Last month, Dropout Nation focused on the questionable fiscal conditions of some of the National Education Association’s affiliate-run Voluntary Employee Benefit Associations, which provide health and disability insurance coverage to teachers in traditional districts. Three insurance trusts – including the one in Indiana that led to the downfall of the NEA’s once-influential affiliate there – were particularly troubled, with the one in Alaska operating at unsustainable losses.
So it isn’t surprising to learn this week that the insurance trust run by the NEA affiliate in Clark County, Nev. — home to the Vegas Strip and the nation’s fifth-largest traditional district — may face insolvency. After losing $3.6 million since the beginning of its 2012-2013 fiscal year (and likely losses of more than $15 million between 2010-2011 and 2011-2012), the Teachers Health Trust has just $547,000 in reserves and owes $4 million to the Bank of Nevada (which extended it a $5 million credit line). This means that the trust has blown through most of the $7.3 million in reserves it reported in its 2010-2011 filing with the Internal Revenue Service. Although the trust had $29 million in investments (as of 2010-2011), it is quite likely that it has had to sell at least some of them off to stay afloat. [Although the insurance trust argues in a recent statement that it hasn't had to resort to such drastic measures (not shocking since its executive director, Peter Alpert, has a $273,633-a-year job on the line) the union is telling the rank-and-file a different story.]
Unlike the NEA’s Indiana trust, the Clark County affiliate’s VEBA wasn’t wrecked by spectacular mismanagement and bad investing in risky hedge fund investments. What has done it in is the apparent unwillingness of the NEA affiliate to increase rates it charged to the Clark County school district (which picks up 83 percent of the tab for healthcare costs) and to rank-and-file members. The trust’s revenues increased by just 8.5 percent between 2007-2008 and 2010-2011, even as benefits payouts increased by 23 percent. Such lack of prudence on the finance front will now likely result in rank-and-file members (as well as the district) paying dearly to keep the trust afloat. Last year, the insurance trust began pushing to charge a 35 percent increase in premiums on its high-end Diamond Plan and a similarly large increase for those on its Platinum Plan, much of which would be borne by the Clark County district. The district, which unsuccessfully attempted to get the NEA affiliate to allow it to start buying healthcare from other providers, hasn’t been willing to play along.
The NEA affiliate can’t bail the trust out either. The union, which generated $4.4 million in 2010-2011, according to its IRS filing, last reported that it had $2 million in reserves. So the trust has to try other measures. Its move to hire insurer American Fidelity Assurance Co. to force members to sit through a “benefits review”, ostensibly to crack down on fraud, seems even more like a desperate “shakedown” as one NEA affiliate rank-and-file member proclaims it to earn money (especially since the insurance company is likely kicking back fees to the trust in exchange for access).
Certainly the Clark County trust isn’t the only NEA-controlled VEBA with a shaky financial condition. NEA and American Federation of Teachers-run VEBAs are prone to fiscal mismanagement, largely because of the lack of transparency to either members, districts, or to taxpayers. Unlike publicly-held healthcare firms, who must report earnings and losses to their shareholders and the U.S. Securities and Exchange Commission within a couple of months of ending a fiscal quarter or year, insurance trusts are not required to report their financials in a timely manner the same way demanded of private insurers. Add in the conflicts of interest that can arise when NEA and AFT affiliates controlling the very healthcare providers that also serve their rank-and-file members, and one can see how fiscal mismanagement can become the norm.
Meanwhile for teachers and districts in other states, the high cost of NEA- or AFT-controlled insurance trusts can arise in more ways than just the risk of insolvency. Because an NEA or AFT (or in some cases, when the trust is controlled both by it and another union) has critical sway over the insurance trust through the board seats they hold, it can complicate the efforts of districts to engage in thoughtful cost-saving measures that can help taxpayers, teachers, and children alike. San Diego Unified School District learned this the hard way three years ago when its proposal to ditch its deal with the Southern California Schools Voluntary Employees Benefits Association was scuttled after the NEA’s Sand Diego local and the California School Employees Association (which, along with the NEA’s California Affiliate, and an AFT local, hold eight of 12 seats on the VEBA’s board), opposed the plan. Even though San Diego may have been able to save $10 million in premium costs, the NEA’s and CSEA’s opposition has all but ensured that the district will continue to be in the position of having little sway over its healthcare costs in spite of being the single-largest customer of the VEBA (contributing half of its $356 million in revenue in 2010, according to its most-recent filing with the IRS) and holding a seat on the VEBA’s board.
But, again, none of this is shocking. NEA and AFT affiliates have long ago have shown that when it comes to money, they aren’t all that concerned for the teachers they claim to represent.