| September 28, 2011

Taxpayers pay again for EBC behaving badly

Every summer, the Oklahoma Employee Benefits Council (EBC) puts together the benefit package for state employees. Recent news of a massive increase (approx. $26 million) in overpayment of employee benefits is no surprise. The EBC has long been a significant part of the problem with how employee benefits are administered for state employees. The continued overpayment of employee benefits, as can be found at, has cost taxpayers almost $164 million in just the last three fiscal years. OCPA has already provided recommendations to solve this problem.

During the 2009 legislative session, the Oklahoma State Employee Health Insurance Review Working Group was created to address the enormous growth in state and education employee benefit costs. The Oklahoma Education Association, the Oklahoma Public Employees Association, former Speaker of the House of Representatives Chris Benge, former Senate Pro Tempore Glen Coffee, former Insurance Commissioner Kim Holland, and many others participated in the effort. I also participated in the effort while working at the Oklahoma Insurance Department. The working group’s final recommendations were included in Senate Bill 2052 during the 2010 legislative session, which was passed by the legislature but vetoed by former Gov. Brad Henry.

The legislation’s two most significant reforms were the reasons for the veto. The legislation required consolidation of the EBC and the Oklahoma State and Education Employees Group Insurance Board, something OCPA has recommended for years. This consolidation would save $1 million to $3 million annually by eliminating duplication in administration and would result in significant future savings. The legislation also required a private-sector-style “winner take all” bidding process for selection of a single health management organization (HMO) insurance carrier for state employees. This requirement would result in a higher-quality, lower-cost HMO plan by removing the effects of adverse selection in the employee pool because of the current utilization of multiple HMOs. Interestingly, one of the primary opponents of the bill was the leadership at EBC. In a classic case of bureaucratic turf protection, the EBC would “cooperate” publicly but work behind the scenes to protect the agency from being consolidated. In the end, lobbyists for and against the bill credited the efforts of the leadership at EBC for helping convince former Gov. Henry to veto the bill. The leadership at the EBC continued their turf-protecting tactics during the 2011 legislative session, by contracting lobbyists to try and encourage legislators not to consolidate EBC with OSEEGIB or any other agency and to protect their interests. During the 2011 legislative session, state Rep. Jason Murphey re-introduced the vetoed legislation, but only the consolidation of EBC, OSEEGIB, and other state agencies into the Oklahoma Office of State Finance was passed into law.

The other primary reason for the veto of original bill is that one of the opponents of the bill, an HMO, gains a significant amount of its premium revenue from state employees. The lobbyist for this HMO stated they would encourage the governor to veto the legislation because if it passed, it would likely significantly hurt the HMO’s premium revenue, since it was likely it could lose in a “winner take all” bidding process. One can only wonder if the new spokesperson for the HMO is aware of this issue.

Let’s hope the new supervision given to EBC, as a result of lawmakers’ agency consolidation legislation passed into law this session, will result in decisions that don’t involve the continued fleecing of taxpayers and ever-increasing state employee benefit costs. Fortunately, new State Finance Director Preston Doerflinger cancelled EBC’s grotesque lobbying contract as soon as the agency was placed under his authority, a sign that things may be moving in the right direction.

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