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Small Districts Eye Coverage 'Pools' as Remedy

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School officials in Berks County, Pa., would like to teach the U.S. Congress a thing or two about health-care reform.

After months of feuding over health care, federal lawmakers remain deadlocked and are likely to adjourn for the year with only limited reforms--or nothing at all--to show for their efforts.

Lawmakers reportedly are focusing on insurance reforms, but may also consider plans to guarantee health coverage for children.

Meanwhile, in the rolling farmland of Berks County, 11 school districts have put their own reform into action and have slashed an estimated $1.7 million from their health-insurance bills in one year.

"Maybe they should use our model," said Scott Ballantyne, one of the school officials who engineered the Berks County health-care coup.

But school lobbyists believe the proposals being debated on Capitol Hill spell trouble for small districts, like those in Berks County, that save money on health insurance by "pooling" and purchasing insurance as a single group.

Small businesses have formed such pools--sometimes called "purchasing cooperatives"--for years. This gets them lower rates and better care, because when their employees are combined, the larger "risk pools" spread the costs of coverage.

"Volume talks," explained Sidney W. Stolz, a consultant who has helped create several pools, including one for a group of Atlantic City casinos.

"Hospitals and providers are making better deals for groups that bring more patients to the table and fill their beds," he said.

Schools are particularly good candidates for pooling, according to Mr. Stolz, who works in Arlington, Va., for Towers Perrin, a management company. Individually, school districts can be small fish to insurers. But when combined, they can become the largest industry in a region, making them a prize catch for insurers.

Districts in 22 states have formed pools that together cover more than a million school employees and their families, according to an informal National School Boards Association survey.

State associations of school boards have created pools in such states as Michigan, Oregon, and Texas.

Neighboring districts also have created pools on their own. In California, for example, nearly 100,000 school employees and dependents get health coverage through some 13 pools, according to the California Teachers Association.

Districts of all sizes have joined pools. In California, a San Diego County pool includes districts ranging in size from 30 to 12,000 employees.

However, pools have proved most attractive for small school districts. In Texas, for example, the state school boards' association's pool serves as a safe harbor for as many as 400 small districts buffeted by changes in the insurance industry, said Dubravka H. Romano, the association's director for risk-management services.

The size of the Texas pool ebbs and flows as insurers expand or contract their coverage of small districts. It currently has 220 members. But when the industry raises rates or drops coverage for small employers, the pool grows larger.

"The insurance industry in Texas, like in many states, is fickle," Ms. Romano said. "It pulls in, then it pulls out."

'Spike and Drop'

Even in a stable insurance climate, however, districts with small payrolls have sought refuge in pools from volatile premium rates. In Pennsylvania's Oley Valley district, a member of the Berks County pool, a single serious illness among the schools' 160 workers used to send rates on a roller-coaster ride.

"They spiked and then dropped, spiked and then dropped," said Mr. Ballantyne, the director of business services for the district.

Most districts have plunged into pools in search of discounts.

"We were disgusted with the escalating costs of fringe benefits," said Donald Shelton, the assistant superintendent of the San Diego County schools. "We were seeing 10 and 15 and 20 percent rate increases every year and no end in sight."

After 18 of the county's districts pooled, however, they slashed $16 million from their projected health-care costs for the 1993-94 school year. In talks about future contracts, insurers have hinted at even lower rates.

Schools in the Berks County pool scored similar savings. Oley Valley trimmed $100,000 from its previous year's $649,000 bill for major medical expenses, according to Mr. Ballantyne. A neighboring district cut its rates in half.

Not all of these savings resulted from pooling, school officials noted. The health industry has been working overtime to drive down costs, according to Ronald C. Mason, a Towers Perrin consultant who helped organize the San Diego County pool.

And, in the case of the San Diego pool, several districts that had offered traditional "fee for service" plans, which allow patients a virtually unlimited choice of doctors, cut costs when they moved to "managed care" plans, which direct patients to certain doctors.

Still, in both Berks and San Diego counties, pooling sparked bidding wars in which insurers offered rate reductions drops of up to 20 percent.

"There's no doubt about it,," said Mr. Ballantyne. "The pool had a lot to do with that."

Union Input

In states with collective bargaining for school employees, the participation of unions is key, pool organizers said.

Most pools are run by boards that set the standard package of benefits and choose an insurance carrier. Representatives from labor and management customarily fill an equal number of seats on these boards.

Union organizers in Berks County and San Diego County said they had been eyeing pools for years as a way to end contract haggling over who pays for rising health-care costs.

"We felt we had to stop shifting the costs and figure out a way to control those costs in the long run," said Mary Pat Fritz, a field representative for the Pennsylvania State Education Association.

In San Diego, districts also sweetened the pot for workers by passing on some of the savings achieved through the pool.

Most districts in the pool gave teachers raises of 1 percent to 1.5 percent after years of salary freezes, according to Kenneth H. Parker, a training and bargaining specialist with the California Teachers Association.

"One-point-five looks pretty good when you've had two years of zero increases," he said.

Insurance pools face an uncertain future as Congress continues to grapple with some form of health-care reform.

Reform Anxiety

President Clinton's original reform plan tapped the same economic principles that have made pools successful. It proposed creating mandatory state-run "alliances" to purchase insurance for the entire population of defined geographic regions.

The President's plan would have effectively outlawed school pools by requiring all public employers to join the state-run alliances.

These mandatory alliances were dropped from the leading bills as they moved through Congress, but the various proposals being debated would still remove pools as an option for small districts, according to school lobbyists.

A provision in the proposal sponsored by the Senate majority leader, George J. Mitchell (D-Me.), for example, provides that public employers with fewer than 500 workers would be "community rated" by insurers.

Under community rating, districts' premium costs would be determined not by the health of their employees, but by the health of the general population in the region.

This "obliterates the value of pooling" for small districts, according to Laurie A. Westley, the chief legislative counsel for the N.S.B.A.

Most school officials involved in running pools said they did not know the specifics of the various Congressional plans. But they are uneasy.

"If you've got something that isn't broken, don't try to fix it," said Christopher L. Dudley, the executive director of the Oregon School Boards Association.

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