Published Online: October 22, 2013
Published in Print: October 23, 2013, as Health-Care Law Raises Questions for Districts

Health-Care Law Poses Challenges for Districts

School districts are facing vexing financial and operational questions about how they will comply with the Affordable Care Act, which some administrators say is forcing them to choose between absorbing the hefty costs of health coverage for currently uninsured employees or cutting back on those workers' hours.

Among districts' biggest concerns is a provision in the 2010 federal law that mandates that public and private employers with at least 50 workers provide health insurance to full-time workers—defined as those working an average of at least 30 hours a week—or face potentially steep fines.

Many districts have long relied on support-staff members—including bus drivers, cafeteria workers, and instructional aides—to perform a wide range of duties, in some cases juggling several assignments, without offering them health insurance.

Now, as they prepare for the provisions of the sweeping law to take hold, some districts are reducing employees' hours below the law's threshold, or considering doing so. Some school officials fear cutting hours will hurt employees by sapping their paychecks, and undermine K-12 services.

The law has been at the center of President Barack Obama's domestic agenda—and of some of the nation's most divisive political debates. That rancor was evident during the recent, failed attempt by congressional Republicans to force major changes in the law in return for raising the federal debt ceiling.

Delayed Enforcement

President Obama eased some of the pressure on employers by delaying enforcement of the law's employer mandate by one year, to 2015.

But concerns about the law among school leaders persist.

Last year, just 11 percent of school business officials said that the impact of the health-care law was one of the issues that most worried them. This year, that number jumped to 54 percent, according to a membership survey by the Association of School Business Officials International, or ASBO, based in Reston, Va.

"It's a good idea, poorly executed," said Rick Allen, the superintendent of the Southeast Dubois County School Corporation, a district in Indiana, describing the law's impact on his 1,300-student district. His system is reducing the hours of support workers to avoid paying for their health insurance.

The attitude of too many critics of the law is "repeal it or nothing," Mr. Allen said. As for helping schools, "there are a lot of tweaks [elected officials] could do to the law to make it better," he said, "but in the current political climate, that won't happen."

Perhaps the most obvious battleground over districts' implementation of the law is Indiana, where a group of school systems this month joined the state's Republican attorney general in filing a lawsuit in federal court that challenged regulations issued by the Internal Revenue Service to administer the measure. The plaintiffs say districts' cuts to the hours of instructional-support aides are undermining instruction and services.

"There are a limited amount of funds that schools have to provide for the education of children," said Jim Hamilton, an Indianapolis lawyer representing the districts. "If other costs are put on top of districts' current costs, other cuts will have to be made and there will have to be a reduction in staff [hours]."

Legal Action

Officially known as the Patient Protection and Affordable Care Act but commonly known as Obamacare, the law was approved by Congress three and a half years ago after a protracted battle fought largely along party lines.

The employer mandate, one of the law's core provisions, says that large employers, defined as having 50 or more workers, are required to offer full-time employees health insurance. If employers, such as school districts, don't meet that requirement, and workers in turn receive federal subsidies to obtain coverage through the state- or federally-run exchanges—marketplaces created under the law—employers have to pay a fine equal to $2,000 per employee, excluding the first 30 employees from the count.

In addition, employers are required to offer affordable coverage, meaning workers pay no more than 9.5 percent of their income toward an employer-provided plan—and generous enough to cover 60 percent of health-care costs. (Employees who work less than 30 hours a week are still eligible for insurance through the exchanges.)

Insurance Exchanges

The law allowed states to choose whether to offer their own health-insurance exchanges—Web-based sites where people can shop for coverage from participating insurers—or rely on a federally operated exchange. Twenty-seven states, including Indiana, have chosen not to create health-care exchanges, according to the Indiana plaintiffs.

Their lawsuit, filed by Indiana Attorney General Greg Zoeller and 15 school districts, argues that the IRS, in regulations issued last year, wrongly concluded that federal subsidies created through the law are available to individuals in all states, with or without their own exchanges.

The plaintiffs assert that the letter of the health-care law says that individuals in states without state health-care exchanges can use federal exchanges to shop for coverage—but don't qualify for federal subsidies. And because individuals in Indiana who buy coverage from the federal exchanges do not legally qualify for federal subsidies, they argue, employers in the state, including districts, cannot legally be penalized for not offering full-time employees health insurance.

But Susan Relland, a vice president for American Fidelity Administrative Services, which consults districts and other employers on the law, said that any ambiguity in the wording of the law could most likely be attributed to "drafting glitches," and that the discussion among policymakers drafting the measure intended to provide subsidies through both the state and federal exchanges. (Ms. Relland, a lawyer, represented employers as Congress was debating the law.)

"Our advice has been, just because a lawsuit has been filed, don't assume the law will be stopped," said Ms. Relland, referring to the various legal challenges to the measure.

Tracking Work Hours

In most cases, the employer mandate would not affect teachers, who typically receive health insurance through contracts that are collectively bargained with school districts, according to school officials and lawyers who work with them.

The more relevant question for classroom educators is the extent to which they are hit by a tax on generous health plans, commonly known as the "Cadillac tax."

That penalty, which was designed to discourage the creation of overly expensive plans, will not take effect until 2018. As it approaches, the tax could lead districts to seek to renegotiate contracts with teachers over plans that administrators already see as a big drain on finances, said Ronald A. Skinner, the deputy executive director of ASBO.

But the more immediate concern facing most districts is the employer mandate, Mr. Skinner said. It is increasing the paperwork and managerial burdens in many districts, he said, which in turn is fueling administrators' anxiety and frustration. District official worry they will miss something and "get on the wrong side of the law," he said.

Some districts are looking for new software systems or other tools to track more precisely the hours of employees, Ms. Relland added.

The hours and duties of school support staff affected by the mandate can vary enormously. Some are bus drivers who also work in the cafeteria, while others might be classroom aides who coach sports on the side, said J.T. Coopman, the executive director of the Indiana Association of Public School Superintendents.

Districts Pinched

Backers of the law have argued that employees who work 30 or more hours, in education and other fields, deserve insurance, and Mr. Coopman said he was sympathetic to that view.

But many Indiana districts have been hurting financially for years, he said, partly because state funding has not kept up with costs.

"Many school districts in the state of Indiana are operating with a 2006 budget in 2013," Mr. Coopman said. To provide health insurance for workers, he said, would mean "cutting pieces out of a pie that's already thin."

The Southeast Dubois County district relies on about 50 support-staff workers, in addition to more than 80 teachers and administrators. Providing all of them with health insurance would have cost the district, which has a general-fund budget of about $7.4 million, an additional $257,000, a cost that the district could not afford, said Mr. Allen, whose district is not part of the lawsuit.

School districts "can't just go up to the state and say, 'We just offered all our employees health insurance, give us more money,' " he said.

Low-Cost Plans

Kenneth A. Mason, a lawyer in Overland Park, Kan., who consults school districts and other employers on the Affordable Care Act, predicted that many districts would be able to avoid its penalties by offering relatively bare-bones policies, as long as they meet the law's requirements to provide "minimal essential coverage."

"Where people seem to be heading is finding a very low-cost plan" for workers, Mr. Mason said.

Districts' burdens under the law will be greater than those of employers that offer broad coverage to all or nearly all employees, Mr. Mason said—but less than for many private-sector companies that rely heavily on low-wage, uninsured workers.

The Vigo County School Corporation, a 15,500-student district in Indiana, shaved the hours of about 40 percent of its 1,400 support-staff employees working more than 30 hours to just below that threshold, Superintendent Daniel Tanoos said. Insuring them would have cost the district, which has a total budget of about $150 million, an additional $6 million a year.

Those cuts in hours have resulted in instructional aides' spending less time in special education classrooms and other learning environments, and in reductions to field trips and other events requiring longer hours from bus drivers.

Related Blog

The district, which like the Southeast Dubois system is not part of the federal lawsuit, is trying to ease the pain for employees by bumping up its hourly wages to help them overcome the reduction in work schedules.

"It's a hit for us," Mr. Tanoos said of the wage hikes, "but it's the right thing to do."

Faced with a similar decision, officials in Pennsylvania's Penn Manor school system chose another option: They subcontracted with a private company to hire about 90 of the districts' paraprofessionals, so those workers no longer count as district employees. Superintendent Mike Leichliter said they were reluctant to allow the employees to go to a private company, but they said their 5,200-student school system could not afford to insure them.

In addition to concerns about costs, the officials say it has been difficult to cope with the law's administrative requirements and to find reliable, detailed information about how to deal with its policies.

"We just don't get answers to the biggest concerns," Mr. Leichliter said. "There are more unknowns than knowns."

Vol. 33, Issue 09, Pages 1,13

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