County loses out on $5 million in savings

Documents show broker failed to recommend most affordable health benefits plan to county

UNION COUNTY — The freeholder board could have saved as much as $5 million in health benefit costs last year, but several representatives of county employee unions discovered a county-contracted broker appears to have steered the freeholders to a more expensive plan.

Tonight at the freeholder meeting, representatives of the local Communications Workers of America and The International Federation of Professional and Technical Engineers unions intend to present the results of an investigation they undertook to understand how the county health insurance broker, Brown & Brown Benefit Metro, Inc., went about their search for a less costly health benefits plan for employees. The findings, they said, are shocking.

The information, multiple union spokespersons said, will show the brokerage firm deliberately made a state health plan appear millions of dollars higher in order to not lose out on $800,000 in commission.

Jeff Robinson, a fraud investigation employee for the county social services department and a representative of the CWA union, explained in an interview with LocalSource that when the county contracted with Brown & Brown, they never considered the New Jersey State Health Benefits plan, even though it was millions less than the one they selected. He also mentioned that union representatives had told the county they preferred going with the state health plan because of the benefits and cost.

“They were supposed to see if there was a better deal out there than Cigna, but instead of coming back with the state plan, which was the lowest cost plan, their recommendation was Horizon Blue Cross Blue Shield,” said the county employee.

“This was right after we had experienced massive layoffs of employees because of the budget deficit,” Robinson said, adding that the social services department lost many employees because of this layoff.

Robinson said union workers were “a little suspicious” when the county went with Horizon, because the union officials believed the state plan would cost considerably less.

So Robinson, along with other county union workers who have experience investigating fraud, used the Open Public Records Act to obtain information submitted to the county by Brown & Brown. After looking at these documents, Robinson said they were taken aback by the misleading report submitted by the insurance brokerage firm.

“We said, ‘something is wrong here.’ They should have gone with recommending the state health benefits plan, but they didn’t,” said Robinson, adding it was then they began digging into why the insurance brokerage firm would not recommend the state plan.
Robinson explained that after reviewing all the information and documents at length, they realized by the county awarding the contract to Horizon, Brown & Brown was able to collect $800,000 in commission. But had they recommended the county go with the state plan, the commission would have been zero.
Dudley Burdge, spokesperson for the CWA union employees, explained that from documents they learned Brown & Brown was aware the lowest cost for medical care would be from the state health plan, followed by a bid from Horizon.
Burdge explained that at this point the insurance broker should have recommended the state health benefits plan to the county, based on the lower cost. They did not.
Instead, Burdge said, Brown & Brown, “in what appears to be a transparent attempt to manipulate the contract award process,” added $7 million to the estimated cost of the state plan, using “runout costs” from the previous health plan, Cigna.

The county is required to pay these runout costs regardless who is selected as the new health insurance carrier, Dudley explained. However, these particular costs were only added to the state health benefits plan, no others, making the estimated cost of the state health plan higher than Horizon.

According to OPRA documents obtained by the union representatives, and provided to LocalSource, when showing the cost breakdown of Horizon over the state health benefits plan, Brown & Brown failed to include the Cigna “runout liability of $7.7 million in the final financial cost breakdown. This lowered the final Horizon number to $47.8 million.

The insurance broker, however, did include the $7.7 million runout liability figure when tallying the proposed final financial breakdown for the state health benefits plan. This brought the total cost for the state plan up to $50.1 million, instead of the actual number of $42.3 million.

Burdge said it is glaringly apparent why Brown & Brown selected Horizon over the state plan, however he stops short of making any accusation against the insurance broker, preferring to present the information they uncovered to the freeholder board and let the evidence speak for itself.
Ironically, in cost estimates submitted to the county by the brokerage firm, the current cost at the time for Cigna to supply health benefits, $46 million, was actually lower than Horizon’s proposed figure of $47.8.

“Even if you subtract the $7.7 million from the state health benefits plan analysis, it very likely understates the savings from going in the state plan. First Brown and Brown estimated the state plan with a one and one-third premium increase at 10 percent, while it actually was 8.5 percent, a difference of a couple hundred thousand,” said Burdge. He also said the county has still not provided the union representatives with the full Horizon contract, although they used the OPRA law to request it.

Additionally, while Cigna held the top spot in A.M. Best’s insurance ratings, with the state health benefits plan coming in second, Horizon was third.
On May 26, 2012 the county officially changed the county employee health and prescription plan to Horizon by resolution. It showed a 4 percent increase over the previous contract with Cigna.

The county announced to employees shortly in a written notice that since health benefits had “skyrocketed” over the last ten years — $11 million just in the last year for medical and prescription premiums — that they would be switching health benefit coverage to Horizon. They mentioned that Cigna was proposing an 18.4 percent increase, or a $10.3 million more to cover the 3,500 county employees, early retirees and their dependents.

“Given this astounding proposal, the county worked to find a more cost effective carrier,” the notice from the Division of Personnel and Labor Relations noted.

The county also noted the change to Horizon would “result in a cost savings over that proposed by Cigna and will benefit both the taxpayers of Union County and county employees.”

“In Union County, as in many other jurisdictions, the county does not pay their insurance broker directly. They let the insurance carrier pay the broker a percentage of the health insurance premiums paid jointly by the county and employees,” Robinson said.

The union spokesperson explained that because it is the policy of the state health benefits plan not to reimburse health insurance brokers, if the county had gone with the state health benefits plan, Brown & Brown would have lost about $800,000 in commission.

“We have extensive information that tells this story and we will be revealing it at the freeholder meeting,” he added. Robinson further noted the union intends to provide evidence that will support their argument.

Brown and Brown is one of the largest, independent insurance intermediaries in the nation, with over 69 years of continuous service. The company is ranked as the sixth largest such organization in the United States.

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