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June 09. 2014 8:10PM

LGC’s fate may hinge on outcome of hearing

CONCORD — Whether two former New Hampshire Local Government Center subsidiaries have their quasi-government status revoked seemed, in a hearing Monday morning, to hinge on whether one of the entities effectively shut down in January, and how a hearing officer interprets just how a $1.7 million transfer of real estate factors into a required payment of $17.1 million between the entities.

A deal announced last week would undo a secret agreement reached last October, that was announced and went into effect in January, that saw HealthTrust acquire all of the assets and liabilities of Property-Liability Trust.

Last week’s termination agreement calls for Property-Liability Trust, also called PLT, to reacquire its assets and liabilities from HealthTrust and repay $17.1 million that had been taken from HealthTrust to subsidize a money-losing workers’ compensation program for more than a decade. HealthTrust plans to distribute the $17.1 million to its member communities and school districts.

The agreement reached in October was announced following, and in response to, a state Supreme Court decision in January that upheld nearly all of an August 2012 order by Secretary of State hearing officer Donald Mitchell that included the $17.1 million repayment. That earlier agreement saw HealthTrust acquire PLT to, according to HealthTrust Executive Director Peter Bragdon, avoid PLT entering bankruptcy. At the time, Bragdon said, HealthTrust and PLT officials believed PLT had net assets of about $13.9 million, meaning it couldn’t make the payment.

He has said that subsequent financial reviews have shown that PLT had more assets than previously thought, so the first agreement was terminated when HealthTrust and PLT found that the payment could be made after all.

HealthTrust and PLT officials had hoped that the termination agreement would satisfy the entities’ regulator, the Bureau of Securities Regulation, which in February filed a motion asking Mitchell to order a cease and desist of the October agreement or revoke the organizations’ status as quasi-government public insurance risk pools governed by RSA 5-b. If that happens, HealthTrust and PLT would become private corporations subject to state taxation and regulation by the state Insurance Department.

HealthTrust and PLT administer health insurance, property insurance and workers’ compensation coverage for tens of thousands of public employees and for hundreds of member towns, cities and school districts.

“It is such an enormous event. Revocation of 5-b status is disproportionate and excessive,” HealthTrust attorney Michael Ramsdell said.

“We have given the bureau exactly what it asked for,” he said. “The substantive issues raised in the February motion are moot.”

BSR attorney Andru Volinsky said the termination agreement failed to pacify regulators partly because a portion of the transfer includes PLT transferring its ownership share of the entities’ shared building on Triangle Park Drive in Concord that was valued at $1.7 million. He said HealthTrust and PLT did not specify in the termination agreement, or in filings with the BSR, that the real estate transfer would be part of the transaction. The real estate portion of the transaction wasn’t made public until a report last week in the New Hampshire Union Leader followed by filings HealthTrust and PLT made days later.

“We had heard through the press” about the real estate transfer, he said. “We’re now present (asking for) summary judgment having been told there were secret terms to the so-called termination agreement.”

Ramsdell, though, said HealthTrust never claimed that the entire transfer would be in cash.

“The (August 2012) order does not say it must be repaid in cash,” he said. “There is nothing improper about the termination agreement with respect to the final order.”

The order calls for PLT to repay “the $17.1 million subsidy.” Throughout the decade HealthTrust was propping up the workers’ compensation program, all subsidies were cash transfers.

During Monday’s proceeding, Mitchell, who said he expects to issue a ruling “as soon as possible,” asked Ramsdell how HealthTrust was going to pay its members $17.1 million, given that the transfer wasn’t all cash.

Ramsdell said the real estate acquisition “as a practical matter” increased HealthTrust’s assets and that the organization has “other funds they can distribute to their members.”

Volinsky, though, said that, if HealthTrust had the $1.7 million available in surplus funds, the money should be returned to HealthTrust members outside the $17.1 million coming back, not as part of it.

“You can’t distribute $1.7 million in real estate to members,” he said. “That means they’ll have to take $1.7 million out of HealthTrust’s current cash reserves.”Volinsky also argued that PLT, in effect, ceased being a public risk pool when it transferred its assets and liabilities in January to HealthTrust and stopped managing members’ policies and claims. He said that, under state law, a risk pool must be formed by a general resolution of at least two public bodies, which he said never happened, and can’t be done by simply giving money and operations back to what he said had become “a shell corporation.”

“We don’t think Humpty Dumpty can be put back together as easily as purported in the termination agreement,” he said. “There is nothing in the statute that permits a risk pool to sell off all of its operations and continue to be a risk pool.”

PLT lawyer Bruce Felmly said the PLT board continued to meet regularly and asked HealthTrust for regular updates on what, under the October agreement, would have been a runoff of PLT’s assets over two years. He said PLT never sought to rescind its 5-b status, nor was its status ever revoked over the last several months.

“The argument that somehow PLT cannot unring this bell, I think, is extremely strained,” he said.

tbuckland@unionleader.com


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