Two and a half years ago, UnitedHealthcare of New England snatched the state employees’ health benefits contract away from Blue Cross & Blue Shield of Rhode Island with a promise of $25.3 million in administrative cost savings over three years.
Last week, having lived up to its promise and agreed to new discounts, United was awarded a two-year contract extension, so it will now manage health benefits for roughly 52,000 state workers, retirees and their dependents through June 30, 2010.
“We are very excited,” United CEO Stephen J. Farrell said in an interview. “It is a very big deal to us. In the state of Rhode Island, state government, local government and commercial business is all very closely aligned because of our size, and with the state being the flagship employer, it makes this a very important business relationship for UnitedHealthcare.”
The state government is self-insured, but it hires a third-party administrator to manage its health plans and adjudicate claims. Under the old Blue Cross contract, the insurer was paid a percentage of the medical costs; most of the savings with the United deal come from paying the company a flat per-person fee instead.
In addition, United passes on some of the rebates it receives from pharmaceutical manufacturers to reduce the cost of their drugs to the insurer.
Under the original contract, which became effective May 1, 2005, the state was guaranteed $1 million per year in pharmaceutical rebates.
Since then, the deal has been amended to increase the rebates to $1.9 million per year. And, as part of the contract extension negotiations, United agreed to boost the rebates by another $1.3 million per year, with that increase retroactive to last July 1. As a result, the state will receive about $3.2 million per year in pharmaceutical rebates, officials said.
“This is another big win for Rhode Island taxpayers,” said Beverly Najarian, director of the Department of Administration, in a news release. “As part of our recent negotiations on this contract extension, we managed to save $5.5 million for taxpayers.”
United also agreed to operate a $350,000-per-year disease management program, at its own cost, to help people with conditions such as asthma, diabetes, and heart disease.
Farrell noted – as did Najarian – that United has been very supportive of the state’s wellness initiatives.
The company has a wellness expert, Jean Kapetanios, assigned exclusively to work with the state on wellness initiatives. And United has provided extensive data to the state about employees’ health risk factors and health care utilization patterns, broken down by disease category and by department, even comparing people using different medication types and comparing the state’s figures to those from government entities with similar-sized groups.
“Then we consult with them, giving them advice as to how they can make changes to help mitigate the risk,” Farrell said. “This has been very positive.”
It’s too early to tell whether those efforts are helping to reduce the state’s health care costs, Farrell said; United has gathered baseline data but it hasn’t yet gathered new data to draw comparisons.
But whether it’s a coincidence or not, Gov. Donald L. Carcieri’s proposed budget for fiscal 2008 makes reference to a slowdown in the medical claims trend that is expected to save about 3 percent in the coming year – or $5.8 million.
Still, one of the other big advantages that Carcieri initially touted with the United contract, that it allowed cities, towns and school districts to buy in, has yet to yield any results.
Spano said that conversations initiated by that contract have led to United gaining business from North Kingstown and East Greenwich, but neither community is big enough to self-insure, so the terms of the state contract couldn’t be applied to them. And not a single larger municipality or school district has bought in.
United does have its eye on Providence, which has a request for proposals out to manage its health benefits. Farrell said his company plans to submit a proposal showing the city could save $5 million per year by piggybacking on the state contract.
As for other business gained through the state deal, Farrell said “it’s hard to say” what made the difference with each account. United now has roughly 224,000 members, Spano said.
Yet in terms of visibility, the contract has helped, Farrell said.
“As I travel among the business community and talk with business leaders, CEOs of companies large and small, I am often asked about the State of Rhode Island relationship, so it’s apparent to me that [it] resonates throughout the business community,” he said. “And obviously, that’s very helpful to us.”
