Explanation of MESSA

The Michigan Education Special Services Association was created by the Michigan Education Association in 1960 for the purpose of administering insurance benefits to members of the teachers' union. MESSA now manages contracts for insurance benefit provision in approximately 60 percent of Michigan's 523 K-12 public school districts.6 By having its own insurance administrator, the MEA is able to control the amount and quality of benefits received by its members. The programs administered by MESSA include life, accidental death and dismemberment, disability, health, dental, and vision coverages. However, MESSA is most often associated with its six health insurance plans-Super Med I, Super Care I, Super Med II, Super Care II, MESSA 250/20, and MESSA Limited. Of these plans, the Super Med and Super Care plans provide the better benefits and are purchased with greater frequency. This report is predominantly concerned with MESSA's health insurance plans, because they constitute the largest portion of MESSA's business.

Although MESSA is an administrator of insurance benefits, it does not meet the general criteria of an insurance company. This distinction can often lead to misunderstandings about what MESSA does, but in order to qualify as an insurance company, MESSA would have to assume risk for losses and gains on its insurance plans. MESSA only administers insurance benefits which have been underwritten by other companies, so it is considered to be a third party administrator (TPA) of insurance. (It must be noted, however, that the nature of the operating relationship with Blue Cross/Blue Shield of Michigan has raised questions as to whether MESSA does actually assume risk, and should be subject to the general provisions of the insurance code.) TPAs are quite common in the insurance industry; the Society of Professional Benefit Administrators reports that TPAs currently administer insurance plans to just under half of all U.S. workers.7 As a TPA, MESSA develops and holds various group insurance policies that are underwritten by a licensed insurer pursuant to a contract. The policies are dispensed to MESSA's participants through MESSA itself, rather than through the underwriters. In short, MESSA is an administrator of insurance benefits that sells insurance plans, but does not underwrite the plans.

The classification of MESSA as a TPA is mainly for the regulatory purposes of the Michigan Insurance Code. For tax purposes, MESSA is classified as a not-for-profit, tax-exempt voluntary employee beneficiary association (VEBA).8 To qualify as a VEBA, MESSA must guarantee that its members have an employment related bond-public education-and it must maintain "an arm's length relationship" in financial dealings with affiliated corporations, such as the MEA.9

MESSA operates in the narrowly defined market for administration of insurance to public school employees. The market itself is not very competitive, given MESSA's commanding position relative to other firms. Technically, MESSA competes with other third party administrators, insurance companies, and health care corporations that also deal in the business of administering insurance benefits to public employees. For example, the School Employees Trust, Inc. ("SET"), a division of the Michigan Association of School Boards, is a third party administrator that has competed with MESSA for the past twenty years (even though both MESSA and SET were founded by the same person).

No other state affiliate of the National Education Association has been able to duplicate the MESSA concept. Some attempts have been made, yet none have succeeded. There is speculation that MESSA is a precedent for the NEA itself, now that the NEA's life insurance operation resembles the MESSA concept. Government records indicate that the NEA's comparable not-for-profit subsidiary involved in membership services has encountered similar success: the NEA Members Insurance Trust has accumulated net assets exceeding $65 million.10 Nevertheless, the MEA has created an elaborate scheme that is the envy of NEA affiliates around the nation.