School union loses stranglehold on health insurance

Court upholds law to break school union’s “virtual monopoly” on health insurance

The Maine Education Association’s longtime monopoly on health insurance for Maine public school employees has been broken, opening the door for school districts to seek lower-cost health insurance plans—and reduce local property taxes. See Appeals Court decision here.

According to the most recent data, the Maine Education Association Benefits Trust paid Anthem an annual premium of $370 million and kept $87 million in a reserve fund, plus paid Anthem $900,000 a year to administer the plan. The MEA Benefits Trust has maintained a stranglehold on health insurance costs, refusing to share insurance data with school districts so they can shop for their own, lower-cost insurance.

So the legislature enacted L.D. 1326, “An Act To Allow School Administrative Units To Seek Less Expensive Health Insurance Alternatives,” which requires that health insurers must disclose to school districts their insurance claims history, called the “aggregate loss information.” The loss information could then be provided to health-insurance companies in an attempt to compare plans and costs—a commonly used practice.

Since health insurance for school workers costs up to 15% of total education expenses, spending less on health insurance plans will mean direct savings to taxpayers.

But the Maine Education Association Benefits Trust (MEABT), which manages a statewide health insurance plan for most of Maine’s public school work force, claimed that its loss information is “a confidential trade secret.” In October 2011, the MEABT sued the State of Maine, seeking an injunction against L.D. 1326.

The purpose of L.D. 1326, which was sponsored by Rep. Ralph Sarty (R-Denmark), was to make the loss information available so school districts could explore lower-cost options for health insurance plans. Critics of the Anthem monopoly with MEABT have said that using lower-cost plans could save school districts money.

After the Maine Education Association sued to stop the law, a district judge denied the injunction. That court’s decision was upheld on September 24 by the U.S. 1st Circuit Court of Appeals.

The Appeals Court found that the MEABT had created “a virtual monopoly, perpetuated by the very policy of non-disclosure which it seeks to protect.” The case has now been dropped.

Below are excerpts from the decision by the Appeals Court:

Since 1993, the Maine Education Association Benefits Trust has provided health insurance to the bulk of Maine’s public school employees and their dependents through a plan underwritten by various insurers, most recently Anthem Blue Cross Blue Shield of Maine. The insurance plan, which covers nearly 67,000 members from 99 percent of Maine’s school districts, is community-rated.

That means the price of coverage is based on group-wide utilization costs—not geographic variation, an individual employer’s demographic mix, prior utilization or loss experience.

This community-rated plan is designed in part to subsidize, through members who are actuarially favorable, the premiums paid by members who are actuarially less attractive to insurers. The plan economically benefits employees of educational institutions whose work forces are older or less healthy than other members of the group, or who reside in regions—typically Northern and Eastern Maine—with higher health care costs and, on average, lower salaries than their Southern Maine counterparts. The plan is structured to help mitigate this disparity.

Eligibility for enrollment in the plan is determined by the collective bargaining agreements negotiated between local bargaining units and individual employers, predominantly school districts. The employees of a school district are eligible to participate in the plan if the largest collective bargaining unit in that district is represented by the Maine Education Association, the statewide teachers’ union that founded the trust.

The school board and the employees decide together whether the employees will be offered the plan. Those who elect to enroll do so directly with the plan’s insurer, Anthem.  The trust has no contracts with individual educational institutions, and those institutions are not considered to be sponsors of the plan. Rather, based on the amount agreed to in its own collective bargaining agreement, each school district pays to the plan a percentage of its employees’ health insurance premiums, and the employees are responsible for the remainder.

For the most recent plan year for which there was evidence at the preliminary injunction hearing, the plan’s annual premium was nearly $370 million, resulting in an average monthly cost of approximately $460 per member. In addition the trust itself maintains a reserve fund that, according to its last available audit, held in excess of $87 million. The trust uses the reserve fund to buy down rate increases, avoiding inflation in the monthly cost charged to plan participants.

Although the Maine Education Association Benefits Trust refused to share loss information with school districts, Maine law has entitled holders of insurance policies to obtain such loss information from their carriers since 1989. In 1995, this access was expanded to cover current and former policyholders of group and blanket health insurance.

The “loss information” at the center of this controversy is statutorily defined as “the aggregate claims experience of the group insurance policy or contract,” including “the amount of premium received, the amount of claims paid and the loss ratio,” but not including “any information or data pertaining to the medical diagnosis, treatment or health status that identifies an individual covered under the group contract or policy.”

The trust has always considered the experience ratings and claims history of individual school districts to be a proprietary, confidential trade secret.

“A driving force behind these efforts at maintaining confidentiality is to prevent actuarially desirable districts from acquiring the information and leaving the community-rated plan for less expensive individual coverage, thereby increasing the monthly costs for the plan’s remaining members (or, alternatively, forcing the trust to expend additional resources from its reserve fund to pay down the resulting rate increases),”

Prior to the passage of L.D. 1326, the trust was able to do exactly that: denying multiple school district requests for loss information over the years by virtue of the fact that the trust, and not the individual school districts, was always the primary “policyholder.”

Generally, group insurers in Maine require at least two years of aggregate loss information from an employer in order to provide a quote. Thus, without access to loss information, school districts cannot meaningfully explore insurance options outside those offered by the trust.

Following the enactment of L.D. 1326, at least one district has already submitted a renewed request to Anthem. In the absence of an injunction, it is apparent that school districts will continue to request access in order to obtain competing quotes based on that loss information. Depending on the quotes and the terms of each district’s collective bargaining agreement, this process may or may not result in some districts withdrawing their employees from the plan.

“The question reduces to whether the trust, given all of the attendant facts and circumstances, has a probability of success of showing that it had a reasonable expectation that the plan’s loss information will be kept confidential,” according the Appeals Court judges. “We think not.”

As a baseline proposition, the trust’s expectations are substantially diminished by the highly regulated nature of the industry in which it operates. In 1995—not long after the trust was formed, and well before it began to insist on the inclusion of confidentiality provisions in its Group Agreements—this right of access to loss information was expanded to policyholders of group and blanket health insurance, just like the plan at issue here.

“Thus, for years the trust was spared the obligation of disclosure solely because of the plan’s unique structure, whereby the trust, and not the school district, was the technical policyholder. Throughout this extended period, several of the state’s school districts were clamoring for loss information, and ultimately, for the legislature to close this perceived loophole. Under these circumstances, the prospect of the legislature’s continued expansion of this right of access was

reasonably foreseeable.”

The trust, in challenging this conclusion, relies principally on the distinction between “policyholders” and “nonpolicyholders.” It contends that because L.D. 1326 grants nonpolicyholders (the school districts) access to confidential policyholder information, it represents an “extraordinary and unprecedented” regulatory shift. “We disagree. As a preliminary matter, requiring the disclosure of otherwise private information to non-policyholders is not a novel concept in Maine insurance law.”

While this conclusion is largely dictated by precedent, it is also rational from a policy standpoint. The motivation behind the State’s previous attempts to regulate loss information was clear: to prevent sellers of group health insurance from acquiring disproportionate leverage over buyers by ensuring that both parties have access to the relevant cost information. The construct created and advocated by the trust, under which such information cannot be released to “non-policyholders,” effectively precludes any member school district from opting out of the plan, and thus is contrary to the regulation’s intent by denying school districts the benefit of equal access.

The fact remains that the legislation is highly consistent with legitimate policy objectives. L.D. 1326 simply continues what the 1989 and 1995 regulations started by addressing a unique scenario, which, in all likelihood, was not contemplated by the original legislation.

“In light of the State’s history of aggressively regulating the use and disclosure of loss information, L.D. 1326 is a relatively minor expansion which the Trust could, and should, have anticipated.”

A result of the law’s requirement that loss information be disclosed to districts upon request is that the trust may be less able to prevent districts with favorable claims experience from shopping for alternative coverage. Upon acquiring their respective loss information, some actuarially favorable school districts may leave the Plan for less expensive district-specific coverage, resulting in relatively higher premiums for the plan’s remaining members (or greater expenditures by the trust to pay those rate increases down).

The likelihood and severity of the exodus of members, however, are completely unknown. The only concrete evidence on the issue includes the affidavits of the parties’ dueling actuaries who debate, at a high level of generality, the extent to which L.D. 1326 will undermine the trust’s prospective viability. To wit, the trust’s actuarial expert, having been denied access to the district-specific loss ratios, was able to conclude only that “if individual school districts purchase insurance on their own, some groups with lower average age, more favorable utilization history, or a lower cost of geographic area might be able to take advantage of that more favorable profile and obtain insurance from Anthem or another carrier at lower cost than they currently pay to participate in the plan.”

L.D. 1326 clearly falls on the latter end of the spectrum, reflecting the legislature’s judgment that allowing school districts to access their employees’ loss information will promote the common good by creating a wider array of competitively priced group health insurance options.

The trust argues that even if the Act is intended to promote the common good, it does so improperly by reallocating to the trust alone what is essentially a public burden. Claiming that it has been effectively “singled out” by the Maine legislature, the Trust directs us to five comments in the Act’s legislative record which, more or less, appear to cast the MEABT in a negative light.

The argument, however, is unavailing. L.D. 1326 does not apply solely to the MEABT; it applies to every existing or future multi-employer group health insurance plan in which the state’s public school districts choose to enroll. That the MEABT attracted the attention of a handful of legislators, and currently bears the brunt of the Act’s burden, is merely a byproduct of its holding the predominant share of the targeted market—a virtual monopoly, perpetuated by the very policy of non-disclosure which it seeks to protect.

“We conclude that there was no abuse of discretion in the denial of the Trust’s motion for a preliminary injunction, and leave to the trial court to determine whether it should stay enforcement of the act pending hearing evidence and decision on the merits. The decision of the district court is affirmed. Each side shall bear its own costs of this appeal.