Review Finds Local Governments’ Health Insurance Funds Have Conflicts of Interest and Public Contracting Violations

TRENTON-Health insurance funds that serve hundreds of local governments and school boards have been effectively taken over by a private, for-profit company, in violation of conflict-of-interest rules and public contracting laws designed to prevent corruption and safeguard funds, according to an Office of the State Comptroller report, released today.

Since the 1990s, New Jersey municipalities and schools have been permitted to form health insurance funds (HIFs) to provide health benefits to employees and their families. The goal of these public entities is to lower costs and improve efficiency while maintaining governmental control and compliance. But in a 34-page report published today, OSC found one insurance firm, Conner Strong & Buckelew (CSB) and its "alter ego," PERMA, improperly gained control over public entities' contracting processes, influencing how multimillion dollar contracts are written, awarded, and priced-even while they compete for (and win) some of these same government contracts.

The findings came to light during OSC's routine review of proposed public procurements by three health insurance funds. By law, OSC is required to review major proposed public procurements to ensure compliance with laws and regulations. While reviewing the proposals by the Schools Health Insurance Fund (SHIF), the Southern New Jersey Regional Employee Benefits Fund (SNJHIF), and the Municipal Reinsurance Health Insurance Fund (MRHIF), OSC found CSB and PERMA have longstanding undisclosed conflicts of interest, improperly controlled contracting processes that led to them being awarded contracts, and invented a fake government entity to attract more customers. All of it occurred with limited, if any, awareness by state regulators or the local officials overseeing HIFs who are charged with protecting taxpayer funds.

"There is no clearer conflict of interest than when a company writes the RFP, reviews the bids, and then steers the contract to itself. What makes this worse is that the vendor concealed from the State and its public entity clients that it operating on all sides of contracting processes that are supposed to protect taxpayer funds," said Acting State Comptroller Kevin Walsh.

OSC's past audits of municipalities and school districts have repeatedly documented how insurance brokers have built-in conflicts of interest, misrepresent costs associated with alternatives, and fail to disclose the commissions and incentives they receive from insurance companies they recommend. OSC's review of the three HIFs' proposed procurements revealed similar issues, but on a much larger scale.

CSB and PERMA purport to be separate, independent entities linked only by a parent company. CSB generally serves as program manager, acting as broker and underwriter for insurance funds, while PERMA is contracted as the administrator, managing day-to-day operations for HIFs. To prevent self-dealing, state regulations prohibit a vendor from serving as a health insurance fund administrator while also serving as program manager. OSC found, however, CSB and PERMA function as one entity, with PERMA under CSB's supervision, sharing leadership and employees.

In reviewing SHIF's proposed three-year contract for program management services, OSC found that the executive who managed the process for selecting CSB as program manager in the past and who was currently overseeing SHIF's contracting process is a CSB employee. Despite identifying himself as PERMA's Executive Director, he is paid by CSB and holds a minority share in CSB or an affiliate.

From fiscal year 2021 to fiscal year 2025, SHIF paid PERMA and CSB a total of about $36 million as CSB occupied multiple roles and earned substantial fees, without disclosing conflicts to state regulators or the school officials in charge of SHIF, as legally required.

PERMA's Executive Director also serves as the administrator of SNJHIF while another CSB official serves as the program manager. SNJHIF, a health insurance fund representing 52 local governments and led by local officials from Camden County, submitted to OSC proposed procurements that would use a cooperative pricing system to create a centralized, statewide insurance system, with hundreds of insurance plan options-managed by CSB and PERMA. Six HIFs, representing more than 40,000 municipal employees and their families, signed on to the co-op, committing them to the set of options and fees determined by SNJHIF.

While SNJHIF claimed other companies could compete for the contracts, OSC found the proposed co-op procurements for health insurance coverage were tailored to favor the existing vendors, in violation of procurement law. OSC has directed SHIF and SNJHIF not to proceed with the proposed procurements until HIF trustees - elected officials and public employees - develop a plan for addressing the problems OSC identified.

MRHIF, a health insurance fund with seven other health insurance funds as members, proposed to purchase stop-loss reinsurance to protect its members against catastrophic claims. OSC permitted MRHIF to proceed with the procurement, after some revisions. But during the review, OSC discovered that MRHIF had spent public funds to market an entity called the "Hi Fund." On its website, Hi Fund billed itself as a public entity, "founded over 30 years ago," with a $1 billion annual budget, and compared itself to the State Health Benefits Plan and School Employees' Health Benefits Program. It also displayed names and photos of government officials serving as HIF chairs, though some of those officials told OSC that they "never heard" of the Hi Fund.

In fact, Hi Fund is not a legal entity-it is a marketing fiction created by CSB to drum up customers by misrepresenting itself as a public entity with a comprehensive insurance pool. After OSC's inquiries, CSB removed officials' pictures and added a small disclaimer. But their names remained on the website, as of September 5, 2025.

OSC made numerous recommendations and referrals to the Department of Banking and Insurance, the Department of Community Affairs, the Office of the Attorney General's Division of Consumer Affairs, and School Ethics Commission. OSC directed the three HIFs to submit corrective action plans within 60 days, which will require the trustees who bear responsibility for the funds to take public votes. OSC also urged all insurance funds to conduct reviews of their vendor relationships and procurement practices. OSC called on the Legislature to consider legislation to require greater oversight and regulation. (The local governments and school districts that participate in health insurance funds are listed here.)

"At a time when more public entities are relying on health insurance funds to provide coverage, it's critically important that the State ensure insurance funds and vendors who receive taxpayer money act ethically, avoid conflicts of interest, and comply fully with the law," said Walsh.

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To report government fraud, waste, mismanagement, or corruption, file a complaint with OSC or call 1-855-OSC-TIPS.