|State Reform Spotlight: What a MESSA! Michigan’s Fight to Save Money on Teacher Health Insurance|
By Ashton Ellis
Thursday, June 21 2012
Wisconsin’s Scott Walker isn’t the only Midwestern governor to facedown a recall threat after altering the balance of power between the state teachers union and local taxpayers.
On September 24, 2011, Michigan Governor Rick Snyder signed into law a simple reform that could save taxpayers as much as $1 billion within the next decade, but not without provoking two separate recall efforts.
So far, the change has allowed several local Michigan school districts to realize hundreds of thousands of dollars in savings, with more on the horizon as current union contracts come up for renegotiation.
While some local unions choose to pay higher premiums, many others are opting to switch to a new provider in exchange for pay raises. The latter scenario allows teachers who want to pay more for pricier benefits to do so, while others can spend or save the increase as they see fit.
Importantly, both options save taxpayers money by making teachers more responsible for the cost of their health care.
Looking back, the real question for Michiganders is, “What took so long?”
For decades, the Michigan Education Association (MEA), the state teachers union, worked through its campus affiliates to require local school boards to use the Michigan Education Special Services Association (MESSA) when purchasing health insurance for teachers.
The deal was great for teachers.
According to a 2009 survey by the U.S. Bureau of Labor Statistics cited by Governor Snyder’s office, the average Michigan private sector worker pays, on average, 21 percent of the cost of their medical benefits if single, and 27 percent for a family.
By contrast, public employees like teachers, on average, pay for only 10 percent of the cost if single, and 15 percent for a family.
With substantially less skin in the game, Michigan teachers and other public employees passed on the cost of their “Cadillac” insurance plans to school boards and local taxpayers.
The arrangement is similar to the formula used by WEA Trust, Wisconsin’s union-affiliated non-profit health insurance provider.
In Wisconsin, WEA Trust enjoyed a dominant share of the school district market thanks to local collective bargaining agreements that required school boards to purchase teacher health insurance from WEA Trust.
Because there was no competition, districts were locked into paying whatever WEA Trust charged. Faced with threats of teacher strikes if WEA Trust was dropped, most districts kept paying. Some stayed with WEA Trust for decades.
In order to break up the monopoly, Scott Walker signed into law a reform that allowed school districts to reopen teacher collective bargaining contracts to bid out for other insurance providers. Within a year, WEA Trust lost $70 million in revenue of its formerly guaranteed business.
In Michigan, MESSA also benefited from its ties to local unions, enjoying business from almost 80 percent of Michigan school districts, according to reporting by PublicSchoolSpending.com, a project of the Education Action Group.
But unlike WEA Trust, MESSA is a third-party administrator, meaning that MESSA repackages benefits provided by Blue Cross Blue Shield.
MESSA also collects premiums and administers the insurance plan, but like most middlemen it charges high rates for unnecessary services.
There’s another distinction between MESSA and WEA Trust that’s even more nefarious.
MESSA pays “marketing fees” to MEA in exchange for MEA promoting MESSA to MEA’s members. That includes paying MEA to convince local MEA unions to require a district to use MESSA as a third-party administrator.
In other words, an entire layer of unnecessary and expensive bureaucracy is paid for by taxpayers because one arm of the state teachers union is paying another to make the spending mandatory.
Enter Senate Bill 7, the Michigan reform signed by Snyder last year that lets school districts choose one of two caps. The first limits a public employer’s percentage of health benefits annually to $5,500 for an individual, and $11,000 for an employee’s family. The other cap allows the employer to split the cost of medical coverage with workers, but at no more than 80 percent of the overall annual cost.
Either of these caps forces MESSA to offer competitive rates or risk losing out to other insurance carriers.
James M. Hohman, Assistant Director of Fiscal Policy at Michigan’s Mackinac Center for Public Policy, estimates that the caps in Senate Bill 7 could yield savings of up to $1 billion in the next few years.
Two days after Wisconsin’s Walker beat back a recall push spearheaded by state unions, a group called Michigan Rising announced that it would abandon its second effort in less than a year to recall Snyder. A spokesman for the group admitted that it was “abundantly clear” that not enough signatures could be gathered to hold an election.
It’s easy to see why.
Putting commonsense caps on government spending gives school administrators cost certainty when trying to balance budgets. It also provides members of local teachers unions with the opportunity to prioritize the value they place on “Cadillac” health plans and pay raises.
Snyder’s credo since being inaugurated has been “relentless positive action.” By helping to inject flexibility and choice into public spending on teacher health insurance, it’s a safe bet that individuals on both sides of the negotiating table are benefiting from the results.
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