The de Blasio administration missed a glaring math error when choosing a new health care insurance provider for 275,000 retired city workers that could cost taxpayers “tens or even hundreds of millions of dollars” in lost revenue, according to a bombshell claim filed by rival bidder Aetna, the state’s largest Medicare provider.
Aetna has sued the city alleging the selection process was fixed to favor Alliance, a consortium that includes Emblem Health and Anthem/Blue Cross Blue Shield and has strong ties to union leaders, to operate the new Medicare Advantage Plus program.
A group of retirees has filed a separate lawsuit to block the implementation of the new $34 billion, 11-year Medicare supplemental plan — called Alliance Medicare Advantage — claiming they are being forced into a new plan that costs more for fewer benefits.
City officials have repeatedly defended the choice of winning bidder Alliance, saying it offered the best plan.
Aetna came in second place in the bidding process, and said it discovered the issue over profit sharing while reviewing the terms of the Alliance’s proposed contract with the city after filing its lawsuit.
The Alliance contract included a “gain share” stipulation in its contract that guarantees it will keep the overwhelming majority of the profits it initially promised to share with the city – a “sleight of hand” that either went unnoticed by the city and the union leaders negotiating the health care changes, or was slipped in afterwards as a “bait and switch,” according to a Nov. 9 protest letter Aentna filed with the city’s Office of Labor Relations, a copy of which was obtained by The Post.
“A close reading of the proposed contract reveals that the public is being taken for a ride,” Aetna lawyer Claude Millman said in the protest letter to city Office of Labor Relations Director Renee Campion.
The contract says the Alliance won’t have to share any profits in any year when the city is not required to pay a premium.
This means that, at most, the city could receive about $23 million from the Alliance contract because the Alliance has agreed to only charge the city premiums in its first year, according to Aetna’s calculations.
But it’s actually more likely the city – and taxpayers – will receive little or nothing in savings in the first year because profits don’t typically materialize until later, according to Aetna’s protest.
Millman said said it’s clear now — if it wasn’t before — that Aetna submitted the superior bid.
Under Aetna’s proposal, zero premiums would have been charged for six contract years, but unlike the Alliance, Aetna’s proposal doesn’t “cap its gain sharing proposal to any dollar amount,” the protest letter says.
According to Aetna, the city likely would have netted “hundreds of millions of dollars in possible gain share payments from Aetna” over the course of the contract.
“A representative sample of Aetna’s large clients includes four public employers, one private employer, and one large labor union; within this sample, in the last year alone, Aetna has paid out over $320 million in gain share payments to these clients, with one private employer receiving approximately $98 million and one public employer receiving approximately $81 million in gain share settlements, despite these clients having member populations one quarter to one third the size of the City’s retiree population,” Aetna Vice President Richard Fonmeyer said in an affidavit.
“Multiplied over the course of the contract, the City stood to receive hundreds of millions of dollars in possible gain share payments from Aetna. From the Alliance, it will collect, at most, $23 million,” said Frommeyer.
Steven Cohen, a lawyer for retirees fighting to cancel the contract and the shift of retirees Medicare Advantage, said the math goof is “just one more error” in a comedy of them
“It’s outrageous,” Cohen said.
A spokesman for the city Law Department Sunday night acknowledged the gain sharing discrepancy in the proposed contract — but insisted it has been scrapped from the final contract.
“As the court determined, the city’s procurement was proper and we believe the Alliance will provide superior coverage for our retirees. The gainsharing provision being raised here was a provision in a draft contract which has been subsequently revised. The gainsharing provision in the final contract is advantageous to the City,” said Law Department representative Nick Paolucci.
The language in the draft contract was “inconsistent with the parties’ intention on gainsharing,” city officials said.
All retirees are eligible for Medicare, the federal insurance program for the elderly. But Medicare only covers about 80 percent of costs.
Under agreements in union contracts, the city provides supplemental coverage called Medigap for retirees that covers the 20 percent of costs that Medicare doesn’t. The subsidized coverage is costing the city over $500 million a year. The switch to Medicare Advantage is aimed at curbing costs.