Watchdogs Target Insurance Brokers Cashing In On Lucrative Government Work
To State Comptroller Matthew Boxer and Citizens Campaign Chairman Harry Pozycki, it's a simple question: Why are New Jersey's county and municipal governments and school districts spending tens of millions of property tax dollars unnecessarily on high-priced insurance plans and broker fees?
It's also a politically sensitive question, because the biggest name in the insurance brokerage business for local governments is George Norcross, the South Jersey Democratic power broker and often ally of Republican Gov. Chris Christie.
Norcross's firm, Conner Strong & Buckelew, is by all accounts the biggest player in New Jersey's local government insurance market, and could have the most to lose if Boxer's and Pozycki's recommendations start a stampede toward the low-cost State Health Benefits Plan by municipalities, counties, and school districts forced to look harder for cost savings because of the new 2 percent spending cap.
Boxer estimates that counties and municipalities could save $100 million by switching to the State Health Benefits Plan, which pays no broker commissions, while Pozycki pegs the potential savings at more than $200 million if counties, municipalities and school districts would institute competitive bidding and bar insurance brokers from getting paid a percentage by the firms they recommend.
Comptroller Boxer's report, coming on the heels of the Citizens Campaign's Best Price Insurance initiative, has put New Jersey's multibillion-dollar government insurance industry on the defensive for the second time in nine months, not only by laying out the potential tax savings, but also by shining a spotlight on the underlying political connections that too often go unnoticed and unreported.
Nine months ago, Senate President Stephen Sweeney (D-Gloucester) attempted to insert a provision in pension and healthcare legislation that would have barred the State Health Benefits Plan from accepting any more county or municipal governments or school districts as members. Sweeney pulled the offending clause after the New York Times charged that Sweeney was trying to help Norcross, his political mentor and childhood friend, whose firm was losing business to the low-cost state government competitor.
Boxer's report, dryly entitled "Cost Analysis of Selected Local Government Units Joining the State Health Benefits Program," named no names. However, the $756,450 in broker fees paid over the past two years by Essex County went to Conner Strong, whose general chairman is Norcross. Essex County is run by County Executive Joseph DiVincenzo, the political boss who teamed up with Norcross to make Sweeney the Senate president and DiVincenzo's aide, Sheila Oliver, the Assembly speaker.
Essex County's $756,450 in fees were paid without proper authorization because the Essex County Board of Freeholders failed to pass a resolution in 2009 renewing the no-bid contract that has been held by Conner Strong for the past 14 years, Boxer asserted.
Meanwhile, Brick Township awarded a no-bid contract that paid $263,051 in fees over two years to Insurance Management & Consulting LLC of Belleville, whose owner had given a $1,000 campaign contribution to Brick's Republican mayor, Stephen Acropolis -- an apparent violation of the state's pay-to-play law that Boxer referred to the New Jersey Election Law Enforcement Commission for investigation.
Cuts in state aid and pressure to find cost savings because of the new 2 percent spending cap are driving more and more municipalities, school districts and counties to consider switching to the State Health Benefits Plan, which offers local governments the opportunity to take advantage of the tremendous economies of scale provided by a plan that already covers 85,000 state workers.
The Gloucester Township School District, for example, cut its health insurance costs from $15,388,530 to $10,316,470 -- a 33 percent cost savings -- and also saved an estimated 4 percent brokerage fee it would have owed to Conner Strong by switching to the School Employees Health Benefits Plan on July 1, 2009. That same day, the Pleasantville School District cut its insurance bill from $11,244,089 to $6,612,414 -- saving 41 percent and avoiding a $449,763 commission it would have owed to its broker, Corporate Benefits.
Boxer concluded that the 14 counties and 217 municipalities not participating in the State Health Benefits Plan could save taxpayers $100 million by switching to the state plan, which pays no commission to insurance brokers and averages just 1 percent in administrative overhead, compared with 15 percent in the private market. "Since the broker's profit often is directly related to the amount of insurance premiums or fees the LGU [local government unit] pays, there are conflicting incentives for brokers in seeking lower-cost healthcare alternatives," Boxer noted.
For that same reason, the Citizens Campaign's Best Price Insurance initiative calls for local governments to require insurance brokers to be appointed through competitive bidding at a flat fee that "requires brokers to sign certifications that they will take no fees from insurance companies, and insurance companies to sign agreements stating that they will pay no back-door fees to brokers," Pozycki noted.
"This way, we can guarantee that towns and counties and school districts will get the best price," the Citizens Campaign chairman said. "Under our model ordinance, local governments are required to get at least three bids from insurance brokers and to invite the State Health Benefits Plan to submit a proposal so that it will be clear whether the state plan is cheaper."
Conner Strong & Buckelew Executive Vice President Joseph M. DiBella issued a statement Tuesday disputing Boxer's report. "We examine every market including private market placement and the state health benefit plan and/or state educators employee benefit plan for every public entity account," DiBella said. "Our recommendations are made regardless of any impact to our compensation."
Michael Tiagwad, Conner Strong's president and CEO, also issued a statement:
"Since our inception, Conner Strong & Buckelew has operated as a nonpartisan firm serving top businesses, organizations, and non-profits in 50 states. Although our public entity work represents only a small fraction of our client base, we have earned a national reputation as an effective and low-cost provider. Beyond the stringent and very public qualifications of our work with municipalities, we hold ourselves to the highest standards of accountability. According to public actuarial reports, we have saved the municipalities we serve more than 1 billion dollars over the past 25 years."
DiBella failed to respond to telephone and email interview requests Tuesday and yesterday, and Daniel Black, the Philadelphia media consultant listed on Conner Strong's website, failed to respond yesterday to detailed questions about DiBella's assertion that Conner Strong had urged the Gloucester and Camden county governments to join the State Health Benefits Plan and about which counties, municipalities, and school districts Conner Strong represented in New Jersey.
Gloucester County is scheduled to become the eighth county government to join the State Health Benefits Plan later this spring, but state officials had no information about any plans for Camden County to join the state pool. The Atlantic, Hudson, Mercer, Ocean, Salem, Sussex, and Warren county governments are currently participating in the State Health Benefits Plan.
The New Jersey insurance brokerage market for local government is dominated by a handful of firms. Conner Strong, headquartered in Marlton, is the largest New Jersey-based firm, with $69,520,220 in revenue in 2010 that made the company the 33rd largest insurance broker in the United States . Its Municipal Excess Liability Joint Insurance Fund, with more than $198 million in member contributions, was the largest public-sector property casualty risk pool in the nation, and runs the third- and fifth-largest public sector employee benefit risk pools with 2010 member contributions of more than $180 million in its Municipal Reinsurance Health Insurance Fund and $80.5 million in its southern New Jersey Regional Employee Benefits Fund -- which is one indication of how important its New Jersey business is to the company.
In addition to Norcross, arguably the most powerful Democrat in New Jersey, Conner Strong boasts former Ocean County Freeholder Director Joseph Buckelew, a Republican, as its chairman. DiBella, a former mayor of Howell Township in Monmouth County, runs the firm's employee benefits program. Former state Deputy Insurance Commissioner David Grubb, a former mayor of Park Ridge in Bergen County, runs its PERMA Risk Management business.
Conner Strong's profits are dwarfed by two of its competitors, Willis Group Holdings P.L.C., whose $1.65 billion in revenue placed it third among insurance brokers in 2010, and Brown and Brown, ranked seventh with $964 million in revenue. Conner Strong, however, has more employee benefit consultants in the South Jersey/Philadelphia market than either competitor. Allen Associates and the Business and Government Insurance Association are also major underwriters in New Jersey, although neither ranked among the top 50 brokers nationally in 2010.
On the list provided by the Citizens Campaign of 18 school districts that switched to the School Employees Health Benefits Plan since September 2008, saving more than $25 million, six had previously employed Conner Strong as their broker, five had been with one of the two Brown and Brown subsidiaries that operate independently in New Jersey, and two had been with Willis.
The 18 school districts were among more than 200 local government employers who switched to state health benefits programs from private providers between 2008 and April 2011, pushing the total to 1,034. Among them were 349 of the state's 566 municipal governments, according to a list provided by Peter McAleer, Boxer's press spokesman. (State officials failed to respond to an email request for an up-to-date list yesterday.)
A New Jersey Spotlight analysis of the list of municipalities participating in the State Health Benefits Plan as of April 2011 showed interesting geographic and political patterns. For example, the four counties with the highest percentage of municipalities failing to participate in the State Health Benefits Plan were all Democratic-controlled. Hudson was first, with 75 percent of its towns not enrolled with the state, followed by three adjoining counties in Norcross's political power base: Camden, with 65 percent of its towns not participating; Gloucester, with 58 percent; and Salem, with 58 percent.
On the other hand, the seven counties with the highest percentage of participation in the State Health Benefits Plan were all Republican-controlled suburban and rural counties, led by Cape May with 94 percent of its towns in the State Health Benefits Plan, followed by Hunterdon (92 percent), Atlantic and Warren (91 percent each), Somerset (81 percent), Ocean (73 percent), and Burlington (72 percent).
The state's three largest cities -- Newark, Jersey City and Paterson -- are not part of the State Health Benefits Plan, although the fourth-largest, Elizabeth, is.
A new pension and health benefits law was pushed through last June by a coalition consisting of Christie, the GOP legislative minority, and a group of Democratic legislators led by Sweeney who were allied with Norcross and DiVincenzo. It contains a new provision that will require teachers and state and local government employees to pay more toward their healthcare on a rising basis over three years. It was a law with unintended consequences for the insurance brokerage industry.
"Now that New Jersey Education Association members have to pay a larger percentage toward their healthcare, the NJEA has become cost-conscious, and now they're pushing their employers to look at the lower-cost state plan so that their money does not go to paying broker fees or for higher-cost policies," Pozycki noted.
Ironically, it is union contracts that officials cited as one of the biggest barriers to switching to the State Health Benefits Plan. In many cases, local government contracts may offer more "Cadillac benefits" than the state plan.
Essex County's health insurance plan, for example, contains a $5 copay for doctor visits, compared to $10 in the state plan, and officials said union contracts bar any changes during the period covered by the contracts. Consequently, officials said they would have to negotiate any changes when contracts expire.
However, a union official with knowledge of the Essex County plan who asked not to be identified said the coverage actually is not as good as that offered under the state plan, despite the fact that latter is much less expensive. In fact, Boxer concluded that Essex County taxpayers would have saved $4,649,846 in 2009 and $4,919,046 in 2010 if they had been enrolled in the State Health Benefits Plan instead of the one contracted through Conner Strong.
Gloucester County would have saved $400,000 a month -- or more than $4.8 million over the course of 2010 -- if it had switched to the State Health Benefits Plan earlier, according to a union official familiar with the two plans.
DiBella, Conner Strong's managing director for employee health benefits, said in the statement released Tuesday that the company had recommended the move to the state plan within the past six months, which would put the timing several months after Sweeney, the most powerful Democrat in Gloucester County, pulled his proposal to ban the admission of new local governments to the State Health Benefits Plan.
For local governments facing difficult policy choices in the face of a 2 percent cap, the lure of finding savings on insurance policies that will not affect vital services is powerful. Union Township officials, for example, told Boxer's task force that the $1 million the town saved by enrolling in the State Health Benefits Plan enabled the township to hire seven additional police officers and avoid planned layoffs.
This article has been modified from the original. It now includes as statement from Michael Tiagwad, Conner Strong's president and CEO.
Mark J. Magyar is an editor-at-large for NJ Spotlight.