ESTA UPDATE

East Side Teachers Association/CTA/NEA 888 So. Capitol Ave San Jose, Ca 95127 March 10, 2003

Don McKell, President Julie Pratico, Vice Pres Carla Holtzclaw, Secretary Ralph Giannini, Treasurer

mckelld@esuhsd.org fax: (408) 272-7569 voice: (408) 272-0601 x213

A General Discussion of Topics Related to

FRINGE BENFITS

WHAT THEY ARE

� Every district employee has a choice of three different medical plans: (a) Kaiser HMO, (b) Blue Cross HMO, and (c) a PPO administered by United Administrative Services (UAS).

‚ A dental HMO administered by Delta Dental.

ƒ A vision plan operated by VSP.

„ An employee wellness plan operated by MHN.

… A life insurance policy carried by Sun Life.

All district employees qualify for fringe benefits except those part-timers working less than 50%. This includes certificated, classified, confidential, and administrative personnel, as well as school board members. There is no direct cost borne by employees.

Depending upon when they may have retired, certain retirees also have various levels of medical coverage for themselves and, possibly, their spouses.

MEDICAL BENEFITS SURVEY

District Risk Manager Corinne Kelsch has caused something of a stir at school sites in the past few weeks by circulating a survey that asks questions about medical benefits. Kelsch has been quick to point out that fringe benefits is a negotiable issue, and any major changes to the system will need to pass through the bargaining process.

I have accompanied her to most of the staff meetings she has addressed, usually just to be a fly on the wall. I think it is safe to say that the survey she’s presented has elicited some hot reactions from some of the audiences. It hasn’t helped that in many cases she has had to follow the superintendent on the agenda as he makes his rounds speaking about budget cuts. After observing the proceedings at most of the sites, I also think that it safe to say that the survey will uncover very little in the way of meaningful input.

In case you haven’t seen it or don’t remember, the survey leads off by trying to establish the taker’s name, worksite, bargaining unit, and home zip code. Then it asks age, sex, and number of dependents, and whether the respondent is currently enrolled in Kaiser, Blue Cross, or UAS. Those are the easy questions.

Then, question 3 on the survey asks Blue Cross enrollees which of the other two plans they’d switch to if Blue Cross isn’t available next year. Ouch. Last, question 4 asks whether you’d prefer (a) benefits remain the same with employee paying toward the cost of premiums, or (b) reduction in benefits with no employee contribution. There is no (c) choice.

Frankly, I think that very few district employees know enough about the features of all three of the medical plans, or the state of the insurance industry, to be able to meaningfully answer the last two questions. Thus, the results of the survey will be only marginally useful.

BENEFITS ADVISORY COMMITTEE

For many years, this group has met eight or ten times each year to monitor the condition of district fringe benefits and make recommendations concerning the subject. All employee groups are represented on the BAC, although in recent years the most regular attendees on the Committee have been ESTA and CSEA. I find it strange, and a little unsettling, that management has not generally sent a representative to meetings in the past year. ESTA typically sends three representatives: myself, ESTA Vice President Julie Pratico, and ESTA Benefits Committee Chair Bill Mustanich. BAC meetings are generally chaired by the district’s Risk Manager, and are usually attended by a fellow named David Wiesner who is a licensed insurance broker currently working for Gallagher Benefits Services of California. Meetings are usually held once a month.

When ESTA and the district concluded bargaining on our new contract, we mutually agreed to jointly study alternatives to the current structure and delivery of health and welfare benefits. The stated goal of the study is to "recommend actions to slow, arrest, and/or reverse the escalation in costs of benefits". The BAC is the body charged with conducting that investi-gation. Its recommendations are due to be passed along to the bargaining teams by May 1 of this year.

Recently, the BAC received word that increases in the premiums paid by the district to the three medical plans for 2003/04 are projected to be:

 

• Kaiser: up 14%

   

   

• UAS: up 10%

   

   

• Blue Cross: up 53%

   

These rate increase projections may still fluctuate between now and July 1, the anniversary date for renewal of the district’s contracts with Kaiser and Blue Cross, and all assume no changes in the plans.

Some of the issues being explored by the BAC are:

 

• exploring alternative companies as replacements of the Blue Cross plan;

   

   

• dropping Blue Cross, and folding its HMO aspects into an expanded PPO plan that has aspects of the current Blue Cross HMO and the UAS PPO;

   

   

• examining various plan designs for all three current medical plans that lower their cost to the district by increasing the cost borne by the subscriber.

   

I will point out again that the BAC has no authority to unilaterally impose benefits cost sharing onto employees. But the Committee would be failing to carry out its mandate if it failed to examine all viable options and present them for consideration.

WHAT DOES THE FUTURE HOLD?

It is hard to be optimistic about the near future. We keep hearing about drastic budget cuts in store for California schools, and it seems certain that East Side will suffer a significant reduction in state funds as a result. Already, the superintendent has proposed a budget plan to the school board calling for a reduction in current expenses by some $8,000,000 in next year’s district budget.

Against this backdrop, the combined increases in premiums being charged next year our by medical insurance carriers could be as high as $3,000,000. It is possible that our broker can chip away at that sum by continued negotiating with the insurance carriers and reduce it to a lesser figure. Too, we continue to examine the possibilities of premium reductions that may be brought about by changes in such things as co-pays, deductibles, and prescription drug plans. But even with all of this, it still seems probable that we’re in for a huge cost increase in an already very lean budget year.

v Industry experts are already predicting a steady 20% increase in medical benefits costs nationally over each of the next five years. And if the state economy doesn’t pick up, there’s no reason not to expect continuing state budget cuts in 2004/05. This combo will be devastating to us and virtually all other medical services consumers.

v The recent bankruptcies of Lifeguard and the San Jose Medical Group, to name a few, may be an omen of rough times ahead for the industry. Knowing observers predict that the HMO concept (except as practiced by Kaiser) will disappear in this decade.

v An increasing number of health providers are choosing not to join insurance consortiums, opting instead for cash at the time of service.

v At present, employees in 25 of the 33 school districts in this County already participate in some meaningful way in the costs of their medical benefits. We don’t, yet. And we’d like to maintain that status. The switch from fully-paid benefits to "employee contributions" is historically a one-way street. The record will show that once employees begin taking on a portion of their benefits costs, the portion paid by their employer continually erodes. There is no counterexample of which I am aware.

v Using the previously-cited projected cost increases made for our three current plans (Kaiser: 14%, Blue Cross: 53%, UAS: 10%) each of us would have to bear a nearly $1,200 burden next year if the total $3m cost increase were to be shared equally by every district employee with no portion borne by the district. Now, if we alter the plan coverages that sum could decrease, but not to anywhere near zero. Where is that money going to come from?

v It can be argued that our nation cannot tolerate a steady 20% annual increase in medical costs. If unchecked, the results of that unbridled greed will be as severe as those of the so-called energy crisis of twenty years ago, and will include:

 

• fewer people with health insurance

   

   

• increased pressure on an already strained health care system for the poor and uninsured

   

   

• a return to double-digit inflation

   

   

• legislative backlash against those deemed responsible

   

There is lots of blame to go around, and scratching at this itch probably won’t get us anywhere. But here is my list of culprits:

Lawyers, Pharmaceutical Companies, Insurance Companies, Doctors, Government, the Media, Voters, Consumers, Richard Nixon and Benjamin Spock. Take your pick. Those last two? Nixon taught us all to be distrustful and cynical, and Spock convinced us that individuals were more important than families.

SOME OPINIONATED REALITY

Insurance is the business of calculating risks. As a business, it may be no worse or no better than any other, except when the product is one that we simply have to have, or when the providers of the product conspire to fix prices or otherwise tilt the capitalistic playing field. With their 53% price increase proposal, Blue Cross is probably telling us that it doesn’t want our business any more. Or, they’re softening us up to feel really good when we bargain them down to a mere 40% increase. We’ll take the contract out to bid to see if Cross’ competitors sing the same tune. Whatever happens in the near term, I consider it unlikely that that we’ll have a second HMO like Cross to choose from a couple of years from now.

Several people have contacted me with their own ideas on how to deal with the benefits problem. Many of the suggestions are thoughtful; some are kind of nasty. All deserve to be considered.

I continue to believe that we don’t want to come up with a solution that favors, say, Kaiser subscribers just because Kaiser is (currently) the least expensive plan. I have been acquainted with a phenomenon in the insurance industry known as the "death spiral". Suppose we agreed that the district would pay for Plan A, whatever that is, which happened to be the least expensive plan available. Members who wanted the more expensive Plan B would have to pay extra for it out of their own pockets. Here’s what happens: Over a surprisingly small amount of time, healthy people would begin to migrate to Plan A from Plan B. Those who remained in Plan B would be the ones who wanted to pay more money. Why? Discounting the convenience factor, many of those in Plan B would stay there because they wanted the "richer" benefits. Who needs richer benefits? Sick people. So Plan B would, by adverse selection, become that plan with a disproportionately higher number of heavy users of the benefits. In very short order, the insurer providing Plan B would have to raise rates to make up for the heavier use. The higher rates would drive more healthy people to Plan A, which would result in another price hike for Plan B, which would drive more people out, and so on. Within four or five years, Plan B would be so expensive that it could not continue. The death spiral.

In the mean time, what happens to Plan A? Well, by now everyone’s in it: sick and healthy. Since Plan B is gone, there’s less competition and a greater demand on the service providers. Both of these influences will serve to drive costs of Plan A up. And up. And now there’s no Plan B to jump into. So a quick fix that might have seemed logical and attractive only works for a few years. Then we’re worse off than before, and with fewer options. There are no easy answers.