Monday, March 14, 2011

WEA Trust's Red Herring

From the Journal Sentinel:
In freeing school boards from bargaining with employees over anything but inflation-capped wage increases, Wisconsin lawmakers might have opened the floodgates for districts seeking to drop coverage by the state's dominant - and highly controversial - health insurance provider for teachers.
WEA Trust, the nonprofit company started 40 years ago by the state's largest teachers union, currently insures employees in about two-thirds of Wisconsin school districts. The company's market dominance has dropped in recent years, although not as much as some school officials who complain about the company's costs would like.
This has only been a minor issue in the coverage of Wisconsin lately so many people may not even know that  many teachers are covered by an insurance company run by the teacher's union and that this particula insurance coverage is negotiated into contracts by the union.  It is not clear whether or not the insurance provided is competitively priced.  This article gives a good, short account of the situation with reaction from both sides, but it also includes this ridiculous piece of obfuscation:
But Steve Lyons, director of public affairs for WEA Trust,... also said in an e-mail that the insurer returns 93 cents out of every health care premium dollar back to the districts in health care coverage, while "some of our for-profit competitors keep more than 20 cents out of every dollar."
How much an insurance company spends on claims (also known as the medical loss ratio) may be good to know, but by itself doesn't tell you whether or not the insurance premiums are priced too high or too low, compared to the competition.

Imagine an insurance company that just paid every claim without checking it's veracity.  It would likely have low administrative costs since it didn't bother to check if any of the claims are real, meaning it would pay out much of every dollar it took in as a claim.  At some point it would have to raise premiums, since it would likely attract a higher percentage of phony claims once it developed a reputation for paying them no matter what.

If you think my example of the all-trusting insurance company is too ridiculous to shed any light on the matter, consider Medicare.  There is debate about exactly how much it costs to run Medicare, but many on the left argue that Medicare spends more than 93 cents of every dollar on claims, and yet high Medicare spending is one of the major items driving our large long-term deficits.

School districts purchasing insurance from the WEA Trust may or may not be getting the best possible price on insurance.  But don't be fooled by the quote above, knowing that they spend 93cents of every dollar on claims doesn't automatically make WEA Trust a good deal.

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