Pa. legislators eye $200M from nonprofit malpractice insurer

Desperate times call for naked money grabs.

That seems to be the mode of operation in Harrisburg and other state capitals during budget season.

For the second year in a row, Pennsylvania legislators have set their sights on $200 million of the surplus at a nonprofit medical malpractice insurance company in Blue Bell that was founded in the 1970s to serve as a last-ditch insurer for doctors in the state.

Even though a 1975 state law called for the establishment of the Pennsylvania Professional Liability Joint Underwriting Association (JUA), it is an independent nonprofit entity under IRS code section 501(c)(6), which is meant for membership organizations, not a part of state governments. The JUA's members are the 621 companies that write all forms of liability insurance in the state.

State officials found that out the hard way last year when they looked for what the budget law called the JUA's "unappropriated surplus" and couldn't find the organization's bank accounts.

"I had to explain that the JUA is not part of the state," said Susan Sersha, the organization's president.

If the seizure of money from the JUA were to succeed, it could create a precedent for the state to take money at other state-created nonprofits, such as the billions in endowments at Pennsylvania State University or the University of Pittsburgh.

"It's apples to oranges. Those examples are not running a multimillion-dollar surplus," said Jenn Kocher, spokeswoman for Senate Majority Leader Jake Corman (R., Centre). "Overall, it's just not the same."

In recent years, Pennsylvania has made a habit of using onetime budget actions to pay for recurring expenses, said William Glasgall, director of the state and local program at the Volcker Alliance, a nonprofit founded in 2013 by former Federal Reserve Board Chairman Paul A. Volcker to build public trust in government.

In the three fiscal years ended June 30, Pennsylvania transferred $1.03 billion from special revenue funds to the general fund, said Glasgall, who is working on a 50-state study of these tactics. Last year, in addition to calling for the $200 million from the JUA, which it did not get, the enacted budget required the transfer of $65.5 million from six funds that the state did control.

"It's basically just a way of looking under the couch cushions for spare change without solving the underlying problem, which is that the revenue that the state collects from taxes and fees and fines and whatever is not adequate to pay the bills that the state is running up," Glasgall said.

This year's attempt to grab $200 million from the JUA, part of a revenue plan passed by the Pennsylvania Senate last month, did away with the pretense of borrowing the money and repaying it over five years (The JUA filed a federal lawsuit in May to block that attempt.)

The bill says that the JUA must pay the state $200 million by Nov. 1. If it does not, the bill abolishes the JUA and turns the organization's $268 million surplus over to the Pennsylvania Insurance Department, which would "administer" the business and annually transfer "excess" surplus to the state.

The main argument to justify the move is that medical malpractice reforms fixed the crisis-prone market. The JUA has "outlived most of its functions," Kocher said.

Even if that were the case, the state does not have a free hand to do what it wants with a private-sector entity it created.

Taking the JUA's surplus would be the same as taking the surplus of any "insurance company or bank or corporation chartered by the commonwealth" and taking "reserves or other funds simply because the General Assembly believes that the target of its action has more money than it needs," Robert L. Byer, a Duane Morris lawyer representing the JUA, wrote in a July 13 letter to state officials.

What attracted lawmakers to the JUA is evident in its financial statements. Its earned premiums have fallen to $3.3 million last year from $36.6 million in 2004, while its net assets have soared to $268 million from $48.4 million over the same period.

"The volume of the JUA goes way down, and then it skyrockets. It's happened before," Sersha said.