MESSA’s Failure to Negotiate Changes in Insurance Contracts

When school districts enter into contracts with MESSA for employee insurance, the contracts are the product of an extensive bargaining process. It would seem, then, that any time the contracts are modified, MESSA would have to negotiate the modifications with school districts, and vice versa. This is not the case. MESSA contends that its contracts with school districts are open-ended and revisable at any point during the course of a contract period. Subsequently, MESSA has often made unilateral changes to its health insurance benefit contracts without the consent of its customer school districts. In recent years, for example, MESSA announced in the middle of a contract period that it would begin covering organ transplants. Even though MESSA does not change premiums at the time it, changes contract provisions, it is reasonable to suspect that increased benefits translate into increased premiums over the long run. Regardless, these unilateral contract modifications become a part of a district's health insurance program without any form of negotiation whatsoever, and school districts are justifiably upset.

Many school districts view these actions as duplicitous on MESSA's part because MESSA is not bargaining in good faith. If a school district requested a contract modification from MESSA, then it would have to negotiate with MESSA and accept a rate change.69 MESSA contends that school districts waive their right to object to MESSA initiated contract modifications by signing the "Employer Participation Agreement." This agreement refers to "certificates issued to MESSA" to which customer school districts are bound.70 One of these "certificates" is a summary plan booklet prepared for MESSA members which explains health insurance benefits. On page 48, it states: "MESSA reserves the right to modify or discontinue the group program at any time."71 In accordance with the language of the Employer Participation Agreement, school districts are then bound to inconspicuous statements printed in a MESSA pamphlet.

What is the consequence to school districts of unilateral contract changes? Since the modifications made by MESSA are almost always increases in the benefit structures of insurance plans, school districts suffer the actuarial consequences of benefit increases. Insurance premiums are primarily based upon estimated future claims. If it is probable that MESSA will require additional funds to compensate for utilization of new benefits, then MESSA must either collect the additional funds from school districts in the form of future premiums or remove the additional funds from its cash reserves, which have been financed with previous premium collections from school districts.

MESSA's non-negotiated changes in insurance benefits could become illegal with a recent court ruling in the case of St. Clair Intermediate School District v. Intermediate Education Association/Michigan Education Association and the Michigan Education Special Services Association. On May 8, 1990, during the course of their contract for employee health insurance, MESSA notified the St. Clair ISD that it was raising the lifetime maximum health insurance benefit for members from $1 million to $2 million. In August of that year, the District challenged this action by filing an unfair labor practice charge with the Michigan Employment Relations Commission. The charge claimed that MESSA, as an agent of the MEA, had an obligation to bargain with the District before increasing the benefit threshold, and without a bargain, the increase was an unlawful change in the terms and conditions of employment .72 MESSA denied the charges and argued that the St. Clair ISD waived its right to object to benefit increases by signing the Employer Participation Agreement and by acquiescing in previous years to MESSA's habit of making mid-term changes in benefits without the school district's consent.

The administrative law judge determined that MESSA was authorized to modify benefits during the contract term.73 Upon further review, an appeals commission overruled the trial court and found that MESSA and the MEA violated Section 10(3) of the Public Employment Relations Act, which states that a public labor union may not refuse to bargain in good faith. The new decision ordered MESSA to "Cease and desist in making unilateral changes in the working conditions of employees of the St. Clair Intermediate School District... without prior notification and affording time for collective bargaining with the St. Clair Intermediate School District."74 MESSA is now contesting this decision with the Michigan Court of Appeals, although a ruling may not come for several months.

The St. Clair case illustrates a fundamental point about MESSA: If the payments received from customer school districts were adequate enough to permit MESSA to increase benefits, then the payments received from school districts were also adequate enough to permit MESSA to decrease the total cost of its insurance plans without changing benefits. MESSA's taxpayer-funded customer school districts could have paid less while teachers could have enjoyed the same level of benefits as before.

The Michigan Association of School Boards points out that most private sector employers own their insurance policies, allowing for greater control over costs and benefit.75 With the current system, MESSA is the policy owner pursuant to its contract for underwriting services from Blue Cross. If school districts instead of MESSA owned their own insurance policies, the districts could route cost savings into other educational programs or they could rebate the savings back to taxpayers. Public school employees have nothing to fear, since school districts could not reduce benefits without going through the collective bargaining process.