Sunday, December 4th, 2022
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WEA Trust, the teachers’ union-created insurance company that once had a lock on hundreds of school districts in Wisconsin, just announced it is terminating its health insurance business by the end of this year.

Quite oddly, a spokesperson insisted in a story in a Madison newspaper that Act 10 had nothing to do with the decision.

No one with a memory or a calculator – or access to reports written by the Wisconsin Office of the Commissioner of Insurance over the years – believes that.

Act 10 killed the teacher’s insurance plan. But there are a few other subplots going on here, and an interesting story about how the plan lasted as long as it did.

The Wisconsin Education Association Council (WEAC) created the not-for-profit WEA Insurance Trust in 1970.  Union bosses over time began to – and still will – offer some other sorts of insurance. But the Trust’s main business has always been group health coverage for public-sector employees.

Basically, for decades the union used its power at the bargaining table to force school boards to use WEA Trust insurance for teachers, even though it was way more expensive than other options.

At its peak, WEA Trust had hundreds of employees in its building in Madison. Approximately two-thirds of 424 school districts were buying its insurance in 2011.

That was the year Act 10, Gov. Scott Walker’s signature legislation that essentially eliminated public-sector collective bargaining, gave school boards – and the taxpayers they are supposed to represent – the ability to look for better rates.

They didn’t need to look far. The impact was immediate in many districts. The Milwaukee Journal Sentinel reported that WEA Trust lost about a third of its business and 8% of its revenue in just the first year after ACT 10 was signed.

Some districts saved millions in that first year alone. Appleton reportedly saved over $3 million per year by renegotiating its WEA Trust contract. Menomonee Falls reportedly saved approximately $2 million per year as the dual result of a switch to Humana and the fact they could finally (also as a result of Act 10) require district employees to pay their fair share.

WEA Trust leaders did try to pivot after Walker put a halt to the gravy train. They tried to market their health insurance to other public employees – not just teachers – and more recently bought the Health Tradition Health Plan from Mayo Clinic Health System, which catered to a small number of private employers.

In the end, though, they were simply unable to compete with other providers. Unions don’t generally like the marketplace.

A recent WEA Trust press release blamed the decision to shut down the health insurance business on “challenges related to healthcare consolidation, the costs associated with the global pandemic and the drop in the stock market.”

That’s disingenuous. If Act 10 had never happened, WEA Trust would surely still be offering health insurance. The other factors are part of the story – but not exactly in the way the WEA Trust seems to suggest.

There is indeed ample evidence that the health insurance sector continues to consolidate. Some critics such as the American Medical Association, moreover, argue consolidation enables “anticompetitive behavior” and causes “competitive harm.”

Possibly – but it’s the ultimate irony if WEA Trust is somehow arguing a lack of competition killed its health insurance business.

What happened is exactly the opposite. Competition resulting from Act 10 brought down the union.

The number of people covered by the plan plummeted after Act 10.

According to the Department of Employee Trust Funds, there are currently only about 55,000 “members,” a far cry from the 127,000 who, according to an old Journal Sentinel story, had coverage in 2011.

Reports from the Office of the Commissioner of Insurance provide the rest of the story.

“In 2011, there were major developments in Wisconsin that affected the company’s key market,” according to an Office of the Insurance Commissioner report written in early 2017. “These changes had an adverse effect on the company’s operations through both decreased membership and a shift to lower-cost plans by many of the remaining groups.”

There was a very rapid initial decline.

“Net earned premiums decreased from $770 million in 2011 to $496 million in 2016. End-of-year “capital and surplus” also decreased quickly from $232 million in 2012 to $140 million in 2016.  The company “experienced a trend of significant net losses,” with a peak loss of $49 million in 2014.

They were able to stay in business because their surplus position remained in excess of the statutory minimum. I don’t know if that is still the case because a call to a spokesman for the Trust was not immediately returned – all of which leads to the final factor mentioned in the press release, the stock market.

By 2020, premiums were up to $645 million (perhaps due to the acquisition of another insurer) and total assets were up to $793 million. Capital and surplus were also up to $197 million due at least in part to the stock market.

But all that was illusory.

“Operational profitability” was still “yet to be attained,” according to the 2020 Commissioner of Insurance examination.

The stock market is still higher than it was a couple years ago. Recent decreases didn’t kill WEA Trust’s health insurance plan any more than consolidation or the pandemic. In fact, elevated stock levels made their balance sheet look a lot better than it should have in recent years.

That façade is now gone.

The benefits are clear. Scott Walker argued convincingly way back in 2012 that savings in 52 of the state’s 424 school districts alone already amounted to roughly $30 million “due to competition in health providers and design changes.” And that’s just a fraction of the savings.

The Kenosha Unified School District alone in 2019 saved at least $13 million in a single year by switching to United Healthcare, according to a story in the Kenosha News. Conservatively speaking, savings over the years in all school districts could easily be in the hundreds of millions of dollars – if not more. That’s money that districts could instead direct to the classroom.

Act 10 was a godsend for taxpayers and school districts that care about them. Eleven years after it passed, the savings continue to add up and – with the fortunate demise of WEA Trust’s health insurance plan – it’s abundantly and thankfully clear there’s no going back.

Mike Nichols is the president of the Badger Institute.

Read more at the Badger Institute.

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