NJ watchdog says health benefit funds still haven’t implemented required reforms
A top state watchdog says the multimillion-dollar public health benefit funds he flagged for ethical conflicts and improper procurement still haven’t enacted the reforms he ordered more than two months ago.
Acting State Comptroller Kevin Walsh, in a letter to the governor and other state officials released Friday, said three large funds managed by Camden insurance brokerage Conner Strong & Buckelew have refused “to comply with the law and prepare corrective action plans.”
Walsh reiterated findings of his Sept. 9 report that singled out Conner Strong & Buckelew and a corporate affiliate, PERMA Risk Management Service of Parsippany, for their roles as paid professionals working for the funds. The report said that the private firms — long led by Democratic political boss George E. Norcross III — have placed taxpayer money at risk.
“Without adequate disclosure, competition, or accountability, a for-profit firm has effectively gained control over public health insurance funds,” according to the comptroller’s 34-page report. “The result is an unauthorized takeover of a core public function by a private entity — and a serious risk to public trust and public dollars.”
Walsh gave the insurance funds 60 days to pass resolutions adopting corrective plans. But he said a lawyer for the funds sent him a letter on Nov. 10 stating they would not submit a plan to institute the reforms.
Those funds — the Southern New Jersey Regional Employee Benefits Fund, the Schools Health Insurance Fund, and the Municipal Reinsurance Health Insurance Fund — serve hundreds of local governments and school boards across the state and insure more than 100,000 public employees and their families, Walsh reported. In two of those funds, the comptroller says, “PERMA/Conner Strong” serves as administrator of the fund while Conner Strong is listed as “program manager.”
Walsh said the arrangement is a clear conflict of interest that exposes taxpayers.
“There is no clearer conflict of interest than when a company writes the RFP, reviews the bids, and then steers the contract to itself,” Walsh wrote in September. “What makes this worse is that the vendor concealed from the state and its public entity clients that it was operating on all sides of contracting processes that are supposed to protect taxpayer funds.”
He added: “Without adequate disclosure, competition, or accountability, a for-profit firm has effectively gained control over public health insurance funds. The result is an unauthorized takeover of a core public function by a private entity — and a serious risk to public trust and public dollars.”
A representative for Conner Strong & Buckelew, in an emailed statement Friday afternoon, said the most recent charges from Walsh’s office are “patently false, inflammatory, and reckless” as well as politically motivated. The statement also said that their annual audits are certified by state regulators and suggested that the governor and state Legislature approve of the work of the state public health insurance funds (HIFs).
“To believe Kevin Walsh is correct you have to believe that everyone else is wrong…” wrote Joseph DiBella, who is listed as executive partner of Conner Strong & Buckelew. “The professionals at the HIFs, who spend significant time ensuring they are in compliance with the law and regulation, the experts at the Department of Banking and Insurance and Community Affairs who not only wrote the regulations, but annually audit and certify the work of the HIFs, the Governor who appointed the leaders of DOBI and DCA and has kept them in office, and the Legislature who passed the laws authorizing HIFs.”
Nancy Kearney, a spokeswoman for the state Department of Banking and Insurance, did not comment for this story on Friday.
Matthew Boxer, an attorney for PERMA who previously served as New Jersey comptroller, claimed in September that state regulators maintain careful oversight of the public health insurance funds and are well aware that Conner Strong and PERMA are related entities working together inside many New Jersey insurance pools, such as those singled out by Walsh.
Boxer also said that each of the insurance funds is overseen by appointees named by member school boards or municipalities that belong to the funds. These board members, he said, make the decisions on hiring vendors and other professional advisers.
“I’ve been working with PERMA for about a year now, and everything that I’ve seen indicates that these health funds are run very well,” Boxer said in an interview with The Jersey Vindicator. “Look at the state health benefit plans, they’re near collapse. These joint insurance funds have performed well, and the numbers bear that out.”
The health benefit funds singled out by Walsh controlled nearly $650 million in taxpayer money last year alone.
Those funds are only a small fraction of the public insurance pools managed by PERMA across the state. Online records show that the Conner Strong affiliate now serves as director for more than 30 such insurance pools that provide health benefit coverage, property and casualty policies, and other policies to towns, counties, and public agencies across New Jersey.
Employees of Conner Strong and PERMA annually receive millions in fees for providing management and other services to the funds. Conner Strong also received brokerage fees for placing many of the insurance policies held by the funds.
Use of such funds, which are designed to save money by the pooling of risk and potential liabilities, emerged first in Bergen County during a property and casualty insurance cost crisis in the 1980s. The concept spread across the state as local officials found savings through joining the risk pools.
PERMA, the company that pioneered the pools, was purchased by Conner Strong under Norcross more than 15 years ago. In recent years, public risk pools managed by PERMA in New Jersey have grown to include employee health coverage and overall coverage for county government.
Membership in health coverage pools has also grown recently, despite repeated warnings from state watchdogs that such alliances are more expensive than the state employee benefit plan, which remains the largest in New Jersey. The state fund, however, now faces steep cost increases and other management challenges, causing more towns and school boards to seek coverage through the privately managed funds.
In the letter he released Friday, Walsh said the distress in the state fund makes the ethical and transparent operation of the privately managed insurance pools imperative. He also said that ethical issues with insurance brokers continue to harm the public, noting Horizon Blue Cross’ recent $100 million settlement for allegedly overbilling the state for benefit coverage.
The settlement “reflects the power private entities contracting with public entities have over the cost of health care for public employees,” Walsh wrote. “There has been continuing evidence that the conflicts of interest and lack of transparency are a widespread problem.”
The full statement from Joseph DiBella of Connor Strong & Buckelew
“To believe Kevin Walsh is correct you have to believe that everyone else is wrong — the professionals at the HIFs, who spend significant time ensuring they are in compliance with the law and regulation; the experts at the Department of Banking and Insurance (DOBI) and Community Affairs (DCA), who not only wrote the regulations but annually audit and certify the work of the HIFs; the governor, who appointed the leaders of DOBI and DCA and has kept them in office; and the Legislature, who passed the laws authorizing HIFs. Sure, that makes sense: They are all wrong, but someone who appears to be politically ambitious and will soon be out of office is right. Having seen reports that some in the Legislature want to abolish the office and create a more efficient and independent office, I now know why. These latest allegations are again patently false, inflammatory, and reckless.”
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Jeff Pillets is a freelance journalist whose stories have been featured by ProPublica, New Jersey Spotlight News, WNYC-New York Public Radio and The Record. He was named a Pulitzer Prize finalist in 2008 for stories on waste and abuse in New Jersey state government. Contact jeffpillets AT icloud.com.