View this article online: https://www.insurancejournal.com/news/east/2011/08/04/209368.htm
A dispute between New Hampshire regulators and a nonprofit group over how it manages health insurance risk pools for public workers and retirees is headed for a state hearing.
The state Bureau of Securities Regulation released its final report Tuesday on its investigation into the Local Government Center. The report says the center is required by law to return a surplus of more than $100 million in taxpayer money to cities and towns; illegally altered its nonprofit corporation structure to merge with limited liability companies; and transferred part of its surplus to subsidize a worker’s compensation insurance pool at the expense of two others, among other allegations.
“If you have surplus, you’re supposed to give it back to cities and towns,” said Earl Wingate, staff attorney for the bureau, said at a news conference. “You’re not supposed to hang onto it.”
Tuesday’s report follows a preliminary report in May issued by the bureau, which has been investigating the center for at least a year. The bureau plans to pursue a state administrative hearing to determine whether the center committed any violations and needs to follow any corrective action.
Board members of the center, which has been sharing information with the bureau and meeting with regulators in an attempt to reach a resolution, maintain they have done nothing wrong and look forward to a positive resolution.
They said they have consolidated different programs to become more efficient and better serve member communities. In 2003, the LCG, then comprised of four separate voluntary corporations, voted to convert to limited liability companies, using Delaware law to conduct a series of mergers. The LGC said the technique is commonly used, as New Hampshire does not have such a law.
Municipalities contribute to risk pools such as the center to obtain health and other forms of insurance at more affordable rates. The center is made up of 454 member cities, towns, school administrative units, counties and quasi-governmental organizations. It provides health coverage to nearly 80,000 people throughout the state.
Board members said they have returned surpluses through the years in the form of rate reductions, saying communities prefer to have stability rather than get a check one year, and see a rate spike the next. They also defended their decision to use 1 percent of employer health and property liability contributions to start a worker’s compensation program, saying they followed both state law and the practices of similar insurance pools nationwide.
The bureau report says, though “there is no showing there ever was an agreement by the municipalities that their contributions to one line of coverage to be used for another line.”
“I think everybody here recognizes that their governments are a partner with LGC, or LGC is a partner with them,” said Peter Curro, chairman of the center’s Finance Committee and a school district business administrator “By both working together, LGC has provided, programs, services, training, that are essential for local governments to do what the citizens request.”
Curro said if the center is required to return $100 million, the center would have to raise insurance rates “substantially” to cover the difference, or possibly look at closing its doors.
David Lang of the Professional Firefighters of New Hampshire – the state union for active and retired firefighters – said the union doesn’t see how holding on to taxpayer money and then doling it back little by little in a rating cycle is good business, and that it needs to be returned under the law. The union had sued the LGC, saying health care funds were diverted for non-approved uses, but the lawsuit was dismissed.
“There are cities and towns and school districts that want their money and need their money to continue to run,” he said.
To date, only two communities have formally asked for their money back, Portsmouth and North Hampton.