Tuesday, June 17, 2014 | 2 a.m.
A local health insurance broker has sued the Clark County School District, alleging wrongful termination as well as financial mismanagement by former Superintendent Dwight Jones.
Business Benefits Inc. is accusing the School District and School Board member Erin Cranor of breaching its contract and denying the company due compensation, according to a lawsuit filed May 29 in Clark County District Court.
Business Benefits has provided health insurance consulting and brokerage services to the School District since 2001. In recent years, the privately held company has negotiated three-year contracts for its services — the current one started this year and ends in 2016.
Even though Business Benefits is the School District’s “exclusive broker of record,” according to a joint letter in 2011, the district does not pay the firm to ink deals with health insurance companies, according to their contract. Instead, Business Benefits receives a commission from health insurance companies like United Healthcare, which operates Health Plan of Nevada.
In 2013, Business Benefits' commission was 0.75 percent, according to the lawsuit. That year, the company negotiated a $70.7 million health insurance package for the district’s 11,000 school support staff and about 150 police officers. The health insurance broker would have received an estimated $530,546 commission from United Healthcare, according to its 2011-13 contract.
At the end of 2013, Business Benefits discovered its 0.75 percent commission was lower than the industry average, according to the lawsuit. For its 2014-16 contract, the company negotiated a higher 2.25 percent commission from United Healthcare. If the company secures a $70.7 million insurance package in 2014, it would receive an estimated $1.6 million commission from United Healthcare, about triple its figure from the previous year.
These high commissions from United Healthcare prompted concerns about a conflict of interest. On Oct. 14, 2013, Cranor emailed Superintendent Pat Skorkowsky, urging him to cut ties with Business Benefits before the contract is renewed for the 2014-16 period.
“It has been recommended by the Board attorney that the school district sever the January 2011 contract with the broker as soon as possible…” Cranor wrote in an email obtained by the Sun through a public records request. “It appears there may be intent to continue the current contract with the broker, even though the contract is now known to be unfavorable to the district…”
In its lawsuit, Business Benefits argued it has provided a benefit to the School District. In 2011, the company claims it saved the district more than $55 million in health care costs.
However, the School District complied with Cranor’s wishes. In a Dec. 31, 2013, letter sent to Business Benefits attorney Rory Reid, the district’s general counsel Carlos McDade provided the company a six month’s written notice of termination.
However, the School District’s contract with Business Benefits specifies that the district must give six month’s notice of termination from the end of the three-year contract term, which would have been June 30, 2013 — not Dec. 31, 2013.
In its lawsuit, Business Benefits argues the School District wrongfully terminated its contract. The company argues the district must uphold their new contract until 2016.
The lawsuit also accuses former Superintendent Dwight Jones of spending $30 million in health insurance reserve money to fund the support staff union’s contributions to the state retirement plan and their cost of living increases.
“(F)ollowing the discovery of a multimillion-dollar deficit as a result of the use of insurance reserves’ funding of (support staff union) employee benefits and salaries, CCSD’s then-Superintendent Dwight Jones communicated that it should be 'buried' in the CCSD budget,” the lawsuit states. “BBI was requested by CCSD to work to remodel the benefits plan and make up the deficit. BBI provided the requested extra-contractual work to CCSD.”
In its lawsuit, Business Benefits surmises that the district under Skorkowsky “unfairly blames” the company for a deficit “that was not BBI’s fault" and terminated its contract. The company accuses the district of disrupting health insurance negotiations and interfering with its contract.
Cranor and the School District’s chief spokeswoman Kirsten Searer declined to comment, citing pending litigation. Jones, who abruptly stepped down in March 2013, did not return a late request for comment. Business Benefits President Tim DeRosa could not be reached for comment.
The lawsuit comes as the School District considers creating a single, districtwide health insurance plan for some 60,000 employees, dependents and retirees. By bringing all employees under the same health plan, district and union officials believe the School District will have the bargaining power to negotiate lower health insurance amid rising health care costs.
See below for the lawsuit.