Aon Public Liability Insurance

Aon Public Liability Insurance

Unions hope to oversee PEIA

Several of West Virginia’s largest unions are proposing that they take control of the state’s mammoth health insurance plan for public employees.

The proposal includes some hurdles that will likely prove controversial.

It calls for an immediate downsizing of the health plan’s unfunded liability estimate from $7.8 billion to $4 billion. The unions commissioned a study that suggests the state’s estimate of the funding gap has been overstated.  

It also calls for a commitment by the state to make a $150 million contribution toward paying down that debt in the first year and to make subsequent contributions of that amount plus 2 percent per year over the next 19 years.

A chart accompanying the report shows the state’s required contribution toward retiring the debt in year 20 as $218 million.

At the same time, the unions propose, the state would continue funding current public employee health benefits as it does now.

The chart shows the state’s total contributions as nearly $359 million in the first year and rising to more than $1.9 billion by the 20th year.    The group making the proposal includes the West Virginia chapter of the American Federation of Teachers but not the other major teachers union, the West Virginia Education Association.

A consultant hired by the union group suggested in a three-page memo to Gov. Joe Manchin that the state should begin putting money into a union-managed trust fund.

The unions essentially would replace the finance board that oversees the state’s Public Employees Insurance Agency. That board’s membership is defined by state statute.

“We would create an irrevocable trust for the entire PEIA program and not only would the unions assume control of the trust, but they would also by virtue of that assume the liability,” said Bob Brown, the executive director of the West Virginia School Service Personnel Association, one of the union sponsors of the report.

Brown’s group hired Chicago-based Aon Consulting to do the study. The other unions include the local chapters of the American Federation of Teachers, United Mine Workers of America, Communication Workers of America, and American Federation of State, County and Municipal Employees.

Aon said that eventually “investment risk would be fully transferred to the unions” and that a “greater portion of the responsibility to manage benefit plan expenses would fall on unions, providing them greater incentive to manage benefit programs in the most prudent fashion possible.”

To manage the program, unions “would have greater control over benefit plan structure, coverage levels and associated plan expenses.”

The program, presumably, would fill the current role of the PEIA Finance Board, which sets rates and benefits for active and retired public employees. That would potentially help state politicians by taking the heat off them when it comes time to raise insurance costs or cut benefits.

Aon’s report was released the same day PEIA began a series of public hearings about insurance rate increases and other changes that are being fought by state employees unions.

But not everyone was immediately for the idea.WVEA President Dale Lee said he did not know about Aon’s report until Monday. He said while he is for giving unions more say over health benefits, he was hesitant to support the consultant’s plan without more consideration.

“Now the ownership is to the unions to manage this fund, the state would be under no obligation to put additional funds into this,” Lee said. “I’m fairly hesitant of relieving the state of responsibilities without looking into the proposed plan more closely.”

State officials had only a limited response to the unions’ report, saying it deserved closer study.

The report says the state is overestimating by nearly $4 billion the liability it faces to cover future retiree health care costs.

The calculation dispute is over non-pension benefits promised to teachers and other public  employees once they retire. These so-called “other post-employment benefits,” also known as OPEB, reflect mostly health care and life insurance.

The unfunded liability is a moving target that the Public Employees Insurance Agency recently estimated at $7.8 billion.

The unions say those benefits will cost the state far less, only about $4 billion.AFT-WV president Judy Hale said the $4 billion figure undercuts the state’s rush to increase insurance premiums and other health care costs to bring down public employee health care costs.

“If PEIA’s figures with respect to the OPEB liability are wrong, then what is to say that the figures they are using to justify the changes to the PEIA plan are not fatally flawed as well?” Hale said.

Aon’s figures are open to revision, the company said, calling the $4 billion figure a “preliminary discussion.”

The main difference between Aon’s estimates and the state’s own are that Aon anticipates less inflation from medical costs.

“As a result, if these assumptions are used in the analysis of what is required to fully fund the program, an overestimation of the expense of the state’s OPEB benefit plans and distortion of the true size of the overall liability will occur,” Aon’s report found.

Aon has asked the state for more data to revise its analysis.

But the report says that if its initial estimate is accurate, then the state can pitch in $150 million plus a 2 percent annual increase for inflation and pay off its liability in 20 years. That’s a decade sooner than state officials have discussed.

After that, the report suggested, the unions should take over the state insurance program.