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Since voters approved Proposal A in 1994, Michigan schools can no longer count on double-digit increases in their annual budgets. That means that getting a handle on costs is more important than ever, and one area where school districts could realize significant savings is in health care benefits for school employees. Competitive contracting of health care benefits is one way districts can save precious financial resources for their primary goal of educating children.
Health insurance is typically the second-largest item in the annual budgets of school districts, just behind salaries and wages. Unfortunately, many school districts looking to stretch their health care dollar are finding themselves hampered by the Michigan Education Special Services Association (MESSA), the health care subsidiary of the state’s largest teacher union, the Michigan Education Association (MEA).
Roughly 60% of Michigan’s K-12 school districts use MESSA as their insurance carrier. Since July 1, 1998, the average rates charged by MESSA have increased about 6%, directly affecting the bottom line for these districts.
Roughly 60% of Michigan's K-12 school districts use MESSA as their insurance carrier. Since July 1, 1998, the average rates charged by MESSA have increased about 6%, directly affecting the bottom line for these districts.
But these rates hide the actual increase of 13% that MESSA began paying to Blue Cross and Blue Shield of Michigan (BCBSM) on July 1. MESSA has applied nearly $40 million of its $105 million accumulated surplus reserves from past years’ excess premium charges to mask the overall size of the 1998 hike to schools. Furthermore, double-digit rate increases are already being forecast for 1999.
Since next year’s hike will be on top of this year’s 13% cost increase, school officials, teachers, and other employees need to consider health plan alternatives now, and not wait until next year’s increase is announced. Similar benefits for substantially lower premiums are available, but don’t expect the MEA to help districts identify and take advantage of them.
How will this 13% increase in health insurance costs be paid? As mentioned, public schools must pay 6% of the increase through the rates MESSA charges them. Another $10 million will come from BCBSM Rate Stabilization Reserve (RSR) which represents excess premiums that MESSA paid to BCBSM in recent years. Still another $29 million of the added cost will be paid from surplus assets which MESSA accumulated from substantial over-charges to public schools in Michigan.
On June 30, 1997, MESSA reported that it had more than $105 million in surplus assets, including the RSR fund held by BCBSM. But this $105 million does not belong to MESSA; it belongs primarily to the public schools and the taxpayers of Michigan. MESSA uses this taxpayer money to stifle marketplace competition, and to perpetuate the MESSA/MEA health insurance monopoly. These surplus funds should be immediately returned to the public schools, not in the form of premium credits, such as the $29 million applied this year, but in direct cash payments. These funds are needed now for their intended purpose—the education of school children.
The excess surplus which MESSA now holds will soon be exhausted, if not because of the 1996 agreement between MESSA and the Michigan Insurance Bureau, then by other demands from the public schools and taxpayers. This year’s $40 million subsidy of rates is for just one year. When the excess assets are gone, the public schools will be paying the full cost, including the 13% increase this year, plus the additional double-digit increases that are already being forecast for next year!
Contracting Options
Managed care is our default national policy. It replaces the traditional fee-for-service approach with new approaches to quality care at lower costs. Managed care organizations in Michigan are responding to competition and market-driven initiatives to serve the interests of both employers and employees by providing value-based health plans and services.
What are some of the specific options? There are more than 20 licensed health maintenance organizations (HMOs) covering almost all of Michigan. They offer a variety of quality-based and cost-effective plans. Blue Cross and Blue Shield, for instance, administers health insurance for many public schools directly, without involving MESSA or any other insurance middleman.
BCBSM has introduced several managed care plans with patient care choices which schools have purchased at reasonable rates, in addition to HMOs through Blue Care Network. Another option is for school districts and their employees to design and direct their own health plans, and contract out to third-party administrators for plan administration, as many public and private employers already do. These plans are self-insured, with employers purchasing stop-loss insurance to cover catastrophic claims.
There are more than 20 licensed health maintenance organizations (HMOs) covering almost all of Michigan. They offer a variety of quality-based and cost-effective plans.
The state of Michigan and some public universities have "carved out" prescription drug benefits to pharmacy benefit managers that specialize in prescription drug management, saving more than 20% on prescription drugs alone.
Several school districts have turned to Michigan Employee Benefit Services, which offers a plan with similar benefits to MESSA, and is also insured though BCBSM, but with significantly lower premiums. The Michigan Association of School Boards offers a BCBSM-insured plan as well.
School districts have choices when it comes to insurance. Competitively contracting with organizations that provide the best service at the lowest cost can make school district employees and taxpayers healthier and wealthier.
The goal of our public schools is, and must continue to be, quality education for children. School teachers and employees must be responsibly compensated and protected but, just like private enterprise, public schools are being called upon to do more with less. Private enterprise has responded. Public schools can, too.
Health care expenses are just one of many issues on the agenda for local schools looking to use their resources in the most efficient way. But marketplace alternative health plans to MESSA can save districts a considerable amount right away. The time to begin collaborating with school employees to look at these alternatives is now—not a year from now, when further double-digit increases in MESSA’s health care premiums can be expected.
