Who’s to blame for St. Joseph County’s $5.8 million insurance blunder?

Nov. 19--SOUTH BEND -- St. Joseph County officials blame communication problems for a budget mistake that wasn't caught for years, causing the employee health insurance fund to sink into the red by $5.8 million.

The oversight, and the deficit it caused, have called attention to County Auditor Mike Hamann, as well as the role other county leaders play in financial decisions.

But should the mistake also have been caught by the county's health insurance broker, R&R Benefits? The South Bend firm doesn't help the county prepare its budget, but should it be responsible for doing so?

Officials are at odds over those questions, with some defending R&R and others saying the county should explore other options.

This isn't the first time R&R has been in the spotlight. Earlier this year, some County Council members pushed to hire a different broker, saying the county could get better service at a lower cost, but they were rebuffed by the county Board of Commissioners. The nine-member council is the county's legislative branch, while the three commissioners form the executive branch and have authority over contracts.

Some health insurance brokers say if they worked for the county, they'd help prepare the budget and avoid mistakes like the one that caused a $5.8 million deficit.

The error stemmed from the auditor's office; it failed to account for the cost of retirees when calculating the budget for health benefits, accounting only for current employees. The self-funded insurance plan provides coverage for about 1,070 county employees and 200 retirees. R&R manages the plan.

The oversight began a few years ago, causing the county to deplete what was once a healthy surplus and then fall into the red.

Hamann, who took office in 2015, has acknowledged that his staff somehow failed to catch the budget mistake. He also noted that R&R never stepped in to sound the alarm.

R&R declined to answer questions. Bob Frick, the firm's chief operating officer, wrote in an email that the firm "will not comment on client's business."

Bill Sylvester, an adviser with Indianapolis-based Apex Benefits, said his firm, which serves 15 counties statewide, helps government clients prepare their health insurance budgets to ensure there aren't mistakes.

"There is sometimes a disconnect between the major branches of government, and we try to bridge those gaps and help counties come up with budget numbers that are accurate," he said.

Jenny Noel-Brandt, a consultant for USI Insurance Services, said preparing budgets for clients is "a part of our normal job duties," along with providing monthly reports on spending.

USI and Apex were among nine firms that were interviewed earlier this year by the county as council members explored the option of using a different broker.

The Board of Commissioners decided in July to stick with R&R, even though an outside firm rated several other candidates higher after reviewing qualifications and services. R&R's compensation was nearly three times more than what some other candidates proposed.

Ongoing friction

R&R has been paid more than $1 million since being hired by the Board of Commissioners in 2013.

Commissioners have insisted that R&R has done everything it has been asked to do and isn't responsible for providing budget advice to the County Council or auditor's office.

But Hamann and some members of the County Council think R&R should be closely involved in preparing the budget for the insurance fund. The broker, they point out, negotiates contracts with health providers and tracks costs of the insurance plan.

Kristine Grow, spokeswoman for America's Health Insurance Plans, said it's important for local governments to define budgeting responsibilities of health insurance brokers and other branches of government. Confusion about roles can lead to mistakes.

"It's important to establish, very early and in writing, who is responsible for what," she said.

Andy Kostielney, president of the Board of Commissioners, insisted that R&R's role is not to "look over the books" for errors. He said the firm provides key information about the insurance plan, such as the cost per participant. It is then up to the County Council and auditor's office to use that information to make accurate budget projections, he said.

R&R "provides us what the expected cost is per participant in the plan, and that's where it stops. The County Council drafts the budget and the auditor oversees that piece," Kostielney said.

The other two commissioners -- Deb Fleming and Dave Thomas -- also argue that R&R has provided quality service and say they don't regret their decision to stick with the firm.

"I've always thought R&R has given any information that was requested and never participated in the budget process," Fleming said. "They're willing to help but were never asked."

Thomas said R&R has done a "phenomenal job" managing the insurance plan and has been unfairly subjected to "public abuse" from certain officials.

When asked about the budget mistake, Thomas said "people are making decisions who don't understand financing, maybe in the auditor's staff or with the fiscal body ... I don't believe there's anything (R&R) could have done differently."

When commissioners decided to stick with R&R, they emphasized that the cost of the county's insurance plan remains low -- about $12,800 annually per participant -- compared to what other local governments in the region pay. And they argued the county would risk having costs climb by choosing a different broker.

'Not happy' with advice

Some County Council members, including Robert Kruszynski Jr. and Mark Catanzarite, remain puzzled by the decision to stick with R&R.

"If we were getting proper monitoring and reports from our health care broker, maybe we would have caught this problem earlier," Kruszynski said.

Catanzarite said that since fall 2015, the County Council has led efforts to study whether other brokers could save the county money. Those efforts, he says, have been "met with resistance from day one" by commissioners.

During budget meetings, Catanzarite said, commissioners have only "verbally" relayed information to the County Council about the cost of the insurance plan. Numbers were then plugged into the budget, he said, assuming nothing was awry.

"We've just gone on the good faith and the word of the county commissioners," Catanzarite said. "I'm not happy with the advice we were getting."

Earlier this year, the County Council hired an attorney to audit the health insurance budget.

Hamann, the auditor, said the effort helped expose the budget mistake with retirees, along with financial issues with agencies whose employees receive health insurance coverage from the county.

Hamann agrees with council members that budget advice should be part of the broker's role. He also argues for better communication.

During a recent meeting, he said, R&R provided an estimate for 2017 insurance costs that was roughly $2 million less than what the auditor's office calculated.

Because R&R didn't include certain expenses, "their numbers were off quite a bit," he said. "They have to rely on the auditor's office to get some of the information. It's obvious they need to work with us."

An attorney for the county also argues that R&R needs to play a stronger watchdog role. Pete Agostino, deputy county attorney, says the broker should have noticed that because insurance expenses in 2016 totaled $15 million, it made no sense to budget significantly less revenue than that for 2017.

"That's where the broker's expertise comes in," Agostino said. "If there's confusion about the information, the broker should step up."

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