Traverse City Record-Eagle

November 9, 2013

Ishpeming dealing with insurance investigation

By ZACH JAY The Mining Journal (Marquette)
Traverse City Record-Eagle

---- — EDITOR’S NOTE: This is the first of a three-part series by the Mining Journal in Marquette that details the city of Ishpeming’s overpayment of health insurance premiums for two and a half years under the watch of Jered Ottenwess, currently the city manager for Traverse City.

ISHPEMING — The city of Ishpeming has changed the way it processes and pays insurance bills after an investigation into the city’s overpayment of health insurance premiums for more than two years at a cost of nearly $200,000 revealed severe problems with the way payments were handled in the past.

In a report filed Sept. 16 by Alan Bakalarski, a former Ishpeming city manager who acted as an adviser to Jon Kangas in Kangas’ interim city manager duties, Bakalarski detailed the findings of his investigation into the health insurance overpayments made by the city to the Michigan Employee Benefits Services, the city’s health insurance provider, from May 2010 until the end of November 2012, when they were discovered by the Ishpeming City Council during union contract negotiations.

Kangas said Bakalarski was hired by the city to assist him in “administrative tasks” while he juggled workloads for both the interim city manager position and his regular duties as superintendent of the Department of Public Works. Bakalarski was assigned to conduct the investigation, Kangas said, because he no longer worked for the city and wasn’t employed by the city during the years in question, he could do so with an “unbiased eye.”

No names were included in the report, which Kangas said was to protect the privacy of the employees as provided by the Health Insurance Portability and Accountability Act.

According to the report, which The Mining Journal obtained through the Freedom of Information Act, the health insurance overpayments began in May 2010, when an Ishpeming police officer retired and should have been removed from the city-paid health insurance plan. A total of eight former and current employees were involved.

From that point on, “things got progressively worse,” Bakalarski said in the report, with July 2010 the first of a number of late premium payments and in amounts that didn’t correspond with what was billed.

“The billings were not just paid late occasionally, billings were paid late just about every month and late by a significant time period of up to 62 days,” the report stated. “The late payments were so severe that the city’s health insurance provider threatened to cancel the city’s health insurance at least twice.”

Anita Keto, then-city treasurer who retired in February, was responsible for reviewing the bills and making premium payments, as well as enrollment changes and the administration of benefits from the Consolidated Omnibus Budget Reconciliation Act, commonly known as COBRA.

Bakalarski concluded in the report that while Keto’s prior job performance had been “excellent,” his investigation revealed that beginning in 2010 her work became “unsatisfactory, characterized with careless mistakes, lack of follow-up, disregard to deadlines, and failure to perform required job assignments.”

Keto responded in an email to The Mining Journal that the transition to a new city manager — Jered Ottenwess — gave her an overwhelming amount of new responsibilities.

“A new city manager was hired, my workload increased and continued to increase,” she said. “I was asked to do items that previous city managers had completed.”

Bakalarski’s investigation revealed that six of the eight employees had opted out of the city’s insurance plan because they were covered under their spouses’ insurance, and received a monthly opt-out allowance through the city payroll system. However, the report states in addition to the allowance, the city continued to pay health insurance premiums for these employees until late 2012.

After discovering the overpayments, it was initially thought that Keto had not sent in health insurance change forms for these employees, instead simply crossing out the employees’ names on the monthly billings. However, the report said, “A review of the health insurance file reveals that this assumption is not totally accurate.”

Keto did send in change forms for all six of these employees, according to the report, although sometimes the incorrect form was used, and she failed to “follow-up with the insurance provider to verify that the employees were removed.”

Beginning in October 2011, Keto began to cross out the names of these six employees from the monthly billings, but: “Again, there was a failure to follow-up and address the problem,” the report said. “It appears as if the health insurance provider simply ignored the names of employees who were crossed out” and continued to bill the city for their insurance.

In February 2012, then-City Manager Jered Ottenwess gave Keto a “stellar employee evaluation with an overall rating of ‘excellent’ job performance.” Two months later in April, when the late payment of premiums was discovered, as well as Keto’s failure to enroll several new employees in the city’s insurance plan, Ottenwess issued Keto a written reprimand.

When it was discovered that Keto “failed to properly enroll at least two employees and one retiree in the city’s health and benefits plans,” the report said, Ottenwess assigned the enrollment and status changes to City Clerk Jenifer Rajala.

From April 2012 to March, Rajala said she was unable to locate fully itemized billings, but the information that was available showed insurance payments were still being paid late and in amounts different than those billed.

In the report’s conclusions, Bakalarski said he found no evidence of “deliberate fraud, collusion, or personal gain from the overpayment,” and attributed the problem to incompetence: An absence of checks and balances, a lack of segregation of duties, “poor internal controls; the failure to administer the health insurance enrollment, status change, and billing/payment function with any accuracy, proper review, and follow-up; plus the lack of proper management oversight of an employee and the health insurance function.”

The report enumerated new procedures established by the city since the health insurance problems came to light.

Before the problems were discovered, it was the sole responsibility of Keto to review the monthly invoices from MEBS, pay the premiums and manage the enrollment and insurance status of city employees.

Under the new system, Rajala remains responsible for both employee enrollment and status changes and processing the monthly bill - which Bakalarski said is still “not an ideal situation,” though the insurance company’s billings are now emailed to City Finance Director Jim Lampman in addition to Rajala.

Current City Treasurer Kaitlyn Feldbauer then makes the monthly premium payment to MEBS “based upon the (city) clerk’s approved invoice.”

On the recommendation of Bakalarski, two additional procedures have been incorporated: Rajala and Feldbauer will meet monthly to verify payroll opt-out payments and Rajala will provide Lampman a copy of her approved monthly invoice “as an additional check and balance.”

In addition to the health insurance overpayments, the report revealed that the city also paid approximately $1,500 of employee life insurance premiums to MEBS beginning in July 2011 and continuing until December 2012 - despite the fact that the city was also paying its regular life insurance provider, North American Benefits Co. The city was able to recover almost $500 of these funds from MEBS, but only for July 2012 through June.