Audit: Insurance errors costing state

Friday, Jan. 16, 1998 | 10:45 a.m.

CARSON CITY -- Administrative errors made by the agency that oversees the troubled health insurance plan for state employees is costing the state hundreds of thousands of dollars, a legislative audit revealed.

An audit of the state Division of Risk Management -- which administers health insurance for nearly 26,000 current and former employees -- said the agency "has significant internal control weaknesses over the $37 million it collects in checks and cash each year from state workers, retirees and others to cover premiums. Without proper safeguards, fraud and abuse could occur and go undetected."

The agency lacks management controls and many of its methods and practices contribute to delays and errors in processing claims, auditors said.

The financial examination, released Thursday to the Legislative Audit Committee, looked at the agency's collection and enrollment procedures.

An audit is expected to be approved later this year to examine how the division regulated the claims procedure when employees and their dependents got medical treatment.

There was myriad criticism when L & H Administrators, hired by the state to process and pay medical claims, fell behind and was fired, leaving 75,000 unpaid claims. The new claims administrator, UICI Administrators of Texas, doesn't expect to get caught up on paying claims until March.

But this audit focused on different problems. For instance, the division spent $2 million on a new computer system and hired five new employees in 1996 but it "is unable to process forms timely and generate accurate bills for large pay centers."

For instance, risk management billed the central payroll system for state workers $4.3 million in April 1997 to cover the insurance premiums for the month. But the center paid only $3.2 million -- $1.1 million less than billed.

And the other payroll centers such as at the universities in Las Vegas and Reno paid less to the risk management division because of disputes over the amount billed. The auditors found there was inaccurate information being fed into the computers.

"These problems include inefficient use of staff, inaccurate financial information, loss of state money, and poor service in group health insurance participants," said the auditors.

For instance, the delay in reconciling the differences between risk management and the pay centers allows computer entry errors to go undetected for a long time.

"For example, one error for $150,000 went uncorrected for more than two years," said Lee Pierson, deputy legislative auditor who presented the report.

Part of the problem causing the discrepancies is that the risk management division does not process insurance changes fast enough for the pay centers to make changes. There were errors as high as $600,000 that occurred between January 1995 and June 1997.

The state lost at least $63,000 when it made overpayments in premiums to one health maintenance organization for employees who had already left state employment. Risk management said it was the pay centers that were at fault but the auditors said documents indicate a shared responsibility for the problem.

The division fails to promptly process applications for entry into the health insurance plan. These delays force newly hired state workers to prepay for service when seeking medical treatment and the claims are often rejected when submitted to the state.

Neither are the premiums received in cash or checks promptly put in the bank.

"Delays in deposits prevent the state from earning interest in funds and increase the risk that checks will be uncollectible or lost," the audit reports.

Dave Thomas, administrator of the risk management division, said he welcomed the audit and recognized the deficiencies it reported. But he said all of the recommendations, with the exception of two, have been put in place.

The real problem, Thomas said, is that the division's computer is not hooked into the seven payroll centers in government. He said that makes it difficult to maintain consistency.

Thomas was challenged by Sen. Ray Rawson, R-Las Vegas, who said he was concerned about a lot of statements made by the state administrator. Thomas said that all the recommendations of a prior audit had been put into practice. But when auditors checked, they found there had been little progress.

Rawson said Thomas' response was "not credible" and he added that there should be follow-up to make sure the division follows through on the recommendations this time.

Senate Majority Leader Bill Raggio, R-Reno, indicated Wednesday at another meeting, the 1999 Legislature would be considering a lot of changes in the law to straighten out the health insurance system.