Minnesota Commerce Department orders change in Duluth's handling of group health fund

• Duluth City Hall

File photo / News Tribune

Talk about it

The Minnesota Department of Commerce ordered the city of Duluth on Tuesday to change the way it handles the administration of its group health fund.

The ruling gives credence to concerns raised by Duluth Firefighters Local 101, which filed a complaint asking the Commerce Department to examine the city’s self-insurance pool earlier this year.

Mike Simonson, president of the local union, said he hadn’t seen the order yet but was encouraged to hear of the findings. The Department of Commerce notified Duluth that it was mailing its official findings Tuesday.

“One of our main goals was to protect the future of the fund and to get the city to comply with the law,” he said.

Dave Montgomery, chief administrative officer for the city, said the Commerce Department determined that Duluth’s insurance fund was subject to regulation largely because it operates as a pool, serving the insurance needs not only of the city but of the Duluth Entertainment Convention Center, the Housing Redevelopment Authority and the Duluth Airport Authority, as well.

“All three benefit from being a part of a larger pool with more buying power,” Montgomery said.

“One option would have been to throw the other birds out of our nest. But we’re not about to do that,” he said, explaining that the advantages of these entities working together far exceeds the downside.

Instead, Montgomery said the city plans to abide by the Commerce Department’s ruling.

To comply, the city will need to shift its administration of the group health fund to a third-party service provider.

The city also will need to transfer the current fund balance — now between about $7 million and $8 million — to a fund overseen by this new administrator.

“We won’t co-mingle the fund with the city’s other accounts anymore,” Montgomery said, noting that this may increase the comfort level of both current employees and retirees served by the fund.

The recent tiff over the fund’s administration was touched off in 2007, when the city decided to transfer $1 million from the group health fund to an Other Post-Employment Benefits fund, or OPEB, in quarterly installments.

The firefighters grieved that diversion and succeeded through arbitration in having half that money returned to the group health fund. Montgomery explained that the other $500,000 transferred to OPEB was deemed to be unaffected by the grievance due to the passage of time.

Montgomery said commerce found no issues as to the sufficient funding of the self-insurance pool or its handling of claims in a timely and fair manner. From an employee standpoint, the change in administration should have no effect on insurance benefits, he said.

The Department of Commerce did forbid future transfers of any money out of the group health fund. But Montgomery said the city had no plans to attempt that again, after its unsuccessful experience with the OPEB transfers.

The city can expect to incur some new additional costs from filing fees and an annual audit because of the change in the health fund’s administrative structure, but Montgomery expects these will be relatively modest.

The City Council, the HRA, the DECC and the airport authority all will need to sign off on this proposed change, and each would need to designate a representative to serve on a board of trustees for the health fund. Montgomery said the city will draw up a joint powers agreement and action plan, which it will send to the state for its review and approval as well.

Nevertheless, he expects the restructured fund should be in place by year’s end.

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