Monday, June 27, 2011

Budget Amendment Puts Small School Districts at Great Risk

Budget Amendment Puts Small School Districts at Great Risk

By Kathryne McGowan

In politics, lawmakers are often warned to heed the “law of unintended consequences.” Laws adopted without sufficient deliberation and public input often create unforeseen problems, wreak economic havoc, cause political turmoil, and even hurt people that they are meant to protect.

A little-known amendment inserted into the budget bill now on Governor Scott Walker’s desk does exactly that. This amendment, which its supporters cynically call the “WEA Trust Amendment,” was rushed into the budget bill on the last night of deliberations and targets our private, not-for-profit company, the WEA Trust.

The amendment undermines a successful business model while taking yet another slap at Wisconsin’s smaller school districts. As if they didn’t have enough to deal with already.

The WEA Trust was created by public school employees specifically to provide health insurance for school districts. Alone, many of these districts were too small to negotiate effectively with large, national carriers for quality insurance at affordable rates—precisely the problem small businesses and farmers face today.

To stabilize rates and manage volatile risk for small districts, the WEA Trust “pools” more than 200 school districts together and insures them as a group—thus giving them enough healthy members to cover those who get sick or hurt. Schools can choose to be part of the pool or be individually rated. But this pool won’t work if each school can look at their claims experience and then decide whether to stay or leave. That is because employers with better than average experience will leave the pool and the rates for everyone else will have to rise to the new higher average. This is known as the death spiral. Each successive round of adjusting rates simply encourages the best of the remaining risk to exit. Voluntary pools like this simply don’t work—in Wisconsin or anywhere.

The budget bill on Governor Walker’s desk essentially ends the practice of “pooling.” The WEA Trust will be forced to adapt to survive. There will be winners and losers.

What happens when a school district with 100 employees suddenly sees two of them fall chronically ill? We’ve run some numbers to show their rates could as much as double in one year—regardless of who insures them.

We urge Governor Walker to veto the amendment. But it’s not just an appeal on behalf of our Wisconsin-based company. It’s an appeal to preserve a market-based insurance solution—a solution that has successfully served small school districts and their employees for 40 years.

Participation in our pool is voluntary. This law effectively takes this option off the table. The model might even serve Republicans looking for a market-based model for other small, private sector groups.

The question, of course, is why is this amendment that has no public debate or scrutiny necessary? School districts and their employees have already contributed additionally to their insurance and retirement. And now, at no fault of their own, they may potentially see yet another hit in their already strapped budgets.

There will be more school districts that suffer from this amendment than the politicians expect. The consequences of this amendment are real. This is bad business. And it should be vetoed.

Kathryne McGowan is the Vice President for Marketing and Product Development for the WEA Trust.

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