ANALYSIS QUESTIONS INFLEXIBILITY OF CONTRACTS

Districts could save billions if freed from terms, author says

Many school districts could lavish a fifth or more of their current budgets on measures to raise student achievement if they axed spending on teachers' contract provisions that do little good in that area, argues a report unveiled last week by the think tank Education Sector.

Among the provisions that researcher Marguerite Roza contends "have a weak or inconsistent relationship with student learning" are such common arrangements as teacher salary increases based on years of experience and advanced degrees, days set aside for professional development, extra teachers' aides, class-size limits, and generous sick leave, health benefits, and pensions.

If the deals for teachers did not include any of those perks, Ms. Roza of the University of Washington's Center on Reinventing Public Schools calculated, the nation's public schools would have about an extra $77 billion a year to spend.

The researcher said she got interested in the topic working with school district officials trying to figure out how to use their money more strategically.

"They'd often point to the labor contract as a barrier because they had kind of written it off" as money already spent, she said in an interview. It's not a question of saving the money, Ms. Roza explained, but of spending it "differently with greater effect."

For example, raises for job longevity and generous health insurance could be traded in for better salaries to attract high-quality beginners, the report says. Or smaller class sizes and some classroom aides might be sacrificed to hire teachers for after-school tutoring.

Many schools, particularly those serving poor children, likely require significantly more money to improve achievement, and in many cases, it would have to come mostly from the existing budget, Ms. Roza added.

Others are also calling for new compensation and accountability systems for teachers. The New Commission on the Skills of the American Workforce last month laid out a plan that would radically overhaul pay, pensions, and health benefits for teachers, among other changes. (See Education Week, Dec. 20, 2006.)

Benefit Reductions

In Ms. Roza's view, by far the largest chunk of questionable spending in teachers' contracts is salary increases for years of experience, which she estimates at an average of slightly more than 10 percent of district budgets. The Education Sector report points to research showing that teachers typically improve through the first five years of their careers, plateau, and then get worse as they approach retirement, even though some newbies are better than veterans. Salary schedules might be restructured accordingly, the study suggests, with higher starting salaries and raises for effectiveness rather than years on the job.

Other contract provisions award teachers better benefits than private-sector professionals', including more sick- and personal-leave days, better health insurance, and more generous pensions, according to the report. The leave policies serve as an incentive for teachers to take days off, and the pensions have left many districts with a disproportionate number of senior teachers, Ms. Roza said.

These negative effects, the report says, could be countered by cutting the number of sick days to about three per school year--comparable to what other professionals get--and by reducing retirement benefits but making them more portable so as to attract talented, newer teachers.

Ms. Roza, who is also a nonresident senior fellow at the Washington-based Education Sector, took pains to avoid being labeled anti-teacher, pointing out that contract provisions are the work of administrators as well as teachers' unions. Also, she argued that many teachers would benefit from changes that enhance the quality of schools.

'Misguided' Analysis?

But leaders of the nation's two largest teachers' unions said they saw virtually nothing in the report to benefit teachers or students.

Antonia Cortese, the executive vice president of the American Federation of Teachers, blasted the study for what she says is shoddy research and "misguided" analysis. "Schools can only be improved if educators, district officials, and politicians work together to develop real solutions instead of making unions scapegoats," she said in a statement.

Reg Weaver, the president of the National Education Association, said in a statement: "It saddens me that someone would suggest that increasing class sizes, firing education-support professionals to raise starting teacher salaries, reducing salaries significantly for experienced teachers, and slashing educators' health benefits and pensions will improve the public education system."

Others saw the proposal as, at best, pie in the sky.

"Cost structures in any public or private sector [institution] have not developed historically as a matter of pure efficiency or effectiveness," Gary Sykes, a professor of educational administration and teacher education at Michigan State University in East Lansing, wrote in an e-mail. "Rather, they reflect a wide range of historical developments that have gradually become institutionalized in particular arrangements. To undo this in accordance with some 'reform' idea is highly unlikely," he said, because of the interests and routines that have formed the arrangements.

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By Bess Keller

EARLY EDUCATION, CHILD HEALTH CARE GET PUSH IN WASHINGTON STATE

Deeming education her top priority, Gov. Christine Gregoire pledged in her Jan. 9 State of the State address to improve opportunities for the youngest children in Washington state by spending more money on early education and health care.

Gov. Gregoire, a Democrat elected in 2004, proposed adding more early-learning slots in prekindergarten programs and phasing in voluntary full-day kindergarten, starting with schools with the highest poverty levels. In addition, she wants to lower class sizes in kindergarten through third grade.

The governor also called for a voluntary rating system for child-care facilities. "We rate restaurants, hotels, and music, don't you think we should rate the places we en-trust with our children?" she said.

Although she said Washington is marching toward its goal of ensuring that all children have access to health care by 2010, Gov. Gregoire said more needs to be done. She wants to provide health insurance to 32,000 children out of the approximately 70,000 who don't now have coverage, and raise the reimbursement rate to pediatricians so families in a state-funded program can have easier access to doctors. She also wants to spend $26 million to provide vaccines for more children.

Improving mathematics and science in the state's schools also was a theme of Gov. Gregoire's speech. She wants to require smaller classes in those subjects, at a 25-to-1 student-to-teacher ratio, and to tie math and science education to international standards. She wants to recruit 750 new math and science teachers, including some from the private sector, by offering college scholarships and loan forgiveness.

"This nation met the challenge of President Kennedy in the 1960s to be the first to put a man on the moon," she said. "Our modern-day moon challenge is to meet the math and science crisis facing our state and nation."

In the area of higher education, Gov. Gregoire proposed making room for an additional 8,300 students in state institutions of higher education, including 3,300 slots in the high-demand fields of computer science, health, engineering, and construction. She also called for a tuition cap to rein in the rising cost of a higher education, and a tuition freeze at the state's community and technical colleges.

Gov. Christine Gregoire

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By Michelle McNeil

STATE PLANS MISS THE POINT

California Gov. Arnold Schwarzenegger has proposed a $12 billion health care package that he says should be the model for the rest of the country. Forcing people to buy health insurance will not solve the problem of the uninsured, make America healthier or decrease the amount of money we spend on health care. Such schemes will increase taxes, kill jobs and destroy private health care markets. They are also the next logical step on the path to single-payer health care.

"Everyone in California must have health insurance," Schwarzenegger declared. This is already true for automobile insurance, yet up to 25% of the state's residents leave home without it.

In Massachusetts, only four in 10 of those eligible for the totally free Commonwealth Care have signed up. Premiums for the subsidized plans are set as high as 6% of the insured's income, prompting talk of not enforcing the individual mandate.

Politicians justify these plans by alleging unfair cost shifts from the uninsured to the insured. Yet these plans rely on massive cost shifts. In Massachusetts, federal taxpayer money will be shifted to providers. In California, the governor calls for an increase in rates for providers from government insurance and then taxes some of this back with new taxes on physicians and hospitals. This is simply a way to increase taxes on private plans and send the money to government plans.

Schemes based on individual mandates will require new and extreme regulation of the private insurance market. Under California's plan, insurers won't be able to turn down anyone based on health status or age, a policy that causes premiums to skyrocket. In 1993, premiums jumped 500% when New Jersey passed a similar regulation.

Americans are highly conflicted when it comes to health care. We think the quality of the system is poor, yet we praise our individual care. We support universal coverage, but not if it entails any restrictions or costs more. Arnold and company better hope that these sentiments don't apply to California, because the move to universal coverage not only costs more, but will only come from mandates and will arrive with plenty of restrictions.

Sally C. Pipes is president and CEO of the Pacific Research Institute, a health policy think tank.

(c) USA TODAY, 2007

STATES TAKE ON NATIONAL HEALTH INSURANCE CRISIS

The list of what's wrong with American health care is sickeningly long and increasingly familiar to millions.

•One in seven Americans, lacking insurance, foregoes needed care or receives treatment that's inadequate and expensive at overcrowded emergency rooms. Most of the cost is passed on to others.

•Those lucky enough to have insurance have seen their premiums double in a decade, while they get less for their money. Co-pays are up, reimbursement rates are down, and some top doctors won't take insurance, making their services available only to wealthy patients.

•Nearly everyone squanders money and time fighting through payment hassles with their insurance companies, and anyone can abruptly be left without insurance at any time, at enormous medical and financial peril.

But now, for the first time since Bill Clinton's health plan collapsed under the weight of its own complexity a dozen years ago, a powerful new move to address those problems appears to be building.

Two Republican governors in Democratic states — California and Massachusetts — have proposed strikingly similar reforms to cover nearly every resident. Roughly, they look like this: Everybody is required to have insurance, much the way car owners in most states are required to have auto insurance now. But they can pick a plan and an insurance carrier that suits them. Prices vary, as does what's provided, but everyone gets at least coverage for some preventive care plus major hospital bills.

Massachusetts' plan, championed by former governor Mitt Romney, who has presidential ambitions, is already in place. In California, where nearly 20% of the population is uninsured, the battle is just beginning. Last week, Gov. Arnold Schwarzenegger proposed covering all 6.5 million of them, including 1 million illegal immigrants. Those who have insurance also would benefit, because they now pay a hidden tax estimated at $1,186 per family to cover unpaid medical bills of the uninsured, according to the New America Foundation, a health policy think tank.

As in Massachusetts, the plan would require most employers to provide coverage or pay additional taxes, which would be used to subsidize their employees and others needing insurance. It also makes tough demands on doctors, hospitals, insurers, taxpayers and employers. Schwarzenegger argues, logically, that cost savings can be achieved only when everyone has coverage so that the healthy join insurance pools along with the chronically ill. Nearly 3 million Californians whose jobs provide coverage turn it down because they think they don't need it.

There's "something for everyone to hate" about both states' plans, as many commentators have noted. Those on the left argue that they don't guarantee affordable premiums and could cause employers to drop coverage; business groups say the plans amount to a new tax on employers that could kill off jobs. But there's no such thing as a health plan that has no downside, which is why reforms are so easily demonized and killed by interests that benefit from the inefficiencies of the current system.

There's a lot to like in the two states' plans:

•Unlike European-style plans, they preserve private insurance, and therefore choice and innovation, with government oversight.

•They spread the cost burden fairly and more efficiently. Everyone is covered; everyone must contribute. Government subsidizes the poor, which is more cost-effective than the way their care is handled now.

How well the plans will work — and whether California's will even be passed — remains to be seen. But the good news is that after a decade of dormancy, attempts are finally being made to fix a system that tens of millions of people recognize is broken.

A national solution would be preferable, but having states serve as laboratories for experiments will let us see which ideas work and which ones should be abandoned.

Perhaps Washington will take notice and at long last act.

(c) USA TODAY, 2007

GROUPS ARE DEVISING PLANS

America's Health Insurance Plans laid out an ambitious initiative it said would provide affordable health insurance to every American within the next decade. It featured provisions to expand and improve Medicaid, create tax credits for low-income families and establish health accounts to pay for care with pretax dollars. The cost to the federal government: About $300 billion over the next decade.

In the wake of Gov. Arnold Schwarzenegger's bold proposal to spend about $12 billion a year to provide basic coverage to some 6.5 million uninsured Californians, a handful of big national healthcare groups with financial clout and political influence are jumping on the all-access bandwagon with plans in various stages of development and detail. They include the American Hospital Association, American Medical Association, American College of Physicians, Healthcare Association of New York State and a broad-based national coalition of groups.

It seems that healthcare has returned with a vengeance as a national political topic, rising from the ashes of the ill-fated Clinton health plan that was burned at the stake some 13 years ago. Everyone, it seems, is finally feeling the heat from the high cost of healthcare. Little more than a political afterthought in the 2004 national elections, healthcare is expected to be a pivotal-and perhaps decisive-issue in the 2008 presidential campaign.

"The message we've gotten is that things have to change," said Richard Umbdenstock, president of the AHA. "The status quo is not going to make it."

The AHA plans to roll out its universal-coverage proposal in late July at its annual leadership summit in San Diego. It is being timed to help set the national agenda in the upcoming presidential elections, and could serve as a powerful force in shaping a proposal to expand coverage. What's more, the AHA is also working closely with a secretive coalition of about two dozen groups to develop a consensus on the politically fractious issue. That group, now considering three major options, will outline the coalition's plans this week.

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By Michael Romano

THE FEDERALIST PRESCRIPTION

Extending health care to the uncovered, one state at a time

With his leg injured in a recent skiing accident, Arnold Schwarzenegger, California's governor, this week announced a plan that could change the terms of America's health-care debate. The Republican in charge of the country's most populous state, where 6.5m people, almost one resident in five, lack medical insurance, said he wants to introduce universal health-care coverage.

His recipe is a combination of insurance-market reform, government subsidies and--most important--compulsion. "Everyone in California must have insurance," Mr Schwarzenegger argued. "If you can't afford it, the state will help you buy it, but you must be insured."

Although the details are still sketchy, Mr Schwarzenegger's plan is very like another pioneering health-care reform that was successfully championed by another Republican governor in a strongly Democratic state. In April 2006 Mitt Romney, then the governor of Massachusetts and now a leading Republican presidential candidate, agreed on a plan for universal health-care coverage with the state's Democratic legislature. It too made health insurance mandatory, and it also included insurance reform and subsidies.

Massachusetts, and now California, have the boldest plans. But they are not the only states concerned with reducing the ranks of the uninsured. Illinois, Tennessee and Pennsylvania have pledged to insure all children. Half a dozen other states have official commissions charged with producing comprehensive reform plans this year. Could the states jump-start American health-care reform?

America has 47m people without medical insurance, around one sixth of its population. No one doubts that this is both morally vexing and economically inefficient. The uninsured get too little preventive medicine, but hospitals are, by law, obliged to offer them (expensive) emergency care, thus raising costs for everyone else. And as health-care costs have risen, and premiums with them, the ranks of the uninsured have grown.

Unfortunately, America's national debate about health-care reform has been stalled for more than a decade by a combination of ideology and political cowardice. The left argues that the solution is more government intervention; the right espouses deregulation and consumer choice to slow cost increases and so make insurance more affordable. Both sides are cowed by the memory of Hillary Clinton's disastrous failure to rewrite the rules of American medicine in 1994.

State governors have less ideological baggage. States have often been America's policy laboratories, pioneering changes that become national models. In the late 1980s and early 1990s, for instance, Wisconsin led the revolution in welfare, the system of government handouts aimed mostly at poor single mothers.

But health care has proved trickier. Massachusetts tried and failed to force employers to provide health insurance two decades ago. One problem is that the federal government controls most of the money. Medicare, the giant health scheme for the elderly, is federally financed and run. Medicaid, the scheme for the poor, is organised at the state level but co-financed with Uncle Sam. All told, state governments pay for only about 13% of America's medical spending. If you include the huge tax subsidies for employer-provided insurance, the federal government's share is almost 40%.

Nonetheless, three things suggest that state-led innovation has greater promise now than in the past. The first is the Schwarzenegger-Romney effect. Now that America's biggest state has put universal coverage at the top of its political agenda, the feds will have to take notice. Mr Romney will also ensure that health-care reform looms large in the presidential race that is already under way.

Second, the big federally-funded State Children's Health Insurance Programme (SCHIP) is up for renewal this year. Introduced a decade ago, it gives the states $5 billion in grants a year to help children whose families are just above the poverty line (and hence ineligible for Medicaid) get access to health care. The money comes from Washington, DC, but states can spend it as they wish. Many Democrats want to expand SCHIP. And third, several congressmen are now pushing laws that would explicitly encourage state experimentation by making it easier for states to innovate using federal money and, in some cases, by offering more money.

Bay State experimenting

A lot depends on whether the states' reforms actually appear to work. All eyes are on Massachusetts, since it is the first state actually to enact (rather than merely propose) comprehensive reform, particularly the mandatory purchase of insurance. From July 2007 every resident must have health insurance, or face a $1,000 fine. People with incomes up to three times the federal poverty threshold (almost $60,000 for a family of four) will get subsidies to buy insurance. Firms with more than ten workers must offer employees a health plan or pay the state a "contribution" of up to $295 per employee.

Massachusetts has also revamped the insurance market for individuals and small businesses. A new clearing house, the "Commonwealth Connector", is designed to offer more choice and cheaper plans for those outside big firms. People in this "Connector" will be able to offset their health insurance against tax, a perk until now available only to employers.

Forcing everyone to buy insurance is probably the only way to avoid the "adverse selection" problem that plagues health-insurance markets. Younger workers in good health avoid buying coverage, leaving higher-risk people in the insurance pool, thus driving up premiums. And if the uninsured workers fall really ill, they become free-riders on the others, since hospitals are required to treat them at public expense: had they been treated earlier, they might have been cured more cheaply.

Massachusetts's success will depend on whether its mandate actually prompts people to buy insurance. To avoid political uproar when the law kicks in, the state has left itself plenty of wriggle room. The individual mandate will not apply unless "affordable" insurance is available. But the greater the wriggle room, the less effective the mandates will be.

Experiments elsewhere in New England suggest that the voluntary route to universal health-care coverage is costly and difficult. Maine and Vermont are both trying to insure all their citizens. Both have rejigged their insurance market for individuals and small businesses. Both are offering subsidies to poorer people. But neither compels anyone to buy insurance. Vermont's plan was introduced less than a year ago. But Maine's plan has been up and running since January 2005, and its results have been disappointing. According to Cristy Gallagher of the New America Foundation, a Washington, DC, think-tank, only 15,000 people have enrolled so far. The state is a long way from covering its 130,000 uninsured citizens, while the subsidies are proving costlier than expected.

Besides, although obliging everyone to have health insurance can compensate for some of the extra cost of covering the uninsured, it does not offset it entirely. Massachusetts could push for universal coverage in part because only 10% of its citizens lack health coverage. The state was also blessed with lots of money to fund its reforms: an annual $385m pot of federal Medicaid funds, as well as $600m a year that was already being used to help reimburse hospitals for treating the uninsured. Most other states have less money and greater need. Covering California's 6.5m uninsured, for instance, will cost the public purse around $12 billion a year. Mr Schwarzenegger expects $5 billion of that money to come from the federal government. He plans to raise the rest from a mish-mash of taxes on employers, doctors and hospitals.

Going for kids

The cost of expanding health coverage explains why many states have set themselves less ambitious goals than universal insurance. One popular and attainable one is to insure all children. Only about 3% of children are both uninsured and ineligible for help under either SCHIP or Medicaid. Several states are simply expanding their SCHIP schemes to cover children higher up the income scale. Illinois allows any parents to buy into SCHIP if their children have been without health insurance for more than a year. Pennsylvania offers free coverage to families who earn up to twice the official poverty rate.

Other states, however, are concentrating on the much larger problem: low-paid workers in small firms. Only 50% of small businesses now offer health insurance, down almost 10 percentage points since 2000. Several governors are trying to stem this decline by subsidising bare-bones health insurance for these people.

Arkansas, for instance, has launched a scheme in which the state subsidises the premiums of poor workers in small firms provided every worker is enrolled. To control costs, the coverage is limited to six doctor visits and seven days in hospital a year, and two prescriptions a month. New Mexico has a similar subsidised deal for small employers with a $100,000 annual limit on coverage. Tennessee has set the premium rather than the coverage, creating an insurance plan that costs $150 a month, of which it will pay $50, though just what the plan will cover is not yet clear. The hope is that people will prefer cheap, if limited, health care to none at all.

It is tempting to pour cold water on all this state activity. The most radical innovation--forcing people to buy health insurance--may prove unenforceable. Will Massachusetts's new Democratic governor, Deval Patrick, really risk levying heavy fines on low-paid workers without health insurance? And even if the idea works at first, the model will surely collapse unless the ever-growing cost of treatment can be brought under control. As the plan's architects admit, that was not the main priority.

For now, however, such cynicism is misplaced. America's governors are focusing on an important issue that Washington has ducked for too long, and, in several cases, are tackling it with bold new ideas. Now it is up to President Bush and the new Democratic Congress to respond.

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Copyright of The Economist © 2007

MINIMUM-WAGE HIKE CLEARS HOUSE

The House on January 10 voted 315-116 to approve a bill to increase the nation's minimum wage from $5.15 to $7.25 an hour over two years. All Democrats were joined by 82 Republicans in voting for the measure, which would provide the first increase in a decade; at least 28 states have a minimum wage higher than the federal requirement. Republicans offered an alternative measure to exempt small businesses from paying the wage increase if they provide their employees access to health insurance. Rep. Buck McKeon, R-Calif., noted that Democrats objected when Republicans passed a minimum-wage hike last year as part of a bill that also included elimination of the estate tax. But House Education and Labor Committee Chairman George Miller, D-Calif., replied, "What is it you don't understand about being poor? What is it you don't understand? You are stuck at $5.15 in today's world. You can't buy the gasoline to go to work, the bread to put on the table, the milk out of the refrigerator." In the Senate, where a minimum-wage debate is expected once ethics legislation is wrapped up, Republicans are seeking to add several tax breaks, especially for small businesses. Although the underlying bill is widely expected to pass, the GOP's leverage in the 51-49 Senate may win concessions.

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By Richard E. Cohen