International
Association of Fire Fighters, Local 1488
And
Pierce
County Fire District No. 2
Interest
Arbitration
Arbitrator: Jane R. Wilkinson
Date
Issued:
Arbitrator:
Wilkinson; Jane R.
Case #: 06881-I-87-00163
Employer:
Pierce County Fire District 2
Date Issued:
BEFORE THE ARBITRATION PANEL
In the Matter of Interest )
Arbitration Between: )
PIERCE COUNTY FIRE DISTRICT )
NO. 2 ) AAA NO. 75-390-0172-87
)
Employer ) OPINION
AND AWARD
and ) OF NEUTRAL ARBITRATOR
) JANE R. WILKINSON
INTERNATIONAL ASSOCIATION OF )
FIRE FIGHTERS, LOCAL 1488 )
)
________________________________ )
MEMBERS OF THE ARBITRATION PANEL:
Jane
R. Wilkinson - Neutral Chairperson
James L. Hill - Union Member
Duane G. Fleming - Employer Member
APPEARANCES:
For the employer:
98004. Telephone: (206) 453-6980
For the union:
James F. Imperiale, Esq.,
Bobman
& Verhey, P.S.,
Highway East,
DATE OF AWARD:
INTRODUCTION
The 1987-1988 collective bargaining agreement
between the Pierce
County Fire District No. 2 (the "District")
and Local 1488, the
International Association of Fire
Fighters (the "
at
Article XII, Section 1: "The [medical] insurance
plan used
shall
be mutually agreed upon by the
The parties reached an impasse
in their negotiations as to the
actual
plan to be offered, and submitted the issue, pursuant to
RCW 41.56.450, to
interest arbitration before
a tri-partite
panel. The undersigned, Jane R. Wilkinson was
designated neutral
chairperson. James L. Hill was appointed by the Union, and Duane
G. Fleming was appointed by the
District. The panel conducted
hearings
on February 3, 4 and 10, 1988. The
record consists of a
transcript
of hearing prepared by a court reporter and a number
of
exhibits. The neutral chairperson
received the briefs of both
parties
on
hearing
for purposes of RCW 41.56.450. The
parties stipulated to
a
60-day extension of time for
the arbitrators' decision. On
This decision follows.
BACKGROUND
The District has 80
employees, 59 of whom are in the bargaining
unit
to which this case pertains. The District has 12
non-
uniformed employees in
a different bargaining
unit, also
represented
by the
employees.
The District historically has offered its employees
an insurance
plan
maintained by the
WFCA 11 The WFCA maintains its own insurance
plan in large
part
due to a statutory obligation its member fire districts have
to certain active
and retired fire fighters. This obligation
arises
from
Fighters' (LEOFF) Retirement
System, which took effect in 1970.
1969
statute
required employers
to provide uniformed fire
fighters
with 100% lifetime
medical reimbursement. The Legislature
repealed
this requirement in 1977, but
existing employees were
grandfathered. 1977
existing
employees, many of whom are
now retired, are known as
"LEOFF Is." Uniformed employees hired after 1977
are known as
"LEOFF
115."
The medical reimbursement obligation an employer has to LEOFF I
employees, both
active and retired,
is onerous because the
medical costs of
that group of employees is relatively high.
LEOFF I's
are a greater utilizer of medical services (as
compared
to
LEOFF II's) for two reasons: 1) 100% coverage induces
a higher
utilization
of medical services, and 2) LEOFF I's are an "aging"
group
(i.e., no new, younger members can ever be added) requiring
greater
medical care. In addition, state industrial insurance
does
not cover active LEOFF Is.
Testimony was received (and it
stands
to reason) that the group
premium structure a medical
insurance
carrier offers to RCW 41.26 employers is dependent on
the
ratio of LEOFF Is to LEOFF 115 in the group.
plan offered. by the
District. WPS is affiliated with Blue
Shield. Robert Still,
vice-president of Schwarz/Shera and
Associates, the
plan's broker, testified
that WPS's
premium
structure
is based
on an assumed
contractual term that all
participating employers must
offer only the
WPS plan to its
employees. The principal reason for this alleged restriction
is
that
the WPS does not want an employer to contract with another
carrier
(on more attractive terms) for LEOFF
II coverage, while
leaving WPS with the burden
of LEOFF I coverage. Mr. Still
testified
that because of RCW 41.04.180, (set forth below at page
9) the WPS plan now allows an employer to offer one
alternative
plan,
a health maintenance organization
("HMO") maintained by
Group
Health Cooperative of
Sixty-nine fire
districts are enrolled
in the WFCA insurance
program.
The total employee enrollment is 1078, plus dependents.
LEOFF I enrollees
constitute 35.4%, while LEOFF II enrollees
constitute 64.6%.
The WFCA program contains two
reserve accounts which are used for
stabilizing rates. The WPS
plan maintains an "internal rate
stabilization
reserve" (i.e., a reserve of prior
excess premiums
which are used
to level future rates) of two-months'
premiums
(about
$220,000). WPS refunds any remaining
excess premiums to
the
policy holder, WFCA. WFCA applies those
refunded premiums to
an external reserve
trust, known as
the "Insured Rate
Stabilization Reserve Account"
("IRSRA"). Funds in that
account
are
used to "buy down" future
premiums. The IRSRA
trust has
approximately $731,000 in
assets. The WPS plan also has an
"incurred
claim reserve" (run-out reserve
in the event of plan
cancellation)
of $370,000.
The
pursuant
to the
and
Welfare Trust. The carrier of the
plan is Blue Cross of
Washington/Alaska.
Employees enrolled in the Union-sponsored Blue
Cross program may choose between two
plans: the "Traditional"
(fee
for services) plan,
and the "Prudent
Buyer" (preferred
provider)
plan. In general, the Prudent Buyer plan is
intended
to
be more cost-effective so long as medical care is provided by
physicians
designated by Blue Cross.
Five fire districts or city fire departments
currently
participate
in the Union-sponsored plan:
districts in Lacey,
Hoguiam fire departments. A large percentage of the enrollees
from
dependents. LEOFF I's
constitute 82.6% of this enrollment.
Both parties submitted documentation of plan
benefits for each
plan
in issue. They also submitted evidence comparing the
level
of
benefits offered for these plans. One such document was a
benefit comparison chart
prepared by consultant
Donald M.
Stewart. A similar compilation was prepared by Robert
Still. In
general,
the plans at issue provide
similar benefits, but they
vary
as to the amount of coverage for each benefit.
Both parties
presented testimony that
the benefit differences
are not
significant.
The District's premium liability
under each party's proposal
cannot
be exactly stated. This is because the premiums depend
on
the number of enrollees in each
plan offered. The District
proposes both the
WPS plan and
the Group Health HMO, so its
annual
premiums would depend on the number of
employees enrolled
in
each. The Union proposes both its own
Blue Cross Traditional
and
Prudent Buyer plans, and also would retain the District's WPS
and
Group Health plans. If the Union's proposal were adopted,
the
District's premium liability would depend
on the mix of
employees
enrolled in each of these four options, assuming (and
this
is open to question) that the WFCA
program could co-exist
with the Blue
Cross program. For purposes of approximate
comparison,
however, the District presented evidence
showing the
following
monthly premium cost, assuming 100% enrollment under
each
plan listed:
For the WFCA-WPS plan: $19,213.20
For the Blue Cross
Prudent Buyer plan
with
vision coverage: $18,681.47
For the Blue Cross Fee
for
Services plan with
vision
coverage: $18,339.42
For the WFCA-Group
Health plan: $17,555.92
These estimated monthly premium
costs include the District's
premium
contribution for the approximately one-fourth of its work
force
that is not in the bargaining unit
involved in this case,
as
well as for an additional 11 retired or disabled LEOFF Is, who
also
are not in the bargaining unit. The
premiums stated for the
WFCA plans are
after IRSRA rate
subsidies are taken
out.
Testimony was presented that
this subsidy currently
is at about
$11
per active LEOFF I per month.
The parties I collective
bargaining agreement, Article
XII,
Sections 3 and 4, contains a ceiling on
the District's premium
contribution
for LEOFF II employees of $286 per employee and $102
for
dependents. The District could end up paying less than the
amount established by
the ceiling, but if the premium levels
exceed
the ceiling, then the employees must
pay the difference.
Because of Ch. 41.26 RCW, there is no ceiling on the District's
liability
for LEOFF I employees. Of the 91
individuals currently
enrolled
in the District 's insurance program, 41 are LEOFF I.
ISSUE AND PROPOSALS
The District proposed
contract language that would offer the
bargaining
unit employees the choice of either the
WPS plan or
the
Group Health plan maintained by the WFCA.
The Union proposed
contract language that
would allow the
bargaining
unit employees to choose among 1) the District-offered
wPS plan;
2) District-offered Group
Health plan; 3) the Union-
sponsored
Blue Cross Traditional Plan; or 4) the
Union-sponsored
Blue Cross Prudent Buyer plan.
1/
Thus, the
issue is, applying
the criteria set forth in RCW
41.56.460, which medical
insurance plans(s) should be offered?
ARGUMENTS OF THE PARTIES
ARGUMENTS OF UNION:
1. RCW 41.08.180 requires employees to be
given the choice of
not less then
two health care
contracts from two separate
insurance
carriers. The intent of the
statute is to give
employees a real
choice. Roswell Bond, the
District's expert
witness,
testified that both the District's and the Union's plans
are
"good plans." The premium cost for the Union-sponsored plan
is slightly less
than the District-sponsored offerings.
Moreover, the District's
concern about future premium hikes under
the
Union-sponsored plan has been substantially
solved by the
negotiated ceiling on
the District's premium obligation. The
arbitrators should heed
the recommendation of
the jointly-
authorized
Donald M. Stewart report (March 12, 1987) which stated
that
the Union-sponsored plan "must
be considered as the
most
attractive
program . . . based on both competitive premium and
benefit
structure shown."
2. The District's plan does not allow employee input. The WFCA
maintains total control.
The need for a Union-sponsored plan
exists
so that the represented employees can have greater control
over the nature
and extent of
benefits offered. As things
presently
stand, the District unilaterally reserves
the right to
modify both the
premiums and the
benefits of the insurance
coverage. Benefits may vary between
LEOFF I and
LEOFF II
employees in ways that
will benefit the District. The IRSRA
trust
also has unilateral control over premium structure, insofar
as it decides
the extent to which it will buy-down premiums-
including
the greater buy-down of LEOFF I coverages. LEOFF I's
are
people who are not even in the bargaining unit.
3. The
District argues that
the Union plan would force a
hardship
on the WPS premium structure. Under this rationale,
no
new
plan could come into existence since the actual impact of a
new
plan will always be impossible to
determine. Moreover, the
District's arguments concerning the future impact
of the Union
plan
are speculative, with no foundation
in actual experience.
The arbitrators should
bear in mind that there is
nothing to
prevent
IRSRA funds from being
used to stabilize alternative
insurance
plans.
1/ The
Union had
originally proposed (as evidenced by its
submission letter of January 28,
1988) to offer only the Union-
sponsored Blue Cross plans.
On the
second day of hearing, the
Union was allowed to amend its proposal to include the
WPS and
Group Health plans as well.
4. The District argues that acceptance of
the Union proposal
would
necessarily cause the WPS
and Group Health
options to
disappear
because of the 100% participation requirement.
This
argument
is based on a flawed understanding of
the WFCA contract
with
the carrier. In fact, the broker, Robert Still, could not
point
out contractual language that required
100% participation.
The language identified by Mr.
Still (District Exhibit 5, sec. 2A
at
15) contains no such requirement).
5. Interest
arbitration results should
not lead to lasting
dissatisfaction
(citation omitted). Continuation of the
District
plan
will lead to real dissatisfaction and would
again raise
itself
as an issue at the next contract negotiation.
6. There
are other problems with the WFCA program that should be
weighed
in these proceedings: There was clear
evidence at the
hearing
of improper self-dealing by trustees
of IRSRA trust by
providing
rental space and loans to
the settlor
of the trust,
WFCA. Wilkins v. Lasater,
46 Wn.App. 766 (1987). Also,
both the
District and IRSRA trustees
were aware for some
time of the RCW
41.04.180 to provide a choice of
plans, but ignored this until
recently.
ARGUMENT OF THE DISTRICT:
1. The Union
proposal would end
District participation in the
WFCA program because
of its 100%
participation requirement.
Thus, the Union's proposal
violates RCW 41.04.180
(two-plan, two
carrier
requirement) and RCW 48.46.180 (HMO
requirement) because
it
lacks an HMO and has but one carrier.
2. Interest arbitration favors the status quo,
thereby moving
the
burden of proof to the Union. This is especially true where
the
demand of the Union is innovative or novel.
3. The following are the advantages of the WFCA program:
A. It has a
larger enrollment than
the Union plan, an 18-
year
claims experience, and a proven
track record. The Union
plan
has small and
evolving claims experience,
making large
premium
fluctuations more likely. Higher
premiums are especially
likely
under its current enrollment which is LEOFF
I-heavy. A
new
premium will go into effect as early as July, 1988.
b. It has a
$220,000 rate stabilization reserve; the Union
plan
has none.
c. It has a
large external IRSRA reserve of about $713,000.
The District's interest
is about $60,000.
The Union has no
comparable
reserve.
d. Although the parties' collective
bargaining agreement
contains a
ceiling or cap on premiums, this cap pertains to LEOFF
II
employees only. It is not possible
to cap the District's
liability
to LEOFF I employees. If aggregate
premiums exceed the
LEOFF II cap, pressure will be
exerted in future
negotiations to
raise
that ceiling.
e. Management control is
an important fiscal
issue.
Management must control the
range of benefits in order to control
the
premiums. In addition, it must ensure that the plan
gives
LEOFF I's all
the benefits to
which they are
statutorily
entitled. The District is concerned that the
Union plan will
diminish
the LEOFF I benefits, leaving
the District with the
residual
liability.
f. Contrary to Union
suggestions, the District cannot
easily
revert back to the WFPA program. It would
leave the IRSRA
funds,
and there is nothing to prevent the WFPA from making re-
entry
difficult.
g. A comparability study
shows comparable fire districts
use
the WFCA plan.
h. Applying the reasonable
negotiator test, one must
conclude that given
the volatility and
uncertainty of both
medical
insurance generally and the Union I plan
specifically, no
reasonable
negotiator would agree to the Union's proposal.
DISCUSSION AND ANALYSIS
RCW 41.56.460 requires contract
arbitrators to consider: the
legal authority of
the employer, the
parties' stipulations,
comparisons
with wages, hours or working conditions
offered fire
fighters employed by
districts of similar
size, the cost of
living,
changes in these factors
during the proceedings, and
"such other
factors, not confined to the foregoing, which are
normally or traditionally
taken into consideration in
the
determination of wages,
hours, and conditions of
employment."
RCW
41.56.460(f).
Some of these statutory considerations do
not apply to this
dispute: There was no evidence presented concerning
the cost of
living
(apart from the cost of medical care).
Stipulations were
few. The arbitrators were not informed of
any changes in the
relevant
factors during these proceedings.
The statutory guidelines of
interest here are the legal authority
of the employer,
comparability, and "other factors" that are
"normally or
traditionally taken into
consideration" when
determining
wages, hours and conditions of employment.
A. Legal Authority of the Employer
Both parties raise
questions of legal
authority under RCW
41.04.180. In addition, The
District questions whether the
Union's proposal satisfies RCW
48.46.180.
RCW 41.04.180 states (emphasis
added):
Any county, municipality, or other political
subdivision of
the state . . . may, . . provide for all
or a part of
hospitalization and medical aid
for its employees and their
dependents through contracts
with regularly constituted
insurance carriers or with
health care service contractors
as defined in chapter 48.44
RCW .
. Provided, That any
county, municipality, or other political subdivision of the
state acting through its principal supervising official or
governing body shall provide the employees thereof a choice
of policies or plans through
contracts with no less than two
regularly constituted insurance
carriers or health care
service contractors or other
health care plans, . .
RCW 48.46.180(2) states
(emphasis added):
Each employer, public or private, having
more than fifty
employees in this state which offers its employees a
health
benefits plan, and each employee
benefits fund in this state
having more than fifty members which offers its members
any
form of health benefits shall
make available to and inform
its employees or members of the
option to enroll in at least
one health maintenance
organization . . :
Provided, That
unless at least twenty-five employees agree to participate
in a health maintenance organization the employer need not
provide such an option:
Provided further, That where such
employees are members of a bona
fide bargaining unit covered
by a labor-management collective bargaining agreement, the
selection of the options
required by this
section may be
specified in such agreement: And provided further, That
the
provisions of this section
shall not be
mandatory where
such members are
covered by a
Taft-Hartley health care
trust, . .
The District argues that the
Union proposal violates
both quoted
statutes, because
it is offered
through only one carrier and
contains
no HMO. The District's argument rests on
the assumption
that
the Union's proposal presents a "disappearing" option
with
respect
to the WPS and Group Health plans,
since 100% employee
enrollment
in those two plans is
necessary to their collective
viability.
The District's argument fails
for want of proof. I perused the
contract
between the WFCA and WPS,
and could find no language
prohibiting a participating
fire district from
offering its
employees
other health insurance plans. The language pointed to
at
hearing by Robert Still does
not pertain to this question.
There is nothing,
of course, to
prevent the WFCA/WPS from
amending
their contract in this respect, but, to
my knowledge,
that
has not occurred.
Moreover, even
if the WFCA/WPS
had a 100%
participation
requirement
(with an exclusion, presumably, for Group Health), it
is
not clear that Group Health would require enrollment only in
its
own plan or the WPS plan. Thus, while the WPS plan might
become
a "disappearing option," the
Group Health option might
very
well survive. If it did, then the requirements of both
RCW
41.04.180 and 48.46.180(2)
would be satisfied. Finally, with
respect to RCW
48.46.180(2), one must
consider whether the
Union's proposal is
protected by the first or third proviso.
Because I have rejected the
District's argument on other grounds,
I do not now need to make that
determination.
The Union argues that the District, through the WFCA, belatedly
offered the statutorily-required second
plan, an HMO, after
ignoring
the statutory mandate for a considerable length of time.
(Apparently the HMO was not offered until this
dispute went to
mediation).
The facts upon
which the Union's argument rests are
correct. However, a
contract arbitration is
prospective in
nature. Past errors and omissions are not considered unless a
nexus can be
shown between those
events and the statutory
standards
for interest arbitration decisions. In this case, the
District's proposal now
complies with the
above-quoted statutes;
thus
the legal question no longer
exists. The District's past
failure
to present the second health care option is not relevant.
Another consideration relating, perhaps,
to "legal authority"
pertains
to certain transactions performed by the trustees of the
IRSRA
trust. The Union assails
possible illegal self-dealing
between the WFCA
and IRSRA trust because of loans and rental
space
that the trustees have provided to
the settlor,
the WFCA.
The Union cites Wilkins v. Lasater, 46 Wn. App. 766
(1987) for
the
proposition that conduct
such as that
evidenced in the
instance
proceedings constitute a breach of trust.
Assuming, without deciding, that the cited
conduct is indeed a
breach
of loyalty on the part of the IRSRA trustees,
I find that
the
conduct has only a slight bearing on
this case. I certainly
would
not want to ignore conduct on the part of the trustees that
might substantially impair
the trust res,
to the detriment of
both
the District and its employees. However,
I am not convinced
that
the conduct has any such substantial
effect. I appreciate,
however,
this evidence as being indicative of
the reasons the
Union has for being dissatisfied with the WFCA offering. It is
something
to keep in mind, but it is not dispositive.
B. Comparability
Because of the nature of this case, comparability assumes less
importance
than in, for example, a wage case. The
Union does not
dispute the District's
evidence pertaining to comparability,
although it apparently does dispute the District's contention
that
the appropriate measure for comparison
is the population
served,
rather than the size of comparable fire
departments. In
any
event, the Union's health plan is
relatively new, and there
has
been insufficient time for it to gain wide-spread acceptance.
It has been adopted by five fire
fighter employers, the largest
of which is
the City of
Spokane. It has not been
adopted,
according
to figures presented by the
District, in any of the
nine
fire districts serving comparable populations (plus or minus
33%) to that served by Pierce
County Fire District No. 2. There
are
six cities operating fire departments
serving populations of
comparable
size. Those cities offer neither the Union-sponsored
program nor the
WFCA program. Instead, they
offer plans
sponsored
by the Association of Washington Cities.
These comparisons weigh in the
District's favor. (I assume, for
purpose of
this analysis, that
the appropriate measure
is
population. No evidence was presented specifically
pertaining to
like-sized
fire departments or districts). They also justify an
assumption
that the Union proposal is
"novel" or "innovative."
The significance of that
assumption will be discussed below.
C. Other Considerations
The final instruction of RCW
41.56.460 is to consider "such other
factors" that
are "normally or
traditionally" taken into
consideration
when wages, hours,
and working conditions are
determined. This universe may consist of such additional items
as ability to
pay, public interest and productivity (none of
which
are relevant here). See, Assoc.
Hosp. of
East Bay, 71-2
Lab. Arb. Awards (CCH) at 4722 (Koven,
1971); E. Elkouri and F.
Elkouri,
How Arbitration Works, Ch. 18
(4th ed. 1985).
More
broadly
stated, however, "the fundamental inquiry, as to each
issue,
is: What should the
parties themselves, as reasonable
men,
have voluntarily agreed to?" Twin
City Rapid Transit Co. , 7
L.A.
845, 848 (McCoy, 1947).
Certainly, a "reasonable negotiator"
would carefully consider the
relative advantages and
disadvantages (including the
ramifications)
of the proposals being made. In this case, the
"reasonable
negotiator" would consider and
weigh the benefits to
the
employees of the plans
under consideration against their
probable costs to
the employer. I will
do the same. In
addition,
the "reasonable negotiator" will proceed cautiously as
to
proposals of uncertain consequence, a matter I will discuss
first.
1. Presumption
Favoring Status Quo
As
the District points
out, arbitrators in "interests"
disputes normally allow
a presumption favoring the status
quo
when
considering a proposal that has not
found prior acceptance
in the parties'
collective bargaining agreement
or in other
comparable
settings. In Tampa Transit Lines, Inc., 3 L.A. 194,
196 (Hepburn, 1946), the
arbitrator stated:
An arbitrator cannot often justify an
award involving the
imposition of
entirely novel relationships or
responsibilities. These must come as a result of collective
bargaining or through
legislation.
Similarly, Arbitrator McCoy, in Twin
City Rapid Transit Co.,
supra
at 845, stated:
We believe that an unusual demand, that is, one that has
not
found substantial acceptance in
other properties, casts upon
the union the burden
of showing that, because of its minor
character or
inherent reasonableness, the
negotiators
should, as reasonable men, have voluntarily agreed to it.
We would not deny such a demand merely because it
has not
found
substantial
acceptance, but it
would take clear
evidence to
persuade us that
the negotiators were
unreasonable in rejecting it.
E. Elkouri and F. Elkouri,
How Arbitration Works, (4th ed. 1985)
state,
at 817:
It is clear, however, that arbitrators will require a party
seeking
a novel change
to justify it by strong evidence
establishing its reasonableness
and soundness.
Accord Assoc. Hosp. of East Bay, supra.
I would caution against casting too heavy a
burden on the
party seeking change.
If that
were to occur, the status quo
would
be perpetuated indefinitely and interest
arbitration would
cease
to be a
viable means for resolving
differences regarding
employment. Nevertheless, a
cautious approach to
change is
justified
when the consequences of the change are not certain.
2. Benefit Comparison
On
an objective, overall
basis, the specific
benefits
offered
by the District's WPS plan
and the Union's Blue Cross
plans
do not differ significantly. Witnesses for the District
and
for the Union so testified. My own review of the benefits
offered
leads to the same conclusion.
There
are, however, legitimate
subjective considerations
with
respect to medical insurance benefits, and in
that respect,
that
plan which is the product of the
employees' desires, i.e.,
the
Union plan, presumably is preferable. This desirability, in
the
minds of the employees, is enhanced by the Union control
of
the
plan, which improves the likelihood for a
favorable response
to
changes in employee desires.
Although the
benefit differences are not
significant, the
employees preference
should be considered, and thus, the benefit
comparison analysis
weighs somewhat in the Union's favor.
3. Cost
Comparison
There are two parts to this
analysis: present costs and
future
costs. Although the Union might dispute the relevancy
of
or weight
given to future
costs, I cannot
disregard that
consideration. The reason is that although the parties'
contract
expires
on December 31, 1988, I am persuaded by the evidence at
hearing
that the District is not in a position to
freely "shop
coverage"
at the expiration of the contact. I have
two reasons:
Once
the Union-sponsored plan
is offered pursuant
to
contract, its
plan cannot be
unilaterally withdrawn by the
District. Spokane County, PERC Dec. 2167-A (1985) aff'd sub
nom. Wa. St. Council of Cty
and City Empl. v. PERC, Thurston Cty
No. 86-2-007-8 (May 23,
1988); City of Dayton, PERC Dec. 1990-A
(1984). To the extent a change in
insurance carriers affects
benefits,
it must be bargained, and in the case of
the District,
if
no agreement is
reached, the issue must
go to interest
arbitration. RCW 41.56.450. This disadvantage to the District
might
be negated by contractual
language waiving the Union's
bargaining
rights in the event the cost
differential between the
Blue Cross program and the
WFCA program exceed a specified amount
or percent. Nevertheless, such contractual language,
if
feasible,
would not solve the next concern.
The evidence at hearing was
persuasive that, because of its LEOFF
I obligation, small size and relatively high LEOFF composition,
the
District cannot obtain insurance coverage on a stand-alone
basis. It must go through a larger
organization. Should the
District offer the
Blue Cross plans
and then later seek to
withdraw,
the WFCA could be its only option. However, the
present
withdrawal of the District (or other WFCA members) from
the
WFCA program could threaten the stability of
that program.
It has a
enrollment of 1078,
plus dependents, which is not
particularly
large. Given this, it is doubtful
the WFCA would
allow its member
districts to move
freely in and out of the
program,
at least not without substantial penalty. 2/ Given this
uncertainty,
the District must prudently consider both the short-
term
and long-term costs of the plans with which
it seeks to
associate. I will, therefore, examine them.
a. Current
Premium Costs.
The cost-comparison evidence presented at hearing was
based
on stated costs for the
first half of 1988. Blue Cross
locked
in its premium quote for six months
only, reserving the
right
to raise its rates on
July 1, 1988. 3/
The rates of the
WFCA plans are locked in for
one year.
2. I assume, for purposes of this
analysis, that if the
Union's proposal prevails, all
or a significant number of current
WFCA program enrollees
from within the District will join the
Union-sponsored plan. I make this assumption for two reasons.
First, although I
cannot find any
"
exclusivity" or "100%
participation" language
in the current
WFCA/WPS contract, I
surmise
this hiatus will be filled in due
course. (Roswell Bond
testified
that the 100% participation requirement is very common,
and
he explained why it exists for economically sound reasons).
Second, even if no such
requirement comes into play, the majority
of
the present District enrollees are
within the bargaining unit
affected
by this case, and, I presume, being represented by the
Union,
would prefer the Union-sponsored plan.
3. Lloyd Whiton, who is with the Union's
plan
administrator,
testified that to avoid a
relatively high (30%)
rate
increase at the beginning of
1988, Blue Cross agreed to a
25% increase, with the right
to reevaluate the premium on July 1,
1988.
A comparison of present costs
shows that the Group
Health plan is
the least expensive.
Robert Still testified,
however,
that employees probably would not consider
a HMO as
attractive as plans
offering a broader
choice of providers.
Ignoring, for the moment, the possibility
of a Blue Cross premium
change
at or near the time of this decision, the Blue Cross plans
thereupon
become the least expensive, at $18,339 monthly
for the
Prudent Buyer, and $18,681 monthly
for the Traditional plan. By
comparison,
the WPS plan, at 100%
enrollment, would cost the
District $19,213 monthly.
In addition, under the WPS plan,
approximately
$11 per active LEOFF I enrollee is contributed to
the
premium by the IRSRA trust.
Thus,
at least prior
to any premium increase, the
Union-sponsored Blue Cross plans are
presently the most cost
competitive,
and this consideration weighs in the
Union's favor.
b. Future
Premium Costs
This is the most heatedly contested
consideration in
this
case. The District points to the
importance of its 18-year
rate
history of the WFCA plan as a valuable
predictor of future
rates,
as well as to its sizeable internal and external (IRSRA)
reserves,
which the Union plan lacks. The District charges
that
the Union plan
is LEOFF I-heavy; therefore, it cannot remain
competitive. The Union considers these matters too speculative
to be considered.
It points to the size of Blue Cross as a
carrier,
and argues the fact that the Union-sponsored
plans have
been approved by
the Washington State Insurance Commissioner
demonstrates
the plans are adequately funded.
Perhaps the most unsettling feature of the Blue Cross
program
is that its present enrollment of LEOFF
Is is relatively
high. LEOFF Is constitute 82.6% of the enrollees,
as compared to
a
35.4% LEOFF I enrollment under the WFCA plan. (Enrollment of
the
District's employees in the Blue Cross
program would reduce
the LEOFF
I percentage to
slightly above 75%).
The claims
experience
of three organizations sponsoring
insurance plans in
which
LEOFF Is are enrolled has been that LEOFF I medical costs
run
34% to 80% higher
than non-LEOFF Is. 4/
Thus, this
consideration relating to
LEOFF I enrollment
supports the
District's position that the Blue Cross
rates may not remain
competitive. In addition, the
WFCA program presently has a
larger
total enrollment than the Blue Cross program, (1078 to 510
enrollees,
approximately) which leads to a
more favorable risk
spread. However, I note that the Union-sponsored plan has
grown
relatively
rapidly in terms of total
enrollment. In little over
a
year, it is nearly one-half the size of the WFCA program.
The
District's argument also
is persuasive that the
WFCA program's rate history weigh in its favor on the question of
size
and stability of future premiums. The WPS plan has had a
18-year, largely stable rate history. The District presented
evidence that it
has absorbed increased medical
care costs as
well
or better than other carriers. The Blue Cross plans are
new,
with only a one-year rate history. Roswell Bond, an expert
witness
for the District, testified that
new plans, including
those the witness
himself has underwritten,
typically are
"underpriced" in order to attract enrollment. After enrollment
is made,
the premiums are
raised to a
level that is more
actuarially justifiable. Mr. Bond also
testified that the
prudent
purchaser of group medical coverage
should consider rate
history
as an indicator of future rate stability.
The Union
did
not
present evidence to rebut Mr. Bond's testimony.
4. Under the
WFCA plan, the claims
experience of LEOFF Is
has been 80%
higher than non-LEOFF I employees. Under plans
sponsored by
the Washington Counties Insurance Fund, the
LEOFF I
claims
experience has been 49% higher.
The experience
of the
Association of Washington
Cities shows LEOFF
I claims being 34%
higher.
Likewise, the
sizeable reserves, both
internal and
external,
of the WFCA plan, weigh in the
District's favor. The
IRSRA reserve, which exceeds $700,000, is
the more sizeable of
the
two reserves. It is used from time to time to buy down the
WPS
premiums. 5/ The WPS's smaller internal rate stabilization
reserve
also contributes to premium stability. The Blue Cross
plan
presently lacks reserves of this nature.
The District is
further concerned that
the Union's
control of its
plan will: 1) allow
it to exclude or reduce
benefits
to LEOFF Is; or 2) improve benefits, thereby exerting an
upward
pressure on premiums.
It is
true the Union's control
of the plans may allow
it
to allocate benefits disproportionately to LEOFF 115. This is
a serious
concern to the
District because if the LEOFF I
insurance
coverage is inadequate, the District bears the
costs.
The problem is not
cured by a ceiling on the District's premium
contributions,
since that ceiling necessarily
applies only to
LEOFF
115. A
collective bargaining agreement term requiring the
same
LEOFF I coverage as presently exists under
the existing WPS
plan
is a possibility. However, it would not be binding on the
Union plan sponsors,
the Fire Fighters'
Trust, since that
organization
is not a party to this proceeding or any
collective
bargaining
agreement arising therefrom. Despite these serious
concerns,
I am persuaded by my June 1, 1988 discussion with panel
member
Hill that the Union would not manipulate
LEOFF I benefits
to the economic
detriment of employers
because this would
seriously jeopardize the
future marketability of its
program.
Therefore, it is unlikely this
would occur.
The District also is concerned about unilateral across-
the-board
benefit improvements under
a Union-controlled plan.
5. The WFCA, through the IRSRA trustees, could perhaps, as
the
Union suggests, choose to buy down the premiums from some
other
plan instead, including the Union's Blue Cross plan. The
arbitrator,
however, cannot order the IRSRA trustees to
do this;
thus,
it is not a practical consideration in this case.
Presently, the District would not be
affected by the increased
costs
of benefits. It pays all uncovered amounts for
LEOFF Is
anyway, and
there is a
contractual ceiling on its
premium
contribution
for LEOFF 115. The District fears, however, that
increased
future LEOFF II premiums (from whatever cause), will
put
an "upward pressure" on the
contractual ceiling. I believe
there
could be such an effect,
although I would agree with the
Union that this is somewhat
speculative. Nevertheless, because
the federal Internal
Revenue Code exempts
most health care
benefits from taxation,
(and for psychological reasons),
employees inevitably
desire to maximize their coverage. Even
when
insurance costs rise, they tend to
expect the same level of
benefits,
and they look to the employer
to pay. Although I
cannot
quantify this "upward pressure," I agree with the District
that
it exists.
4. Additional
Considerations
The Union presented evidence that the District
had procured
the
Donald M. Stewart report, which favored the Union-sponsored
plan, and
at least impliedly
had agreed to
abide by its
recommendations. During negotiations, a District
Commissioner
was appointed
to study the
Union's plan with a
Union
representative. The Commissioner failed to contact and work
with
the
designated Union representative.
The
Union's evidence suggests
that the District did not
consistently
act in
good faith, or
at least the District's
position
initially was not well thought out.
Nevertheless, this
being
an "interests" dispute, the
evidence is relevant only to
the extent it
challenges the credibility
of the District's
present
position. I find, however, that
the strength of the
District's evidence is
sufficient to overcome any such doubts.
The Union is also concerned that the WFCA's
IRSRA buy-down
practices
allows the District to subvert the negotiated premium
ceiling
in the contract. This occurs, according to the Union,
because
the IRSRA reserve consists of
excess premiums paid, in
substantial
part, on behalf of bargaining
unit members. But
instead
of returning that excess in the form of better benefits
for
bargaining unit members, the IRSRA fund is used to reduce the
District's costs for a substantial number of
non-bargaining unit
members
(retired and disabled LEOFF Is).
The Union's argument would
have appeal if
there were a
negotiated
floor, as well as a ceiling on the
District's premium
contribution. The contract as presently written, however, does
not
require the District to expend a certain amount of money for
premiums. Rather, it prevents the District from having to spend
more
than a set amount. The implication is
that District is free
to
save money wherever it can, so long as it does not change the
insurance
plan and benefits agreed upon in the contract.
In this
regard,
I emphasize what I stated previously
in this opinion:
The District cannot
(contrary to the
Union's suggestion)
unilaterally
decrease the benefits
(by changing plans
or
otherwise)
which the bargaining unit members
enjoy under their
collective
bargaining agreement. Spokane County, supra; City of
Dayton,
supra.
If the
District's effective premium costs are
less
than contemplated during negotiations, it may properly apply
those
savings as it sees fit, so long as there
is no contractual
term
to the contrary and the level of benefits remain unchanged.
CONCLUSION
The Union's proposal would add
something to the agreement between
the
parties that did not exist previously.
Therefore, it seeks a
departure
from the status quo. It is innovative,
or novel, in
the
sense that it is proposing a health care program that has not
had
any history in past contracts between the
District and the
Union or in
contracts involving comparable
fire districts.
Because of this, the Union bears
the burden of persuading the
arbitrator
that the District was unreasonable in not
agreeing to
its
proposal.
The decision is
a close one.
Both parties made thorough and
competent
presentations. There are valid
considerations favoring
the Union's as
well as the
District's position. I have
considered
the possibility that the District's sole motive for
opposing
the Union plan is an unfounded fear of Union
"control"
or
an ill-advised desire to ensure the
survival of a competing
program. I am
persuaded, however, that
the District has
legitimate
concerns and that it was not unreasonable for it to
refuse
to agree to the Union proposal.
I agree with the Union I premise that a
broader choice in medical
plans
is consistent with the intent of
RCW 41.04.180, but I do
not
believe that intent goes beyond the two-plan requirement when
additional
cost considerations are present. Although the Union
has
presented a program having comparable or
better benefits, as
well
as competitive premium rates for the first half of 1988, the
evidence
is not convincing that the
rates probably will remain
competitive
for the near or long term. The most
serious problems
are
the relatively high current LEOFF
I enrollment in the Blue
Cross plans and the lack of
reserves and rate histories for those
plans.
Although this arbitration
concerns only employees
in the
uniformed
bargaining unit, the cost of
providing them medical
insurance
is inextricably bound to the costs of medical insurance
for
non-bargaining unit people, particulary retired and disabled
LEOFF Is. Since the employer pays the bill, the total
economic
impact
must be considered. Given its LEOFF I
obligations and the
rapidly
escalating costs of medical insurance and medical care,
the
District' cautious approach is justified.
I have considered whether the
District's concerns could be
alleviated
by carefully drafted contract language. There may be
some possibilities, but
none are clear or appropriate for an
interest
arbitration award. It is something that
is best left to
the
negotiation process.
AWARD
The proposal of
the District is granted; the proposal of the
Union is denied.
June 9, 1988 _____________________________
R.
Wilkinson
Neutral
Arbitrator