Michigan Public School Health Insurance Costs Soar Above National Trends

An annual survey of nationwide employee health insurance costs contains good news for employers: The average premium increased by only 3 percent in 2010 - much less than in previous years.

Unfortunately, the good news doesn't extend to this state's public schools. Nearly $2 billion is extracted from Michigan taxpayers to provide health insurance to school employees, or $1,300 per pupil, and the rise in these costs shows no sign of slowing.

Nearly 80 percent of school districts in 2009 bought insurance through the Michigan Education Special Services Association for at least one of their employee groups (most often teachers). MESSA's average premium increase this year was 13 percent, and some districts, like Holland and Jackson, saw hikes of more than 20 percent.

Statewide, the extra money these premium hikes will require is enough to pay for 1,800 full-time teachers. MESSA is also sitting on about $260 million in net assets (in excess of expenses, and different from reserves held by actual insurance underwriters to pay future claims).

Several factors explain the disparity between national trends and MESSA. One is that MESSA only offers districts a choice between "Cadillac" and "Rolls-Royce" plans. Additionally, the average Michigan school employee contributes much less towards the cost of their own coverage than workers in the private sector. In addition to the up-front savings, when employees are responsible for more of their health care costs they tend to spend less, and press less vigorously for broader and more expensive policies.

This is evidenced by the growing number of private-sector employers who've switched from traditional PPO plans to consumer-directed health plans, like high-deductible coverage matched with a health savings account. These put employees in charge of more of their health care dollars (without necessarily having to pay more); the result is that the annual premium increases for these plans are about one-third of traditional PPOs.

School districts should start taking advantage of consumer-directed health plans. Doing so could save Michigan taxpayers an estimated $451 million in the first year, and $26 billion over the next 11 years.