Health insurance: Reformed, but not resolved

Arguments continue as school districts gather bids

Comparison shopping for health insurance was supposed to get easier for Michigan school districts in 2008, but nobody said it would be pretty.

Adopted late in 2007, the state's new Public Employees Health Benefit Act was designed to address health insurance costs by requiring school districts to gather competitive bids before awarding new contracts. The same act required insurance companies and third-party administrators to provide aggregate claims data to the districts they serve, so the data could be used by other companies in preparing bids.

Sounds like a straightforward process, but the number of contracts yet to be settled in Michigan says otherwise. Interviews with members of the education community, as well as media reports, indicate that the new law has brought information, competitive pressure and some new players to the table. But some say that the first round of mandated bidding was based on short-term claims information, which may have skewed final cost estimates.

And since the law does not say that a school district has to accept the lowest bid and does not take the issue of health benefits off the bargaining table, school districts and their unionized employees continue to argue over which benefit plan a district can afford, which company should provide it, and whether current bids are true predictors of coming years' costs.

"The vast majority of districts who don't have a contract yet are fighting over insurance costs," said Superintendent Charles Barker of Belding Area Schools, where the district and its teachers spent a year negotiating primarily over prescription drug benefits. The parties eventually agreed to a contract that combines pay raises with higher drug co-pays. It also puts aside limited funding to reimburse teachers whose prescription co-pays exceed a set amount.

CLAIMS DATA

"The bad news, from my perspective, is how difficult it's been to get claims data," said Tom White, executive director of the Michigan School Business Officials, a nonprofit corporation.

Insurance companies gauge future costs in part by examining several years' worth of a district's claims history.

"They'll hedge their bets if they don't have enough data," White continued, typically by submitting a bid that's artificially high.

Until required to do so by the new law, the Michigan Educational Special Services Association, a third-party administrator that sells Blue Cross Blue Shield insurance products to a majority of Michigan school districts, had refused to release aggregate claims data to its customers.

MESSA is an affiliate of the Michigan Education Association, and both organizations lobbied hard against the act, citing privacy issues and saying it would allow insurers to "cherry pick" healthy districts.

After the law took effect, the association said that it couldn't immediately provide health data because it didn't maintain that information on a district-by-district basis. It said it would begin compiling figures as of December 2007. When MESSA customers like Belding and Reed City Area Public Schools requested their aggregate health histories, they received only a few months' worth of information.

"Bottom line was, we didn't get anything," Barker said. Already in negotiations when the law was passed, Belding received several months' worth of claims data in March 2008, which Barker said was not enough for competitive bidding.

"Other people can't bid if they don't know what your claims are," he said. "You need data over a longer time period."

"We haven't seen even one case where we've been able to get the experience data," said Nancy Jenkins, vice president of sales and product development at HealthPlus of Michigan. That information is particularly important if districts want to consider a self-funded plan, she said.

Superintendent Steve Westhoff said Reed City also received three months' worth of data, put out requests for bids and received proposals from Blue Cross Blue Shield, Grand Rapids-based Priority Health and MESSA.

"The bids from Blue Cross Blue Shield were a little bit higher than I expected," he said. "Face it, three months (of data) doesn't do anything for them."

The district and its teachers settled on a three-year agreement that includes wage increases and continues enrollment in the MESSA Choices II medical plan, but requires teachers to pay $10 per generic prescription drug and $20 per brand name, up from a previous $5/$10 plan. That change is expected to save the district $100,000, Westhoff said.

Negotiations with support staff broke down partly over insurance issues. The district offered two non-MESSA options with benefits that were not equivalent to the Choices plan but were "quality benefits," Westhoff said. The savings - about $2,600 per employee per year - would have allowed the district to maintain current staff, he said. When the support staff rejected the proposal, the board of education moved ahead with plans to hire private firms to provide custodial and food service operations.

Since then, recall petitions have been filed against four board members.

"I think the new law eventually will help," Westhoff said, "There will be more fair competition, which I think over time will keep rates down."

FUTURE RATES

As school districts consider health insurance, the question is not just what they will pay in the first year, but down the road.

Some MESSA customers saw double-digit rate hikes earlier in this decade, fueling the call for insurance reform, but in recent years the increases have come in at less than 5 percent in some districts. Some districts are paying less because they have negotiated changes in benefits, either by switching to MESSA's less-expensive preferred provider plan, first offered statewide in 2004, or to the $10/$20 drug plan, first offered in 2005.

But another reason, as MESSA has reported, is that the association is spending down part of the surplus reserves it has accumulated in recent years. MESSA had reported a $67 million deficit as of 2004, but its net assets then increased by $88 million, $129 million and $90 million in 2005, 2006 and 2007 respectively. The association ended the 2007 fiscal year with total assets available for benefits of $359 million. According to literature at the association's Web site, it has used $142 million to subsidize and reduce premiums over the past three years.

The lower rates are attractive, superintendents said, but they remain wary about the future. Meanwhile, employee groups cite MESSA's quality and service as reasons they want to retain it as a third-party administrator.

That issue was at the crux of hearings before a fact finder assigned to make recommendations to the Waterford School District in Oakland County and its four bargaining units. The groups have been in negotiations since May 2007.

The Waterford Education Association and support staff employees argued before Stephen A. Mazurak that the district should maintain MESSA as its third-party administrator, citing its favorable rates and the employees' history of agreeing to benefit changes that would lower the premium, according to Mazurak's written report.

The district advocated switching to the Waterford Health Plan, a plan similar to MESSA's Choices plan, but administered by Grand Rapids-based Michigan Employment Benefit Services. Both plans are underwritten by Blue Cross Blue Shield. The district argued that MESSA rates are likely to increase "when these reserves are exhausted," Mazurak wrote.

Mazurak recommended making the switch to MEBS, at least for the next two years, reasoning that the move would establish a baseline for comparing costs.

The plans are "substantially equal" in terms of benefits, Mazurak wrote in his report.  "I can predict that since both systems are predicated upon coverage by Michigan Blue Cross Blue Shield, the cost of providing these benefits will be approximately equal to Employer except for the cost of the third-party administrator."

As of mid-September, the employee groups and the district were still in negotiations.

 In a separate case, a fact finder who heard arguments from the Caseville Public Schools and its teachers union said that the district should continue to purchase MESSA Choices for teachers as a way to keep their overall package comparable with other districts. Also, the district didn't provide enough evidence to show it couldn't afford to fund the benefit without teacher contributions, the report said.

But the board of education recently declared the negotiations there at an impasse and imposed insurance benefits which includes a partial cap on district costs, said Dr. Dan Tighe, superintendent.

"We have to negotiate a condition that puts pressure on MESSA to come forward with more cost-effective products," Tighe said.

Tighe and other superintendents said that sharing the cost of health benefits between employees and the district creates an incentive to comparison shop.

The board also offered to let the union take over the insurance program by giving it a lump sum annually for the purchase of benefits on behalf of members, similar to the arrangement negotiated in 2007 between the United Auto Workers and several automakers for retiree benefits.

"We wanted our local union to be the ones to push their own organization," he said. "It's a Voluntary Employee Benefit Association. Members ought to be able to influence it."

Caseville's insurance premium costs doubled from 2000 to 2005, but increases recently have been approximately 3 percent, Tighe said.

"We are benefitting at the moment," he said. "That isn't going to change the fact that if MESSA is subsidizing ... rates to beat back the competition, those reserves won't last forever."

At this point the district is investigating the option of pooling its insurance purchases with other districts as a way of gaining buying power, he said.

Not every district is seeing smaller MESSA increases. The Swan Valley School District in Saginaw County faces a 17.5 percent hike this year, totaling about $190,000. Superintendent David Moore said he was told that rates were increased in the MESSA pooling zone that includes Swan Valley and also that changes in marital status among employees affected its premium.

OTHER STRATEGIES

Competitive bidding is not the only way to address health insurance costs, White said. Instead of arguing over insurance companies and administrators, some districts negotiate a cap on the amount they will pay per month per employee for health care. When costs rise above the cap, either employees pay the difference or the district and its employees split the extra charges.

"I've said it many times. Let's not cry too much because we feel like they (MESSA) aren't complying," White said. "If you simply negotiate a dollar amount, you can settle a lot of this."

In some districts, employees already have agreed to switch providers in exchange for a pay hike. In others, employees chose to retain the provider but forego raises.

White also suggested that districts can request competitive bids without claims data and receive helpful, if not definitive, information.

That's been the approach in Montrose Community Schools in Genesee County, according to Superintendent Mark Kleinhans.

"We negotiate a hard cap," he said, and over the years employees have contributed varying amounts out of pocket for MESSA products. Even before the new act was passed, Montrose gathered bids with help from a consulting firm. Though it didn't have claims data, the district supplied basic census information like number of employees and their marital status.

The district received 34 bids, and in subsequent negotiations all employees except teachers agreed to shift to plans sold by HealthPlus of Michigan. Teachers will shift from MESSA Super Care to MESSA Choices.

"Because that's less expensive, their (teachers') contribution per month went down," Kleinhans said.

"Having the (bid) information was certainly very helpful," Kleinhans said. "Had we bid with claims data, we might have gotten better bids."

Olivet Superintendent Dave Campbell said his district has gathered bids for several years. MESSA rates increased between 15 and 18 percent annually in his district from 2000 to 2005, while rates to purchase directly from Blue Cross Blue Shield increased 8 to 10 percent during the same period. But since then the MESSA increase has slowed to 3 to 5 percent.

In their latest contracts, Olivet's support staff and administrators agreed to Blue Cross Blue Shield coverage and a larger pay raise, while teachers opted for a MESSA product and a smaller pay raise and to start helping to pay their insurance premiums.

"At the end of the day it did save some money," Campbell said. "I'll continue to get bids."

PREDICTIONS

White said he believes the new act is slowing the rate of increase in health care costs and, just as importantly, forcing companies that want market share to develop products with varied benefits, co-pays and deductibles. Some districts are looking into newer products like health reimbursement accounts and health savings accounts.

"We are getting an audience with more school districts," Jenkins said, "and at least educating them about our products. They're at least being exposed to new information."

Reed City requested bids for high-deductible plans with health reimbursement accounts, and though the annual cost was competitive, Westhoff said he saw several drawbacks. One is the cash flow needed to fund the accounts originally, another is potential premium increases and still another is the hurdle of explaining the plan to employees.

In Rockford Public Schools, Superintendent Michael S. Shibler said his district expects to request bids for health insurance within the next year, but that, "I'm not sure the difference between providers is going to be that significant."

As chairman of the Kent County Grassroots Initiative, Shibler lobbied state legislators to adopt a plan in which school employees statewide would be required to pay a percent of their wages toward health insurance. The money would be deducted on a pre-tax basis via payroll deductions, with exact amounts determined on a sliding scale according to the employee's wage.

Shibler said he believes the plan would be a fairer approach and would give employees an incentive to pay attention to their insurance carrier, benefit levels and premium costs.

"I'm not going to give up. I think it's a better way to go," he said.

Tighe said he understands why Caseville employees are disappointed in the board's decision to impose health benefits, but that their protests should be directed at the larger issue of health costs overall.

"Let state lawmakers know school funding is a problem," he said.

Campbell said he would favor a central insurance plan covering all school employees statewide, similar to the system already used for state employees. Such a plan would spread risk and costs among a large pool and avoid scenarios in which healthier school districts could be cherry picked by insurance companies, thus making less-healthy districts have to take a larger share of dollars out of the classroom in order to pay premiums, he said.

"I don't think educational programming should be tied to the health of the employees."

A centralized system also would effectively take the health care issue off the local bargaining table and allow school districts to concentrate more on academics, he said.

"It is sad that we have 600 superintendents in this state who spend an enormous amount of time on insurance-related issues rather than on issues that could have a more positive impact on student achievement."

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Lorie Shane is the managing editor of the Michigan Education Report, the Mackinac Center’s education policy journal. Permission to reprint in whole or in part is hereby granted, provided that Michigan Education Report is properly cited.