The Arkansas Insurance Department today announced a settlement of a long-running investigation of what it found to be a bogus insurance operation run by Kevin Murphy, who now heads the state Community Correction Department.
Prompted by Legislative Audit, the Insurance Department began in 2017 reviewing the Arkansas Association of Correctional Employees Trust, led by Murphy. He was paid by the nonprofit on top of receiving state pay.
The trust offered some 4,000 Community Correction and other state employees vision, dental and life insurance without proper licensing or premium collection, Commissioner Allen Kerr said in his consent order issued last April. In other words, there was no backing for claims made by those who’d been paying into the program.
Terms are being revealed now because state employees covered by the trust have been shifted to regular state insurance plans for insurance and dental coverage and an accounting has been done.
In a letter May 2 to Murphy, as chair of the trust’s board of directors, Kerr said the trust had illegally collected premiums without a license. It said the trust should pay $495,475 to the Insurance Department within 15 days for premiums collected illegally. It said it would refer the matter to Legislative Audit “for further action outside the jurisdiction of this department.” The money turned over will be spent to benefit those who paid it, as determined by the insurance commissioner, the letter said.
In releasing the letter, Insurance Department spokesman Ryan James said there’d be no further comment. He said the Department had compiled the investigative file for release to those who want it.
I’m seeking comment from Murphy. We noted his checkered past when the Board of Correction picked him to lead Community Corrections in January. He was chosen after Gov. Asa Hutchinson fired Sheila Sharp for pressing for more manpower for the department. Community Correction is to be combined with Correction under the governor’s “transformation” plan.
The earlier audit found Murphy benefitted from his various hats.
Between January 2014 and August 2017, DCC Chief Deputy Kevin Murphy received a total of $204,000 in salary and another $49,000 in reimbursements and insurance benefits from serving as the executive director of the Arkansas Association of Correctional Employees Trust, or AACET. During that same period, he earned an average of $97,804 annually in his administrator position at DCC.
“The nature of these dual positions creates a conflict of interest,” the report states.
Murphy disputed that.
UPDATE: The Community Direction Department spokeswoman Dina Tyler provided this response:
The consent order was signed more than a year ago. But apparently, it was issued and posted today on AID’s Facebook page. The legislative audit on AACET has already happened and has been thoroughly discussed in committee. AACET did not operate a bogus insurance operation. The dental insurance through Delta Dental and vision coverage through Superior Vision were available to members. AACET didn’t sell the insurance or issue policies or make any money off this. It was just a way that members could get quality insurance at a lower cost, which is important because correctional officers don’t make much money.
There came a point when AACET hired a licensed, certified agent to advise and do the paperwork necessary to switch to being self-insured. Nothing changed for the members, except that the cost of the policies went down. That’s the whole reason the change was made. To become self-insured, AACET relied in good faith on professional advice and did not know that the advice conflicted with state law.
The consent order talks about the members being switched over to policies through EBD. That has already happened. Throughout all of this, the members weren’t hurt in any way, and all the claims have been paid. You also mentioned a letter being sent to Kevin Murphy. That’s true, but I have not seen it. I am aware that it talks about $495,000 being paid to AID from the insurance trust. That’s also true, but it has not happened yet. Keep in mind, those funds were collected as premiums that were not paid out in claims. That money came from AACET members. It’s not public money, which is why AID must use the money only for the benefit of AACET members. AID has not explained what that use will be.
UPDATE: Gov. Asa Hutchinson issued a statement Tuesday in response to my question. He seems fine with Murphy, despite the finding that he profited from an illegal insurance company that charged state employees he supervised, not to mention his dubious past as a Correction Department employee. Is he realy in line to be a “secretary” of a major department in Hutchinson’s “transformed” government. If so, forget improvements. His statement:
“This situation, which I’ve been aware of for some time, was handled responsibly. The Insurance Department did its job, and Director Murphy has responded appropriately. A Consent Order has been entered into by both parties, and AACET members were moved to plans under the Employee Benefits Division at the Department of Finance and Administration.”