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Escalating Health-Insurance Costs Eroding Education Pay and Funding

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The rapid escalation of health-insurance costs is putting an increasing budget strain on states and school districts, analysts say, and eroding for many teachers the hard-won salary gains of recent years.

With rate increases of from 30 percent to 50 percent not uncommon, union leaders and other officials said last week they fear many school employees eventually could be priced out of insurance programs if present trends continue unabated.

"The problem of getting and keeping health insurance is growing worse and worse," said John Coles, president of the Texas Federation of Teachers.

Though the health-cost crisis is affecting all Americans, experts say it strikes particularly hard at workers in the precollegiate sector. Private insurance carriers, they say, consider school employees to be a high-risk workforce.

The industry's wariness is based on two demographic factors: The aging of the teaching force, which means more members more prone to use medical coverage; and the high proportion among teachers of younger women, a group considered to be a higher insurance risk because of the possibility of pregnancy.

Teachers also have the time and the know-how to use their benefits, some analysts add.

"In terms of risk among public entities, school districts are the worst," said Dubravka Romano, associate executive director of the Texas Association of School Boards, which operates the nation's largest self-insurance pool.

Problem Will Not 'Right Itself'

Experts claim that health-insurance rates have soared nationally for two reasons: increases in the price of medical services and increases in the use of those services.

"What we're finding right now is both of those factors are going up dramatically," confirmed Barbara Exstrum, a spokesman for Blue Cross & Blue Shield of the National Capital Area in Washington. "You've got a double hit there."

The growth in hospital and other medical costs is exceeding the rate of inflation, she said, noting the expense of high-technology services most hospitals can now offer and the greater frequency of their use as the U.S. population ages.

Since 1960, Ms. Exstrum said, insurance costs have been tracking in three-year cycles, with a company absorbing losses for three years before passing them along to clients in rate hikes.

But with this current cycle, she said, "we're seeing sharper increases" and a number of insurance firms, fearing even greater losses, are getting out of the health-coverage business altogether.

"We can't assume this is automatically going to right itself," Ms. Exstrum concluded.

School-Related Developments

For educators, the insurance issue is presenting problems on a number of fronts. But hard statistical data on the magnitude of the difficulties are scarce because school workers' health benefits are provided in such widely varying forms--from full or partial state coverage, to district-level coverage options, to the full assumption by some teachers of their own insurance coverage.

Developments over the past year, however, point to the widening scope of the financial squeeze:

In West Virginia, some clinics and hospitals have stopped recognizing the insurance card held by teachers and state employees because the state has failed to pay its bills on time--and faces a projected $71-million deficit in its insurance fund by June.

The bankruptcy last fall of the in4surance foundation created by a consortium of rural Texas school districts left 7,000 employees with $8 million in unpaid claims.

Both Alabama and Utah face a projected 35 percent hike in insurance-coverage costs for teachers this year and state education officials are publicly wondering where the additional funds will come from. The increases amount to $38 million in Alabama and $23 million in Utah.

In Kentucky, teachers and state employees took to the streets in protest last November, after the state dropped its private health coverage and instituted a self-insurance program that eliminated many benefits and tripled or quadrupled out-of-pocket costs to workers.

And in Orange County, Fla., Orlando school officials dropped the district's private insurance carrier after it tried to impose an annual rate hike of 50 percent, which would have raised costs from $20 million to $30 million.

The district opted instead for a self-insurance program, but disenchanted teachers protested and last week approved a new benefit package that increased their rates significantly.

Teacher Raises 'Evaporate'

For teachers, who may be paying more and more in the future for health-insurance coverage, regardless of their status in state or district insurance plans, the spiraling of premiums has become an issue working in direct opposition to the goals of teacher professionalism.

Generally, health-care costs amount to 8 percent of the salary level, according to Jewell Gould, research director for the American Federation of Teachers. A 30 percent increase in insurance premiums can boost the health-care cost to more than 11 percent of the salary level.

For teachers, such an increase would mean that an average 5 percent pay increase, which holds the line against inflation, is really only a 2 percent hike, once health costs are factored in, Mr. Gould said.

"Finally, we are realizing the magnitude of a 30 percent increase in benefit costs," he observed.

In state after state, school employees are seeing their pay raises evaporate and, in some cases, find themselves earning less money.

"If you take the last four years in Texas, salary increases have ranged from 1 percent to 3 percent. There are a number of cases where salary increases have been entirely or half wiped out by insurance-premium increases," said Brad Ritter, a spokes8man for the Texas State Teachers Association, an affiliate of the National Education Association.

The pay increase Kentucky teachers received last year, said David Allen, president of the Kentucky Education Association, "was totally erased" by the cost of the state's new insurance plan.

Such effects will make health benefits a hot negotiating item in many districts' contract talks, union officials predict.

"There are a lot of ways school districts are approaching it, but it all adds up to [the fact that] they are trying to get the employees to pay more," said Kenneth Drum, secretary-treasurer of the Illinois Federation of Teachers, an aft affiliate.

Mr. Drum said districts typically are proposing limits on the amount of premium costs they will pay, a move that would require employees to pay any premium increases. Some districts also are proposing increases in the deductible or decreases in benefit levels, he said.

Rural Areas, Support Personnel

Particularly hard hit by such added costs are school support personnel. Many support workers, officials say, earn the minimum wage and could, if insured, find one-fourth or more of their salaries going for premium costs.

The new plan approved by Orlando teachers takes that financial stress into account, at least to some degree. Under the Orlando plan, said Rosa Pickett, acting director of the Orange County Classroom Teachers Association, the deductible will range from $100 to $300, depending on the employee's salary level.

"These people needed a break," she said of support personnel.

School employees in rural areas also consider themselves at a special disadvantage in the health-cost equation. Because of their small size, rural districts often find it hard, if not impossible, officials say, to find carriers that will insure their employees.

And many of the cost-saving aspects of modern medical practice are not in evidence in isolated locations, as a lawsuit in Kentucky attests.

Teachers in rural areas of the state have filed a suit challenging Kentucky's new self-insurance plan on the grounds that urban teachers have access to lower-priced health maintenance organizations.

Seeking Cost-Saving Measures

Meanwhile, the rush to devise new ways of controlling the rising insurance rates continues, withel15lstates and districts being joined by employee groups in the effort.

Richard D. Miller, executive director of the American Association of School Administrators, recommended that districts consider offering a "cafeteria menu" of plan options. Employees could then choose the type and scope of coverage that suited their needs, saving both themselves and the participating group money.

Mr. Gould of the aft suggested that districts also should challenge the rate-increase proposals of private carriers. In some cases, he said, carriers might be convinced to reduce their proposed hikes, rather then risk the loss of a large group plan.

Both Mr. Miller of the aasa and Ms. Romano of the Texas school-boards' group predicted that more and more districts would be turning to self-insurance plans and pools as a cost-saving measure. But although such plans can save administrative costs, they warned, they do not eliminate cost increases. The Texas group's plan, Ms. Romano said, had to raise rates by 40 percent last year.

Even teachers' unions have studied this cost-savings route. In Champaign, Ill., the local aft affiliate took over the district's self-insurance pool. And although costs have continued to rise, according to Mr. Drum, the union has been able to increase benefits.

"We've asked to do that in other districts," he said, "but boards have been reluctant to give up their plans." Such employee-run programs can often encourage plan holders to be more careful about using health benefits, added Mr. Gould.

In Kentucky, the state employees' union has hired a consultant to recommend changes in the state's self-insurance plan. The chief proposal was that an independent foundation run the insurance program.

Mr. Miller of the administrators' group cited the trend toward so-called wellness programs, which stress preventive medicine, as a possible long-term route to reducing health-care costs.

But Charles Wells, field director for the Kentucky Association of State Employees, an affiliate of the aft, predicted that the federal government eventually will have to step in with cost-containment measures.

Smaller Pool, Higher Price

If such broader efforts to deal with the health-cost spiral are not undertaken soon, many experts warn, the problem will be exacerbated.

"One of the things that concerns us," said Ms. Romano, "is that, as health care becomes unaffordable to many people and they become indigent patients, hospitals will write off their costs and shift them to those who are paying."

The operating philosophy behind insurance coverage, she and others said, is that risk is spread over a large pool of people.

But if employees find coverage too expensive and drop out of the system, the group that would retain coverage would be those who need it and use it the most.

In the same way, high deductibles may mean that employees delay treatment until their medical problems are more serious--and more expensive.

"It violates [the principle] of spreading risk over a large group," said Ms. Romano. As costs go up, more people drop out and an unhealthy cycle of rate increases and membership reduction is perpetuated.

'Staggering' Costs Ahead?

And, sounding an even gloomier note, Mr. Gould warned that demographic trends may mean that the latest round of rate increases marks only the the tip of an even greater problem.

Teachers nearing retirement age now will be in their 80's when the Baby Boom generation of teachers reaches its retirement age in a couple of decades, he noted. At that point, the retired population will balloon rapidly to unprecedented levels.

And since health benefits for retirees usually are deducted from retirement funds, the strain on the funds--many of which already have large unfunded liabilities--could be profound.

"Wait until they see the bill for the retiree health costs," said Mr. Gould. The tab, he predicted, will be staggering.

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