Districts struggle with soaring health costs

By Del Stover

1/28/03 – Rising health insurance costs are adding to the fiscal worries of local school officials, who already face one of the worst budget years in half a century.

Nationwide, health insurance costs rose 14.7 percent in 2002, according to Mercer Human Resource Consulting, an international consulting firm. For this year, costs are expected to rise another 14 percent.

Such rate hikes were putting a noticeable strain on school budgets even before the current economic slowdown. But coupled with huge state budget deficits that have prompted mid-year cuts in K-12 funding in many states, rising insurance premiums have left some school systems struggling to make ends meet.

School systems across the nation report premium increases ranging from 9 to 40 percent. The extent of the rate hikes depend on a multitude of factors, including a district's number of employees, geographic region, state laws, and instances of catastrophic illnesses.

The Houston school system certainly is feeling the impact. Health care coverage for 20,700 employees could cost the school system $115 million this year -- a 15 percent increase over what the district had expected. Overall, employee premiums will rise 40 percent.

Fifteen hundred miles away, officials in Carson City, Nev., say they've watched the cost of HMO services rise 125 percent since 1999. Yet, this year, HMO coverage rose a relatively tame 9.5 percent.

Not that single-digit inflation is particularly helpful when so many districts are in a financial crisis mode. Health care costs are not a discretionary expense, and unless something is done, spiraling costs will bust the budget.

"If we continue to see double-digit increases in health insurance coverage, then we're going to have to reduce services" in the education program, says Bob Anderson, director of fiscal services for the Carson City schools. "There's a limited amount of dollars out there."

There is no sign of immediate relief in sight. Rising health insurance costs are fueled by a variety of factors outside the control of the education community, including an aging work force, new and expensive medical technologies, ballooning prescription costs, and state and federal mandates expanding insurance coverage benefits.

Labor conflicts

An additional worry is that rising costs aren't just hurting fiscally. Unable to bear the financial burden alone, school systems are asking employees to shoulder more of the cost -- and that's putting a strain on labor relations in some communities.

A National Education Association survey of teacher strikes last fall found that health care costs were a factor in every dispute -- and sometimes the main point of contention, says NEA collective bargaining specialist Don Morabito.

"In bargaining terms, we're finding this an increasingly difficult issue," he says. "We want to hold onto what we have, but the cost keeps going up, so there's fewer and fewer dollars available for anything else -- like salary increases."

That was readily apparent to officials in Carson City, where contract negotiations reached an impasse last spring -- partly over health care coverage. At the time, school officials said they could no longer afford to provide teachers with what they called a "Cadillac" health care plan.

The dispute ultimately was settled with the help of a federal mediator, and the school system continues to pay 100 percent of employee premiums. But teachers and support staff also were called upon to pick up part of the tab: Co-payments for each doctor's visit were doubled, and the cost of some preventive care services are shared with employees.

Passing along such costs is, in fact, increasingly common -- but varies widely in extent. The Hartford, Conn., school board recently won concessions from the teachers union calling for teachers to pay 14 percent of their annual premiums by 2004, up from 10 percent today.

In Massachusetts, the Greater New Bedford Regional Vocational Technical School District now requires employees to pay 35 percent of premium costs. Anticipating sizable cuts in state aid this year, officials say that figure could climb to 50 percent in the future.

Such strategies offer some relief to stretched school budgets. But teachers union officials warn that salaries are not all that high to begin with -- and any attempt to reduce take-home pay could undermine efforts to boost teacher quality as required by the No Child Left Behind Act.

That's an issue very much on the minds of the education community in Oklahoma, where the average teacher salary is just $33,000. Although state funding helps school systems cover most employee insurance premiums, there is little relief for teachers who must pay for family coverage.

According to the Oklahoma Education Association (OEA), adding a spouse and two children to a health care plan can cost a teacher upwards of $6,000 annually.

"It's a huge issue," says OEA President Carolyn Crowder. And it's an issue state policymakers need to address "if school districts want to keep the teachers they have and recruit others."

State policymakers are listening. Last year, Oklahoma lawmakers doubled state funding to help local schools pay health care costs. By next year, that figure will rise to 75 percent of employee premium expenses.

In Texas, the legislature also responded to a growing chorus of school board and union concerns by agreeing to give school employees $1,000 a year for health care costs.

Yet, even these modest steps are endangered by the current fiscal crisis. In Texas, the funding boost will cost $1.25 billion over two years, and the state faces a $9.9 billion deficit. In Oklahoma, school officials are watching closely to see how how state officials intend to trim as much as $200 million in K-12 funding.

Cost-cutting strategies

Meanwhile, local school officials are doing their best to combat rising costs.

Lloyd Barnes, director of marketing for Hometown Health, a health benefits firm working with schools in Nevada, says the most obvious step is to sit down with insurance carriers and look at various options. For example, boosting employee co-payments for each doctor's visit or raising annual deductions can produce sizable savings without being overly onerous on employees.

This approach might actually garner additional savings in the long term, as well. Barnes says there's ample evidence that employees use health care services less as their share of costs increases.

The Greater New Bedford school system is finding it cost effective to seek bids for insurance coverage every two years.

"It keeps the competition up," says Richard Dupuis, business manager and treasurer for the school system. "You'll find you won't mind changing health insurance every two years -- as long as the service is comparable."

Another option garnering interest is a throwback to the 1980s: the cafeteria plan. According to Barnes, such plans fell out of favor because of the administrative costs in allowing employees to pick and choose from various health care options, but new technology is easing this burden and making it a viable option.

Other strategies under consideration are self insurance and purchasing collaboratives. The Houston school system now pays its own health care costs but also has joined with two other school systems to share administrative costs for their health plans.

One of the more ambitious efforts is the Pennsylvania Public School Health Care Trust, a self-insured pool of 18 school systems. The idea is to help school systems cut out the overhead of traditional insurance carriers. The trust is overseen by the Pennsylvania School Boards Association and state teachers unions, with financial assistance from Heinz Family Philanthropies.

"I've seen premium increases of 40 to 50 percent in some instances," says Philip Smalley, the trust's executive director. "There's got to be a stop to it. Something has to be done."

Policy changes needed

Such efforts can help keep costs down in the short term, industry analysts say. But any real attack on rising health care costs will depend on state and federal policymakers.

An important step advocated by American Association of Health Plans (AAHP) -- and one that local school board members will appreciate -- is for lawmakers to take a closer look at costly mandates, says AAHP spokesperson Mohit Ghose. Over the years, he says, lawmakers have expanded patients' rights to access new medical services and specialists without a referral approved by insurance carriers.

In hindsight, he says, not all of that access has ended up improving medical care -- but it has boosted health care costs. The increasing cost of malpractice litigation also has to be addressed. These are issues that go beyond the reach of local school officials. But any action -- anywhere -- to stem the tide of rising premiums cannot come too soon.

That's especially true where upcoming fiscal cuts are straining school budgets to the limit. In Oklahoma, the budget situation is so serious that school officials are likely to turn to a legal sleight of hand.

According to June Ehinger, deputy executive director of the Oklahoma State School Boards Association, it's not unknown for school systems to fall short in paying their bills -- and then see the teachers union file a "friendly" lawsuit asking for a court-ordered tax hike to raise needed revenue.

Ehinger predicts as many as 100 school systems could resort to this tactic in the coming year.