Appendix III

The Case of the Troy School District

For the reader's interest, an actual example of one school district's experience with MESSA has been included. Of course, every situation where a school district encounters the MESSA issue is uniquely resolved. In some instances, school district officials will yield to the teachers' union without a battle, and even purchase MESSA coverage for themselves. Other times, the fight over MESSA can become so intense that the union will strike for protracted lengths of time or the district will steadfastly resist MESSA. The example of the Troy School District was chosen because it represents a fair and accurate portrayal of what a school district may experience when negotiating MESSA insurance with an MEA local affiliate. The following discussion relates to the Troy School District's collective bargaining agreement for the 1990-93 school years. The district is now in the process of negotiating a successor contract.

Background

Prior to its 1990 health insurance agreement, the Troy School District gave its teachers the option of either MESSA Super Care II, a less comprehensive Blue Cross plan, or a $900 annuity in place of health insurance. For the insurance options, the district paid the full premium for single person, two-person, and full-family coverage. Of the 650teachers in the district, 570 were enrolled in MESSA, 17 were enrolled in Blue Cross, and83 opted to receive the cash annuity. Of the 567 teachers who selected health insurance,107 chose single-person coverage, 113 chose two-person coverage, and 367 chose full-family coverage.

In 1989, MESSA and Blue Cross announced that school districts could no longer offer competing insurance plans to their employees. The plan administrator with 25 percent or less of the enrollees had to withdraw from that particular market. In the Troy case, Blue Cross withdrew.

Impact of Teacher Costs on the Troy School District

For the Troy School District, the total cost of employee compensation was accelerating at an upward rate. Part of this cost increase could be attributed to the rising cost of employee health insurance. For example, the monthly premium for full-family MESSA health insurance increased at an average rate of 23 percent per year during a 10-year period, from $151.12 in 1980 to $538.66 in 1986. After accounting for salaries and other benefits, the district was paying around $30 million in teacher compensation. The average cost alone of a teacher with full-family MESSA coverage was $57,454.88.

As a consequence of these high costs, the Troy School Board acknowledged that it could not maintain its current level of educational programs if expenses continued to rise. The district's bargaining representatives were instructed to contain costs in any subsequent contracts negotiated with the teachers' union, particularly in the area of employee health insurance.

Average Salary $47,198.00
Retirement benefits (MPSERS) $2,359.90
Health insurance $6,463.92
Dental insurance $739.32
Vision insurance $196.68
LTD insurance $401.18
Life insurance $95.88
Total average cost $57,454.88

The Collective Bargaining Process with the Union

On May 1, 1990, the Troy Board of Education and the Troy Education Association began to negotiate a new labor contract. The contract talks concluded on May 24, 1991. During this389-day period, there were over 55 bargaining sessions, a 14-day teacher strike, two mediators from the Michigan Employment Relations Commission, and one court-appointed mediator. The foremost cause of the disputes was union resistance to the district's cost-containment suggestions. In order to maintain its educational programs and minimize costs, the district considered many strategies for cost-containment in the area of employee health insurance, including:

  1. Reduce the total amount of employee benefits.

  2. Limit the district's contributions toward health insurance premiums.

  3. Require employees to pay a portion of the premium cost.

  4. Restrict coverage to employees and have them pay for additional family members.

  5. Provide managed care options, such as a health maintenance organization or a preferred provider organization.

  6. Provide a "cafeteria plan," whereby teachers select coverage from various health benefits and cash alternatives.

  7. Switch to comparable coverage from another provider.

  8. Self-fund an insurance program.

The union opposed all of these measures and would not accept anything other than MESSA coverage. After considering the circumstances, the district chose to maintain the level of benefits already provided to teachers with MESSA insurance while seeking out the most efficient way to deliver the benefits.

If the district had purchased MESSA Super Care II for all teachers, the monthly premium rates per participant and annual costs for all participants would have been as follows:

Monthly Premium Per Participant Total Annual Cost For All Participants
Single-person coverage $211.15 $271,117
Two-person coverage $495.42 $671,790
Full-family coverage $538.66 $2,372,259

With 107 single-person participants, 113 two-person participants, and 367 full-family participants, the total annual cost to the District would have been $3,315,166.

The district also considered purchasing the slightly less expensive Super Care I plan from MESSA. The only difference in coverage between the plans was that Super Care I required an annual deductible of $50 for individuals and $100 for families along with a$2.00 co-payment per prescription. The difference in premiums, on the other hand, was drastic:

Super Care I Super Care II Difference
Single-person coverage $197.58 $211.15 $13.57
Two-person coverage $442.08 $495.42 $53.34
Full-family coverage $491.03 $538.66 $47.63

On an annual basis, the district would have saved a total of $299,515.44 by purchasing Super Care I instead of Super Care II. The average additional cost per teacher with the Super Care II plan would have been $510.25. Yet, MESSA only charged nominal deductibles and co-payments with Super Care 1, which otherwise offered the same coverage as Super Care II. The district could have made up the slight difference in coverage by reimbursing each teacher for the annual deductible and by providing a fund to cover the cost of prescriptions. If the district gave each teacher $125 to cover deductibles and prescriptions, the teachers would receive the exact same benefits as Super Care II and the district would save $226,140.44.

As part of its search for an efficient insurance provider, the district asked Group Benefit Services, Inc., its third-party administrator of insurance for support personnel, to submit a "self-funding" proposal that would cover all district employees. The coverage would have been identical to MESSA Super Care II, but would have cost only$2,596,200:

Monthly Premium Per Participant Total Annual Cost For All Participants
Single-person coverage $250.00 $321,000
Two-person coverage $395.00 $535,620
Full-family coverage $395.00 $1,739,580

After adding in $7,748 to provide for equivalent life insurance coverage to what MESSA was offering with the Super Care II plan, the total cost to the district would have been$2,603,948-a savings of $711,218 over the MESSA plan. As a safety option if the union rejected the self-funding proposal, the district offered to provide MESSA coverage on the condition that MESSA supply evidence of the number of claims filed by the district's teachers so the School Board could assess the value of MESSA coverage. The teachers' union rejected both proposals.

The Troy Education Association would only settle on MESSA Super Care II or MESSA PAK coverage with Super Care I health insurance. The MESSA PAK option combines health, life, disability, vision, and dental insurance into optional packages, making MESSA the administrator of other coverages in addition to health coverage. In short, MESSA PAK aims to provide one complete employee insurance package rather than separate purchases of separate plans. Although the union claimed that MESSA PAK would save the district two percent of its total insurance costs, MESSA would not provide the verifying cost breakdown.

Of the two MESSA PAK plans offered to the district, Plan A was for teachers who required health coverage and Plan B was for teachers who did not need it. MESSA only offered composite rates for each plan, rather than rates based upon single-person, two-person, or full-family coverage. With 587 participants for Plan A and 90 participants for Plan B, the cost of MESSA PAK was as, follows:

Monthly Premium Total Annual Cost
MESSA PAK Plan A $558.88 $3,936,751
MESSA PAK Plan B $145.80 $157,464

After adding in $9,000 for a separately purchased annuity for teachers who did not require health insurance and deducting $1,095,328 for separately provided insurance, the total cost of the MESSA PAK program was $3,007,887-a savings of $307,279 over MESSA Super Care II.

In the end, the Troy Education Association and the Troy Board of Education agreed to MESSA PAK with MESSA Super Care I as the health coverage. The District offered to pay $125to each teacher who requested health coverage as reimbursement for prescriptions and deductibles. The district also reserved the right to terminate MESSA PAK if it could prove that the same life and disability coverage was available elsewhere at a lower cost.