Michigan House Speaker Andy Dillon proposes to create a statewide health insurance pool for a wide range of active and retired employees of state and local governments, K-12 school districts, community colleges and universities.

A special legislative committee will begin hearing testimony on the idea this week. Among the factors policy makers will consider is cost savings.

Could pooling save money for Michigan taxpayers?

To shed light on that question, The Center for Michigan benchmarked the costs of public health care benefits pools in seven key comparison states.

Overall, benchmarking suggests that states with pools may be finding cost-effective ways to provide health insurance to public employees, potentially leaving tax revenue on the table for other strategic public priorities.

Three main conclusions:

1. LOWER COSTS IN OTHER STATES: Seven key benchmark states that offer health care pooling for public employees experience lower costs than Michigan does for state workers. Taxpayers spend an average of $6,435 per enrollee in those states’ public health care pools. In comparison, Michigan taxpayers spent $9,836 per enrollee for state employee and retiree health care in 2008. That is 53 % higher cost for state workers and retirees in Michigan than for the enrollees in other states’ pools. Even after increased premium sharing for State of Michigan workers in 2009, taxpayer costs for each enrollee will likely be more than 40 % higher than what taxpayers cover in those pooling states.

2. PUBLIC EMPLOYEES PAY A GREATER SHARE ELSEWHERE: State of Michigan workers saw their premium co-pays double from 5 % to 10% in the past year. Their share remains lower than their peers in pooling states:

STATE EMPLOYEE SHARE OF PREMIUMS

California 16 %
Georgia 25 % (Governor recommends hiking to 30%)
Massachusetts 17%
North Carolina 20%
Washington 15%
Wisconsin 7%

3. BIG INSURANCE POOLS ARE POSSIBLE: There are concerns that Michigan’s patchwork of thousands of schools and local governments is too unwieldy to pool into a large insurance plan. Yet, big pools are operating in some other states. A quarter-million enrollees in California’s public worker plan do not come from state government. The North Carolina pool insures the families of 250,000 public schools, college, and municipal workers in addition to state employees – the non-state enrollees there outnumber the state enrollees.

COMMENTARY

First, we caution that full explanations for the lower taxpayer insurance costs in pooling states are unclear. We have not, for example, benchmarked the very complex layers of benefits available in each state’s pooling plan and compared those benefits levels to what Michigan workers receive. Our main concern was to examine costs, not benefits levels. We viewed this benchmarking through the eyes of Michigan taxpayers who are, in effect, the employers of public workers. Through that lens, it is clear that taxpayers in pooling states are paying less than Michigan pays for its state workers’ benefits. In that respect, Michigan is arguably not cost-competitive with the pooling states examined. And cost competitiveness is an intensely important issue in our state where interest groups from all corners are competing for a state budget pie that is ever-shrinking due to the state’s lagging economy and outdated tax code.

Second, we acknowledge that the benchmarking contained in this report is not a complete apples-to-apples comparison because: 1) apples-to-apples data are not, to our knowledge, available; and, 2) every state's experience is different. For example, neither we nor, as we understand it, Speaker Dillon's research team has found clear and comprehensive data for the costs and premium co-pay levels in the current patchwork of health care plans available to hundreds of thousands of workers in Michigan local government, schools, community colleges and universities. Would adding those coverage and co-pay rates to the base of state employees increase or decrease the per-enrollee cost to Michigan taxpayers? We simply don’t know.

In short, a main goal of this brief report is to spur further questions among policy makers who will now consider Dillon’s proposed pooling legislation. Those questions include:

• How are pooling states able to provide health care benefits more affordably than the State of Michigan?

• What are the fairest levels of coverage for public workers in today’s Michigan economy?

• Have the State of Michigan and other education and local government agencies in our state done all they can to cut costs through efficiencies and use their considerable buying power in negotiation with insurers and health care providers?

Finally, a word about why The Center for Michigan has attempted this benchmarking… Almost three years ago, a bipartisan commission of state budget experts urged the state to benchmark the costs and best practices of Michigan government, including health care. Since then, no state agency has, to our knowledge, taken up the call. This report is, in our view, consistent with what those budget experts wanted to see.

METHODOLOGY

This report was written by Center for Michigan executive director John Bebow and researched by Bebow and Scott Rasmussen, a master's degree holder from the University of Michigan's Ford School of Public Policy.

We have researched the pooling states of California, Delaware, Georgia, Massachusetts, North Carolina, Washington, and Wisconsin because those are the states whose insurance pool structures Speaker Dillon, the Michigan Legislative Services Bureau, and/or the Michigan Education Special Services Association (MESSA) have researched for comparison purposes.

For each state, we used annual reports, public budget documents, and confirming phone and email interviews to determine:

• Total annual taxpayer-funded costs for the health care benefits pool.
• Total number of enrollees, defined as the employee or retiree who obtains the insurance for his/her dependents. The number of enrollees is also known as the number of individual insurance contracts.
• The total number of people covered (enrollees plus dependents)
• The total taxpayer cost per enrollee
• The total employer (taxpayer) share of premiums paid
• The total cost of premiums
• The enrollee percentage share of premiums paid
• The percentage of the pools enrollees who came from state government vs. other public agencies.

The state-by-state answers to these questions are summarized in the attached spreadsheet. Copies of the public documents and email correspondence used to compile each data point are available for inspection. Any interested party may obtain that documentation by emailing the Center at info@thecenterformichigan.net.