'Stop the JUA theft,' declare policy holders at Concord hearing (NNX)

By SHIRA SCHOENBERG

Concord Monitor

CONCORD — The state Insurance Department is a thief, trying to steal money that rightfully belongs to medical malpractice policyholders, those policyholders and their attorneys said yesterday.

The comments came during and after an Insurance Department hearing on new rules that would govern the Joint Underwriting Association — a state-established fund that offers medical malpractice insurance to high-risk providers. The state Supreme Court previously rejected the state's attempt to take $110-million in surplus JUA money to balance the state budget.

"Their first attempt to steal money was blatant; this is subversive," said Dr. Georgia Tuttle, a JUA policyholder and lead plaintiff in the Supreme Court case.

Deputy Insurance Commissioner Alex Feldvebel said repeatedly that the proposed rules are meant to protect the JUA's federal tax-exempt status, not to take money for the state. "It's hard to respond to advocates who are cynical and mean-spirited, whose every assertion is misleading," Feldvebel said, referring to the JUA policyholders' attorneys.

The proposed rules were released in May. Insurance Department officials said they will consider testimony from yesterday's hearing before finalizing them. The rules must be approved by a legislative rules committee, which Feldvebel said could be done within two months. The rules would apply to doctors taking out new policies or renewing current ones.

If the rules are accepted, attorney Kevin Fitzgerald, who represents the policyholders, said he will file another lawsuit. "They're trying to accomplish through the back door what (last year's budget bill) tried to accomplish through the front door," Fitzgerald said.

The policyholders have two lawsuits pending — one demanding that the JUA board do an accounting of how much surplus is in the fund, and another that asks the Supreme Court to compel the governor, attorney general and insurance commissioner not to impair the rights of policyholders.

Under the proposed rules, any extra money in the fund would no longer be distributed to the fund's policyholders. Policyholders also would not be responsible for any deficits, which would be paid by insurance companies that write liability insurance policies.

The rules lay out the insurance commissioner's authority to direct, supervise and approve the board of directors. The rules state that any determination of surplus money would be made by the commissioner, with advice from the board and an actuary. The rules give the commissioner a seat on the board of directors, the ability to remove a board member at will and "full power and authority to amend or rescind any provision of the plan."

The rules would also allow the commissioner to terminate the medical malpractice plan if he determines it is in the public interest. The plan's assets would go to a successor fund established by the state or the state's general fund.

Insurance Department officials say the new rules are necessary to clarify the structure of the JUA, and to clarify its tax status. In a recent op-ed piece, Insurance Commissioner Roger Sevigny argued that the litigation prompted questions about whether the JUA is an integral part of state government. If it is not, the JUA might lose its tax exempt status — and could owe the IRS $100-million for 35 years of back taxes. Feldvebel said if the JUA pays dividends to policyholders, it is being used as a private investment vehicle and may not be tax exempt.

Four people testified at yesterday's hearing, which was attended by about 30 people. Attorney George Roussos, representing the New Hampshire Association of Domestic Insurance Companies, opposed the provision that would charge all liability insurers (such as those who write homeowners or auto insurance policies) for deficits accrued by the medical malpractice fund.

The others who testified — Tuttle, Fitzgerald and Henry Lipman, chief financial officer of LRGHealthcare in Laconia — wore pins reading "Stop the JUA theft." (LRGHealthcare uses the JUA to insure some of its doctors.) They asked the Insurance Department to stop interfering with the work of the JUA board.

Fitzgerald called the Insurance Department's publications "rife with false statements" and called Feldvebel "one of the chief architects of the rejected, unconstitutional scheme" for the state to take the $110 million. He said he did not want to give the insurance commissioner — who has stated that he believes the state should be allowed to take the JUA money — authority to fully control the board.

Fitzgerald said the rules of the JUA contracts "need no clarification," since the Supreme Court already ruled that the policyholders have a contractual right to the money, and the state cannot take it.

(The Supreme Court said the policyholders have a "beneficial" right to the money, not a "possessory" right, and Feldvebel and Fitzgerald offered different interpretations over what that means.)

Fitzgerald questioned the state's argument that the JUA's tax status is in jeopardy. Fitzgerald said the policyholders engaged a national consulting firm, PricewaterhouseCoopers, and are working with former top officials from the IRS division that regulates tax exemptions. The consultants said the issue of past liability could be resolved with little or no tax payments. Fitzgerald said the state has not allowed the JUA board to resolve the issue with the IRS, but is keeping the tax issue alive as an excuse to take JUA money.

"It's a phony issue," Fitzgerald said.

Fitzgerald added that the state previously said the JUA had a $110-million surplus — but now it worries that a $100-million tax liability could make the fund insolvent. "Either the commissioner and department are profoundly mistaken or not telling the truth," Fitzgerald said.

Fitzgerald said the rules clearly give the state rights to take the JUA money — whether by terminating the fund and taking leftover money, or by waiting until all the doctors have policies that do not allow for dividends, then declaring a surplus and having the Legislature take the money.

Feldvebel responded that the $110-million surplus "is not going anywhere" under the new rules — whether to policyholders or to the general fund. But he acknowledged that the rules do not say what will happen to the money. "The Legislature can always determine policy for the state," Feldvebel said.

Feldvebel said the sole reason behind the new rules is ensuring that the JUA maintains its federal tax exemption. If the JUA loses its exemption, it will no longer be able to keep its premiums at the market rate, he said. Feldvebel said he met with the policyholders' tax experts and "did not have a lot of faith in their tax analysis." The state hired Rath and Young to do its analysis.

Feldvebel said the rules do not give additional power to the insurance commissioner. "They establish more explicitly how the JUA has always been run," Feldvebel said. "The commissioner currently has sole authority over the JUA."

In fact, the current rules state, "The commissioner shall grant the board the authority to exercise all reasonable or necessary powers relating to the operation of the association." Four of seven board members are nominated by the commissioner, who cannot fire them at will.

Asked about the commissioner's new seat on the board, Feldvebel said it is common for the department to have a member on the boards it oversees to provide constant communication.