A $5.8 million error: St. Joseph County health insurance fund is in the red

Nov. 12--SOUTH BEND -- St. Joseph County's health insurance fund is depleted because of a budget mistake that went unnoticed for years, and county leaders are now trying to plug a $5.8 million hole.

The fund has operated at a loss each year since 2014 by not bringing in enough revenue to cover expenses.

Officials blamed the problem on a mistake that was made for years and just recently came to light. The error stemmed from the cost of insurance for retirees not being factored into the annual budget; only the cost of current county employees was taken into account. The plan provides insurance for about 1,070 county employees and 200 retirees.

As a result, the fund has been sharply under-budgeted -- by $6 million in 2015, $1.9 million last year and an estimated $5.2 million this year. Surpluses from previous years were drained to cover the deficits. Going into 2018, the county is nearly $5.8 million in the red.

County Auditor Mike Hamann's office is responsible for overseeing the fund. He said it's unfortunate the mistake wasn't caught sooner.

"There's plenty of blame to go around for this. No one really seemed to have the responsibility for monitoring this closely," he said, adding that his office is now keeping a closer eye on the fund.

Commissioner President Andy Kostielney said "a variety of people are at fault" for the mistake.

"The County Council is at fault, the Board of Commissioners is at fault and the auditor's office is at fault for not properly tracking these things," he said. "We had done such a great job managing our health care up to this point that this flew under the radar."

Hamann, who began serving as auditor in 2015, said his office has crafted a plan to help cover the $5.8 million deficit.

He has proposed spending about $1 million per year from the County Economic Devel­opment Income Tax reserve fund over a five-year period. The fund is used to cover a range of expenses, including some staffing costs and the leaf pick-up program.

Hamann's plan, which would require approval from the County Council and Board of Commissioners, would reduce the balance of the reserve fund to about $2 million, providing less wiggle room to cover future unplanned expenses.

Hamann placed part of the blame on the county's health insurance broker, R&R Benefits. He said past communication problems with R&R made it difficult to keep track of the fund.

He previously thought R&R was supposed to play a bigger role in helping the county make budget projections. But although R&R manages the county's self-funded health insurance plan, Hamann said, it hasn't worked closely with his office on the budget.

"The assumption was that the broker would be telling us what to budget," he said. "But I guess that's not their role."

Among other work, R&R negotiates contracts with health providers and provides oversight of employees' medical bills. Records provided by R&R show the firm has been paid more than $1 million since it was hired in early 2013. Bob Frick, the firm's chief operating officer, didn't return calls Friday seeking comment.

Earlier this year, Hamann and some council members questioned a decision made by the commissioners to stick with R&R as the county's insurance broker, arguing that replacing the firm would result in major savings. Other firms that interviewed for the job were passed up.

In the case of the R&R contract, two members of the County Council, Robert Kruszynski Jr. and Mark Catanzarite, delivered some pointed questions in an essay published in The Tribune earlier this year.

Why "would the St. Joseph County Board of Commissioners refuse the opportunity to save a minimum of $1.25 million per year when it was presented to them this year?" they wrote. "An even bigger question is: why did they choose to forgo these savings in such a disingenuous and unethical manner?"

For his part, Kostielney said he doesn't regret the decision to stick with R&R and that the cost of running the county's insurance plan remains relatively low.

This year, the annual cost per participant in the plan was about $12,800.

Hamann said the communication problems with R&R have been recently resolved, with the firm agreeing to provide information that his office requests.

"It was perceived that I was trying to bad mouth (R&R) and that I was overstepping my role and trying to run the insurance program," Hamann said. "All I'm trying to do is manage the thing financially."

Hamann's frustration with not getting information led him to convince the County Council to hire an attorney earlier this year to audit R&R and investigate the health insurance budget.

Hamann said the effort helped expose the budget mistake with retirees. Financial problems were also uncovered with agencies whose employees receive health insurance coverage from the county. Some of those agencies, such as the St. Joseph County Airport Authority and Transpo, have contributed less than they should for insurance and will be asked to pay more next year to correct the problem.

The next important step, Hamann said, will be for county officials to approve the hiring of a firm to conduct a health insurance claims audit to ensure there aren't billing problems that have caused the county to spend too much. The audit is expected to cost $30,000.

tbooker@sbtinfo.com

574-235-6070

@Tbooker24

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