About Those Buyouts…

I tacked an addendum to a post on Wednesday putting forth the following hypothetical:

What would be the cost to RI taxpayers if a married family with three 19–25 year old children all had public-sector jobs and piled their health insurance onto one plan, taking buyouts for the other four?

Among other arguments, commenter Jake offered the following riposte:

The answer to your hypothetical would be: significantly less than the cost of five separate health care plans

Having no specific numbers, I could not reply and, truth to tell, assumed that he was correct. As luck would have it, Dan Yorke today posted a case-in-point test scenario that proves my assumption to have been hasty. The free “United Healthcare plan and dental and vision plans” given to Rhode Island’s General Assembly members in 2007 are projected to cost taxpayers:

  • $5,664 for an individual plan
  • $15,820 for a family plan
  • $2,002 for not taking benefits

So, using these numbers as more broadly representative, my hypothetical family of five public employees would cost:

  • $28,320 if each has an individual plan
  • $23,828 for a family plan plus buyouts
  • for taxpayer savings of $4,492.

But, if the household has four people, the comparison would be as follows:

  • $22,656 if each has an individual plan
  • $21,826 for a family plan plus buyouts
  • for taxpayer savings of $830

I’m sure you can see where this is going. For a three-person household:

  • $16,992 if each has an individual plan
  • $19,824 for a family plan plus buyout
  • for a taxpayer loss of $2,832 on the family/buyout plan

And the typical husband/wife scenario is the kicker:

  • $11,328 for two individual plans
  • $17,822 for family plus buyouts
  • for a taxpayer loss of $6,494 (which is, you’ll note, more than an additional individual package would be)

So, in order for Rhode Island’s buyout packages to not create a perverse incentive to cost taxpayers more, we must elect, appoint, or hire our government workers in packs of four or greater. Moreover, as private companies flee the state or are continually pinched in their payroll/benefits budgets (as will be the case, for example, if family premiums go up because health insurers are forced to include 25-year-old “children” as dependents), matters will only get worse.
Of the 113 members of the General Assembly, 75 (or 66%) take the family plan, 24 (21%) take the waiver, and only 14 (12%) take the individual plans. There’s a reason these numbers are so lopsided. Very few private sector jobs offer such cheap and all-encompassing healthcare plans, and even fewer will pay employees to go with somebody else’s coverage.

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Former State Employee
Former State Employee
14 years ago

The problem is that the cost of the “United Healthcare plan and dental and vision plans” that you provided is an estimate. The state is self-insured: what actually leaves the state Treasury is cost of approved medical services provided to covered individuals plus a fee to United for administering the plan, plus any buyouts. The claims experience for this “family” would be the same amount no matter the plan, because neither plan provides a disincentive to consume. The admin fee is really negligible (between $21.42 and $24.88 per employee per month, according to a recent ProJo article).
So lets get back to your hypothetical: when there are two or more state employees on the same plan, and one or more is getting the “buyout.” The state would thus paying an additional bonus with no benefit of reduced claims experience. But I think they (the Carcieri administration) ended this practice. If they weren’t able to, blame the unions.

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