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Insurers underpaid premium taxes by $65M, audit finds

Copyright © 2017 Albuquerque Journal

The state failed to collect nearly $65 million in premium taxes owed by insurance companies, with more than a third – nearly $29 million – owed by New Mexico’s largest health insurer, Presbyterian Health Plan, according to an audit released Tuesday.

State Auditor Tim Keller

State Auditor Tim Keller

State Auditor Tim Keller, who released the special audit of the Office of the Superintendent of Insurance’s collection of premium taxes, said that while the dollar amount “is large in the aggregate,” it is far less than previously thought. An earlier audit, which Keller said was based on random testing, concluded that insurance carriers may have underpaid as much as $193 million in premium taxes dating back more than a dozen years.

The audit released Tuesday examined premium tax filings from 30 companies, primarily health insurers, from 2003 to 2016, and found that 17 of those companies owe money to the state.

Companies owing the most were Presbyterian Health Plan, $28.9 million; HSC Mutual (Blue Cross Blue Shield Mutual Reserve), $8.4 million; Molina Healthcare, $8.1 million; Amerigroup, $6.9 million; United Healthcare, $3.8 million; and Lovelace, $3.8 million.

It wasn’t immediately clear what impact the audit would have on settlement discussions between the state Attorney General’s Office and Presbyterian.

Attorney General Hector Balderas filed a lawsuit against Presbyterian in July, alleging it had “engaged in a 15-year fraudulent enterprise” by falsifying deductions and credits on Medicaid premiums. Presbyterian has denied wrongdoing.

While the audit released Tuesday was not a forensic accounting of the premium tax process, Keller said the examination didn’t uncover any fraudulent behavior on the part of the insurers.

The next step is for the state to begin collecting the underpayments. That is the responsibility of the Office of the Superintendent of Insurance, Keller said. “We hope every dollar (owed) is collected. I can’t say that process is locked in yet,” he said.

“We have been working towards this resolution since 2014 when we asked for the process to be evaluated,” said Insurance Superintendent John Franchini. “Although it has been a long, bumpy road to get here, we are encouraged by the results of the special audit and corresponding examinations as they highlight for all of us, the state of New Mexico and the insurance companies, exactly how premium tax collection should be reconciled and areas for improvement.”

The 26-page special audit report recommended the following actions:

• Collect the amounts that are owed to the state. It is OSI’s responsibility to issue assessments to the insurance companies, consider penalties and interest, and allow the insurers the opportunity to respond. The Auditor’s Office previously requested that the Office of the Attorney General be involved in the negotiation and approval of any proposed settlements.

• Improve oversight immediately. Most of the audit’s seven findings stem from OSI’s inability, or lack of resources, to ensure that carriers are properly using credits, taking deductions and reporting premiums. The audit recommends various steps for the office to take in those areas.

• Move insurance premium tax collection duties to an experienced agency like the Taxation and Revenue Department.

Franchini said New Mexico is one of five states where the insurance regulator is also the tax collector, and he supports the idea of separating those functions. “OSI has continued working with the Tax and Revenue Department to evaluate how such a transfer would take place; this evaluation is still underway between the agencies,” he said.

Follow-up audit

The decision to hire an independent auditor was made earlier this year after a special report in 2016 by CliftonLarsonAllen showed the five largest health insurance companies operating in New Mexico may have owed $193 million in premium taxes, although that figure was disputed. That 2016 review said tax-filing errors were not caught because of problems with computer software, internal agency controls and inadequate staffing at the OSI. That audit was based on a random sample of premium taxes in the time period, Keller said. This most recent audit was more accurate and was able to pinpoint the exact amount.

The audit released Tuesday was conducted by Georgia-based Examination Resources.

It found nearly $38 million of the underpayments were due to 11 of the companies improperly applying credits to their premium taxes for payments they made to the state’s high-risk insurance pool for people who are denied insurance or considered uninsurable.

Another $25 million was due to three carriers filing amended returns for overpayments that they did not make. The remaining balance was due to other issues.

Separate suit

James Hallinan, a spokesman for Attorney General Hector Balderas, said that agency’s lawsuit against Presbyterian “involves only approximately $14 million of the $29 million in the audit.”

“We will continue settlement talks with Presbyterian and look forward to evaluating the audit’s full findings as we consider further enforcement and collection actions,” Hallinan said.

Dale Maxwell, president and CEO of Presbyterian Healthcare Services, the health plan’s parent company, said the organization “has been cooperating fully with the audit.”

From Presbyterian’s perspective, he said, “The audit results include primarily two distinct issues: taxes on Medicaid premiums (paid) between July 1, 2003, through June 30, 2004, and New Mexico Medical Insurance Pool credits.

“As noted in a joint statement last week, we reached out to the Attorney General’s Office to engage in a good-faith discussion to resolve the lawsuit, including the 2003-2004 premium tax issue,” said Maxwell. “Assuming we reach a settlement, the resolution of the matter with the Attorney General will also resolve the audit findings on this issue.”

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