A Labor-Management Deal on Health Care

At Michigan State, 9 unions have agreed to link their salary increases to the university's costs in paying for insurance.
September 28, 2005

Many college administrators these days tell employees that one reason they can't provide more money for salaries is that health insurance expenses keep rising. And many college employees don't entirely trust the explanation.

Michigan State University has crafted an unusual approach to this conflict. Members of nine of the unions that represent workers at the university have agreed to link their salary increases to the cost increases faced by the university in health insurance. Michigan State administrators -- along with a union leader -- described the arrangement in Orlando Tuesday at the annual meeting of the College and University Professional Association for Human Resources.

Labor and management officials at Michigan State agreed that their model did something that many colleges have been unable to do: given both the college and employees similar incentives on keeping health costs down.

"We've created an alignment of interests," said Pamela Beemer, assistant vice president for human resources at Michigan State. Wayne Cass, chair of the Michigan State Coalition of Labor Organizations, agreed -- and said that the unions were on board with continuing the arrangement in future contracts.

Under the Michigan State plan, a series of salary increases were agreed to, based on health care costs. So if costs increased by up to 2 percent, the wage increases for the unions would be 3.5 percent. A cost increase of 8.1-10 percent would translate into a wage increase of 2.5 percent. A cost increase of 16.1 to 18 percent would mean a salary increase of 1.5 percent. Salary increases in the four years of the plan can't be lower than 1 percent, a floor that is reached when health-insurance costs exceed 20 percent in a year.

So far, the four-year agreement -- when ends next year -- has resulted in Michigan State seeing decreases in the rate of increase in spending on health insurance. And employees in the unions have seen larger raises than they were winning in the years prior to this arrangement. The unions involved are non-academic, but include both highly paid employees like skilled trade workers, and employees with lower salaries, like those who hold janitorial positions. The unions have separate contracts on other issues, but agreed to negotiate on health insurance together.

As part of the agreement, the union also agreed to certain measures that would control costs. For example, spouses of Michigan State employees who could obtain insurance from their own employers for less than $600 a year were required to do so, removing about 200 of the 3,200 spouses on Michigan State's coverage. Likewise, changes were made in prescription benefits, increasing the incentive of using generic drugs.

Both Cass and Beemer said that the key to making this work was sharing information and changing the normal negotiating process. In many past negotiations, the university and unions would follow a fairly typical practice of one side making a proposal and another side making a counterproposal, with various proposals and counterproposals being thrown back and forth. Now, Michigan State and its unions approach the negotiations "in a problem solving mode," Beemer said, with both sides talking about goals, and working them through. In addition, all university reports and data on health insurance costs and proposals are shared with the union, something Beemer and Cass said never happened before.

One thing they said they noticed is that they have been able to collectively negotiate better deals with insurance companies and health care providers. Prior to the new system, Cass said that various health companies would tell the unions one thing and Michigan State another, playing them off against one another. "They can't do that anymore," he said.

The new approach appears to be paying off for both labor and management. In the two years prior to this contract, the university's increases in health costs averaged 20 percent. Under the contract, annual increases have ranged from 4.3 percent to 14.5 percent. In terms of wages, many of the unions had seen their salary increases evaporate in the years prior to this system. Annual increases of 5 percent, the norm in the '70s and early '80s, were replaced by increases of 1 percent or salary freezes. Under the new contract, raises have been 2-3 percent a year. (Individual union contracts dictate whether those funds are allocated across the board or through a combination of across the board and merit.)

During the life of the contract, Michigan State cannot unilaterally take away any benefit or increase any required co-payments. But the unions and the university could mutually agree to do so, if the unions wanted to minimize cost increases to earn a maximum salary increase. Likewise, the unions can ask to have additional coverage -- with the understanding that if the university agrees to do so, additional costs could reduce salary increases.

Beemer said that it was important that the system provided "predictability" for both employees and the university, while leaving the door open to changing benefits as long as both sides agreed.

The first requested change in coverage came shortly after the contract was signed. The unions requested that the drug plan cover Viagra. Once some limitations were agreed to, the university went along.


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