It’s not clear whether the governor gets his breakfast cereal in those oversized boxes that line the aisles of no-frills superstores. But when it comes to the state, Rod Blagojevich is big on buying in bulk. The underlying theory: Use the purchasing power of state government to lower prices for local governments.
The problem, to continue the metaphor, is that not everyone enjoys corn flakes. So when the governor suggested $180 million a year could be saved by consolidating several hundred local teacher health insurance plans into a statewide pool, he must have figured frugality would trump variety.
To create the desired economy of scale, educators across Illinois would have to trust state government to cut school district costs without severely limiting individual health care options. Steve Preckwinkle, director of political activities for the Illinois Federation of Teachers, says the estimated savings associated with the proposal have drawn interest. But the plan also has spawned skepticism among districts reluctant to cede to the state another layer of local control.
“We have almost 900 districts and, with the exception of a few, they each have their own insurance program,” Preckwinkle says. “It’s clear some districts are not in favor of this. I’m not exactly sure why. Honestly, for some, I think it’s a fear of the unknown. They’ve got good insurance policies in place, and they’re not sure exactly what this is going to bring them and what the actual cost of it will be.”
Still, ever-rising health benefit costs have school districts at the table. “We know we have a national problem that we’re certainly feeling here in Illinois. Something needs to be done here,” Preckwinkle says. “The original cost savings projection data provided by the administration, for [working] teachers, was over $150 million. You can’t ignore that potential savings and its impact on protecting benefits.”
And, after all, health benefits are a bargaining point between educators and district administrators. Negotiators know that, through the life of a contract, health insurance costs are certain to outpace other obligations.
In an informal survey conducted recently by the Association of School Business Officials International, 95 percent of the school financial officers who responded said the cost of health insurance is a more severe problem than ever before.
The association, based in Reston, Va., queried business managers from 680 school districts, including 53 in Illinois. More than half said their spending on health care benefits had increased by more than 20 percent over the past three years. At the same time, another 17 percent said their health care costs had grown by at least twice that rate.
With health insurance costs growing fast and furious, Illinois isn’t the only state considering consolidation. In Michigan, state officials are mulling a feasibility study aimed at identifying ways to lower health care costs. Pooling insurance purchasing is among the avenues that would be examined.
At least 19 states already offer some public education employees the same health benefits as state government workers, according to the National Conference of State Legislatures. Of those, only five or six states open their centralized benefits systems to most or all public school employees, says Richard Cauchi, program manager of the conference’s health care program. Florida, for example, provides state employee health benefits to all of its teachers. Cauchi says it’s not clear whether consolidation is becoming a national trend.
In Illinois, the state would set up a separate purchasing center for teacher health insurance, rather than allow educators to enter the existing state employee system. The plan also could help stabilize a retired teachers insurance pool that is now on shaky financial ground. The administration estimates that, within three years, centralized purchasing would eliminate $80 million in annual administrative costs that are spread among 888 school districts. Another $100 million in yearly savings could be realized through statewide price negotiation and pooling of risks.
When the governor suggested $180 million a year could be saved by consolidating several hundred local teacher health insurance plans into a statewide pool, he must have figured frugality would trump variety.
This isn’t the first time Blagojevich has promised to save money by pooling purchasing power. Last year, prescription drugs were at the top of the governor’s shopping list. In his first State of the State address, two months after taking office, Blagojevich vowed to reduce the out-of-pocket expenses Illinoisans pay for their pills.
“We are going to bring down the price of prescription drugs, once and for all,” he said. “In my campaign, I said we were going to change the system to take advantage of our bulk purchasing power.
“This week, that change begins.”
With that, he penned an executive order creating a special drug advocate to handle all of the state’s prescription drug purchases. The move was expected to save $120 million, a discount of roughly 6 percent on the nearly $2 billion in prescription drugs the state will purchase this year on behalf of state employees and various state-supported programs.
Blagojevich took that logic a step further last summer when he signed legislation allowing senior citizens to harness the state’s bargaining power. For an annual fee of $25, the new prescription drug-buying club promised discounts of at least 20 percent.
But, while seniors can decide whether the discount club works for them, school districts wonder whether participation in a consolidated health insurance program will be compulsory. After all, an economy of scale doesn’t work without the scale.
“Obviously, when the governor proposed one health insurance program, there was a lot of negative feedback from school districts who feel comfortable that that decision should be made locally,” said Rep. Roger Eddy, a Republican who serves as superintendent of the Hutsonville school district in east central Illinois. “The problem becomes if you allow opt outs, then you can’t guarantee the savings.”
While negotiations are fluid, initial discussion would have the state offering up to four benefit packages under a consolidated system. Such a plan could, in theory, offer enough variety to entice most school districts.
At the same time, local control remains an issue. Some districts might still want to reserve the right to offer supplemental insurance packages. For instance, a district that has the resources could offer employees a chance to pay into programs providing better vision care or more comprehensive dental coverage.
For some districts, the state might not be able to offer enough flexibility. Along those lines, discussions have centered on a plan that would allow opt outs, as long as districts continue to contribute toward retiree benefits.
Further complicating the debate is the shaky financial status of the Teachers’ Retirement Insurance Program, which is set to expire this summer. The administration says a statewide teacher health insurance purchasing center also would alleviate funding concerns associated with the health insurance program for retired downstate teachers. Few of the state’s school districts offer health insurance to retirees. The state program is a voluntary one financed by premiums paid by retirees, payroll contributions from current teachers and matching dollars from the state.
While consolidating health insurance purchasing for all teachers is on the administration’s wish list, bailing out the retiree program is a more pressing demand.
“We can’t have tens of thousands of retired teachers losing their health insurance on July 1,” Preckwinkle says. “So we have to do something, even if it’s just a stop-gap measure.”
Indeed, negotiations on bailing out the beleaguered Teachers’ Retirement Insurance Program predate Blagojevich’s tenure. So, too, does the system’s financial muddle. In a 2000 report, the Illinois Economic and Fiscal Commission, the legislature’s budget arm, predicted that, by this year, the retiree insurance program would be saddled with a deficit of $100 million.
In late 2001, the General Assembly passed legislation aimed at temporarily stabilizing the program. It increased contributions for active teachers, employers and the state. Recognizing the temporary nature of the solution, lawmakers included language that dissolved the retirement insurance program this summer.
A legislative task force created to study the problem found, in part, that the program struggles to remain solvent because increased health care costs far outpace increases in employee contributions. Those contributions are pegged at a percentage of salary, and teacher salaries are not climbing nearly as quickly as health costs. The state, in turn, matches teacher contributions.
At the same time, insurance costs for retirees tend to rise more precipitously than the costs associated with insuring current employees, who, as a whole, are younger and tend to have less pressing health care and prescription drug needs.
But that’s not to say health care costs are stagnant among current workers. By one estimate, the cost of providing health insurance for state employees has nearly doubled in less than a decade. Next year, the cost for each worker will be around $4,800, a 95 percent increase over just eight years ago, according to the Illinois Economic and Fiscal Commission.
That stark reality is one the state’s school districts understand. While they may be reluctant to swap their diverse spread of health care choices for the governor’s limited menu, they are at the table. And they wouldn’t mind some help with the tab.
Pat Guinane can be reached at capitolbureau@aol.com.
Illinois Issues, May 2004
