At the recommendation of Cook County Personnel Director Janet Simonen, the county board unanimously passed a motion July 21, 2009 to have an outside company send out requests for proposals (RFPs) for life and long-term disability insurance policies on the county’s behalf. In doing so, however, local insurance agent John McClure, who has been the county’s long-term disability policy agent for over 20 years, will lose the opportunity to continue as the county’s long-term disability agent.
The county board took the outside company, Ochs, Inc., up on its offer to send out RFPs on the county’s behalf in exchange for the right to serve as the exclusive agent for whatever companies win the bids. Ochs requires that proposals include the amount they would be paid in “standard industry commissions and/or service fees,” and no commissions will payable to other brokers or agents.
By law, the county must send out RFPs every five years to find the best deals on insurance. The Minnesota Counties Insurance Trust (MCIT) has stopped preparing the county’s life and long-term disability RFPs as it did in the past but provides training in how to prepare RFPs and analyze bids. Simonen attended their training this spring but told the county board in a July 15 memo, “The process is quite overwhelming and intimidating for anyone who is not an insurance expert. Though I could probably work through the process if pushed, I estimate that it would take me approximately 80 hours of time to digest the materials, prepare the RFP document, and analyze the responses. Even then, I question my ability to properly analyze the technical components of each bid.”
“That’s her job,” McClure said in a separate interview. “That’s what she’s getting over $65,000 a year for—plus benefits.”
McClure went before the county board August 11 and August 18 protesting the county’s deal with Ochs. Sending proposals out “is not rocket science,” McClure said. He offered to pay the county $500 for the right to do exactly what Ochs is doing without demanding the right to serve as the exclusive agent. On August 18, Simonen said she had found out that the county cannot be paid for such a service. McClure was still willing to provide it even if he didn’t pay the county.
Simonen reiterated that the RFPs are “very technical and complex,” but McClure said she could simply follow a template used by other counties and plug in information applicable to Cook County.
Commissioner Bob Fenwick said he was surprised that having a company like Ochs put out bids on behalf of a county was legal and expressed concern that Ochs might solicit bids from companies it is “close to.” Simonen said she had checked with Minnesota Counties Insurance Trust (MCIT) and was told that this is okay for Ochs to do. “Though MCIT does not make specific endorsement,” she wrote in her memo, “a staff member commented that an increasing number of counties are choosing this mechanism as a way to handle the RFP process and, hopefully, to contain insurance costs.”
“Keeping an agent of record in the county makes sense,” Commissioner Jim Johnson said on July 11.
Simonen’s memo to the board stated that the industry average for agent commissions is 2-4% of the premium, which would leave Ochs with about $550 per year out of the amount the county pays Assurant Health for its long-term disability policy. McClure said that her statement about the industry average is wrong. Simonen told the board on July 21 that McClure’s commission has been $2,751 a year, or 15%, which, according to McClure, is what the industry standard really is.
McClure did not think Ochs would necessarily offer the county lower insurance costs than he could negotiate on the county’s behalf. Simonen said that the county is not required to accept the bids brought by Ochs and that if they do, the contracts do not need to be longer than a year.
McClure indicated he has been advocating on behalf of the county for many years. He was able to get significant amounts of death benefits for the families of two former county employees who had become disabled while still employed. Even though the county stopped paying their insurance premiums because they were no longer able to work, McClure looked into their old policies when they died and found that the company still owed the families money because they were covered when they became disabled.
McClure said he also tried to save the county money by informing them that changing the billing process for employees who have divorced would result in their exspouses having to pay for their insurance instead of the county. This would save the county thousands of dollars, he said, but the county has not acted on his suggestion. At this point, the county pays the cost of insurance for ex-spouses of county employees, McClure said.
The board discussed the possibility of rescinding its motion to go with Ochs. Commissioner Fenwick said he thought it would be wrong to rescind a motion after another party has taken action as a result of that motion.
The purpose of the law requiring bids every five years is to make sure counties get bids to find the lowest prices on insurance, Fenwick said, but the law protects large companies, not counties. “Did we act in the best interest of the community? Yes,” he said, pointing out that they saved staff time and that what they did was legal.
McClure objected to the fact that the county did not notify him or offer him the opportunity to do what Ochs proposed.
The county does not need to get bids from entities proposing to get bids, County Attorney Tim Scannell said.
“There’s the ethical and the legal,” Commissioner Jim Johnson said, “and I agree that the ethical doesn’t smell good.”
The Cook County North Shore Hospital board discussed the same issue at its August 20 meeting, since five years have elapsed since it last solicited bids for life and long-term disability insurance. It considered information from both Ochs and McClure, and decided to wait until fall before making a decision.
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