The FBI and the Indiana Secretary of State's office are investigating the handling of what have been described as high-risk investments by the Indiana teachers' union in its insurance trust fund, a source close to the matter has told the Indianapolis Star.
The investigations come as Indiana State Department of Insurance Commissioner Jim Atterholt has raised concerns about an unusual level of high-risk investments that have landed the operation in financial hot water.
State regulators say the trust faces a potential $67 million deficit and could fall into insolvency as a result of those investments. As a consequence, school districts ultimately might have to assume some of the insurance claims now covered by the trust, though both state and ISTA officials say that would be unlikely to happen this year.
The Securities Division of Secretary of State Todd Rokita's office and the FBI would not confirm nor deny whether they were conducting investigations.
I'm not excusing the way ISTA handled its investments or questioning the need for an investigation, but I find a bit of irony here. Jim Atterholt, who sits on the Indianapolis Waterworks Board, voted last month to have taxpayers pay at least $85 million in prepayment penalties for its variable rate bonds without blinking an eye. Indianapolis water users are now being asked to pay 18% higher water rates to make up for the additional costs from the high-risk borrowing through the use of interest rate swap notes insured by companies that lacked the financial wherewith all to back up their insurance policies. ISTA practically operates as an extension of the Democratic Party. I suspect the interest in scrutinizing ISTA and not others has as much to do with whom the organization is not making political contributions as it does out of a legitimate public concern.
UPDATE: The Indiana Education Insight's Adam Van Osdol has more coverage on the ISTA investigation in the latest edition. He notes there are 13,000 school employees and their dependents who are covered by the ISTA's medical insurance plan. Over 90% of the teachers in Indiana are covered by ISTA's long-term disability plan. The primary concern is that the fund could fall into insolvency, in which case school districts would be on the hook to cover claims. The ISTA' s fund is currently facing a $67 million negative net worth. The ISTA fund is now seeking to turn over administration of health care claims administration to UnitedHealthcare as of July 1 and exit the business altogether. That deal is contingent on ISTA making a $4.7 million escrow payment today. Van Osdol says the $67 million shortfall, however, will remain and apply only to the long-term disability plan. ISTA's executive director, Warren Williams, has retired in the aftermath of this development. Last month, Trust Director Robert Frankel resigned. Van Osdol says ISTA Trust had asked recently for a premium increase of 20% (not much below the kind of increases I'm dealt annually by Anthem on my own health insurance plan) but dropped that idea out of fear many schools would drop their plans and choose less expensive plans.