Modesto’s unpaid medical claims top $8.3 million. City has a plan to pay them.

Hear what Modesto city employees had to say about the insurance increase

Modesto city employees voiced their concerns about a large increase in health insurance costs at a city council meeting on Feb. 5, 2019.
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Modesto city employees voiced their concerns about a large increase in health insurance costs at a city council meeting on Feb. 5, 2019.

Modesto says its employees have at least $8.3 million in unpaid medical claims in the wake of the financial meltdown of one of the city’s health insurance providers.

City officials will ask the City Council on Tuesday to approve a plan to settle the claims that were the provider’s responsibility with the city picking up the cost. Officials will be asking the council for $2.6 million but could come back at a later date to ask for more money.

The plan is based on the premise that the health care providers will be willing to accept less than full payments for their outstanding claims. “We are going with the assumption that we will be successful with this approach,” Deputy City Manager Caluha Barnes said in an interview.

Barnes said that confidence is based on several factors, including that providers could be eager to settle for less than the full amount to resolve claims that are many months old, and in some cases more than a year old, and that the city will hire an experienced claims administrator to negotiate and settle the claims.

City officials are proposing Modesto hire S&S HealthCare, the same claims administrator used by Riverstone Capital, the city’s health insurance provider that failed, leaving at least $33.5 million in processed, unpaid claims among 119 employers, including Modesto, that relied upon Riverstone, and only $3.5 million to $4 million to pay them.

Barnes stressed that S&S HealthCare is an independent third party claims administrator that works with many companies. She said it was not part of Riverstone’s problems and had started processing the Riverstone claims in mid 2018 when Riverstone changed its claims administrator.

She said S&S has full access to Modesto’s unpaid claims, a track record in negotiating and settling claims, and an incentive to succeed. S&S only gets paid when it settles a claim, with the company receiving 20 percent of the amount it saves Modesto.

For instance, if S&S settled a $1,000 claim with the health-care provider accepting a $600 payment then Modesto would owe S&S HealthCare $80 (20 percent of the $400 savings). The total cost to the city would be $680.

The city switched to a new health insurance provider effective March 1 for the roughly 700 city employees who had insurance through Riverstone. (The rest of Modesto’s roughly 1,200 employees have city insurance through Kaiser or have opted out of city insurance and have coverage through other providers.)

The premiums for the new insurance are about 50 percent higher than Riverstone’s, though that is the total increase in premiums and individual city employees who cover their dependents are facing significantly higher increases.

For instance, an employee with dependents who had been paying about $1,150 annually in premiums under a Riverstone plan is facing paying about $8,750 in annual premiums under the new insurance. Employees have implored city officials and council members for help with the higher costs. And some employees have been threatened with collections over the unpaid claims.

The City Council in February agreed to pick up the difference in premiums for the new insurance through June. That will cost the city $1 million, according to a city report that was part of a recent Finance Committee meeting agenda.

Employees have asked for more relief for the rest of 2019. Barnes said Modesto continues to discuss this with its labor groups but did not provide specifics.

The $1 million is in addition to the $2.6 million that officials will ask the council to approve Tuesday.

The estimated $8.3 million in unpaid claims consists of $6.6 million in processed but unpaid claims through January and an estimated $1.7 million in outstanding claims that have not yet been processed. The $2.6 million would be used to settle these claims as well as reimburse city employees the estimated $250,000 they have spent paying claims.

City officials may need to ask the council for more money at a later date. A city report calls the $2.6 million “an initial funding amount.”

But Barnes said Modesto has what is called stop loss insurance in which the insurer picks up the amount of individual claims that exceed $150,000. She said a very preliminary estimate shows Modesto’s stop loss coverage may reduce the total amount of unpaid claims by about $400,000.

She said she will report to the City Council about this once the stop loss figures are more definitive.

Barnes said city officials are recommending the council move forward to resolve these claims in order to put this behind the city and its employees. The city continues to look at its legal options against Riverstone and Peter C. Foy & Associates, the insurance brokerage firm the city hired and which brought Riverstone to the city.

Foy & Associates has not returned several phone calls in recent weeks seeking comment, including a Friday call. The firm’s founder, Peter C. Foy, is a member of the Ventura County Board of Supervisors.

The U.S. Department of Labor filed a lawsuit against Riverstone on Feb. 1, alleging the firm had set low premiums to attract clients and charged excessive fees. An independent fiduciary is overseeing the insurance plans and coming up with a plan to liquidate them. The Labor Department announced March 22 that it had obtained a consent judgment with Riverstone that “significantly resolves” the lawsuit.

The judge wrote that the Labor Department described Riverstone’s administration of the insurance plans “as functioning like a Ponzi scheme,” though the judge made no finding regarding the criminal intent of the defendants, according to court records.

But Modesto was scrambling well before the Labor Department complaint.

Foy & Associates notified the city in mid January that Riverstone wanted an 87 percent increase in premiums or it would cancel coverage March 1. The city then switched to a new insurance broker and new health insurance provider.

Modesto was facing steep increases from its then insurance provider when it choose Foy and Riverstone to provide health insurance for three years starting January 2017. Riverstone offered a 25 percent reduction in premiums and guaranteed no premium increases in the first two years and no more than 5 percent in the third, according to the city.

But that has raised questions over whether the deal was too good to be true.

Modesto spokesman Thomas Reeves said the city did its due diligence in picking Foy and Riverstone through a competitive process and did not make the decision by itself. “It was not made in a vacuum,” he said in an interview. “The decision was made with the labor groups.”

The council meets at 5:30 p.m. in the basement chambers of Tenth Street Place, 1010 10th St.