Rising employee healthcare costs are straining school district budgets and posing fresh challenges for school districts as they try to offer competitive benefits packages without dipping into budget reserves, according to a survey of hundreds of superintendents.
The rising cost of such a large expense in school district budgets requires tradeoffs that could mean delayed investment in instructional and facility improvements or a hit to districts’ ability to recruit staff. Essentially, the survey found, the situation leaves school districts no good options.
Nearly all of the 767 superintendents (98%) who responded to the survey administered by AASA, The School Superintendents Association, and the Association of Business Officials (ASBO) International in March and April said rising health care costs are having a “measurable impact on their budgets.” Nearly half of the superintendents said the increasing costs required reallocating funds from other areas of their budgets. The report is not nationally representative, but reflects the membership of both organizations.
“When you have such a large share of districts saying this is a problem, that’s a crisis in my opinion, and the growing financial pressures can no longer be ignored by policymakers, communities, or by health insurance companies,” said Sasha Pudelski, AASA’s director of advocacy.
District leaders identified rising prescription drug costs (60%), more claims for expensive treatments (56%), and increased use of high-cost specialty drugs such as GLP-1s (56%), commonly prescribed for diabetes and weight loss, as leading causes for higher health insurance premiums. Rising labor and supply costs and broader demographic pressures associated with an aging teacher workforce were also cited in the report as pressures driving up healthcare costs.
Over the past fiscal year, 41% of respondents said health insurance premiums have increased by up to 10%, and another 40% said premiums have increased 11- 20% in the same period. Sixteen percent of superintendents reported that health insurance premiums have increased more than 20% in the past fiscal year.
To offset those costs, districts are most often turning to rainy day funds, the report found. Fifty-two percent of superintendents said their districts have pulled from reserves, while 46% said they have modified employee benefits packages. Less commonly, about one-third of respondents said they’re delaying new hires, 31% are putting off upgrades for technology and instructional materials, and 28% reported offering less generous health insurance plans, particularly for employees’ families.
Superintendents of urban districts were more likely to report that they are offering less generous health coverage, while rural and suburban district leaders more frequently chose to delay spending on technology and instructional investments, such as new textbooks and fresh spending on career and technical education programs.
“When you consider the opportunity costs, if you’re putting money toward rising healthcare premiums, there are things you are not able to invest in instead,” said Elleka Yost, director of advocacy and research at ASBO.
Reduced benefits can make districts less appealing employers
Changing health insurance plans can be tricky for districts, though.
Health benefits are commonly a subject of collective bargaining, and districts may be contractually obligated to maintain some health benefit packages, regardless of the cost. Reopening negotiations can be expensive and take a long time to complete, the report said.
Even if districts could pivot more quickly to address higher healthcare costs, reducing health insurance benefits could be detrimental to efforts to recruit and retain an already strained educator workforce, including both teachers and support staff such as bus drivers and cafeteria workers.
“If districts are no longer able to provide those attractive benefits packages, someone … may be more likely to find a career somewhere else that’s able to provide more robust paid benefits or a higher salary,” Yost said.
Relying on reserves to offset health insurance costs isn’t sustainable long term, the report says.
“Unlike emergency facility repairs or one-time equipment replacements, health insurance premiums are recurring obligations that increase annually,” the report said. “Yet many districts have few alternatives as they face increasing budgetary pressure from inflation, declining enrollment, and local, state, and federal revenues that are not keeping pace with growing student and staff needs.”
Often, pulling from reserves for health insurance means there are fewer dollars available for facility maintenance or for other emergency expenses, the report said.
Districts are reluctant to have taxpayers chip in more
To avoid pulling from reserves, some districts have turned to local taxpayers for help.
More than a quarter (27%) of district leaders reported requesting new or additional local taxes to offset expenses, despite also expressing “considerable discomfort about having to rely on local taxpayers to absorb” the rising costs, the report said. The strategy was slightly more common among suburban district respondents than those from urban and rural districts.
In many states, districts must obtain voter approval to raise taxes or levies to fund operating costs.
“It demonstrates how significant of an issue it is if they have to go and try to convince taxpayers that this is something they need to spend right now,” Pudelski said. “Districts take that seriously.”
The report called on policymakers to evaluate school funding formulas and ensure they adequately meet schools’ needs, or to consider supplemental aid to “help districts navigate extraordinary financial circumstances” and avoid “crowding out essential investments in educational services and programs.”
