Okay, I will freely admit using a little hyperbole with the title, but it may not be as off base as you think.
An order filed by the Indiana Department of Insurance in Marion County Court regarding the Indiana State Teachers Association’s medical insurance program reveals some pretty questionable financial practices by the Union. Ironically enough, it has nothing to do health insurance and everything to do with long-term disability insurance.
You see for the past few years ISTA and the Department have been going back and forth over whether the Union’s health insurance plan it offers school boards is subject to state regulation. To make a long story short, it is. However when state officials sent in a team to examine the books, what they found raised an eyebrow or two.
It turns out ISTA was co-mingling money taken from health insurance premiums and mixing it into a trust fund with premiums from long-term disability payments. This is a legal practice, but not the best practice, if you know what I mean.
According to the order, ISTA had been making some risky investments in private equities like real estate (you see where this is going) instead government bonds. And now ISTA’s liabilities in its health insurance trust fund exceed its assests by $67 million. While the organization has the money for now, it could really put school organizations, i.e. taxpayers, on the hook down the road should the fund become totally insolvent because someone would have to pay the outstanding claims.
The order also states that when ISTA went to liquidate some of its private equity investments, it got less than half the value. ISTA also had not provided any accounting information to support its December 31, 2008 financial statements. ISTA’s independent auditors couldn’t deliver their opinion on the Union’s past fiscal year. And internal financial statements and audit reports failed to include payments to school districts.
ISTA is getting out of the health insurance business, which by the way was on a collision course with financial trouble because it had taken in $76 million in premiums and paid out $64 million in medical claims and still had millions in unprocessed claims to go. United Health Care is taking over the administration of medical benefits and ISTA must place nearly $5 million by Friday into a trust account to secure the cash necessary to facilitate the transaction.
If this isn’t the same kind of stuff that got AIG in trouble, I don’t know what is. I’m going to try and track down the ISTA folks today. Hopefully, there’s a reasonable explanation for all this. Hopefully.