LGC actions put workers' comp program at risk
Should the program collapse, thousands of public employees in more than 200 communities would go without workers' compensation coverage until those communities were able to secure new coverage, said Thomas Enright, chairman of the LGC board.
The workers' compensation program has continually operated in the red, with as much as $3.9 million in losses annually, and is afloat only because the LGC subsidized the program through its other programs, according to a review of LGC audits and independent reports. The subsidizing practice was deemed illegal in an August ruling by the State Department, though LGC has appealed that ruling to the state Supreme Court.
The workers' compensation program, which has no cash reserves and takes in slightly more than $7 million annually from member towns and cities, will not be able to comply with a State Department order issued in August to return $17.1 million to cities and towns by Dec. 1, Enright said Saturday.
"If that order continues in its present form, workers' compensation would have to close and possibly (its parent program, the Property and Liability Trust) would have to close," Enright said.
The workers' compensation program covers more than 25,000 public sector employees in the state against work lost because of injury, according to the LGC website. Enright said that, without LGC, the only option left for most communities would be LGC's competitor, Primex, which offers similar services to public sector employers.
"I think it would affect the price," he said. "My belief is competition delivers the best price."
He said the private marketplace is another possible option. But he said rates charged by private insurers to cover public sector employees, many of whom are in high-risk occupations such as police officers and firefighters, tend to be cost-prohibitive for communities.
"In the commercial market, it would be very expensive," he said.
Workers with current claims would still be covered, as the LGC is required by state law to provide the state Department of Labor with a security agreement backed either with cash or a bank loan to pay claims in the case of a program's default.
But last year, after New Hampshire State Department hearings that ultimately ruled the LGC could not continue to use its financially healthy programs to subsidize its workers' compensation program, the board agreed to prop up the program using cash reserves from the program's parent entity, the Property and Liability Trust.
The LGC's agreement amounts to $11,428,800, acting Labor Commissioner David Wihby confirmed. Enright said Saturday that he was "pretty sure" that LGC used cash reserves from the Property and Liability Trust as collateral for the security agreement.
The revelations are the latest in a series of blows to the organization, which was recently ordered by the state to return more than $50 million to the towns and cities, including the $17.1 million transferred to the workers' compensation program, it provides insurance programs for and whose executive director, Maura Carroll, was abruptly asked to resign this month.
"This money should have been returned to taxpayers, the rightful owners," said David Lang, president of the Professional Fire Fighters of New Hampshire, which waged a decade-long battle to force LGC to publicly disclose how it was spending money collected from its risk pool.
The LGC had claimed the surpluses helped keep rates steady for members, while the firefighters association, led by Lang, claimed the LGC should have returned the money to communities and instead was using it to fund the workers' compensation program and to purchase real estate.
The audits, which are available on the LGC's website, show that HealthTrust, the LGC program offering health insurance administration to towns and cities, has loaned more than $17 million to LGC's workers' compensation program and that the LGC board adopted a resolution on June 2, 2011, to repay the money.
"The purpose of the promissory note between the risk pools is to formally acknowledge the Board of Directors' intent to repay the portion of the 1 percent of employer contributions funded by HealthTrust that was used to support the development of the workers' compensation pool between 2004 and 2010," according to the audit.
That promissory note includes no repayment terms and charges no interest. It says the workers' compensation program will repay the money with "any excess funds in the workers' compensation pool after accounting for other liabilities, operating expenses and needed reserves."
However, "during the year ended December 31, 2011, the workers' compensation pool did not generate excess funds that would be available to make a payment on the promissory note," the audit said.
Can the money be repaid?
The Department of State ruling mandated that the money not only be repaid to HealthTrust, but also then be paid back to member towns and cities. According to the order, the workers' compensation program has until Dec. 1 to return all $17.1 million to towns and cities.
That amount is in addition to $33 million the state ordered repaid from HealthTrust cash reserves and $3 million repaid from the Property and Liability program.
The LGC has appealed the order to the state Supreme Court. New Hampshire Attorney General Michael Delaney wrote an objection to the LGC appeal.
"These monies could have been used by towns, cities, counties and school districts to retain or hire needed teachers, firefighters and police officers during a time of economic hardship," Delaney wrote. "The harm suffered by the LGC's members through overpayments to LGC has both been accumulating for years and is re-experienced in each budget cycle."
Other critics of LGC have maintained that the money also could have been used to reduce property tax rates in member communities.
But without some kind of "reasonable" payment structure, the workers' compensation program can't repay the money, Enright said.
"You have to ask yourself if that's good for the cities, towns and school districts," Enright said. "The potential consequence is something I don't think the public wants or the secretary of state wants."
Enright said the board expected that the workers' compensation program would lose money while it built a client base.
"If you set a competitive price, there's no way you can start it and run it at a profit or break even," he said. "We've been approaching solvency in the workers' compensation program, frankly at a faster rate than we anticipated."
However, the practice of subsidizing the program was harshly criticized in the form of an independent review of LGC practices done for the Bureau of Securities Regulation by Michael A. Coutu, an insurance expert based in Rye Beach. Coutu's 27-page report, available on the State Department's website, said that, because membership in the health insurance and workers' compensation pools are not identical, LGC was improperly taking money from one pool to fund another.
"From 2003 to 2010, WCT (Workers Compensation Trust) sustained net losses of $17,775,000 offset by the $18.3 million contributed by LGC," Coutu's report said. "Absent the contributions made by LGC to WCT to offset losses, the Workers Compensation Trust would have failed.
"It is unlikely that the majority of the members of the (HealthTrust) pool truly understand that a portion of their member contributions is being used to subsidize WCT losses and capital contributions to Real Estate," Coutu's report said.
The security agreement LGC obtained for the Labor Department appears to be more of the same.
According to the LGC audit, memberships in the property and liability pool and workers' compensation pool are not identical either, meaning members of the property and liability pool are subsidizing a program benefiting other members of in the workers' compensation pool.
Enright, though, said that because the property and liability program and workers' compensation program are both employer-based programs as opposed to the "employee-based" health care programs such as HealthTrust, the LGC believes the use of property and liability cash reserves to secure the workers' compensation security agreement is proper.