Insurance must come with some assurances

If Employers Resource Management Co. Inc. had not tarried paying a health insurance claim submitted by an Anacortes woman, the company might have stayed under the radar of Washington Insurance Commissioner Mike Kreidler.

But the delay prompted a complaint to Kreidler’s office that late last month resulted in a cease-and-desist order against ERM. So far, the insurance commissioner has found just the one Anacortes business, with its 52 employees, that has purchased insurance from ERM.

But ERM has drawn the attention of plenty of other federal and state officials, who have engaged the Boise company in regulatory and court skirmishes for at least 12 years.

The company’s chief executive officer, George Gersema, says he would have relented years ago if he were not so stubborn. From his point of view, ERM offers a benefit package like that of any other employer up to the size of a General Motors. Washington and Idaho are among the few states that have a problem with how ERM operates.

A little background is in order.

ERM is a professional employer organization, a type of business that assumes responsibility for many of the administrative duties — payroll, risk management and workers’ compensation, for example — small- and mid-sized businesses do not have the time or expertise to perform. PEOs, once derisively called “employee-leasing companies,” have been around for years. The National Association of Professional Employer Organizations estimates members may provide benefits to as many as 3 million employees in the U.S. ERM, although not among the group’s 380 members, claims it is among the 25 largest PEOs in the country.

PEOs can include health care and workers compensation benefits in the package of services offered to clients, but the how varies from state to state. The U.S. Department of Labor also provides some oversight. Some PEOs have been nothing more than fraudulent Ponzi schemes.

NAPEO Executive Director Milan Yager says the organization wants employers and employees to know they are dealing with responsible service providers, and supports efforts to standardize and clarify regulation of the industry.

In many states, he says, regulations have not kept up with the industry’s evolution.

Washington updated its law last year, Montana this year. But in Idaho, regulators and ERM have been fighting since April 2000 over whether the Department of Insurance has any oversight authority. Last month, ERM appealed an Ada County (Boise) District Court finding that the company is subject to department jurisdiction.

Idaho has an ally in the U.S. Department of Labor, which in January 2002 filed a lawsuit in the U.S. District Court in Boise alleging Gersema and other ERM officers have improperly administered health care benefits. Not only does ERM not retain a reserve for payment of health care claims, according to the complaint, the funds collected to pay for benefits are used to pay company expenses, as well as any workers’ compensation claims that should also come out of a separate fund.

The plans were in the hole $500,000 as of December 2000, the lawsuit says, and ERM has ignored actuary and consultant recommendations that would assure they are sound.

Gersema says ERM plan management complies with industry practice. He says the $500,000 is serious money, but notes the plans will handle $15 million in claims this year. A down year is not unusual.

Last November, the department and ERM negotiated a settlement that would require the company to put $288,000 into a separate account for payment of health care claims of more than $150,000. The amount of an appropriate reserve would be recalculated annually. Another account would be created for payment of anticipated claims, with ERM making monthly $25,000 contributions. Other conditions apply.

The agreement has been snagged by a Department of Labor demand ERM be required to pay a penalty not stipulated in the settlement, but required by law.

Gersema says the new reserves and payments are just bookkeeping changes. The litigation has already cost more than $288,000, he says, adding “This was a mechanism to satisfy the Department of Labor.”

He says ERM has submitted annual audits to the department, and that the benefit payments have been handled by an independent third party.

No benefit claim has ever gone unpaid, Gersema says. The Washington complaint had to do with hospital billing, not any fault of ERM. Idaho and federal officials say they know of no unpaid claim.

And so it stands, with no charge ERM does not do its job, but concern that how it goes about doing it exposes employers and employees to potential risk.

Gersema, like Yager, says it would be better for the industry if jurisdictional and oversight issues could be clarified so officials can move on to more important problems, like the increasing number of uninsured and the rocketing cost of medical care.

“There are many small businesses in America that need our plan,” he says.

Yes. But they also need the assurance — provided by proper oversight — it will be there when they need it.