Moorhead schools health plan was with superintendent's son

MOORHEAD - The Moorhead School Board voted last week to have the school district start a self-insurance health plan.

That will bring an end to the district's four-year run of contracting for health insurance from Lakes Country Service Cooperative, an agency run by the son of Moorhead Area Public Schools Superintendent Lynne Kovash.

Lakes Country Executive Director Jeremy Kovash, an LCSC employee and a Blue Cross Blue Shield of Minnesota representative, sent a letter directly to school board members and top district administrators in an apparent last-ditch effort to retain the district's health insurance contract.

The letter didn't do the job. The board voted 6-0 last Monday to have Preferred One administer a plan in which the district insures itself, covering the medical expenses of its employees and their families.

The plan is now being reviewed by the district's largest employee group, Education Minnesota. If they sign off on the move, it will go into effect Jan. 1.

But the letter raises questions, among them: Was the mother-son relationship of the Kovashes an inherent conflict of interest?

Lynne and Jeremy Kovash both deny that family ties colored business ties between the co-op and Moorhead's public schools.

Lynne Kovash said she recused herself from the self-insurance debate and had Assistant Superintendent Wayne Kazmierczak handle the issue.

"I did not serve on the insurance committee," Kovash said Thursday.

She didn't comment during last Monday's board debate on self-insurance, and she said she did not encourage her son or LCSC to send the Aug. 6 letter.

Jeremy Kovash said he's been executive director of the cooperative for seven years, taking over the post well before his mother was promoted in July 2008 from being a Moorhead schools assistant superintendent to her current job.

"Any time there appears to be any kind of conflict of interest in any regard, we are very, very cautious," Jeremy Kovash said. "We try to distinguish those lines as much as possible, keep things as open as possible."

He said the Aug. 6 letter was sent because "we certainly thought there were some errors that we thought the consultant should have understood."

Issues with bid

Last year, Moorhead paid $5.2 million in premiums to Lakes Country. This year, the premiums would have been about $5.3 million, said Denice Sinner, a school district accountant.

But a study of the district's claims history found that premiums paid topped claims and fees by $1.4 million over the 21-month period ending in March.

Kazmierczak said that made a switch to self-insurance look like a good financial option.

But the cooperative's Aug. 6 letter argued the cooperative's administrative fees for a self-insurance plan were inflated by National Insurance Services' estimates and misstated by about $147,000. It also questioned other technical matters in the evaluation process.

In particular, Jeremy Kovash said that 85 percent of the fees were to be held in a reserve account.

"We just wanted to make sure that they had all the information that they needed," Jeremy Kovash said. "I thought that was the right thing to do as their service provider."

The consulting firm, in its presentation to the school board, said the proposal by Lakes Country had several financial questions left blank, and the consultant had to work through the figures the cooperative did supply to come up with estimates.

Representatives of National Insurance Services, the consultant, also said the fees earmarked by Lakes Country for reserves would be controlled by the co-op, not Moorhead schools. That and other aspects of the Lakes Country bid did not make it a true self-insurance plan, they said.

LCSC is one of nine service cooperatives in Minnesota created by the Legislature to offer services to K-12 schools. Over time, the public, nonprofit cooperatives have evolved to aid counties and cities, too.

It serves nine counties in west central Minnesota - including Becker, Clay, Douglas, Grant, Otter Tail, Pope, Stevens, Traverse and Wilkin - and acts as a liaison to state agencies in addition to having partnerships with numerous businesses and associations.

Jeremy Kovash said that beyond two insurance pools that cover 35 school districts and about 40 cities and counties, LCSC offers about 70 programs, including teacher training and development, health and special education, and knowledge bowl and spelling bees, used by the region's school districts.

He said Moorhead uses 30 to 40 of those programs, "as do perhaps most every other school district in our region."

Perception of conflict

Lynne Kovash noted in an interview last week that Moorhead School Board member Bill Thomhave is a member of the Lakes Country board of directors. She added that the cooperative also provides insurance to 34 other school districts in the region.

"A lot of school districts go that route," she said.

Kazmierczak confirmed he's had the lead on the insurance project. He said the district hired a consultant to work through "inconsistencies" in the request for proposal process and make sure it was done objectively.

"I feel that the integrity of that process was never compromised," Kazmierczak said.

That included the Lakes Country letter.

"We maintained the recommendations based on the information provided up front," he said. "The facts are the facts and the definition of a stand-alone self-insurance model was just that."

Kazmierczak said he had no problem maintaining his objectivity with the Kovashes.

"Obviously there's some potential for perceived conflict of interest" that can't be avoided, he said. "I'm very careful of separating the two."

The Moorhead Public Schools employee handbook defines a conflict of interest as "any judgment, action or relationship that may benefit you or another party because of your relationship with the Moorhead Area School District. All employees are asked to avoid outside activity involving obligations that may compete or be in conflict with the best interests of the school district.

"Employees are asked to disclose the facts of any transaction that may be considered a conflict of interest before the fact or as soon as the facts become known to you."

School board members contacted for this story said they were aware of the mother-son relationship between the Kovashes. They also said that Lynne Kovash did not insert herself into the insurance debate.

Rates averaged higher

Moorhead School District has been back and forth as part of the LCSC insurance pool since 1997. During both stints - one from 1997 through the 2003-04 school year, and a second from 2010 and set to end Dec. 31 of this year - the increases in Moorhead were higher than the average increase for other members of the Lakes Country coverage pool.

From 1997 to 2003, the district rates increased by an annual average as part of the LCSC insurance pool that averaged 30.08 percent a year, about two and a half times the LCSC pool average of 13.59 percent.

The district then left the insurance pool, getting its health insurance from other providers from 2003 to 2010. During that period, annual rate hikes averaged 10.33 percent, compared with the LCSC average of 10.94 percent.

Moorhead School District brought its business back to LCSC in the 2010-11 school year, about two years after Lynne Kovash was named superintendent.

In the time since, the average annual rate hike for Moorhead was 7.14 percent per year, compared with 6.65 percent in the LCSC pool, a school district document shows.

Kazmierczak, who started in his post at the beginning of 2008, said given what he's seen in the insurance market, he wishes he had taken a deeper look at self-insurance as an option for the district.

"In hindsight for us, if I had explored self-insurance earlier, we might not have gone back to the (LCSC) pool," Kazmierczak said.

Readers can reach Forum reporter Helmut Schmidt at (701) 241-5583