Two things are clear when it comes to the voluntary employee benefit associations run by affiliates of the National Education Association and American Federation of Teachers that provide health insurance to teachers in traditional districts. The first: That they are often prone to mismanagement, both because of the tendency of the trusts to underestimate hard-to-predict healthcare costs and because they aren’t required to file timely financial statements the same way required of private-sector health insurance providers. As a result, the trusts can end up being troublesome for the unions, along with teachers, and the traditional districts that pay into them. The first point have been made clear over the past five years, first as the national NEA had to take over its once-influential Indiana affiliate after its VEBA went insolvent, and then, as its Clark County, Nev., local revealed that its VEBA was on the brink of collapse.
The second? That the VEBAs can create problems for districts, taxpayers, and children even when they are solvent. Why? Because NEA and AFT units have critical sway over the insurance trust through the board seats they hold, they can complicate the efforts of districts to engage in thoughtful cost-saving measures that can help taxpayers, teachers, and children alike. The San Diego Unified School District learned this the hard way four years ago when its proposal to ditch its deal with the Southern California Schools Voluntary Employees Benefits Association (and save $10 million in healthcare costs) was scuttled after the NEA’s San 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.
As Dropout Nation Wisconsin and in Alaska where NEA-controlled insurance trusts deal with shaky finances and efforts by state legislators to cut healthcare costs.
The Wisconsin Education Association Insurance Trust, which is controlled by the NEA’s Dairy State affiliate, reported a loss of $4.5 million for the 2012 fiscal year, according to its filing with the Internal Revenue Service. The loss is more than a two-fold greater than the $1.8 million loss it reported in the previous fiscal year. While the Wisconsin VEBA’s expenses decreased by 19 percent (from $784 million to $635 million) between 2011 and 2012, revenue also decreased by 19 percent (from $782 million to $630 million) in the same period. In any case, the insurance trust doesn’t generate enough revenue to cover costs. How bad are things for the trust? The Wisconsin VEBA had just $10 million in cash by the end of the fiscal year $4 million less than it had at the end of the previous period; over the past two years, it has burned through $17 million in cash, a burn rate of $8.5 million a year. At that rate, it is likely that the Wisconsin VEBA will have less than $2 million in cash on hand by the time it reports its 2013 financials.
The Wisconsin VEBA’s fiscal condition has been terrible for some time. Its revenue has declined by 31 percent between 2009 and 2012, while it has swung from a $42 million surplus to two consecutive years of losses in that same period. Some of the financial woes can be traced to the impact of Gov. Scott Walker’s successful effort to abolish collective bargaining and end the ability of the Wisconsin NEA to force teachers to pay dues into its coffers; one side affect of Act 10 is that districts were no longer forced to buy health insurance from the union’s VEBA, and could shop around for cheaper plans. But the insurance trust’s financial condition was deteriorating even before Walker succeeded in his effort to end forced bargaining. The Wisconsin VEBA had just $6 million in cash on hand in 2009 before it garnered a $20 million windfall the next year.
The only good news is that the Wisconsin VEBA can draw down its $396 million in assets if necessary. But if the insurance trust doesn’t get its finances straight soon, it could end up insolvent. Considering that the Wisconsin NEA itself is already struggling financially, this could end up forcing the national NEA to deal with another Indiana-style meltdown.
Meanwhile in Alaska, the VEBA controlled by the NEA affiliate successfully avoided the fate suffered by its Wisconsin counterpart — at least for now.
According to its IRS filing, the NEA-Alaska Health Plan Trust Fund generated a surplus of $3 million for its 2012 fiscal year, a reversal from the $349,447 loss it suffered the previous year; the trust has lost money for all but two of the last five years. The VEBA generated $115 million in revenue, a 10 percent increase over the previous year; the revenue growth more than covered the seven percent increase in expenses over the past year. This doesn’t mean that the insurance trust’s financial condition is in great shape. The VEBA must now deal with $13.4 million in costs on the books that have been “incurred but not reported”, more than the $10.9 million in such expenses it had on the books during the previous year.
At least the Alaska VEBA knows that districts and teachers will continue to pay into its coffers. Why? Because the insurance trust, along with the NEA affiliate that runs it, has successfully kiboshed Senate Bill 90, which would have consolidated health insurance for traditional districts in the state under one state-controlled plan. An analysis conducted for state legislators concluded that the proposed plan would have saved taxpayers as much as $65 million a year — or as much as 24 percent of the $264 million spent annually by districts and the state every year on healthcare costs. But thanks to opposition from the Alaska NEA and its VEBA, along with that from several districts (which likely realized that it would face the ire of the union if it supported S.B. 90), the bill died in committee.
Certainly none of this is shocking. NEA affiliates, along with those of the AFT, have long ago have shown that when it comes to money, they aren’t all that concerned for the teachers they claim to represent or for the children whose parents bear the costs of education.