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TESTIMONY
Michael Garofalo
School Benefit Consolidation House
Bill 1841
House Education Committee
October 29, 2007
Michael Garofalo
AON Consulting
Dominion Tower, 10th Floor
625 Liberty Avenue
412/263-6353 FAX 412/765-3022
E-mail: Michael_garofalo@aon.com
Thank you for giving me this
opportunity to present my analysis of
House Bill 1841.
As was noted, I have years of
experience at the practitioner level
in designing school benefit programs
and in seeing the consortia with whom
I work succeed. I will keep my
comments brief since hopefully, we can
establish a productive dialogue
through conversation and Q&A. I also
ask that you consider me as a
resource. Working on such a complex
issue is not for the faint of heart
and I commend your committee for
holding this hearing. Per follow up,
if you have a question after today’s
hearing, please feel free to contact
me at any time.
As legislators, you have a difficult
job. You are elected to solve problems
and sometimes to work miracles in
property tax relief, economic
development and a host of other areas.
What I am going to say I say
respectfully to those supporting House
Bill 1841 because I appreciate the
sincerity of purpose behind their
work. I do feel however that sometimes
clamor for solution is
well-intentioned but perhaps not
necessary. I have to say that
proponents of House Bill may in some
respects be trying to solve a problem
that may not exist in certain parts of
the state. Health costs generally are
a state problem. Insurance premiums,
themselves a symptom of increasing
costs, are generally a problem to
numerous private and public sector
entities.
BUT, they are not a problem in the
Allegheny County School Health
Insurance Consortium. Compare the
health insurance double-digit
increases that have caused so much
controversy in our society and compare
them to the real-world experience of
the Consortium. Increases in 2004-05
increased over 2003-04 by 15 percent.
Increases in 2005-06 were 3.0 percent
over the preceding year. 2006-07 saw
no premium increase. For 2007-08 the
increase is 2.5 percent.
We must be doing something right. This
plan is a PPO with no co-pays for
general care, $15 specialist co-pay,
and Rx co-pay of $5 and $20. The
Consortium has a great benefit package
and moderated price increases.
We were able to keep costs down
because the Consortium has every
incentive to be innovative, to be
health cost conscious, and to maximize
employee understanding that ultimately
their use of the system will influence
the premium. My fear is that the
flexibility and responsiveness built
into the Allegheny County school
benefit Program will be lost once the
state takes that local control away
from us and run everything from the
state.
From here I would like to depart from
my prepared text to informally discuss
how the consortia works and how we
have been able to keep health costs
and premium costs down.
Since House Bill 1841 represents such
a radical change from the way things
are done now, they have the burden of
proof to answer a number of questions
to your satisfaction.
1. If local and regional solutions
like consortia are able to keep health
premium increases in check, do we
really need to change? If it isn’t
broken, don’t fix it.
2. Will administrative costs really
decrease? Frankly, the General
Assembly needs to look at
administrative costs for large
government-run plans like Medicare and
Medicaid to determine the level of
administrative costs in a Mega Plan
like this proposal for school benefit
consolidation. Data suggests that
private sector plans are cheaper to
operate.
3. How are state administrative
expenses funded? Is the legislature
ready to assume more battleground
oversight as it is now engaged re
PHEAA or the Gaming Commission? Since
state transparency is such an issue
now, how transparent will the new
system be?
4. Are projected savings realistic
since the Hay Group study included
Philadelphia schools and HB 1841 does
not?
5. Will local school district costs
increase because of richer benefits
being forced on them than they have
now or because of new classes of
employees that they do not cover now
being added under HB 1841? Will these
cost increases lead to more taxation
pressure at the local level?
6. Will taxpayers save anything in
property taxes because of the new
plan? Proponents estimate hundreds of
millions in savings yet there is no
mechanism for taxpayer refunds or
re-allocation under existing local
school district budgets.
7. Will the new system permit regional
differences? How will it encourage
regional innovation after the initial
benefit packages are set?
8. Will the new system make rich
programs even richer because interest
groups seeking mandated benefits have
an easier time pressuring the General
Assembly at the state level versus
district by district?
9. Will the new system allow local
innovations for reducing health costs
or encouraging consumerism in health
care choices by workers and
dependents?
10. If health premiums increase past
the formula envisioned in
consolidation, how are state taxpayer
costs capped in such a way to insulate
increases in benefits and costs from
state political pressure? Or, will
excesses simply result in more local
school district costs? Another related
question is where the additional state
money going to come from given
competition from other areas, medical
assistance, public education,
transportation infrastructure,
pensions and the like. Most easily
tapped state honey pots like the
Tobacco Settlement are already spoken
for.
11. If teacher collective bargaining
pressure re health benefits and
employee premium share is transferred
to the state, are you not replacing a
number of smaller arenas for a state
battleground? Besides, if health
benefits are off the local school
district table, do proponents envision
tranquility in local school district
collective bargaining, a doubtful
prospect at best.
Thank you again. I am now open for
questions.
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