Collaboration in Civic Spheres

State Could Save $180 Million Each Two Years In K-12 Employee Health Costs

by Matt Rosenberg February 10th, 2011

SUMMARY: A state performance audit found Washington could save up to $180 million for every two-year budget cycle – enough to pay for 1,000 more teachers and their benefits – if the state implements major organizational reforms in K-12 public school employee health care administration and requires more balanced cost-sharing from K-12 employees.

BACKGROUND: Washington state voters in 2005 passed Initiative 900 which requires the state auditor’s office to conduct or contract out for periodic performance audits, or cost-efficiency and performance assessments of major state, regional or large local government programs. The state auditor’s office hired The Hay Group, experts in assessing health insurance plans and administration, to conduct a review of Washington State’s health benefits program for K-12 public school employees, which is provided through the state’s Public Employee Benefits Board (PEBB). The system paid for $1.21 billion in coverage benefits to K-12 employees in the 2009-2010 school year with workers paying 16 percent of that total. Of the remaining costs, the state paid for 64 percent, local district tax levies 12 percent, and the federal government and other sources eight percent.

KEY LINK: “K-12 Employee Health Benefits,” report for Washington State Auditor, issued 2/8/11.

KEY FINDINGS:

  • The state of Washington provides health care benefits to more than 100,000 K-12 public school employees in 295 different local school districts and nine educational service districts. This is accomplished through the use of more than 1,000 separate benefits funding pools, which pay for more than 200 different health care plans, provided by 10 different insurance companies.
  • The system of 1,000 separate benefits funding pools is overly complicated and cumbersome to administer, and restructuring it could play a large part in helping save the state as much as $90 million annually, or $180 million for each two-year budget cycle in K-12 employee health benefit costs. That’s enough to pay for the salaries and benefits of another 1,000 K-12 public school teachers.
  • Some school districts have as many as 12 different employee health benefits funding pools, each one tied to a different employee collective bargaining unit, and often requiring benefits funding re-allocations several times yearly, which adds to administrative burdens and costs. The Hays Group report recommends a limit of two pools per district, such as one for teachers and another for non-teachers, to increase efficiency, reduce costs, and make premiums more transparent.
  • Part of the savings could be achieved another way, by more balanced cost sharing. Benefit plans for K-12 public school employees in Washington state are on average more generous than typical for other employees. If their benefits were funded at a level no higher than that of the predominant plan used for federal government employees, the state could save $13 million annually.
  • Employee contributions for sole beneficiary coverage are on average lower than typical for other employers (chart); but contributions required for family plans are higher than average (chart).
  • The K-12 public school employee health benefits system in Washington state should be completely re-structured. It should be moved out of PEBB and into a separate self-funding statewide program with its own governing board. Participation could be made mandatory by the legislature, which would achieve greater overall savings, but that approach should be phased in over a period of no less than three years from approval of the reforms.

from K-12 Employee Health Benefits, report for Washington State Auditor, issued 2/8/11

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