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Education Funding

Health Costs Strain School Budgets

By Joetta L. Sack — March 03, 2004 5 min read

The rising cost of health insurance is leaving less money for school facilities maintenance, teaching positions, technology upgrades, and districts’ ability to comply with the requirements of the federal No Child Left Behind Act.

Read the results of the survey “Rising Health Costs Hit School Maintenance, Tech, and Teacher Budgets,” and the accompanying press release, from the The Association of School Business Officials International.

At least that is the word from hundreds of school business officials, who picked health-insurance costs as their top budget concern in a recent survey by the Association of School Business Officials International.

The cost of insuring employees is outpacing increases—if there are any—in state and local budgets that remain hobbled by an uneven economy. Many of the administrators surveyed believe that the trend is directly affecting the quality of their education services.

Members of the Reston, Va.-based group also ranked health-insurance costs as their No. 1 concern in a similar survey last fall, but the new survey sought to gather more information on the impact of the expenses.

“We were kind of surprised by that [finding], but we began thinking that, of course, [health-insurance costs] affect everything else,” said Anne W. Miller, the executive director of the organization, known as ASBO.

Of the roughly 650 ASBO members who responded to the follow-up online survey in February, 95 percent said health-insurance costs are a bigger problem than ever before.

According to the survey, the areas most likely to get cut to offset rising insurance costs are school maintenance, teaching positions, upgrades to technology, and professional development.

“Everybody’s trying to figure out some way of dealing with it, but there isn’t really a good way,” said Bruce Hunter, an associate executive director of the American Association of School Administrators, based in Arlington, Va. “There’s nothing you can do about it except absorb the costs.”

Health- insurance costs can run more than 50 percent of a teacher’s total salary, he said, and the typical multiyear contracts that districts and unions negotiate mandate that districts provide the specified benefits to teachers and staff members, regardless of cost increases or budget cuts.

Mr. Hunter said some districts are joining to negotiate cheaper policies with insurance providers, or are switching to other providers that may offer better prices to new customers. (“Districts Hard Hit by Escalating Costs of Health Coverage,” Jan. 30, 2002.)

Ultimately, though, there are only a few providers that districts can choose, Mr. Hunter said, and in some places, the higher costs that come with insuring a graying population of school employees have hindered officials’ ability to negotiate better deals.

Containing Costs

The ASBO findings, which offer a snapshot of what is going on nationally, show that almost all the districts represented in the survey have seen at least some increase in their health-insurance costs. The business officials put the blame largely on the basic cost of those policies, rather than union contracts or greater employee use.

Taking a Toll
The Association of School Business Officials International recently surveyed members on the impact of rising health-insurance costs.

“Which areas of your budget have been reduced because of the rising cost of health insurance?”

Response
Percent
Response
Number
Textbook purchases 26.7 150
Professional development for teachers 39.9 224
Student field trips 23.5 132
After-school programs (academic) 15.5 87
Athletics 15.5 87
Arts 14.4 81
Teaching positions 43.5 244
School building maintenance 50.3 282
Total respondents to this question 562
SOURCE: Association of School Business Officials

According to the survey:

  • Nearly 50 percent of the districts responding spend at least 9 percent of their budgets on health insurance for employees, while 30 percent spend between 6 percent and 8 percent.
  • Fifty-five percent of respondents said their districts’ health- insurance costs had risen more than 21 percent in the past three years, with 17 percent reporting that their costs had risen more than 40 percent.
  • Just over half said they had reduced school maintenance budgets to offset the increases, and 43 percent had cut teaching jobs or technology upgrades.
  • Nearly 62 percent said that the rising costs had hurt their ability to implement No Child Left Behind Act requirements.
  • Fewer than 7 percent of districts said that they pay the full cost of health insurance, requiring instead that employees chip in.

Many districts have tried to contain costs, although Ms. Miller noted that few respondents to the survey had, or were willing to share, innovative ideas.

Among the exceptions, the 8,900-student West Des Moines district in Iowa has held down costs by forming a committee of employees and teachers’ union representatives to routinely study the districts’ health-care spending data. The group also figures out ways to contain costs, such as the employee-wellness program it helped put in place.

The district links salary increases for its 1,200 employees to its health- care costs. In other words, containing costs is the best way to secure raises, because the policy encourages employees to keep their health-care reimbursements to a minimum, said Galen G. Howsare, the associate superintendent for administrative services.

About five years ago, the West Des Moines district switched to a self-financed plan, which covers most employee medical bills from district coffers. That has kept annual increases to 12 percent or less, Mr. Howsare said. The district is hoping to create a reserve fund within that account to help pay for any unusually large costs in a given year.

Return to Tradition

The self-insurance route doesn’t work for everyone.

In the 15,400-student Stamford, Conn., school district, administrators recently switched from self-insurance to a more traditional insurance plan through Anthem Blue Cross Blue Shield, said Assistant Superintendent John Chardavoyne. The district found that the costs of self-insuring were high and too unpredictable.

The new plan cost $24.3 million for this school year, down about $750,000 from last year. But the cost is expected to rise to about $26.7 million next year, and the district will require its 2,000 employees to pay higher deductibles to avoid even larger increases.

“They’re not jumping for joy, but they understand the position we’re in,” Mr. Chardavoyne said.

As the Stamford district has seen its health-insurance expenses rise, it has reduced the number of teachers it hires and cut the costs of supplies, he added.

Higher employee contributions for fewer benefits can drive younger teachers out of the field, Mr. Hunter of the AASA warned.

“In the past, you weren’t making a lot of money, but you always had good insurance for you and your family,” he said. “Now, I don’t think there’s a single employer, public or private, that hasn’t been affected.”

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