Why SustiNet State-Run Healthcare Plan Is Too Costly, Risky

04.01.2011
Issues & Policies

More expensive, riskier and less promising a reform option than its proponents claim is what a new study says about SustiNet, a plan to implement government-run healthcare in Connecticut.

As contained in HB 6305, SustiNet would create a state-run public healthcare option and compete directly against Connecticut’s private sector. Ultimately, the plan is to expand state government and open the state’s expensive healthcare plan to all businesses and consumers in Connecticut. 

However, says the Hay Group study, SustiNet has numerous drawbacks that mean it won’t be able to deliver on the promises of its advocates but will make it a fiscal burden on the state and its taxpayers.

For example, SustiNet won’t deliver the promised savings of $224 million in 2017, says the study, because those savings will happen as a result of a 2010 law and have nothing to do with the plan.

Instead, SustiNet will have a net cost of $62 million–and could cost millions more because of the plan’s insurance risk and liability implications.

Hay Group also says the plan will cause actuarial headaches for the state, and once its insurance pool of state employees, nonprofits and small businesses is created, promised savings will not increase, but diminish over time.

Much of the study’s findings confirm the concerns of Connecticut’s business community that SustiNet’s benefits have been overstated and its limitations minimized.

Some of the major conclusions of the study:

Higher costs: SustiNet will increase state spending, not reduce it, once the conversion of SAGA to Medicaid (which has already occurred and is unrelated to SustiNet) is accounted for. The $62 million net increase in 2017 also includes the additional revenues anticipated from the reduction in employer-sponsored coverage.

More risk: By being a self-insured program, SustiNet would have to “take responsibility for paying the benefit costs for all SustiNet enrollees—and the associated risk if premiums are lower than the actual claim costs,” says the study. If SustiNet were to grow to the size proponents envision, and if the state were to make just a one percent error in setting premiums, it would cost taxpayers an additional $80 million.

More complex: Bringing different groups of health insurance enrollees into a single pool, as proposed underSustiNet, will raise “significant actuarial and policy challenges as well as potential unintended consequences,” according to the study. That’s because with different demographics, pooling them “will likely increase premiums for some populations, while reducing premiums for others, creating implicit subsidies between the populations.” 

Diminishing returns: Once an insurance pool reaches a critical size, the marginal benefit from additional growth becomes quite small. “It is not clear that the additional enrollment achieved by combining the Medicaid/HUSKYpopulations with state employee health plans would result in materially better results from provider negotiations, or materially improved administrative efficiencies.” Instead, the “complexities of serving such disparate populations would likely complicate both network negotiations and the administrative process.”

Others concerned

The Governor’s administration has also expressed concerns about SustiNet. In testimony submitted by the Office of Policy and Management, the agency had questions about SustiNet’s timetable and the overall scope of the legislation.  There also was concern that the potential cost of SustiNet places a significant strain on the state’s general fund, and how the new bureaucracy created to administer the SustiNet plan would take away a good deal of authority from the administration. 

There are other concerns with SustiNet, but overall, SustiNet represents a costly overreach at a time when the people of Connecticut don’t want, and can’t afford, a bigger state government. Lawmakers should reject HB 6305 and instead find ways to improve Connecticut’s market-based healthcare system.

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