A Really Bad Deal

In Obamacare, it was mandated that health insurance companies spend 85% of premiums on care (vs. marketing, profits, and overhead) or else they owe their customers a refund.  So if the same standard was applied to unions, how much of their dues would they have to refund?

For example, according to the most recent federal filings, the Michigan Education Association — the state’s largest labor union — received $122 million and spent $134 million in 2012. They averaged about $800 from each of their 152,000 members.

According to union documents, "representational activities" (money spent on bargaining contracts for members) made up only 11 percent of total spending for the union. Meanwhile, spending on “general overhead” (union administration and employee benefits) comprised of 61 percent of the total spending.

The union appears to have spent nearly the entirety, or $119 million of their $122 million in dues, just supporting their leadership  (and various politicians) in grand style.  They actually had to borrow $12 million to do their job of representing their members.

By Obama's standard of good management (core activity costs = 85% of total customer dues paid) then the union should have taken only $17.4 million from their members, and owe them a $104.6 million refund.

  • obloodyhell

    One should also look at the admin overhead of a "good" charity. It's a lot more than 15% I believe, it's actually about 30. Depends on the exact type of charity, but some charities are absolute garbage (United Way is the most well known example).

    In fact, if you want a money-laundering scheme, a charity is a common way to do it, as I understand. There is very little in Law regarding the requirements/limits for admin overhead.

  • morgan.c.frank

    perhaps they are just as illiterate and innumerate as their students:

    "Detroit public-school eighth graders do even worse in math than they do
    in reading, according to the Department of Education. While only 7
    percent scored highly enough
    on the department’s National Assessment of Educational Progress test
    in 2011 to be rated “proficient” or better in reading, only 4 percent scored highly enough to be rated “proficient” or better in math."

    or perhaps they are all out protesting for unions today due to some sort of stockholm syndrome.

    or maybe they just figure that if they can do no work and get paid, the union officials ought to be allowed to do so too.

  • Sean Wise

    California's unions have really delivered for the state employees, even if the rest of the state is suffering. This article in Bloomberg spells out the excesses, particularly with the highest paid employees. http://www.bloomberg.com/news/2012-12-11/-822-000-worker-shows-california-leads-u-s-pay-giveaway.html It makes you wonder as a taxpayer, would you prefer effective union bargaining and be deeply indebted to the entire unionized work force or an inefficient one where only a few make out well?

  • nehemiah

    Great comparison.

    I wonder how much insurers will fight cost increases since higher medical costs give them a bigger base to base margin on. They just need to catch the increases on the premium side. Per usual the government has the incentives all messed up.

  • nehemiah

    No one launders money like the union. Not even close as is evident in the above post. Charities have more oversight than unions. That is not to say that there isn't abuse, but the majority tend to be good stewards of the funds received. Unions, not so much.

  • http://www.facebook.com/matthew.slyfield Matthew Slyfield

    Actually the best way to detect scam charities is not looking at admin costs vs total budget, but fund raising costs. There are "charities" out there that spend as much as 85% on fund raising alone. Then take out 12% admin costs and 2% get's spent on the charities supposed mission.

  • Bill K.

    Warren, could the same principle apply to all gov. services?
    1. 85% of every public university's expenses go to teaching, not admin, sports, or others.
    2. 85% of every road budget go to construction/maintenance, not admin, "here's your tax dollars" advertising, or planning.
    3. 85% of every post office budget go to mail delivery, not pensions, yada.
    4. 85% of every NASA budget go to missions, not muslim outreach.
    This management standard could really catch on...

  • http://www.facebook.com/matthew.slyfield Matthew Slyfield

    What about the military?

    Where does 85% of their budget go? Blowing stuff up?

  • marque2

    The whole rebate thing was a canard. We were all told that health insurers were using all sorts of money on their bureaucracy we were led to believe it was something like 50% of the money or more. Those guys are really ripping us off, and then some of them were actually showing a profit to boot.

    Well I my rebate check - those bastards were spending so much on overhead they had to return 97 CENTS to me - and I have private insurance! And I think this was the same for most folk. The claims that we would get $100's of dollars back from this rebate were phony.

    And if you think about it, how could they be anything other than phony? What business would contract with a health insurer that was not providing value for the overhead? What private person would contract with an insurance company that charged an outrageous rate compared to others? Seems like the free market creates the efficiency.

  • mantispid

    Need to split out 'member benefits' and 'administrative costs'. Aren't 'member benefits' ones of the roles of Unions?

  • Samrobb

    The old Combined Federal Campaign rules (pre-2006) disallowed participation by charitable organizations that spent more than 25% of their income on administration and fund-raising, and the vast majority of organizations were able to report < 15% spending in those areas. The evidence seems to be that everyone except the government is capable of accomplishing this basic feat.

  • Bill K.

    Well, let's just say, in the spirit of providing care rather than managing the providers, in whatever like the old Bell Telephone slogan can "reach out and touch someone". Blowing stuff up certainly is letting them know you care. :)

  • Bill K.

    Amen to that, Matt.
    Upon once being tasked to look into raising support from charities for a medical mission, I narrowed my list to the dozen most promising candidates. Upon reading the 990 PF statements required by the IRS, I discovered:
    Charitable Trust "A" spent 3.5 out of 4 million bucks on 'legal services' supporting their organization.
    Charitable Trust "B" hid from their advertizing that their "Christian" mission was to send over 80% of their dispersed funds to Planned Parenthood.
    Charitable Trust "C" sent over 90% of their donations in support of Charitable Trust "D", who sent over 90% of their donations in support of Charitable Trust "E", who sent 90% of their donations to Charitable Trust "C".
    Things to think about as you hear "supported by the _____ Charitable Trust, dedicated to a safer, healthier planet" or some such hogwash.

  • Fifty Ville

    A good charity is defined as one that uses a minimum of 80% of revenues to support its main function, and a maximum of 20% towards overhead and fundraising.

    Unions, on the other hand, appear to be nothing more than social clubs for the gullible. Would you donate to a charity where only 11% went towards its goals?

  • Scott from Ohio

    It's not "member benefits," it's "employee benefits." Those would be employees of the union itself, including administrators, not the members.