Tuesday, June 19, 2007

Trading Reform for Tax Increases

Everyone seems to talk these days about being willing to accept tax increases in Michigan, assuming the government reciprocates by cutting spending and reforming operations.

I too think that is a reasonable approach.

The problem lies in trying to determine what are the appropriate levels of cuts, and what is true reform. I don't think we're anywhere close!

I wrote the following article to address some of the talk that has focused on education reform, and specifically education benefits:

The Detroit News: Teacher health reforms aren't worth tax hike (06/19/07)

The headline is a bit provocative. A more accurate description would've been, "These two specific teacher health care reforms aren't worth tax hike", but that's not up to me!

In the article I discuss the concept of health care pooling, and gaining access to MESSA health care data. Those are both valuable and important reforms, but they can only succeed if school board's do their jobs, which very unlikely unless school boards change dramatically. Therefore, I'm concerned that we'll agree to a tax hike, but really get nothing in return.

I think a more appropriate reform might be to create a "prevailing benefit" cap, determined in a way that's similar to the "prvailing wage" requirement demanded by unions in government construction contracts.

Here is the original piece submitted:

There’s a desperate need to reform education health benefits before they financially kill our public education system.

Fortunately, this is one of the few things on which state leaders seem to agree.

Reforms under consideration involve merging district health plans into one large pool, and providing access to teacher healthcare claims data. They’re necessary reforms, but it’s unclear whether they’re truly systemic changes that’ll produce tangible and meaningful long-term savings, especially if the ultimate responsibility for change rests with local school boards.

This is particularly alarming if they’re being offered as bargaining chips in exchange for Governor Granholm’s tax increases.

These reforms would threaten the stranglehold MESSA has on teacher insurance. MESSA is a subsidiary of the Michigan Education Association, the state’s largest teachers union. They’ve given critics plenty of reasons to get behind these reforms.

Districts are strong-armed by MEA negotiators into purchasing benefits through MESSA, who arguably charges excessive administrative fees, and offers no cost-effective plans resembling what’s seen in the private sector. They maintain a near-monopolistic practice of withholding claims data from school districts, which effectively prevents districts from obtaining competitive bids

But MESSA isn’t the root problem. Rochester Community Schools, where I serve as a trustee, is self-insured and doesn’t have MESSA. The healthcare costing data I’ve seen for Rochester is outrageously expensive – just like MESSA.

The problem lies in the fact that most K-12 schools provide nearly 100% coverage of health care bills. Unfortunately, neither of the proposed reforms address benefit levels.

The initial effect of these proposed reforms would likely be a reduction in healthcare administrative charges. MESSA reportedly charges an administrative fee equal to 10 – 12 percent of the roughly billion dollars in annual healthcare claims. However, even cutting those costs in half won’t offset the increase in health plan costs, which are projected to rise 8 – 10 percent next year. Reducing excessive administrative costs is a correction long overdue, but it’s a one-time fix and isn’t structural reform.

The push to receive access to claims data holds greater potential, but depends entirely on school boards taking action. History suggests this will look better in theory than in practice. Rochester has access to its data, but benefits approved in a recent contract still cost nearly 50 percent more than benefits offered by private sector employers. Many non-MESSA districts have access to claims data, but school boards have failed to use it in a meaningful way.

To achieve cost savings, boards would need to bargain with the MEA to eliminate over-the-top benefits as identified by claims data, or negotiate a switch to a carrier with more cost effective choices. Otherwise, access to claims data is likely to do little more than confirm health care is indeed expensive.

For example, MESSA’s policy provides for no in-network deductible, and covers massages, diet medication, and cosmetic drugs such as Rogaine and Propecia. Knowing what’s spent on those specific benefits doesn’t help, and the high cost of providing them is unlikely to significantly change with pooling or competitive bidding.

It’s risky to bank on these specific reforms because the potential for success depends entirely on local negotiations conducted by school boards. As a school board trustee I’ve witnessed first-hand the inability of boards to reach meaningful settlements on healthcare. The MEA bargains with a “just say no” strategy, and many board’s simply have a weak backbone.

School boards haven’t shown any ability to control their budgets, and are the wrong place to seek solutions. Trustees are elected in low-turnout May elections, and many are supported with MEA union PAC money and endorsements. Boards consistently show they don’t understand the long-term impact their poor financial decisions have on public education. Quite frankly, school boards are part of the problem, not part of the solution.

True reform requires employees to become effective consumers, which only happens when they’re required to share some of the costs when purchasing health care services. Private sector employees reluctantly, but successfully made this transition years ago. The public sector can do so too, while still retaining strong insurance for individuals that have expensive major health care needs.

Perhaps the solution lies in benchmarking private sector benefits, and preventing public sector employee benefits from exceeding that benchmark. Or the state could determine the average private sector premium, and require public sector employees to self-fund any cost exceeding that average.

Taxpayers should expect stronger reforms if they’re coupled with a tax increase. The thought of accepting tax increases based on the assumption that school boards will drive reform is nothing short of scary.

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