Article by Erik Smith. Published on Monday, March 07, 2011 EST.

Convoluted System Now Operates 1,000 Insurance Pools – But Change Would Cut Into Union Business

Seattle’s Roosevelt High School.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, March 7.—Washington taxpayers could save a bundle if teachers and other school district employees got the same kind of health benefits as everyone else in state government – as much as $90 million a year, according to a new report from the state auditor’s office.

            Washington’s astonishingly complex system of K-12 health benefits means taxpayers pay plenty for administrative overhead, the report says. More than 1,000 separate groups of employees choose from 200 insurance plans at a total cost of about $1.2 billion a year. Well, what if you lumped them all together into a handful of pools? What if you had just a handful of insurance offerings?

            That’s how you save $90 million.

            “By the way,” said Larissa Benson, director of performance audits for the agency, “$90 million is about enough money to hire 1,000 teachers, just to put that in context.”

            It’s not exactly a new idea. Business groups and lawmakers have been talking about doing something along those lines for years. And the unions hate it. They say the current system is so complicated that it would cost even more to do anything else. And of course it should be noted – they sell insurance.

            For now it’s one of those big-picture concepts lawmakers have been talking about during this quiet period before the storm, before they roll up their sleeves and begin the nasty work of cutting billions in state spending from their next two-year budget. They’re waiting for a tax-revenue forecast March 17. And in the meantime, all the old standbys are being trotted out and dusted off. “I think the idea of moving the teachers is picking up some momentum,” said state Rep. Doug Ericksen, R-Ferndale.

            What the auditor’s report does is take that old idea and offers lawmakers a practical way to do it.

            Would Create a Separate K-12 System

            Right now the state’s 100,000 school district employees have a radically different system than most other public employees. Rather than buying their insurance through the state’s centralized authority, the Public Employees Benefits Board, each of the state’s 295 school districts buys insurance separately. And in each of those school districts you have separate insurance pools for teachers and various groupings of school district staff.

             The bulk of the business goes to the Washington Education Association, which offers six different plans for its members in conjunction with Premera. The actual decision is made at the bargaining table, but the unions drive the choice – and WEA has 55 percent of the market.

            For years, lawmakers have been talking about moving teachers and other K-12 staff to the Public Employees Benefits Board. A 2004 state study indicated that 10 to 15 percent could be saved in administration if just a few plans were offered, translating to an overall savings of 1.4 percent to 2.1 percent in overall health costs.

            But the auditor’s report says that wouldn’t do the trick. Teachers and school-district staff operate on a different schedule, and their health needs are different. And once an insurance risk pool exceeds 50,000 people, additional savings aren’t great.

            The answer? A separate system for K-12 employees.

            Streamlining the Business

            The auditor’s proposal, developed by an independent consulting firm, the Hay Group of Arlington, Virginia, would establish a separate insurance program for K-12 under the state Health Care Authority. It would offer a standard set of insurance policies, much as is done for state employees and other public workers already. It would help reduce a wide disparity in health premiums paid by K-12 employees, which vary district to district.

            As for that $90 million in savings, most of it comes at the local level, not at the state level – meaning that it wouldn’t directly reduce the big hole in the state budget. But it would give school districts a bit more money to play with.

            The proposal gets high marks from business groups, which have been making the same argument for years. Until now, the Washington Roundtable, an association of the state’s largest businesses, has advocated moving the K-12 employees to PEBB. But Steve Mullin, president and CEO of the organization, said the auditor’s report offers an intriguing refinement to the idea.

            “We’re not surprised by the auditor’s findings, and in an environment where we are trying to reinvent government, this has got to be high on the list of savings,” he said. “Here you have enough to pay for 1,000 teachers. Given that the state is trying hard to maintain essential services, this should be high on the list of reform initiatives for the session.”

            Too Complicated to Change, Unions Say

            At a hearing last month of the Joint Legislative Audit Review Committee, union representatives said the whole idea sounds like it was sketched out on the back of an envelope. The audit report ignored huge startup costs for the system, said Randy Parr of the Washington Education System – somewhere on the order of $475 million to $575 million.

            First you have the cost of establishing insurance reserves. And then, if you have a standardized statewide program, you can’t count on local levy money from every school district – so state payments would have to increase. And then the state would forego revenue collected from premium taxes. Parr said overhead costs for the WEA plans are substantially lower than for plans administered by the state. So the upshot: Taxpayers would pay more, not less.

            “We believe the free market approach has served education very well,” he said.

            Union members like the idea of separate programs for various classifications of employees – lump ’em together and you get “tremendous internal friction,” said Doug Nelson of the Public School Employees Association, an affliate of the Service Employees International Union.

            “Food service employees who have a pool don’t want their money to go to the bus drivers, and how do I know that? Because I’ve tried to put insurance pools together and they’ve raised holy hell.”

            Big Money at Stake

            You have to expect a battle on this one, advocates say – especially when association health plans are involved. There’s plenty of money at stake.

            For its part, the auditor’s office says the startup-cost argument is overblown. Insurance reserves can be amassed over time. Levy money can be used in each school district to bargain down costs for members.

            And right now, state Sen. Steve Hobbs, D-Lake Stevens, says he’s working on a bill that would enact the auditor’s recommendations. It’s not as if he has to fear that the union will go after him. The union already has made its feelings known, by spending tens of thousands of dollars to knock him out in last year’s election.

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