Mendocino County’s Multi-Million Dollar Health Plan Deficit

The Mendocino County Board of Supervisors learned more details last week about the county’s multi-million dollar health plan deficit, but basic information about how it happened, and why it went unreported for so long, appears incomplete.

The deficit in the self-funded health plan accumulated over two and a half years, and is now close to six million dollars. That’s after the Board allocated $4.6 million of the county’s $16.8 million allotment of American Rescue Plan Act money to the shortfall, which means the actual deficit was over $10 million. Supervisors were chagrined to learn that former auditor Lloyd Weer had borrowed money from an unknown fund to cover the deficit, incurring $40,000 in interest payments. The loan was never authorized by the Board. 

Supervisor Ted Williams asked staff from the executive office if the county could expect to keep racking up millions in healthcare bills. “If we hadn’t contributed $4.6 million from ARPA (American Rescue Plan Act funds), where would we be?” he asked. “Would it be about a $10.2 million deficit?” Deputy CEO Sara Pierce confirmed this. Williams asked if staff believes “the trend will continue at the current rate;” and Deputy CEO Cherie Johnson replied that, with the acuity of the healthcare claims coming in and the high cost of healthcare, “Yes. It appears to be trending in this direction.”

Supervisor Glenn McGourty was aghast. “How does this go on and on, with the situation turning into a situation where it’s a disaster?” he wondered. In an interview last month, CEO Darcie Antle explained that right before covid hit, Weer told her that the county’s healthcare plan reserves were too high — so over the course of two years, the county burned through just about the same amount of money it’s currently lacking. 

“The prior Auditor-Controller came forward in (Fiscal Year) 16/17 and stated that our reserve for the health plan, the fund balance, was too high,” she recalled; “and that the State Controller was concerned about that, and recommended that we spend down that amount of money. I think we spent down roughly $6 million through a health holiday. That occurred in (Fiscal Years) 17/18 and 18/19. In the quarter of October through December of each respective year, employees and the county did not pay the premium for those months. So those were health holidays, which equated to about a $6 million spend-down. In December of 2019, who would imagine we would be going into covid…claims increased, acuities increased, over the last three years.”

Antle conceded that her team initially reported a $1.1 million deficit to the Board, but in the midst of delays, retirements of key financial personnel, and a report that is only available to outside auditors, they did not report an additional two and a half million dollars of the deficit to the Board. After the executive office team publicly reported the mistaken figure to the Board twice, she said, no one who knew what the actual figure was, came forward to make a correction. Some of the reports are only generated once a year, making it difficult to assess rapidly changing conditions.

Last week, Supervisor Dan Gjerde asked if there was any way the county could seek reimbursement from state or federal entities. If half of the healthcare deficit is attributable to employees whose positions are funded almost entirely with state and federal money, he reasoned, “Would there be a way of going back to those grant programs and those state programs and try to pay off that debt with state and federal funds?” 

Antle replied that Deputy CEO Tim Hallman had already looked into that with the county’s Social Services fiscal team, “and I believe to go back retro is not an option,” she reported. Williams asked her if the county could have collected the money if it had billed for it at the time the debt was incurred, and she replied, “I believe that’s correct.”

“So we gave the state free insurance for their program, because we didn’t have regular reporting to catch the increase,” Williams concluded. “Accurate?”

“I can’t deny that,” Antle replied.

Williams challenged staff to pay off the deficit, saying, “I hear some voices say we don’t have a financial problem, our county finances are healthy. If that’s the case, I would like to pay off that deficit, that $5.6 million. Let’s pay it off with general fund, right away, if we have the revenue. Do we have the revenue?”

Pierce responded by reporting that the county owes $40,000 in interest on the deficit. Williams picked up the topic of the county’s financial health again. “If we don’t have adequate revenue, say, in the carry-forward, to pay off our healthcare deficit, how do we have healthy finances? Aren’t we spending more than we’re bringing in? Without a COLA.” (Cost of Living Adjustment for county union members, who are currently in contract negotiations with the county.) “Are we spending more, or incurring more expenses, than we have revenue?” Antle confirmed that there is structural imbalance in the budget, and Williams asked if there are “any other instances where we have this fact pattern playing out? Will we be surprised by any other accumulating deficits?”

The county is carrying about $70 million in long term debt service, and has not yet seen all of the $11 million promised by FEMA for disaster relief. Pierce said the county also borrowed money to cover expenses until the FEMA reimbursement arrives, but the arrangement does not include paying interest. In text messages, Williams wrote that he doesn’t know where the loans for the disaster money or the health plan deficit came from, or with what authorization. “We don’t owe it — it was already paid. From where?” he wrote. He added that, “It’s not entirely clear to me but I find it hard to believe the auditor could unilaterally borrow millions without informing (the) board.” 

Supervisors tasked the budget ad hoc committee and the executive office to figure out if the county can use more American Rescue Plan Act money to plug the hole in the health plan deficit. And a presentation about the county possibly participating in an insurance risk sharing pool was agendized but put off, as other agenda items stretched into the latter part of the day.

The county joined a statewide joint powers authority called PRISM (Public Risk Innovation, Solutions and Management) in 1979, which gives it the opportunity to purchase fully funded healthcare plans from its health program. The estimated cost of the program, based on how many employees and dependents enroll, and the level of coverage they select, would be close to $18 million for the year 2023. PRISM claims to serve 55 of the 58 California counties, and hundreds of cities, special districts, school districts, and hospitals.