School districts that banded together to form a regional health insurance pool in southwest Michigan say they are saving an average of 7 percent on insurance costs, and the number of districts in the pool has jumped from nine to 29. A consultant working with the pool members says his company now is exploring similar ventures in other parts of Michigan.
The West Michigan Health Insurance Pool was established by the public school districts and intermediate districts in 2005 in an effort to save money on health care coverage through a self-insurance plan. In most districts the pool covers administrators and other nonunion support staff, today totaling about 1,700 employees, according to Doug Derks, area vice president for Arthur J. Gallagher & Co. His company is an employee benefits services firm hired by the districts to establish the pool and serve as a consultant. Derks is the former assistant superintendent for business of the East Grand Rapids school district, a position he left in January 2006 to join Gallagher.
"I would say it (the average savings) is just over 7 percent," Derks told Michigan Education Report. "They have the security of being a large company and the cost savings as well." At this point most of the savings are in administrative costs that each district faced by handling insurance programs individually.
"It’s been a good process. Everybody I have talked to is happy with the services," said Michael Cuneo, assistant superintendent for finance for Rockford Public Schools. Approximately 63 employees in Rockford are covered under the new program, which is saving the district about $40,000 this year. "We were looking for a more cost-effective way to provide health insurance … while maintaining benefits."
Each school district in the pool sends a representative to a governing board that oversees the insurance program.
Cuneo estimated that his district saves about 5 percent on the program compared to purchasing insurance from MESSA, the Michigan Education Special Services Association. MESSA, a third-party administrator affiliated with the Michigan Education Association, a school employees union, sells insurance to a large number of Michigan school districts. The amount of savings could go up or down in the future, Cuneo said, depending on the market and claims. "The big thing is that school districts have a little more control over the actual group itself."
Each school district in the pool sends a representative to a governing board that oversees the insurance program. "The intent is to have the school districts as managing partners," Derks said. His company handles filing required documents with the state.
South Haven Public Schools also is pleased with the program, saving approximately 10 percent on insurance premiums for administrators and non-certified staff during its first year in the pool, according to Robin Mock, business office supervisor. The district formerly purchased insurance for those groups from the School Employers Trust and School Employers Group, or SET SEG.
The pool gained statewide attention in 2005, when the Michigan Legislature took up a package of bills designed to reduce health care costs for public schools in several ways. Senate Bills 895-898 passed the Michigan Senate in December of that year, but never came to a vote in the House of Representatives. In November of 2006, former Senate Majority Leader Ken Sikkema, R-Wyoming, called on legislators to complete the work, saying it could save schools up to $570 million in the first three years.
The package of bills would have made it easier for districts to form regional insurance pools like the one in west Michigan. Such pools, called "multiple employer welfare arrangements," or MEWA, are already allowed, but supporters say the regulatory process is lengthy and burdensome. Another piece of the package would have required the release of claims experience data for each school district. Supporters said that knowing a district’s past experience would make it easier for other companies to prepare accurate competitive bids, which in turn would bring prices down.
Opponents have said that forcing insurance companies to release claims data would allow companies to "cherry pick" only low-cost districts for insurance coverage. They also said that, as proposed, the legislation making it easier for school districts to form insurance pools could put districts at risk by not requiring the same safeguards that are required under the Michigan insurance code. That code includes protections like requirements for adequate reserves, oversight and financial reporting.
"Overall, MESSA does support pooling … as a good way to spread risk," Gary Fralick, MESSA director of communications and government affairs, told Michigan Education Report. But he said that while the existing statute allowing multiple employee agreements has been praised nationally for its consumer protections, the new legislation would have "lessened the reserve requirement … and lessened the consumer protections," for school districts and their employees.
"We think that some of the current legislation has
been onerous for public institutions."
"At the end of the year, if they’ve had medical bills higher than expected, school districts (in a pool) could see a bill," he said.
Some districts have saved money not by joining a pool, but by switching insurance plans or companies. Michigan Education Report noted a year ago that a number of districts have moved to a less-expensive MESSA plan called Choices II, to increased deductibles or co-pays, or to a different company altogether.
If MESSA had not developed options like a preferred provider plan, "We would probably have 20 percent fewer members," Fralick said. "We are susceptible to market forces like anybody else."
Contract negotiations in 2006 in Bay City Public Schools resulted in the district switching carriers from MESSA to Blue Cross Blue Shield of Michigan for administrators and support personnel, according to Doug Newcombe, director of finance. Teachers shifted to the less-expensive MESSA plan, although they have the option to retain MESSA’s more expensive program, SuperCare, if they pay the difference, Newcombe said. All employees now pay more out of pocket for prescription drugs.
It’s too early to know precisely how much the district will save under the changes, Newcombe said, but the early estimate is approximately $2 million. The district has 500 teachers and 400 additional staff members in all areas. At about 9,500 students, the savings could equal $210 per student.
It is likely the health insurance issue will resurface in the Senate in 2007, according to Matt Marsden, spokesman for Senate Majority Leader Mike Bishop, although few details were available when Michigan Educationn Report went to press.
At this point, "all of those bills are dead and would have to be introduced" for consideration in 2007, according to Sen. Nancy Cassis, R-Novi, a member of the Senate Education Committee and also chair of the Senate Finance Committee. Cassis told Michigan Education Report she supported the bills at the time and would again. There is little question that, "Any new money going into education now is not getting into the classroom," she said, but rather to health insurance or pension costs.
Similarly, House Republican Leader Craig DeRoche said he expects the Legislature to revisit the issue, but added, "Much of the reform that is needed can be done in the private sector." Bringing more insurance companies into the market would introduce more competition and cost savings, without state regulation, he said. "The ideal solution, to me, would be private sector markets brought in that would offer dynamic alternative choices."
DeRoche told Michigan Education Report he understands the need for legislation making it easier to form self-insurance pools like the West Michigan program, calling it the "most important element" of the reform package.
"We think that some of the current legislation has been onerous for public institutions," Derks said. The laws allowing formation of multiple employer arrangements was intended for private industry and includes safeguards that aren’t needed with established public institutions like schools, he said.
Cassis said she believes more districts are taking the step of seeking competitive bids on health insurance than in the past. "It’s an issue of negotiation between the teachers union and the school board and administration."
That idea is supported by a statewide survey by the organization of Michigan School Business Officials. The April 2006 survey invited school districts to report on how many insurance carriers they use and whether they have added any since 2000. Of the 284 districts responding, 46 percent said they had added a new carrier or changed insurance plans within the same carrier. The same number said they solicit bids for insurance in preparation for collective bargaining.
It is unreal to me that so many of us taxpayers continue to fund MESSA’s insurance without any competition. The schools claim they have no money but it’s all going to MESSA. Kudos to the districts that have the courage to get competing bids and pool their resources.
- Donna Gundle-Krieg, health resource consultant, University of Michigan Health System