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Pro Systems to pay back $200,000 for health insurance fees

Pro Systems Corp. Group Health Plan has been ordered to repay more than $200,000 to clients for failing to disclose the use of health care fees, according to the U.S. Labor Department.

A consent judgment entered in the U.S. District Court for the District of Minnesota has returned a total of $203,212 to clients of the Pro Systems Corp. Group Health Plan.

It provided health care services for clients of Detroit Lakes-based Pro Systems, PRO Resources and MICROPRO.

The company is a professional employer organization, which handles things like employee benefits, payroll and workers’ compensation, recruiting, risk-safety management, and training and development for client businesses.

The judgment resolves a lawsuit filed by the U.S. Department of Labor alleging violations of the Employee Retirement Income Security Act for failing to disclose to clients that some fees collected for insurance costs were used for non-health plan purposes.

“The law requires that health plan fiduciaries use all monies collected for health plan premiums for the exclusive purpose of providing benefits to plan participants,” said James Purcell, regional director for the Employee Benefits Security Administration in Kansas City, Mo., whose office conducted the investigation.

“By ignoring the best interests of those participants, the defendants didn’t simply break the law; they violated the faith of employer clients and their workers who trusted them to manage their health care plans.”

An investigation by the department’s EBSA found that Pro Systems Corp., and its Chief Operating Officer James Piche and Chief Executive Officer Michael Brodsho, directed the collection of an “other insurance costs” fee, ranging between $80 to $160 per participating employee, from its client companies between Jan. 1, 2006, and Dec. 31, 2011.

The companies, Pro Systems, PRO Resources and MICROPRO, retained those fees in their general operating funds.

In addition to restoring the funds, Pro Systems, PRO Resources, MICROPRO, Piche and Brodsho are each enjoined from serving as a fiduciary or service provider to any self-funded ERISA-covered employee benefit plan in the future.

An independent fiduciary will be appointed to distribute the settlement amount to the client employers.

The case was litigated by the department’s Regional Office of the Solicitor in Chicago following an investigation by the EBSA’s Kansas City, Mo., office.

For his part, Brodsho said the company settled because it was less expensive than a legal battle to fight the allegations.

He said the company went to a self-funded health plan to provide similar coverage at the same rates after it was not allowed to participate in a Fargo-Moorhead employers’ group plan.

“Meridian (Health) set it up for us,” he said in an interview.

Based on advice from a Washington attorney, Brodsho said his company separated premiums from administrative costs and billed each separately.

“Meridian gave us suggested premiums for the plan, and every year, we were either at or below what Meridian said we should be – that amount included administration (fees),” he said.

“They never went on top of what Meridian said they should be. We did that for a number of years.”

The premiums were reduced to account for the administrative charges, Brodsho said. “We went to experts and followed their advice.”  

The Labor Department started its review of the Pro Systems Corp. Group Health Plan in 2009, and “the whole process went on for a tremendous amount of time. They added up our ‘administrative’ charges and said they were excessive.”

Brodsho said his company was at market rate or better with its combined premiums and administrative charges. No clients were required to use the Pro Systems plan, and many didn’t.

“Clearly if it had been excessive, they would have gone out and found other coverage,” he said.

Brodsho said his company consulted experts and attorneys who believed “we could go to trial and defend this thing, but a trial would have cost twice as much as a settlement, it would have taken years, and employers wouldn’t have gotten the money.”

Pro Systems now uses a large health insurance broker that customizes plans to fit client needs, he said.

Pro Systems Chief Operating Officer James Piche left the company in 2010 for reasons unrelated to the Labor Department investigation, Brodsho said.

A Labor Department spokesman did not return a phone call.

Employers and workers can contact EBSA’s Kansas City office at 816-285-1800 or toll-free at 866-444-3272 for help with problems relating to private sector retirement and health plans.