By John Bebow - July 9, 2008
Public sector health care benefits have been under the microscope for years and the scrutiny is likely to only grow stronger in coming years as governmental units and school districts of all sizes in Michigan continue to face shrinking revenue bases and a citizenry none to keen on tax increases in an era of economic retrenchment.
Below is a sample of the intense arguments we at the Center hear on both sides. With that introduction, here's Gary Timco, an investment adviser in Northville, and Gary Fralick, director of communications and government relations at MESSA (the main supplier of health insurance for Michigan teachers) offer
GARY TIMCO:
I own a Investment and Group Insurance Practice in Northville and have been working in the Public Sector for some time. I have approach numerous School Districts with regard to getting their Health Care costs under control. Some of these districts include MESSA Districts where benefit levels are out of this stratosphere. Numerous districts are paying over $16,000 per year for family coverage, in particular MESSA Districts. I am beginning to believe that even the administrators like the idea of having 100% paid for Massage Therapy for 39 weeks by taxpayers! "What the hell, it’s not their money!" What is interesting to learn is that MESSA is re-doing their rating system, and smaller districts are going to get higher cost increases than before. Before they were lumped in with the larger districts, supposedly keeping their increases lower than what they might have been. I have had a number of quotes come down recently against MESSA, and the last one showed a savings of over $3,200 per contract. This was a savings of over $650,000 to the districts. Just going directly to Blue Cross, and parking MESSA on the side, and self insuring their drugs creates over 20% savings for the district. The amazing thing is that we duplicated the MESSA Benefits line by line item. Same benefits but far less costs…..and guess what - still with Blue Cross... I believe the solution for Michigan is to cap insurance costs for the teachers based on an equitable rating formula. For example, a family coverage in a district should not be allowed to run over a stated amount (ie. $11,000), otherwise the district would receive less reimbursement from the State per pupil. They could also consider a managed care option such as Blue Care Network, whereby the district would pay for 100%. If the teachers wanted to buy up to a fully traditional PPO, then they could pay the difference (pre-tax) out of their own pocket. With pension costs running around 17.4% for each teacher plus an additional 18 to 22% for medical, this is not sustainable for much longer. Many districts still have low deductibles and co-pays if any. Typical deductible is $100 with a $500 co-pay. Private industry has not enjoyed these benefits for over 10 years! The state legislators have allowed this "Feather Bedding" for way too long. There must be accountability for these workers since they are using all these rich benefits. In the meantime the state is going broke and they keep giving in to the unions! It is time to stop this madness and provide the districts and taxpayers some relief on the cost side. We can either watch the school districts suffer with layoffs & large class sizes or everyone can pitch in and live responsibly instead of having someone else pick up their extravagant life style. Fair is fair!
GARY FRALICK RESPONDS:
I think the opinions expressed in the email are entirely natural for a disgruntled sales person who is seeking a commissioned sale but has found it difficult to compete in a free market. This sales consultant has tens of thousands of dollars of commissions at stake and apparently he or she is unable to convince anyone to buy. The sales consultant's frustrations are caused by a failure to compete and sell, and are not a legislative problem for policymakers.
MESSA is hard to compete against. We simply are a great value. As a not-for-profit membership association chartered as a VEBA, MESSA does not pay commissions on our plans. MESSA is a Michigan-based job provider that employs more than 300 Michigan residents in its award-winning Member Service Center in East Lansing and throughout the state. We put our members' best interests, not profits, first.
As you know, health benefits for represented public employees are subject to collective bargaining. As such, employees look at benefits as part of their total compensation package. They compare plans and ask for the facts to back up the promises. Over many years employees have made their choices on where to invest their compensation: in salary or in other benefits such as health insurance or disability coverage. The priorities employees have established for collective bargaining represent that. Our polling shows that school employees strongly believe having quality, comprehensive coverage is absolutely essential, and that a quality plan like MESSA helps them stay healthier and reduce absences.
School employees have definitely paid for their coverage by sacrificing salary in the give-and-take of bargaining. Data from the Michigan Department of Education's Form B filings show that 10 years ago the share of schools' total operating expenditures that went toward instructional salary and benefits was 56 percent, and last year it remained at 56 percent. No change.
It is a free market and the school employees' choice. Despite the consultant's promises, school employees are choosing to buy elsewhere.
In responding to the specific issues raised by the insurance consultant below, here are the facts:
The Hay Group -- which was hired by State Senate Republicans to review the market -- had no self-interest in commissions or in the market. Their actuaries told legislators the health insurance market for educators "was not broken" and was "actually working quite well." They also testified before legislators that MESSA's business model was impressive. I've attached a one-pager with exact quotes and citations. Here are links to the actual testimony:
http://www.youtube.com/watch?v=b2BEVq_N1kY
http://www.youtube.com/watch?v=KauVK_C7msU
Because of MESSA's business model and bargaining power, no one can provide the same benefits at a lower cost. Inevitably in other plans there are huge cost shifts, reductions in benefits and deterioration of service when school employees move to a different plan. I've attached two documents containing key points from Traverse City and Holland when employees moved to a different plan and then came back to MESSA. I would suggest you request the exact bid specifications from the insurance consultant, including whether or nor the plans are services by a employees in Michigan, what the co-payments are, what the deductibles are, and what the co-insurance is.
I've also attached minutes from a meeting of the West Michigan Health Insurance Pool showing that the board passed an increase for the current plan year of 21.7 percent and assessed districts an extra $1.8 million (it was due Oct. 31 2007) to make up for a shortfall. The increases made the WMHIP plan cost about 10 percent more than MESSA's similar PPO plan. Here's another interesting link about consultants who promise savings: http://www.youtube.com/watch?v=1Lopb9pa0AE
In regard to MESSA "re-doing its rating system" that is a direct result of the passage of PA 106 which has forced MESSA to give up pooling of all of our member school districts into large area pools to spread risk. We testified last year that MESSA would have to change our rating system if PA 106 was enacted. PA 106 has turned the insurance market for school employees into a market that is experience-related -- and because of this many districts will see rates rise drastically if they have had members with expensive medical claims. It is a shame but it is the reality in the PA 106 world.
By forcing MESSA to break up its pools, PA 106 also forces MESSA to apportion administrative charges differently: as the groups are no longer pooled together, the cost to administer a small group is higher, percentage-wise, than it is for a larger group. That is simple economics. MESSA's model of pooling provided districts with economies of scale, but again PA 106 has forced us to change.
MESSA's rate increases have been under five, 3.7 and 3.3 percent over the past three plan years.
There's been tremendous movement by employees choosing lower cost plans over the past four years. More than 85 percent of our members are now in a PPO or POS plan, up from just five percent four years ago.
More than 50 percent of MESSA members are in drug programs with $10 and $20 co-payments, and higher costs for members who choose generics when a brand is available. That's up from zero percent four years ago.
Obviously, educators are sharing in the cost of their plans and they are working with their school boards to reduce costs. The plan changes outlined above have saved school districts more than $500 million in the past four years.
Many districts with MESSA coverage are paying less than they did for employee health care benefits than they did three years ago.
MESSA is a Michigan success story and a Michigan employer. It is successful because it provides the best value in the market. PA 106 has forced us to change our business model. As much as we can given the changes forced by PA 106, we are committed to designing a future business model that spreads risks and protects school districts from huge spikes in rates.
4 Comments
Please ask Gary Timco to rewrite his entry using basic paragraph structure so that it is readable. I'd like to give his ideas full consideration, but it is difficult to follow an argument in which each idea flows mercilessly into the next with no emphasis or order.
When hard times are widespread, local, state and federal tax revenues are low, or dropping, then we expect those groups getting the best benefits and/or highest incomes to sacrifice something because in every period of such times, the poorest and most economically vulnerable are forced into sacrifice of what little they have/had, and that population increases day by day, even though to make a solid thriving economy, we need to keep that population as low as possible.
Its good that Teachers' unions are making some benefit sacrifices. Its my humble perspective that politicians and powerful institutions need to also make sacrifices as well.
Its common that upper level management, ceos, powerbrokers and institutional top individuals refuse to allow themselves to lose their goodies, extras and overblown wages when their prymidal hierarchy below them is faltering and feeling a pinch. While all of those in that lower section of structure definitely feel the pain.
Considering that point of view, health care is one of those in the example, and profits to be made are horrendous. So beware of groups of politicians on the take, and lobbyist backers that seek to character-assassinate and destroy a good program that is actually benefitting a large group of middle class americans, while standing off to the side, profit-gouging entities wait and scheme to grab new profits through immoral tactics.
The health care industry is no different than any other industry promoted for profits by those in power, that seek to reap those profits. (oil, energy, real estate, insurance, finance, agri-corps, etc)
Spiraling healthcare costs are a problem for all sectors of the economy, not just for the state and local school boards. There needs to be a full debate of teacher insurance and rising costs, but that should be between school boards and the teachers as it has been over the past 60 years. Gary Fralick has made this abundantly clear and wins the this debate hands down. Unfortunately, Gary Timco was a poor choice to debate this issue in a public forum. A spokesman for the school boards would have been a far better choice. He/she could lay out the problem as seen by the boards and real negotiations could begin.
I am a retired school teacher who was involved in the earlier negotiations that obtains medical insurance for teachers in Michigan and may be biased toward Fralick's position. However, I can state unequivocally, that a national healthcare plan can be designed that will provide greater coverage, universal coverage and cost far less than what we are currently paying. This plan would eliminate the need for school boards, car companies, etc to pay insurance premiums for their employees.
Paul Andrews
First, a disclaimer. I am in the public sector employee benefits business -- however, our firm does not promote or sell medical insurance plans to Michigan schools. I am also a registered Democrat.
I have talked with many people on both sides of this issue, and here's my take...
School employees, particularly good teachers and administrators, are critical to our future. They are deserving of good pay and benefits, probably above and beyond the average worker. I would argue Michigan school employees have that, with wages and health benefits ranked amongst the best nationally, by almost any measure. Yet many in the teacher's union leadership become incensed when asked to pay a small portion of their family premiums or to go from a $5 drug deductible to $10.
For Mr. Fralick to suggest that MESSA is the "best value" and that broker or agent compensation is a big part of the problem is just arrogant and silly.
MESSA is the last to innovate or offer cost-controlling health plans, only doing so when forced to by political, competitive, or financial pressures. Why? Because as he says, their membership is most important. Any givebacks on health benefits go over poorly with the membership. And if profits are relatively unimportant, why is MESSA sitting on hundreds of millions in surplus (a fact pointed out by MESSA's own former executive director)?
The biggest reasons for MESSA's success are their power politically and at the bargaining table, as well as their refusal to provide the information necessary for competitors to quote. I would suggest that any enterprise with the playing field tilted so heavily in its favor OUGHT to be successful.
The ones hurting are Michigan's taxpayers. There are many quality health plans and options out there, MESSA being one of them. MESSA should have to compete by the same rules as everyone else, which was the point of PA 106. It just makes good sense and good public policy.
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