Minnesota unions bilk taxpayers with "health and welfare" funds

AFSCME Council 5 is one of the state’s largest government employee unions, representing nearly 40,000 members and collecting about $23 million in annual receipts. AFSCME and its local affiliates bargain with government employers over issues including compensation, job protections, grievance issues, and of course employer-provided health benefits.

However, by utilizing a little-known scheme that has largely escaped public scrutiny, AFSCME does not merely bargain for health benefits; they profit from those benefits by acting as a very profitable "purchasing agent."

Here’s how the arrangement works.

AFSCME Council 5 maintains a closely affiliated but legally separate entity called the AFSCME Council 5 Member's Health & Welfare Fund. The Health & Welfare Fund’s mission is "to collect funds from employers of affiliated union locals and to use such funds to pay premiums for the purchase of employee benefits; in particular, dental coverage. The amounts received are pursuant to the provisions of the collective bargaining agreement between the Local Union and the participating employers. The amounts paid for employee benefits are based on premiums negotiated." Five trustees oversee the Health & Welfare Fund, including AFSCME Council 5’s executive director. Notably, the fund has neither a written conflict of interest policy nor a whistleblower policy.

AFSCME locals negotiate for dental coverage from government employers, who then pay the AFSCME Health & Welfare Fund to purchase coverage. According to the fund’s 2011 IRS Form 990, "The organization continued to collect (bargained for funds) from employers and used the funds to provide dental insurance coverage for approximately 4,900 participants."

According to one of the current collective bargaining agreements between Hennepin County and AFSCME Council 5: "The EMPLOYER shall pay to the UNION or its designee $.33 for each regular hour spent on compensated payroll status by members of the bargaining unit, including hours paid as severance in accordance with the provisions of Article 23. Such EMPLOYER payment shall be remitted quarterly to the UNION or its designee. Such payment shall be used to provide a dental insurance plan arranged and administered by the UNION."

In 2011, the fund reported total revenues of $3,675,421 and total Program Service Revenues of $3,583,043, the vast majority from Hennepin County ($2,641,699) and HCMC ($815,003). However, its total functional expenses were $3,020,674, including $161,300 that was reported to the IRS as administrative fees paid to AFSCME Council 5. The total "benefits paid to or for members" for dental insurance was just $2,834,346.

The net gain to AFSCME is huge: in 2011, they reported net income (revenue less expenses) of $654,747 . Though previous years showed more modest returns, the fund has never reported less than $100,000 in annual net income.  In addition to their annual operating revenue, the fund’s total net assets were $4,354,319 at the end of 2011, up from $3,699,572 the year before.

To summarize, union bosses rake in profits by acting as middlemen who purchase dental insurance for their own members. Unfortunately, AFSCME is hardly alone in utilizing this scheme. There are more than 2,000 union-run plans covering approximately 20 million Americans, including many in Minnesota. And because these separate health and welfare entities provide the opportunity for significant and secret backdoor profits to labor leaders, the unions are fiercely protective of them.

However, according to the Labor Press, many unions are now fearful that Obamacare could (ironically) threaten these health and benefit cash cows, saying "state exchanges could threaten the viability of existing health and welfare funds should employers decide that paying a $2,000 per worker penalty would be cheaper than continuing coverage". That is why so many union-run health and welfare funds sought, and received, waivers from some of Affordable Care Act’s requirements. In Minnesota, the union funds were among the biggest recipients of those waivers.

Schemes like this bilk taxpayers and fill union coffers while avoiding media and public scrutiny. It is wasteful, inefficient, and more than a little suspect. In short, it is the union way.

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