Heads demanded in insurance crisis

Tuesday, Dec. 15, 1998 | 11:12 a.m.

CARSON CITY -- Legislators are looking for a scapegoat in the financial disaster that saw the state health insurance program fall from a cushion of more than $14 million to $13 million in the hole.

Legislators also called for legal action against those involved in the system, which covers 55,000 state workers and their dependents.

"Somebody needs to be responsible," says Assemblyman Morse Arberry, D-Las Vegas. Assemblywoman Jan Evans, D-Sparks, said, "We went into a $27 million free fall, and she added, "We're continuing to fall and we haven't hit bottom."

Their remarks came Monday at a meeting of the Legislative Interim Finance Committee into the condition of the fund, which will raise premiums for dependents by 23 percent effective Jan. 1 and reduce benefits for those covered.

Former administrator Dave Thomas appeared to be one Monday who would take a share of the blame. Sen. Bob Coffin, D-Las Vegas, noted Thomas lacked experience in health insurance and that was one of the reasons for the debacle.

"I don't understand why state employees have to take it on the chin for a contract signed by state administrators," Sen. Bill O'Donnell, R-Las Vegas, said.

Coffin said suits may have to be filed against those responsible and against those hospitals or doctors who received double payments.

The problems started in 1997, when L & H Administrators was hired to process the medical claims of state employees and their dependents. The company fell behind and was fired by the state Committee on Benefits, which oversees the program. UICI, a Texas firm, was hired to replace L & H, but encountered a backlog of unpaid bills of more than 80,000 claims.

UICI dug itself out from the unpaid claims and state Budget Director Perry Comeaux said the committee has given UICI a three-year contract that will avoid many of the problems that occurred during the L & H tenure.

Evans suggested there's a "total lack of confidence" in UICI, the benefits committee and the insurance program's actuary, William Mercer. "Everybody stood around and we went into a $27 million free fall."

"This may be a classic case of closing the barn door after the horse is out," Comeaux said. "But the barn door is closed."

The insurance program is paying out more money each month now than it is taking in. And the increase in premiums for dependents will only partially solve the problem. The state pays the total premium for employees, and employees pay for their dependents.

Comeaux said the Legislature will be asked to increase premiums for employees.

Part of the problem is the benefits committee did not ask in 1997 to increase premiums. In 1998, it sought only a 6 percent increase. The claims have been coming in faster and at a greater amount than anticipated.

"In hindsight, we should have asked for a revenue increase," said Mikel Gray of William Mercer. "That created the revenue problem." Gray said there had been a long period of "stability" in the number of claims and the medical costs.

The problem, Gray said, was that L & H was not paying the claims, so company projections that went into the requests were based on false information.

But Coffin, an insurance agent, said it should have been obvious that medical costs were on the rise. "The whole industry saw it coming," he said. He added to the benefits committee, "You're going to have to sue." And he suggested that Mercer be prepared to be named in a suit because of its failure to adequately project the medical trends.

An audit of the insurance program by Kafoury Armstrong & Co., released last week, suggested there may have been $10 million in overpayments to hospitals, doctors and other medical providers.

A legislative audit on the program is to be released today (Tuesday).