News Story

Before Emergency Manager, Pontiac Had 87 Different Health Plans

One plan for all government unions will save taxpayers millions, eliminate bureaucratic mess

Talk about bureaucratic red tape. Try dealing with 87 different government union health insurance plans.

That was one of the headaches Lou Schimmel faced when he became emergency manager for the city of Pontiac. The city now has one plan and will save millions by consolidating, which would have been nearly impossible without the state's emergency manager law.

"Every union had their own negotiated health plan with either no or low deductibles and co-pays,” said John Naglick, Pontiac's finance director. "These plans had been negotiated over the years. An employee who retired under a certain health plan expected to be covered by it."

Emergency managers have been appointed in Michigan municipalities and school districts that operate under deficits and have lost control of their finances. Schimmel was the third emergency manager for Pontiac. But when Schimmel took over, he had a new tool at his disposal that gave him the authority he needed to really cut costs.

In early 2011, Gov. Rick Snyder signed Public Act 4, an enhanced emergency manager law, that allowed for the setting aside of labor contracts.

"Lou said to the employees, 'I'll give you one common sense health plan,'" Naglick said. "He consolidated the 87 health plans into one. It was a very reasonable plan, with a $750 deductible."

Schimmel completed the consolidation of the health plans in April 2012. The city stands to benefit financially because many of the previous plans had little or no deductible.

"We couldn't have done this without PA 4," Schimmel said.

But some still think the emergency manager law is bad for local governments. A referendum to repeal the law is going to be on the Nov. 6 ballot. A "yes" vote keeps the law in place; a "no" vote will end it.

Consolidating the 87 health care plans into one also saved Pontiac money in less obvious ways, said Joseph Sobota, a key member of Schimmel's emergency manager team.

"Under many of the union contracts, if employees and those in retirement had a spouse employed somewhere else that had health care coverage, they could choose between keeping the plan they had with the city or leaving it and being covered by their spouse's plan," Sobota said. "But when they were paying almost nothing under the plan they had with the city, why would they have even considered changing?

"Now we're seeing some of those people switching to their spouse's plans," Sobota said. "That's saving dollars for city taxpayers going forward."

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.