The safeguards in Ohio law that protect public funds against bid rigging and contract steering have giant loopholes that leave billions of taxpayer dollars vulnerable.
State legislators should fix this glaring problem as an urgent priority. The State Teachers Retirement System of Ohio, recipient of $3,634,475,000 in taxpayer money in 2022, recently won a ruling that its health care insurance contract is exempt from Ohio bidding laws.
Humana sued STRS and won a temporary restraining order keeping STRS from awarding the contract for beneficiary health care. Humana charged STRS was acting outside the Ohio Revised Code, but STRS easily won a summary judgement dismissing the case as a nonissue because the law doesn’t cover the retirement systems.
Specifically, because the beneficiaries of the health-care insurance are retirees, not state employees, the contract was outside Ohio law on procurement. The five Ohio public pensions took in $9.5 billion in 2022 and whether it came from employees or employers, state taxpayers were the original source of funds.
The same procurement loophole exists for Ohio’s Medicaid program. Toledo-based Paramount Health, the ProMedica subsidiary whose financial spiral began with they lost a piece of a $22 billion Medicaid contract, never had a chance in their lawsuit over bidding irregularities because 3 million impoverished citizens, not the state, received the insurance coverage.
Thus, Ohio was able to select firms that it had recently sued for fraud in the Medicaid program without need to defend the decision as a violation of state procurement law. Ohio’s current budget allocates $71 billion to Medicaid. Leaving that much money unprotected by Ohio purchasing law, in a state of endemic corruption, is an invitation to graft. It is an insult to taxpayers that pencil and paper purchases in schools and local governments are regulated much closer than billions of dollars spent on insurance.
Both STRS and the Ohio Police & Fire Pension Fund want state lawmakers to approve a large increase in the amount school systems and local governments pay into the funds. But before legislators force taxpayers to cough up more money to bail out pensions, they should make them follow Ohio bidding law and protect the money they already get.
At the same time, the STRS Board and all the other pension system boards should weigh in with oversight requirements that force an affirmative vote on financially significant contracts. STRS hired Buck Consultants to help evaluate the health insurance bids and the consultants scored Humana at 4.9 out of 5 and Aetna at 3.2 out of 5.
STRS Member Benefits Director Gary Russell and Executive Director William Neville made the selection for Aetna and made the decision that input from their “contentious board” was not necessary.
A four-year contract driving $1.1 billion of annual spending should not be made by a couple of bureaucrats unbound by state law or oversight from the government appointed and member elected board with ultimate responsibility.
Ohio law must address this multibillion dollar vulnerability immediately.