You asked for background on the decision to make the state employee health plan fully insured rather than self insured.

Prior to 1997, the state self-insured and had agreements with private carriers to serve as third-party administrators who would process employees' claims, which the state would pay if approved. In 1997, the Rowland administration and the State Employees Bargaining Agents Coalition (SEBAC) reached a 20-year agreement known as SEBAC V that, among other things, required that the employees' health plan, which also covers retirees, be fully insured.

“Fully insured” means the state pays a premium to one or more insurance carriers to cover the costs of the health care plan for state employees and retirees.

The move to fully insure was not complete until 2000, in part because the state had an accumulated deficit in the rate stabilization reserve fund that was part of the self-insurance arrangement. Under the self-insurance agreement, Anthem Blue Cross used reserve fund dollars to cover claims because the state rates were not enough to cover the health plan's benefits.

In the late 1990's the state was making additional payments to the reserve fund to cover deficits. In 1998 it made a $ 10 million lump sum payment, and the 1999 budget appropriated $ 60 million to cover the remaining deficit and the claims run-out at the end of the self-insured period.

According to the Comptroller's Office, the Rowland administration favored the move to fully insure because of (1) the history of not properly funding the reserve fund and (2) concerns that the state's liability would continue to grow as the retired state employee population grew.