Executive Summary

Over one year ago, the Mackinac Center for Public Policy was approached by a concerned parent who had watched his school district, during a heated contract negotiation, spend over half a million dollars more for teacher health insurance than seemed reasonable. In addition to the excessive costs, the fact that the insurance provider was a subsidiary of the Michigan Education Association (MEA) caught his attention. The Mackinac Center investigated and, after nine months of research, has summarized its findings in a report titled Michigan Education Special Services Association: The MEA's Money Machine.

This report documents two important findings: (1) tens of millions of education dollars are wasted each year on unusually costly teacher health insurance; and (2) the MEA's insurance subsidiary is part of a systematic plan to use money intended for education to subsidize the MEA's basic operations and political activity.

The Michigan Education Special Services Association (MESSA, pronounced MAY-sah) is a wholly-owned, non-profit subsidiary of the MEA. It is a third party administrator of health insurance benefits to public school employees who are MEA members. MESSA contracts with the school district to provide benefits, and then administers insurance actually underwritten by Blue Cross/Blue Shield of Michigan. MESSA keeps a portion of the school district's payment to cover its "administrative" costs.

MESSA currently dominates the public school employee benefit market, providing insurance to over 300 of Michigan's 524 K-12 school districts. MESSA took in over $360 million in premiums in 1992 alone. To put this amount in perspective, it is roughly 6 percent of the total revenue cut under Senate Bill 1, which eliminated the local school operating property tax.

The following describe the reports two major findings:

1. Excessive Costs for Insurance Benefits

There are two reasons why the cost of MESSA health insurance is excessive.

One is the extremely high administrative costs of the MESSA/Blue Cross operating

agreement. In addition to high salary and benefit levels for MESSA employees and questions of productivity, both MESSA and Blue Cross have separate claims processing facilities that require redundant expense. MESSA also supports the extensive data processing facility that the MEA uses for its basic operations and political activity. MESSA and the MEA also "share" employees for lobbying and other purposes.

School districts also have a difficult time soliciting competitive bids because MESSA, unlike other insurance providers, refuses to provide a claims history. A claims history is a record of the bills submitted by the school district employees for payment or reimbursement. These are used as a basis for bids by competitors.

The second reason why the cost of MESSA insurance is excessive is the design of the benefit packages. MESSA benefits are extremely generous, and cover most health-related procedures in full or nearly full. These benefits are well in excess of what comparable private employers in the same area provide their employees. One reason for this is that the MEA likes to compare benefits to other school districts around the state, which already may be at high levels, rather than other local employers.

2. How MESSA Supports MEA operations and political activity.

During the mid-1950's to early 1960's, the MEA provided benefits as a way to entice school employees to join it rather that its rival, the Michigan Federation of Teachers. MESSA was created in 1960 as part of an orchestrated effort to use insurance benefits to gain union support and as a source of revenue to fund union operations.

Today, MESSA pays the MEA millions of dollars in exchange for having local MEA bargaining agents pressure school districts into purchasing expensive MESSA insurance. The benefits serve to keep many union members supportive of the union even though they may disagree with the MEA's position on political or educational issues.

Both the MEA and MESSA fund lobbying staffs in Lansing, and the MEA is the state's largest single supporter of political candidates through its political action committee. The influence of the MEA is one of the main reasons Michigan school reform efforts have been thwarted at nearly every turn.

The study recommends several ways to minimize the harm the current MEA/MESSA relationship is imposing on school districts. First, the Public Employment Relations Act, which mandates collective bargaining with public school employees, should be amended to either exempt teachers altogether or eliminate health insurance and other benefits as a mandatory topic of bargaining. The former would still allow teachers to join a union, but not be forced into membership or support. The latter would still require school districts to bargain wages and other conditions of employment, but they would have more freedom to select insurance providers based on cost and merit, not political pressure.