N.H. Court Upholds Local Government Center Repayment Decision

By Lynne Tuohy | January 13, 2014
Court

The New Hampshire Supreme Court has upheld an order for the Local Government Center to return $33 million in surplus risk-pool funds to participating cities and towns and restore $17 million it transferred out of its HealthTrust risk pool.

The court on Jan. 10 unanimously upheld most of the findings by the state’s Bureau of Securities Regulation last year that LGC violated state law by accruing huge surpluses rather than returning some of the excess money to the political subdivisions that buy health and other insurance through LGC.

Pooled risk management programs — such as LGC’s HealthTrust — allow government entities to pool resources to bring down the cost of insurance premiums.

HealthTrust posted a press release on its website saying its board of directors is still reviewing the ruling.

The LGC prevailed on one point: The court ruled that hearing officer Don Mitchell exceeded his authority when he told LGC that net assets in its risk pools should not exceed 15 percent of claims and that it must buy reinsurance to cover unusually high claims. The ruling notes that state law does not require a specific level of reserves or mandate use of a particular formula for calculating reserves.

HealthTrust returned the $33 million to members Sept. 1 — as ordered — but appealed what it claimed was interference with its discretion to manage funds efficiently. The justices said state law does not grant risk pool managers “unfettered discretion” to manage and accrue risk pool funds.

“LGC argued they had absolute discretion and that argument has been completely rejected,” said Attorney Andru Volinsky, who argued for the state.

Volinsky said the ruling provides a “roadmap” for risk pool managers to calculate reasonable reserves in the future.

“If good, honest people are following the same roadmap, they should come out to similar conclusions,” Volinsky said.

“When you take too much, you have to give it back, which is what this decision says,” David Lang, president of the Professional Firefighters of New Hampshire.

Volinsky and Lang said the ruling means the $17 million LGC must restore to the HealthTrust risk pool after improperly transferring it to a property liability pool LGC also manages will be funneled to member cities and towns as surplus.

Until 2010, risk pools in New Hampshire were largely exempt from state regulation. The Jan. 10 ruling, Lang said, validates the regulations that ensure transparency and oversight.

“After a long administrative and judicial process, this decision will return to cities, towns and taxpayers that which was improperly taken from them,” said Kevin Moquin, senior attorney with the Bureau of Securities Regulation.

The hearing officer found that from 2003 to 2010, net assets in the HealthTrust pool increased from $24 million to nearly $87 million, and concluded $33.2 million constituted surplus funds that should be returned to members.

LGC has managed risk pools since 1987. Its HealthTrust pool insures 70,000 public employees and handles $360 million in claims each year, according to court documents. It covers 26,000 employees under its Workers Compensation division.

 

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