pharmaceutical and medical service coverage for state workers and retirees.

The comptroller’s office oversees the state’s self-insurance program and does receive guidance from the health care cost panel. But the office projected savings in pharmaceutical and medical service costs back in May–one month before the first vote on the SEBAC deal failed in mid-June and three months before it finally passed in August.

The comptroller’s office routinely offers a preliminary cost estimate for medical benefits in December or January, just before the governor’s budget is proposed, and offers a revised estimate in April or May. Projections can change due to new caseload data. Before the state switched roughly one year ago to a self-insurance program, medical service cost estimates also were revised as the comptroller negotiated new insurance rates.

But the authority for these functions was not created in the August SEBAC agreement.

For example, Lt. Gov. Nancy Wyman, while serving as state comptroller in late April 2005, announced that her office had revised estimates and was projecting $75 million in savings in medical and dental insurance programs over two fiscal years combined.

“The SEBAC agreement directed the Health Care Cost Containment Committee to find $40 million in savings,” Malloy’s budget office said in a statement released this week, adding “it is not certain” these savings “would have happened anyway. That’s why it was important to make sure these savings are part of the committee’s negotiations with providers.

“The SEBAC agreement has savings targets, and we will meet them.”

SEBAC declined to comment on the OFA report.

House Minority Leader Lawrence F. Cafero, R-Norwalk, who has charged frequently that the value of the Democratic governor’s concession deal with the unions was unfairly inflated, said that while legislative analysts believe the savings are real, “these were totally unrelated to any concession deal.”

The OFA report also questioned whether savings anticipated from the Health Enhancement Program included in the concession deal can be achieved fully. The program is intended to promote wellness among workers and retirees. Members are encouraged to use preventive services and manage chronic conditions, based on the premise that doing so will improve health and reduce the use of more costly services that become necessary when a person gets sick. Whether the plan saves money depends on whether the cost of the increased use of preventive services and incentives for participation are outweighed by reduced claims costs overall.

In its analysis, OFA wrote, “It is uncertain if changes in behavior and utilization will occur and lead to long term savings.”

In particular, OFA said it’s not certain whether a new copayment for avoidable emergency department visits would be enough to lead people to seek care elsewhere, and whether the cost of disease management programs for people with certain chronic conditions–waiving copays for office visits for the conditions and giving people who comply $100–would be offset by reduced acute care costs and long-term savings from better health outcomes.

The Health Enhancement Program is voluntary, and those who join must get all recommended screenings and exams recommended for them. Those who don’t participate will have to pay an additional $100 a month in premiums and face a $350 deductible.

The administration’s savings calculations assumed that 50 percent of eligible employees would participate in the Health Enhancement Program. In that case, the state would save approximately $49.9 million from the increased copays and deductibles the nonparticipants would pay, according to OFA.

But in reality, 96 percent of state employees chose to participate, reducing the state’s savings in increased copays and deductibles for nonparticipants to about $3 million.

Malloy’s budget office responded that “In the long term, the fact that over 95% of state employees chose to participate in the Health Enhancement Program will save even more money for the state. While higher participation may mean we don’t see as much savings in the short term, we will live within the budget – we’ll make sure numbers work.”

Legislative analysts also questioned savings attributed to the Health Enhancement Program, including:

  • Savings from changes to the dental plan. The Health Enhancement Program requires participants who have dental coverage to get two cleanings a year, and covers unlimited periodontal care. OFA noted that the documents supporting the plan suggest that people with chronic conditions might have complications if they don’t get regular dental care, but the analysts wrote that, “It is unclear if the estimated savings from individuals with chronic conditions will offset the increase in utilization from all other plan members including otherwise healthy individuals.
  • $3 million in projected two-year savings from tobacco cessation and obesity programs, which OFA called “unlikely” to be achievable.
  • The projection that the administration used for the Health Enhancement Program would lead to a 10 percent reduction in total claims costs for active employees, which OFA said would amount to about $52.5 million. OFA said it’s not clear if that can be achieved in the short term.

On some changes, OFA said it did not have the information to evaluate savings assumptions, including information about the current utilization of preventive services.