Why School Districts Can’t Save on Health Care

Over the next few months, as public schools struggle with budget cuts, you can look forward to hearing more and more about MESSA, the Michigan Education Special Services Administration.

The provider of health insurance for teachers and other employees in roughly half of the state’s public school districts, MESSA has used its special relationship with the state’s most powerful union, the Michigan Education Association (MEA) in order to assure market share and revenue. Michigan taxpayers and schoolchildren, however, should balk at the high price of MESSA’s insurance, which costs school districts statewide an estimated $400 million per year more than they would otherwise pay.

MESSA was founded by the MEA and remains that union’s health care provider of choice. In fact, the MEA’s unstated policy appears to be that once a district has MESSA insurance, it should never be allowed to buy insurance from anyone else. MESSA’s coverage is both very generous and very expensive. Ordinarily, a school board facing a combination of tight budgets and rising health care costs would look for alternatives. But MESSA retains its market share through a combination of special measures that no other health insurance provider can use.

What other health insurer can count on its customers clamoring for a strike if their employer tries to go with another insurer? Any Michigan school board that considers insurance other than MESSA must be prepared to face at least the threat of an employee strike. In fact, any movement whatsoever towards cost control in health care is likely to be resisted tooth-and-nail by the union.

The most recent example: Four Grand Rapids-area school districts have taken the modest step of proposing that teachers contribute a portion of the cost of their health care. Despite the fact that this is now the practice in virtually every other industry and occupation, MEA officials have begun preparations for an illegal strike and have held a vote on whether to go on strike (as of this writing, the results are unknown).

Another way MESSA retains its market share is by refusing to provide employers with claims histories, the summaries of claims paid out on an employer’s policies. Employers must be able to provide prospective insurers with the information they need to figure out how much they are likely to pay out in health care costs, and this is done through claims histories. Almost all insurers provide such data to clients with 100 or more covered employees. But MESSA, alone among Michigan health insurers or third-party administrators, provides only “regional” — instead of employer-specific — claims information.

MESSA’s refusal to provide claims histories for individual school districts makes it much more difficult for insurers to put together bids that can compete with MESSA. Without competitive bids, a school district is more likely to stay with its current plan, even if that plan is a budget buster.

If Michigan’s public school districts were able to break MESSA’s grip on their pocketbooks, and if they tried to match the coverage and terms typically found in private-sector employment — rather than attempting to match MESSA’s lavish benefits, minimal co-pays and deductibles and extremely generous coverage — they could achieve savings of as much as 20 percent, which comes out to the $400 million mentioned earlier.

In short, the MEA and MESSA have set up an obstacle course that prevents public schools from introducing competition for teachers’ health care coverage or putting reasonable limits on the extent of care. Coverage, copays, and other terms of a health care benefit program, like all terms of employment, are a legitimate subject for collective bargaining. The MEA, however, has no right to dictate that schools purchase health insurance from the union’s own special provider, especially in the difficult economic conditions many school districts currently face.

The Michigan Legislature would do teachers, school districts, and children a huge favor by crafting legislation requiring that school districts solicit bids on health care coverage, and that MESSA provide district-specific claims histories for this purpose. Such legislation would not prevent MESSA from providing insurance, but it would prevent it from withholding claims information in order to avoid competition.

By ending MESSA’s special status and requiring it to follow the claims history practices of every other health insurance provider, the Legislature can free up education dollars to be spent the way they should be — on educating Michigan’s children.

(Paul Kersey is labor research associate with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. More information is available at www.mackinac.org. Permission to reprint in whole or in part is hereby granted, provided the author and his affiliation are cited.)