'Ex-LGC chief cuts deal, takes stand'

Last modified: 5/3/2012 12:00:00 AM
The former executive director of the New Hampshire Local Government Center testified yesterday that competition with another insurance organization led to practices now questioned in a state lawsuit that seeks more than $100 million in unreturned surplus.

John Andrews, who retired as the LGC's executive director in 2009, cut a deal with prosecutors over the weekend that excused him as an individual defendant just before hearings began Monday to determine whether the non-profit violated state law by failing to return to taxpayers the surplus money earned from pooled risk programs that provide municipalities and school districts with health and property insurance. Among other purposes, the state alleges the LGC used the money to subsidize a struggling workers' compensation program.

Upon retirement, Andrews signed a "no-work" consulting contract that paid him $20,000 a year over five years. As part of the deal with the state, he has agreed to pay back the third and most recent $20,000 installment, and forgo the final two payments. He also agreed to testify in the hearing unfolding inside the state archives building on Fruit Street.

Andru Volinsky, special counsel to the state securities bureau, questioned Andrews yesterday about competition with Primex, a competing risk pool that LGC board members felt was unethically hoarding its surplus, referred to as "member balance." In early 2000, Andrews said he became aware of information that Primex was going to use surplus from its thriving workers' compensation program to subsidize a health insurance risk pool, a move that would have threatened the LGC's prized service, which currently provides health insurance for 85 percent of the state's local public officials and is the largest such risk pool in the country.

A "joint competition committee" was formed between members of the LGC's various entities "to find some way to beat the competition," Andrews said.

"I guess what we were concerned about was they were expanding into certain areas. . . . We thought that was a problem in the sense of they were seeking to do the things that we had traditionally done as an organization," Andrews said.

Volinsky said meeting minutes of the LGC's 31-member board of directors around that time show discussion of infiltrating the board at SchoolCare, a smaller insurance risk pool in the state, with two LGC board members planning to meet a SchoolCare board member who had approached them.

"I interpret that as we weren't infiltrating their board, that one of their board members came to us," Andrews said. "I don't know that (the board members) talked to him. It may have been along the lines of trying to cooperate together - not along the lines of spying, infiltrating, if you will," Andrews said.

But LGC's primary concern was Primex, Andrews said, and at a 2004 retreat to draw up a "strategic plan," the board met with outside consultants who suggested transferring surplus funding from LGC's successful HealthTrust risk pool into its struggling workers' compensation program in order to lower rates and compete with Primex on that front. The board voted to take that approach, Volinsky said, and in subsequent years a total of $34 million - largely from the HealthTrust - was put toward "strategic plan expenditures," about $18 million of which went to subsidize the workers' compensation pool.

"The purpose of choosing workers comp as your beneficiary of subsidy was so that Primex would have to spend its member balance to compete with your subsidized rates - isn't that a lot of what the strategic plan was?" asked Volinsky.

"That was certainly a consideration," Andrews said.

Volinsky questioned why LGC opted to put the workers compensation portion of the "strategic plan expenditures" back into the parent organization before transferring the money into the workers compensation program. Andrews said he was unaware of any reason the money could not have been directly deposited into the workers' compensation pool.

"It was probably less transparent than if it had been called a subsidy," he said of the transfer of funds.

Volinsky also questioned Andrews about the decision in 2003 to merge LGC's nonprofit entities with limited liability companies in Delaware instead of New Hampshire, where such a move would have been illegal. Andrews said the merger was drawn up by attorney Bob Lloyd and he didn't know the plan was improper.

"I could see what I was signing, but I didn't ask any questions about it," Andrews said. "I just signed it. I relied on him."

The hearings continue today at 9 a.m. and are expected to last two weeks.

(Matthew Spolar can be reached at 369-3309 or mspolar@cmonitor.com or on Twitter @mattspolar.)




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