Texas Regulators: Houston ISD and Benefits Firm Took Part in Illegal Deal

The Houston Independent School District and its employee benefits firm illegally profited from a deal they have with three other school districts, according to the Texas Department of Insurance.

New York-based Mercer Human Resource Consulting has been paid at least $20 million since 2000 for managing the school district’s healthcare plan, which covers 20,000 employees, the Houston Chronicle reported July 13 in its online edition.

The state insurance agency said the school districts in Dallas, Aldine and Katy bought into Houston’s employee benefits consortium with Mercer after HISD promised it would hold down benefit costs by pooling their buying power and avoiding costs associated with competitive bidding.

“However, because each ISD is separately rated by carriers, those ISDs do not receive lower benefit rates by being incorporated into a larger group,” the insurance department wrote in a letter it sent to Mercer.

Mercer officials denied any wrongdoing.

“We are evaluating the letter in detail, but we note it says that the agency is ‘considering’ action, not that it has made that determination,” the statement said. “We believe we are in compliance with relevant Texas law and regulation and that this matter has been driven by a disgruntled competitor which has had no success in its repeated efforts in civil litigation.”

Lawyers for a competing firm suing Mercer hope to force the company to pay back at least $40 million to the Houston, Dallas, Katy and Aldine school districts.

State regulators also determined Mercer is operating in Texas without the required consulting license.

Houston school board Trustee Larry Marshall said the insurance department’s findings are surprising.

“I’m stunned,” he said. “Little did we know that this web was in existence. … I think we probably need an impartial look at this.”