The Potential Cost Savings of Competitive Bidding

MESSA operates in a market where the insurance administrator that gets the business is the insurance administrator that was negotiated with the most tenacity. This does not necessarily entail that the negotiated insurance administrator is the most efficient firm. The government is paying MESSA to do something that other firms could do more efficiently, if given the chance to compete, but MESSA has the support of the teachers' union. Any form of monopoly or oligopoly-union enforced or otherwise-in a marketplace where public sector firms shop is not going to function in the public's best interest, because nothing compels firms to price competitively. If competitive bidding were implemented, there would be an assured cost savings.

According to the Senate Majority Policy Office, the total potential cost savings from requiring competitive bidding of public school employee insurance is estimated at $60 million." In other words, because the state of Michigan does not permit school districts to select the most cost-effective administrator of insurance without regard to the MEA, school districts are throwing away $60 million. It is important to remember that this is not an immediate cost savings, but one which must be given time to emerge. Before any savings can be realized, competing insurance administrators will need to acquire some knowledge of the risk involved with insuring public school employees. At the present time, MESSA owns the rights to this knowledge as it pertains to MESSA's members. Nevertheless, the state is ignoring a cost containment strategy worth millions of dollars, which could be put to good use in light of the recent debate over funding for public education.

The impediment to the $60 million in cost savings is the court decision that has prevented school districts from competitively bidding their employee insurance coverage. The only way this decision can be overruled is through legislative action. In the past, several initiatives have been proposed in the state legislature which would mandate competitive bidding of insurance in school districts, but none have gathered sufficient support. In an October 5, 1993 speech on school finance reform, Governor John Engler repeated the call for competitive bidding of insurance as one way to alleviate the "budget crunch" in public education. The only hope for school districts is that legislative action will eventually garner enough support to loosen MESSA's grip on the market for administration of insurance benefits to public school employees" giving other more efficient firms a fair chance to compete for school district contracts.