Why is Teacher Health Insurance so Expensive?

As you may have heard, there’s a pretty significant debate going on at the state capitol this week with regards to public school employee health insurance rates. Teachers and other public school employees will see a significant increase in their plan premiums for 2014, while state employees, who have always enjoyed significantly lower rates, will not see such an increase. Let’s take a look at why.

To summarize, the State of Arkansas provides a self-insured health insurance plan, the ARBenefits Plan, for two separately funded groups: state employees and public school employees. A self-insured, or self-funded plan, such as ARBenefits, is one in which the employer (the State maintained Plan in this case) pays the full cost of the claims, as opposed to a fully-insured plan, where the employer pays a premium to an insurance carrier, which in turn assumes the financial responsibility for claims. The rates paid into the ARBenefits Plan by employees, school districts, and the State are pooled for the two separate groups respectively (state employees and public school employees) and are used to directly cover the costs of claims as they arise. An increase in the number of employees who enroll in the plan creates a bigger risk pool, which lowers rates, and vice versa.

The main reason for the rate differential between state employees and public school employees is the level of employer contribution. The State contributes $410 per month per budgeted position for each state agency. Regardless of how many actual employees the state agency has at any given time, and regardless of how many of those employees actually enroll in the plan, the state contributes the same amount. For example, if a state agency has 200 budgeted positions (number of positions allowed by the legislature’s appropriations), 180 employees, and 100 employees enrolled in the plan, the State contributes $82,000 (200 x 410) per month to the state employee group plan for that particular state agency. The number of employees enrolled doesn’t matter. A school district, on the other hand, is only required by law to contribute $150 (beginning January 1, 2014; the current requirement is only $131) per enrolled employee per month. So for example, if a school district has 200 employees (budgeted positions do not apply to school districts), and only 100 of those employees are enrolled in the plan, that particular school district only contributes $15,000 per month to the public employee group plan. This results in a large discrepancy in the amount of money available to the each plan through employer contributions, and the cost is passed on to public school employees. Only about 65% of public school employees are currently enrolled in the plan, which exacerbates the difference in employer contributions. Furthermore, with rate increases looming, in addition to the availability of other health insurance options through the health insurance exchange that opens for enrollment next month, public school employee enrollment will likely drop, and rates will continue to increase. The State also contributes $50 million in general revenue to the public school employee group plan to help offset some of the costs, but it’s not enough. I also want to note that school districts are allowed to contribute more than the required minimum per enrolled employee as an added benefit to their employees. Approximately half of the school districts in the state do contribute more. Some school districts currently cover most or all of the premiums for their employees.

So why is this happening now? Well, there’s not just one answer to that. The gap between the employer contribution and the cost to insure an employee due to the rising costs of health care has widened significantly in recent years, and the employee is responsible for the difference. To make matters worse, there were four catastrophic claims made within the public school employee group plan in 2012, totally approximately $10 million, which essentially wiped out any reserves available to the plan.

The General Assembly is now in a tough position, and there’s no easy answer. Approximately $60 million in additional contribution from the State would be required to keep the rates at their 2013 level, but even if $60 million were available (and I’m sure it’s not), this wouldn’t solve the underlying problem of employer contribution. Most teachers weren’t happy with the 2013 rates either, as they were still significantly higher than those of state employees. If school districts can’t contribute more financially (and they’ll say they can’t), then it’s up to the General Assembly to find a way to better fund the public school employee plan, but this won’t come cheap. The state budget is tight, so any increase will likely come from either tax increases or cuts in other state services.