Behind the rhetoric: The WEA Trust and school health care costs

Before Wisconsin Gov. Scott Walker sharply curtailed collective bargaining for most public employees -- sparking national debate and an historic gubernatorial recall election -- most people had never heard of WEA Trust.

But as the June 5, 2012, election approaches, Walker has highlighted the Madison-based health insurance company in making the case to hold onto his job.

Walker says collective bargaining enabled WEA Trust, which is affiliated with the state’s largest teachers union, to dominate the health insurance market for school districts -- and fleece taxpayers with excessive premiums.

WEA Trust maintains that it earned its business not because it had an unfair advantage, but because it provided superior coverage and service.   

Let’s sort out some of the rhetoric -- and take a look at Walker’s claim that his collective bargaining changes saved taxpayers in school districts that used WEA Trust tens of millions of dollars.

WEA Trust’s market dominance

WEA Trust gets its name from Wisconsin’s largest teachers union, the Wisconsin Education Association Council, which is working against Walker in the recall. WEAC
founded WEA Trust, a not-for-profit company, in 1970 with the aim of helping small school districts pool together in order to buy more affordable health insurance, according to the company.

WEAC, which represents other school employees as well as teachers, does not own WEA Trust. But there are ties.

The union president selects one member of the company’s 11 board members; all 11 board members are current or retired public school employees; and currently, according to WEA Trust spokesman Steve Lyons, four people serve on both the WEAC board and the WEA Trust board.

WEA Trust isn’t the only health insurer that serves school districts, but there’s no debate it has dominated the market.

In the 2010-2011 school year, about two-thirds of Wisconsin’s 424 public school districts bought their health insurance from WEA Trust, according to Barry Forbes, associate executive director of the Wisconsin Association of School Boards. The percentage was even higher in earlier years, he said.

Lyons, the WEA Trust spokesman, said the company earned its business by providing outstanding coverage and customer service. He cited the company’s ratings in national surveys of patients and consumers, which exceed those of other Wisconsin insurers and the national average.

WEA Trust provides "great coverage, I won’t question that," said Bob Tess, executive director of human resources for the Oshkosh Area School District. "They covered everything, and they were good at it."

But until Walker signed Act 10, collective bargaining also played a major role in determining which company provided health insurance to school districts. In other words, local teachers unions had a major say in which insurer a district used.

Choosing an insurer

Before Act 10, which took effect in 2011, some contracts between a school district and its teachers union allowed the district to unilaterally choose a health insurer, but many gave the union a greater say.

Some contracts required that the district and the union agree on an insurer; some required that the selected insurer offer coverage at least as good as WEA Trust’s; and some contracts actually named the insurer, such as WEA Trust, that had to be used.

Collective bargaining helped the company hold contracts with school districts for years at a time, without a district even going out for bids. Local WEAC unions valued their health insurance so much that many were unwilling in contract bargaining to switch to another carrier.

"It was difficult, in that environment, to change carriers," said Don Hietpas, chief financial officer of the Appleton Area School District.

New health insurance savings

WEA Trust’s market dominance led to accusations that the company was charging unnecessarily high rates that were a burden on taxpayers, given that school districts -- and not school employees -- pay the lion’s share of health insurance costs.

Those accusations were put to the test after Walker signed Act 10. Many school districts dropped WEA Trust, or they stayed with the company, but negotiated less expensive deals.

Indeed, about a year after the law was signed, WEA Trust said about a third of its business went away, resulting in a loss of 8 percent of its revenue, or nearly $70 million.

Walker said the new freedom to choose carriers saved 52 school districts roughly $30 million, many of them by dropping or renegotiating their deals with WEA Trust.

When we spot checked some of the districts Walker cited, we found substantial savings -- but that the definition of savings varies from district to district.

These three districts were cited by Walker as having achieved the largest savings:

Appleton: Walker said the district saved $3.1 million in 2011-2012 by renegotiating its contract with WEA Trust. Ironically, WEA Trust trumpeted the same news on its Facebook page.

Hietpas, the chief financial officer, confirmed the district spent $3.1 million less on health insurance from the previous year’s cost of nearly $30 million -- without changing any aspects of the coverage.

Menomonee Falls:  Walker said $2.4 million was saved -- half in 2011-2012, half in 2012-2013 -- by the district changing from WEA Trust to Humana.

But that figure is overstated.

About $600,000 of that total was saved by employees paying a higher share of the premiums, said business manager Jeffrey Gross. That’s a different pot of money, in terms of how Walker counts the savings he attributes to Act 10.

Of the remaining $1.8 million in savings that Walker claimed was due to the switch from WEA Trust to Humana, some was from raising deductibles for employees, but most was achieved through Humana’s lower rates, Gross said.

Menomonee Falls didn’t directly use Act 10 -- which didn’t take effect until June 2011 because of court challenges -- to change carriers. But it was clearly a factor, as the district signed a new two-year contract with the teachers union in May 2011. Gross said the district had been with WEA Trust for at least 20 years.

Oshkosh:  Walker said the district is saving $3.77 million over three years by switching from WEA Trust to WCA Group Health Trust -- $774,000 in 2011-2012, $1.3 million in 2012-’13 and $1.7 million in 2013-’14.

Nearly all of the $3.77 million, however, is estimated.

Tess, the district’s business manager, said the district spent $773,000 less in health insurance in 2011-2012 by changing to WCA, with virtually no changes to coverages.

But in the next two years, the price of health insurance is expected to increase, which means the district is estimating the increase over that period will be $3 million less with WCA than it would have been with WEA Trust. Those estimates, however, are based not on hard numbers but on projections of how much the companies would raise their rates.

Tess said he thinks the estimated savings of $1.3 million in 2012-2013 is reasonable, but the $1.7 million in 2013-2014 is softer, given that the projections are less reliable as time passes. "I don’t even mention the $1.7 million often," he said.

We also checked some other Milwaukee-area districts.

Shorewood: The Milwaukee suburb stayed with WEA Trust when it cut its price in a competitive bidding process for 2011-’12, saving $325,000. That was before Walker’s legislation, however. At that time, the district could change carriers only if the insurer matched the district’s health insurance plan design. That was under the terms of its labor contracts.

For next year, 2012-’13, the Shorewood board dropped WEA and expects to save $472,000, according to Mark Boehlke, director of business services for Shorewood schools.

Kettle Moraine: The Waukesha County district saved $600,000 for 2011-’12 by switching from WEA Trust to Humana, Superintendent Patricia Deklotz said.

The district had long sought union sign-off to switch carriers, but under the Walker collective bargaining changes did not have to negotiate the switch.

Kettle Moraine was not on Walker’s list.