Consulting Firm Costs Providence Millions
Wednesday, May 09, 2012
The consulting firm that was paid $30,000 to oversee the city’s application for a $1.6 million federal reimbursement for early retiree health benefits has been paid $3.2 million for various projects by the city since 2008, according the internal auditor.
Mercer, a global consulting company that counts clients in 40 countries, was supposed to handle Providence’s application for the Early Retiree Reinsurance Program (ERRP), a $5 billion initiative that was attached to the Affordable Care Act and has already paid out $4.7 billion to companies, unions, state and local governments and other groups across the country.
But four failed application attempts later, the cash-strapped capital city that included the $1.6 million in its current year’s budget, sits more than 1000th on the waiting list and is unlikely to receive a dime from the program.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST“There seems to be a consistent pattern that whatever work Mercer is supposed to provide the city of Providence to achieve savings in healthcare has not [come to fruition] and therefore maybe it’s time for the city to reevaluate the relationship,” Council finance committee chairman John Igliozzi told GoLocalProv last month.
Program Meant to Help With Early Retirees
The purpose of the federal reimbursement program, according to the government, was to assist “people in the early retiree age group (i.e., ages 55 to 64) often face difficulties obtaining insurance in the individual market because of age or chronic conditions that make coverage unaffordable or inaccessible.”
“The availability of group health insurance coverage for America’s retirees age 55 to 64 has declined significantly over the past 20 years, as the percentage of large employers providing workers with retirement health coverage has dropped from 66 percent to 28 percent,” an overview of the program states. “The ERRP was designed to provide financial assistance to health plan sponsors that make coverage available to millions of early retirees and their families – including for-profit companies, schools and educational institutions, unions, State and local governments, religious organizations and other nonprofit plan sponsors.”
Last week, representatives from Mercer appeared in front of the finance committee to explain how the city’s application process unfolded and why it now finds itself so far down the waiting list.
According to Scott Pollack, a principal at Mercer, the city first applied for the reimbursement in November 2010, but was denied after an error was made in the application. The city applied three more times between that point and December 2011, but was denied each time for various errors or inaccurate information provided to the government.
Pollack blamed the city’s July-to-June fiscal year –which is different than most health plan sponsors— as part of the reason for the errors in the application. He also said turnover in the city department helping with the application as well as “missing” or “invalid data” continued to prevent the city from being granted the reimbursement.
The Mercer representatives suggested that flaws in the program itself were partly to blame.
“This will not go down in annals of our federal government as its best shining day,” another representative told the committee. “It was a moving target all through the process.”
17 Reimbursements in RI
But that didn’t stop nearly 20 Rhode Island companies, nonprofits and communities from receiving $11,592,229.44 from the program. In fact, Portsmouth, Smithfield and Bristol, which all run on the same fiscal year as Providence, received reimbursements. East Providence, which also runs on a different fiscal year, was paid over $201,000 from the program.
For Matt Clarkin, the city’s internal auditor, the excuses didn’t quite make sense.
“My overall concern is pretty simple,” Clarkin said. “There’s $5 billion available through a federal program, first come, first serve. There’s similar communities who received reimbursements who do it on their own [without hiring a consultant.]”
Clarkin noted that it wasn’t just small communities receiving the funds either. He said Boston and Worcester were also granted money through the program.
“That’s the reason we paid for it,” he said.
Controversial Company
This isn’t the first time Mercer has faced criticism, either in the city or with other clients across the country. The company also played a role in advising the city as it attempted to shift retirees to Medicare, a process that was supposed to save the city millions but ended up getting overturned in court.
Mercer also agreed to pay the state of Alaska $500 million to settle a lawsuit that claimed the company’s negligence was partially to blame for billions of dollars in unfunded liabilities. The company, which served as Alaska’s actuarial consultant, was accused of underestimating the state’s unfunded liability by more than $1 billion, according to a 2009 New York Times article.
In the city’s case, Pollack, the Mercer representative, said the city first became aware that it was unlikely to receive the reimbursement in February after more than a year’s worth of failed attempts. But he denied that the company was at fault for the city missing out on the much-needed cash.
“We feel we did everything to the best of our ability,” he said.
Dan McGowan can be reached at [email protected].
