State Employee Health Insurance: Assessing the Scale of State Purchasing Power

Source: John Kaelin, Jim DeWan, Rockefeller Institute of Government, December 2020

From the introduction: https://rockinst.org/issue-area/state-employee-health-insurance-assessing-the-scale-of-state-purchasing-power/
Across the nation, state governments are major purchasers of health insurance for their employees. According to the US Census Bureau, 100 percent of state governments offered health insurance benefits to their employees in 2018. The Census Bureau further reported that state governments provided health insurance benefits to 67.6 percent of their 5.4 million employees in 2018. This total of approximately 3.7 million employees does not include the number of dependents, retirees, or enrollees of local governments, and other public employers that also participate in states’ health insurance programs. In 2012, based on a report published by Pew Charitable Trusts and MacArthur Foundation, total spending exceeded $30 billion covering 2.7 million households.

Between employee benefits and Medicaid programs, states’ spending on health insurance represents a major budgetary item. In 2018, the federal Center for Medicare and Medicaid Services (CMS) reported that health insurance spending for all state and local governments totaled $433.6 billion and that spending has experienced an average annual increase of 3.9 percent over the past five years. In Fiscal Year 2019-20, the state of New York itself spent $22.1 billion on Medicaid and $4.3 billion on employee and retiree health insurance costs. To alleviate these escalating costs, some states have examined options to coordinate purchasing across state programs in an attempt to achieve economies of scale. Recently, California proposed policies to leverage their purchasing of prescription drugs by combining employee health insurance programs with other state programs such as Medicaid and Correctional Health.

The purpose of this policy brief is to examine the extent to which the states in their role of purchasers drive the evolution of the healthcare delivery system. This brief examines the availability of basic financial and cost data relating to state employee insurance programs. It assesses the scale of state health insurance purchasing using existing data and presents results from a preliminary survey of states. We also review the degree to which employee purchasing decisions are coordinated with other state health policy purchasing goals such as Medicaid and the Affordable Care Act (ACA) insurance marketplaces.