The Michigan Education Association recently published a study claiming that public schools on average pay less for health benefits than private sector employers. The study's goal is to derail House Speaker Andy Dillon's proposed public employee health insurance plan. By consolidating overhead operations and rolling all public sector employees into a state-controlled health insurance plan, Dillon, D-Redford Township, claims that the state will save $900 million, while the MEA warns that its members would lose half their benefits. The MEA's study attempts to insert research-based statistics into the debate, but its methodology is so haphazard that it simply adds more fuzzy figures to the topic.
The two most fundamental mistakes in the study are unequal comparisons and incorrectly defined statistics. For instance, to make their comparison between public school and private sector costs, the MEA study calculates that the average cost for health insurance per public school employee in 2008 was $8,311. Since this average is produced by dividing the total expenditure on health benefits by the total number of full time equivalent employees, it represents the cost for each employee, regardless of whether or not they actually have health insurance.
Although that is not a miscalculation, the way the study uses this public school average cost is problematic. In generating a $12,973 average cost for the private sector, the study ignores the fact that this is only the per employee cost for those employees who actually receive health insurance and attempts to compare the two numbers. Instead, the study should have looked to the Bureau of Labor Statistics for an equal comparison. It reports that the average cost per employee for the private sector regardless of whether they have health insurance or not is $4,521.
But the authors of the study didn't have to dig through the BLS data to create an apples-to-apples comparison. They only needed to correctly define their own data. For instance, the study estimates that only one-quarter of public school support staff employees qualify for health benefits, which greatly reduces the total number of employees with district-provided health insurance. This information allows for a calculation of the average annual cost per covered public school employee based on the very same data used in the study. Accounting for this factor leads to an average cost of $13,350. This number can then be used to compare with the private sector average the study cites.
Additional work needs to be done, however, because the study also badly misrepresents the $12,973 private sector average, which is obtained from a 2008 Kaiser Family Foundation report. The first problem with this number is that it is the average cost only for firms of 200 or more employees, which is an odd choice, since only 35 percent of Michigan schools have more than 200 FTE employees. Worse yet, this figure is not the actual cost to the employer, but rather the total cost of the premium. On the very same page in the report where this information is located, it clearly shows that employers only pay $9,991 of the annual premium. The private-sector employee picks up the tab for the difference.
But it gets worse. The private sector average represents the cost for a family plan, while the public school average does not delineate costs for different types of plans. These differences are significant, since on average a family plan premium is three times as expensive as a single plan premium. For a fair comparison between the numbers the MEA uses for public school costs and equivalent costs in the private sector, a blended average of the private sector plans must be used. Accounting for this factor and using only what the employer contributes to the health insurance premiums, it turns out that the private sector pays on average $6,484 per covered employee. When properly construed, statistics show that public schools pay on average about twice as much for health benefits as do private sector employers, regardless of which statistics are used.
As Dillon's proposal suggests, a large amount of savings for the state can be realized through reforming funding of public school-provided employee health care. Dillon's plan is worth discussing, but it shouldn't be the only consideration. Several school districts around the state control health care costs by seeking competitive bids, using self-funded health reimbursement arrangements, or capping the amount they will contribute. No matter what idea is discussed, the statistics simply need to be accurate, and the MEA study fails by that standard.
Michael Van Beek is director of education policy at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.