Transparency in school union’s health insurance translates into savings for taxpayers

By Bruce Poliquin

Maine State Treasurer

Because of a new law passed by the state legislature, local school districts across Maine are now able to seek competitive bids in providing health insurance for teachers, staff and their families.

Industry professionals estimate possible savings of up to 15% for the second most expensive item in school budgets behind salaries: health insurance for school employees. Expected substantial savings could be used to reduce rising local property taxes.

Property taxes fund 79% of the average Maine municipal budget. As shown on the graph below, property taxes have more than doubled over the past 20 years—increasing 123%. These surging property taxes are making it more and more difficult for an increasing number of Maine families to hold on to their homes.

The local school budget accounts for 61% of the cost to operate the average Maine city or town. For the most part, the cost of public education drives the level of local property taxes. Health insurance for school workers is estimated to cost up to 15% of total education expenses.

Local property taxes can be significantly reduced by addressing the high cost of health insurance for school employees.

For many years, the Maine Education Association, the public school teachers’ union, has maintained a monopoly in providing health insurance to Maine teachers and staff. The Maine Education Association Benefits Trust (MEABT) has hired one insurance company, Anthem Blue Cross and Blue Shield, to provide health insurance for teachers, staff and their families in nearly every school unit in Maine.

Over the years, the MEABT has refused to disclose the medical claims data experienced by the individual school districts. (It is, of course, unlawful to identify any individual in the release of such information.) Without having this “loss claims data,” no other insurance company will blindly bid for a school district’s health insurance business.

If a competing insurance company does, it might grossly overbid the price to provide coverage for a healthy group of school employees filing few medical claims. Or the competing insurance company might greatly underbid a policy for an unhealthy population filing many expensive medical claims.

After many years of trying, last year 18 Maine State Senators and 83 Representatives passed a new law requiring the teachers’ union to share this medical claims data with their school unit clients. Seventy-five legislators voted against LD 1326 (House, Senate), which was sponsored by Representative Ralph Sarty (R-Denmark).

Shortly after the new law was passed, the union’s Benefits Trust continued to try to prevent the release of this basic health insurance loss information by filing suit against the Maine Superintendent of Insurance, the Maine School Board Association, and four local school districts. The MEABT lost the lawsuit in the U.S. District Court in Portland.

The MEABT then appealed the decision to the 1st Circuit Court of Appeals in Boston. After losing the appeal in September, the teachers’ union finally gave up trying to conceal the medical claims data experienced by its Maine school district customers.

Now, school boards across the state can seek competitive bids from insurance companies interested in providing health insurance to their school employees.

Industry professionals estimate that $400 million per year is paid by local taxpayers to buy health insurance for Maine public school teachers, staff and their families. This cost has contributed to escalating property taxes during the past two decades.

Insurance professionals project possible savings of roughly 15% for school districts that put their health insurance needs out to bid. For example, the RSU 18 school budget (Belgrade, China, Oakland, Sidney and Rome) is $32 million for 2013. Approximately $4.8 million is directed to pay for employee health insurance.

Inviting insurance companies to compete for this business might save Belgrade, China, Oakland, Sidney and Rome taxpayers nearly $720,000 per year. That’s real money that could be used to lower smothering property taxes.

During the teachers’ union monopoly in providing health insurance to school employees, Anthem has returned to the union’s Benefits Trust part of the insurance premiums paid by local taxpayers. Those excess premiums sitting at the MEABT have recently reached approximately $86 million. Who “owns” those excess funds collected from local taxpayers?

Soon, more than 50 Maine school districts will receive for the first time their own employee health insurance loss information. Finally, transparency and free market competition will potentially save boatloads of school budget dollars.

It’s sad that it took a new law to help struggling Maine families reduce their property taxes in order to help them stay in their homes.

Bruce Poliquin’s comments in this column are made as State Treasurer, not as a Trustee of the Maine Public Employees Retirement System.