HOUSTON - The Houston Independent School District and its employee benefits firm illegally profited from a deal they share with the Dallas school district and two others, 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 health plan, which covers 20,000 employees, the Houston Chronicle reported Thursday 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 agency wrote in a letter it sent to Mercer this week.

"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 company said in a written statement. "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."

"If we determine that we are entitled to a refund because we paid for services that did not meet their original intent, we will aggressively pursue those funds," Mr. Martinez said. "The taxpayers of Dallas deserve a full accounting."

In 2001, then-Superintendent Mike Moses recommended to trustees that Dallas and Houston - the state's two largest districts - let Mercer draw up a health benefits plan, find a provider, negotiate premiums and manage the plan with hope of saving the districts money.

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