Modesto city manager is outraged by insurance debacle. But he largely created it

City of Modesto’s medical insurance carrier in trouble with Labor Department

The firm Modesto has used to provide insurance to its workers is in trouble with the Labor Department. It’s not clear what this means for the city, which is cutting its ties with the firm.
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The firm Modesto has used to provide insurance to its workers is in trouble with the Labor Department. It’s not clear what this means for the city, which is cutting its ties with the firm.

City Manager Joe Lopez waxed indignant in a June 3 blog post announcing that Modesto has sued the insurance broker that sold City Hall a pig in a poke.

In great detail, Lopez laid out his version of the travesty that Peter C. Foy & Associates foisted on City Hall by recommending nearly three years ago that the city switch insurance carriers to Riverstone Capital. Riverstone turned out to be “a sham company,” says the lawsuit, filed amid the anxiety and heartache suffered by more than 700 city employees because Riverstone did not pay $8.3 million of their medical claims.

“Early on,” Lopez blustered in the blog, “I committed to our employees that we would fight those who placed us in this terrible position.”

What he didn’t mention in that 915-word blog was the role Lopez himself played in placing City Hall in this terrible position.

At the time, Lopez was the city’s human resources director. He, more than anyone, was responsible for vetting Foy and Riverstone. In that regard, he failed the city, its employees and the taxpayers who trust city leaders with their tax dollars.

Some employees have shared horror stories — paying tens of thousands of dollars out of their own pockets to satisfy medical providers, or being sent to collections when they couldn’t pay, and the attendant anxiety and stress. They’re frustrated and angry, and we don’t blame them.

How did we get to this point?

To his credit, Lopez sat down with The Modesto Bee to explain.

Back in 2016, as H.R. director, he was getting loads of pressure from labor groups seeking relief from ever-increasing premiums. The city’s compensation structure has the city paying a flat amount toward the premium, with the employee picking up the difference; so the employee felt the pain every year when prices increased, and the city felt none. Lopez felt sorry for them, he said.

Perhaps he should have seen some red flags when Foy came along with promises that seemed too good to be true, Lopez now admits. Signing Riverstone, he was told, would bring rates 25 percent lower, freeze them for two years and raise them no more than 5 percent in the third year. Anxious to please the unions, Lopez bit, and so did then-City Manager Jim Holgersson, and ultimately, the City Council in 2017.

“It was brought to us with a nice little bow on top by the H.R. Department, as a consent item,” Mayor Ted Brandvold recalls. “Ultimately, I have responsibility on this. We signed off on it, as a council.”

Riverstone, it turns out, was operating something akin to a Ponzi scheme, said a judge who issued a restraining order against Riverstone in February — apparently collecting money from new clients to pay claims of old clients. How could anyone have known?

Someone did. Or, was smart enough to smell a rat and stay far away.

The city’s fire union — the Modesto City FireFighters Association — many years ago got its own medical and retirement plans from a stable but more costly source: CalPERS. Last year, the union explored switching to Riverstone, which might let firefighters pay as much as $1,000 a month less in premiums, like their buddies at the police department. So they asked Ken Bryant, who had retired as battalion chief in 2001 and had some benefits experience with a statewide association, to see what he thought of Riverstone.

“It seemed pretty attractive, until you start pulling the covers back,” said Bryant, who still lives in Modesto, in a recent interview. Within two meetings with Foy, the broker, Bryant had seen enough and advised the union to steer clear, which they did.

It took a firefighter to sniff out smoke and conclude there must be fire.

“There is no such thing as a free lunch,” Bryant said. “If (the company) isn’t paying claims, they can sell you insurance pretty cheap.

“Somebody in city staff should have been able to figure out what I did in two meetings and avoided these folks,” Bryant continued. “It should have been readily evident that this was not a viable plan.”

So a retired firefighter spotted red flags. How did a department head with 16 years of expertise in personnel matters (12 in Sacramento County, before Lopez came to Modesto in 2012) miss them?

“The lawsuit says we relied on the professional advice of our broker,” said Lopez, promoted to city manager in 2018.

“Do I wish we did more? Of course. I have to live with that every day. But we didn’t do it blindly.

“Do I feel bad in this position? It bugs me every day. I wish I could have seen more flags. But I wanted to lessen the burden the employees were feeling.”

City leaders are right to sue Foy, on principle, although it’s doubtful much money is left, and more than 100 other agencies also got stiffed. Whether Modesto bears any responsibility for the failure of the man now leading the city is a question for the courts to decide.

At least we now know he’s sorry.

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