Tuesday, October 20, 2009

Public Policy Associates Study: Dillon Health Care Plan "Greatly Exaggerates" Savings to Taxpayers

In theory, the plan to pool the health care of public employees sounds plausible. But the difference between theory and practice is sometimes a wide chasm...
A plan by House Speaker Andy Dillon, D-Redford Township, to place all Michigan public employees under a single, statewide health care plan greatly exaggerates the savings to taxpayers and could cost them $870 million in the first year, according to a new study by a Lansing think tank.

An analysis by Public Policy Associates concludes that Dillon’s plan would save money largely by reducing benefits for an estimated 500,000 public workers, or require them to pay more for health insurance than they do now.

It was always a given that it would cost a fortune to get this set up in the first place, as it would create a huge government bureaucracy that doesn't exist now, to administer to such an undertaking. The initial glowing press on Dillon's plan seemed to want to overlook that fact. The study claims it would cost "$500 million to launch, and up to $370 million a year to administer".

From the PPA press release:

“We find the savings claimed by the white paper and based on the legislation are largely illusory, especially those related to administrative efficiencies and economies of scale,” said PPA researcher Doug Drake, who authored the analysis. “The proposal could secure savings by reducing benefits and requiring employees to pay more toward their insurance, but that is happening today. An expansion of state government is not needed to capture savings that are already occurring.”

PPA based its analysis on a review of House Bill 5345, and on the white paper issued by Speaker Dillon on July 16 and later revised on September 9. The analysis was prepared at the request of Citizens for Accountability in Reform, a growing coalition representing taxpayers, police, firefighters, teachers, insurance companies and others who are concerned that this proposal doesn’t provide the reform it promises at a price taxpayers can afford. The full analysis (available at www.publicpolicy.com) will be presented to all state legislators and to others for thorough review and consideration.

Other findings:

  • The Dillon proposal would effectively end collective bargaining for health care for the employees who are covered. “At best, HB 5345 suggests that employee groups would be limited to selecting from a small number of predetermined (benefit) options. That is simply not collective bargaining.”

  • Health insurance savings are already being negotiated between public employees and their government employers across Michigan, and that’s a big reason why savings from the Dillon plan are overstated. The analysis notes that benefit costs declined for Michigan public schools in 2007-2008. “These savings are occurring in the market today due to the real impact of market forces, and further savings are virtually certain without HB 5345.”

  • HB 5345 raises significant constitutional issues that need serious legal review. The analysis concludes Michigan’s public universities can’t be forced into a state government plan because of their autonomy under the state Constitution. In addition, creating a state “mandate” that would force local governments and school districts to participate in a statewide plan could violate Article IX, Section 29 of the Constitution (the “Headlee” local mandate provision).

  • The idea in general may have merit. It's the execution that is the problem. Dillon has introduced the legislation, but they still are conducting hearings on it to work out the details - and it looks like it needs a lot more work, indeed.

    Might be best to wait and see what the feds end up with first, and go from there.

    The full analysis of Dillon's plan can be found here, and the press release can be found here.