Teachers Health Trust losing millions a year, teachers told it will be 'belly-up in 60 to 90 days'

Health Trust CEO defends operations, cites Affordable Care Act as reason for looming cost increases

LAS VEGAS — The main insurance provider for Clark County School District teachers, the union-run Teachers Health Trust, has lost over $17 million since July 1, 2010 and is struggling with cash-flow problems, according to numerous union documents and sources.

Multiple union sources confirm that Clark County Education Association officials told members that the trust will be “belly up in 60 to 90 days” during a Jan. 29 union meeting. The Teachers Health Trust (THT) is operated by the CCEA.

THT Chief Executive Officer Peter Alpert, speaking to Nevada Journal, defended his organization's financial practices. 

"That's not true," said Alpert, responding to the union members' "belly up" claims. "All our financials are available on our website. There shouldn't be that type of [financial] discussion without health care people being involved."

THT's most recent audit report, obtained by Nevada Journal via public-records requests, shows that trust assets declined by more than $8.6 million in Fiscal Year 2012 and more than $5.5 million in Fiscal Year 2011. 

The trust then took out a $5 million line of credit on Nov. 15, 2011, of which $4 million was used up by June 2012. As of the audit date, June 30, 2012, THT had on hand, in cash and cash equivalents, only $546,921. Its line of credit had been extended through November 2013.

“All we’ve done,” said Alpert, “is take out a line of credit increase for working capital. It’s something every business does to try and improve its financial options.”

Reports presented at the Jan. 29 union meeting show that THT continues to bleed red, and had lost more than $3.6 million in the five-month period ending in November 2012.

THT’s 990 forms — the annual report that all federally qualified non-profits must file with the Internal Revenue Service — show the trust’s Net Assets peaking at $47.3 million in June 2010, but falling to $41.8 million in June 2011. By June 2012, THT’s net assets stood at $33.1 million, but that didn’t include $13 million in claims incurred, but not yet paid. Of the trust’s remaining assets, $6.4 million were in fixed assets such as its building and computers.

Sources informed Nevada Journal that THT is required to keep $5 million in cash reserves and dipping below that figure would lead to bankruptcy. Based on the THT’s rate of losses, Nevada Journal calculations and assuming no infusion of cash from sources such as a premium increase, a mortgage on its building or its national parent, the National Education Association, the 60-to-90 day time frame appears plausible.

In his latest report to union representatives, CCEA Executive Director John Vellardita acknowledged the status quo “no longer is sustainable,” as the trust’s reserves near exhaustion.

“THT has maintained operations based on a static revenue stream despite the growing medical claims,” wrote Vellardita. “This no longer is sustainable. THT has drawn down its reserves to very critical levels and need(s) this (premium) increase to become more financially stable.”

He also blamed the 2011 state budget for the trust’s financial plight. “[W]e are trying to get active in this upcoming 2013 Legislative session to fight for more funding,” he said.

Vellardita did not mention, however, the trust’s lavish compensation of its top officials. As first reported by the Las Vegas Review-Journal and confirmed by the THT’s 990 forms, Alpert’s take from the trust was over $540,000 in Fiscal Year 2010 — $275,148 as the trust’s CEO and $265,338 for serving as its subrogation lawyer.

Michelle Spellman, the trust’s chief operating officer, in 2010 took home over $357,000 in salary and other compensation, including the $183,004 she earned as COO. Alpert and Spellman also pocketed $273,633 and $187,653 in total compensation respectively in Fiscal Year 2011.

While salaries remain high, THT is slashing payments to CCEA from an average of $36,000 a month in Fiscal Year 2012 to just $8,000 a month in April 2013. Effective May 1, 2012, THT also terminated an $18,750-a-month public-relations contract with the CCEA’s Community Foundation.

THT has also made adjustments to its benefits program.

Teachers saw changes on their co-pays for certain prescription drugs, while CVS Caremark became the trust’s new Prescription Benefit Manager — increasing costs for some teachers dependent on survival drugs such as insulin.

In July, Alpert sent teachers a letter that said in coming years they can expect even higher health care costs for the trust because of Obamacare.

After noting the trust received its last increase from CCSD in 2008, he said “the cost of healthcare has continued to rise each year and in all likelihood will continue to do so in the future. It is anticipated that the Trust will also experience an incremental increase in costs due to the passage of the Affordable Care Act.”

In August negotiations with the district, the union asked CCSD for a $120 annual increase for each individual on the Platinum plan and a $192 annual increase for each individual on the higher-end Diamond plan. Teachers on the Diamond plan already pay an additional $600 annually to THT. CCSD pays THT a $538.87 monthly premium for each teacher in the trust.

At the end of 2012, there were 23,419 participants on the Diamond plan and 11,159 participants on the Platinum plan, according to enrollment data presented at the Jan. 29 CCEA meeting. Thus the premium increase could mean another $5.8 million for the union-run health trust.

THT sought this increase in August 2012, but the District blocked it, saying CCSD lacked the legal authority to unilaterally implement it. A settlement has yet to be reached.

One teacher, however, said THT was “just postponing the inevitable” by seeking the rate hike and that “if they (THT) don’t bring themselves down, Obamacare will bring them down in 2014.”

Alpert defended the fee increase and emphasized his own expertise.

“Whenever teachers see changes in coverage, even if it’s a small co-pay increase, there’s some frustration,” Alpert said. “Teachers should stick to teaching, and people who run the business should stick to running it.”

Even Alpert, though, has expressed financial concern in letters to teachers. In a written statement released after CCSD blocked the $120 or $192 premium increase per insured person, Alpert blamed CCSD's reluctance to allow the fee increase as threatening the trust's "financial stability."

"CCSD’s actions are not only damaging to the financial stability of the Trust, but they are a direct assault on the ability of teachers to receive the health benefits to which they are entitled, either by law, by contract or because it is the right thing to do," wrote Alpert. 

Edward Goldman, an associate superintendent with CCSD who also headed the district’s collective bargaining negotiations, told Nevada Journal in an interview last July that the district could get teachers a much better deal than THT provides.

“They were going to try to get us to raise the fees last year, but they knew we weren’t going to agree to it,” he said. “They couldn’t admit they were in trouble, because if you’re in trouble, we offer to take it over and farm it out.”

A fundamental problem THT faces that it cannot surmount, said Goldman, is that “they can’t get the bang for the buck that any large company gets.

“I think one [company head] told me that he makes $6 million on the Teachers Health Trust alone,” he told Nevada Journal. “Because they don’t have the capacity to negotiate good contracts.

“And so [the teachers] have to pay higher premiums. And that’s what they do, and so [THT must] charge employees more money in co-pays, in the elimination of certain benefits, and they don’t give them as good-of plans. That’s really what it’s come down to.”

If teachers were with the district, they’d get better deals because of the district’s size, Goldman said.

“In other words, in our case and most cases in Southern Nevada, [the insurance company would be] United Healthcare, because no one else can carry the business, and no one else is interested in doing it for this large an organization.”

Teachers in THT also suffer significant geographical restrictions, said Goldman.

“You can’t go all over the United States,” he said. “It’s really kind-of what’s based here. So United can go nationwide, they can’t. There are a lot of restrictions. Their urgent care may be covered — emergency care, obviously — but generally there are no doctors you can go to out of the area.”

Steven Miller contributed to this report.

Kyle Gillis is a reporter for Nevada Journal, a publication of the Nevada Policy Research Institute. For more in-depth reporting, visit http://nevadajournal.com/ and http://npri.org/.

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