This report is concerned with the MEA subsidiary of most interest and greatest importance to the parents and taxpayers of Michigan-the Michigan Education Special Services Association. MESSA is important for several reasons. In the past decade, MESSA has attempted to become a monopoly in the market for administration of insurance benefits to public school employees, and it has done so by maneuvering its way into labor contracts with the MEA's assistance. In order for MESSA to administer insurance to a school district's employees, a MESSA insurance plan must be negotiated with the school district during the collective bargaining process. Since the MEA is the collective bargaining representative of most public school employees and the parent corporation of MESSA, MESSA gets a disproportionate share of the market. This holds special significance for the school districts that suffer the financial consequences of reduced competition in the market for insurance coverage of their employees.

With $360 million in 1992 premiums alone, MESSA currently receives public funds from approximately 60 percent of Michigan's school districts in exchange for insurance coverage of school district employees, including teachers, support staff, and administrators.5 The majority of these revenues (92.5 percent in 1992) are used to pay for the cost of insurance benefits. Evidence suggests, however, that MESSA's benefit costs are abnormally high, due to a number of factors which relate back to excesses in the design of the overall benefit packages. In addition, MESSA's revenues which do not apply to benefit costs are used for purposes which are also cause for concern. Almost all of MESSA's remaining revenues are either allocated to unusually high operating expenses or deposited in huge cash reserves. As it turns out, almost one-third of MESSA's operating expenses are for "services" rendered by other corporations in the MEA conglomerate.

An examination of MESSA is particularly relevant with the recent approval of Senate Bill 1, which eliminated $6 billion in property tax-based school operating funds. Consider that MESSA's premiums are the equivalent of over 6 percent of the eliminated taxes. Given the facts that MESSA has established a formidable base of political power through the lobbying activities of the MEA, MESSA receives hundreds of millions of tax dollars every year through its benefit contracts with school districts, and school districts more often than not yield to MESSA coverage when it is demanded by the teachers' union, MESSA plays an important role in determining tax policy for the state of Michigan.

For over 30 years, MESSA has administered innovative but costly insurance benefits to public school employees throughout Michigan at the expense of school districts, and, ultimately, the taxpaying public. Even though MESSA is a major recipient of funds intended to finance public education, the public remains mostly uninformed about this operation. This report provides specific information about MESSA, elaborates on the various causes for concern about MESSA, and answers the fundamental question: Does MESSA, as a recipient of public funds, operate in the public's best interest?