The Cost of Care
If Superintendent Dave Gordon had a crystal ball, he might gaze into it and see himself with a shovel in one hand and scissors in the other, kicking off an important groundbreaking for his district. The vision might not sound all that out of the ordinary, with the growing need for school construction today. Except this building-to-be is a hospital.
No, Gordon isn't contemplating a career switch. He's simply frustrated with the health-care system and the double-digit increases that Elk Grove (Calif.) Unified School District has endured. "People have said the only way to drive down costs is to build your own hospital! It may sound far-fetched, but we're spending almost $40 million a year on premiums. ... Anything's on the table that could, long-term, drive down these phenomenal cost increases," he says, adding that the expenditure was between $20 and $25 million just five years ago.
Elk Grove may as well be named Any District, U.S.A. For the last 12 years or so, districts have absorbed 8, 10 and 12 percent or more increases in health-care costs per year, says Richard R. Dupuis, chair of the Association of School Business Officers' committee on human resource and labor relations. "You'd be surprised how many calls I get from other districts [about health costs]," he adds. And even though Dupuis regularly shops around for the best-priced carrier for his own district, New Bedford (Mass.) Regional Vocational Technical High School, the expenses keep going up.
"There's an elephant in the living room and we need to talk about it. We can't keep walking around it," says Terri Ezaki, vice president of employee benefits for Redwood, Calif.-based ABD Insurance and Financial Services.
Top administrators are certainly having conversations about health care in San Juan Unified School District, which, along with neighboring Elk Grove and Sacramento City Unified, hired ABD earlier this year to explore money-saving partnership possibilities. "Any increase we have in budget money is just being eaten up in health-care costs," says Debbie Fleming, San Juan's risk management director.
San Juan has seen double-digit increases a few years in a row. Couple that with a shrinking state education budget, and the worries multiply. "It's a perfect storm kind of thing. It's the worst time for the costs to be getting this high," Fleming says.
The waves are eroding classroom doors. Milwaukee Public Schools expects to shell out roughly $195 million for health and dental benefits in the fiscal year ending June 2004, and rising costs have meant "not as much money to put toward classrooms as there once was," says Christine Toth, director of benefits and insurance services. For every dollar spent on salary, about 55 cents has to be set aside for fringe benefits this year, compared to 51 cents last year. Ouch.
But every discussion about health care need not be painful. The following crash-course on containing health-care costs summarizes nine lessons for administrators grappling with the issue.
Lesson 1: Hit the books
Six years ago, a family crisis threw Gordon headfirst into the health-care system. His son-in-law was hit by a car and spent nearly a month in a coma. Gordon saw the final itemized hospital bill, which he says was in the ballpark of $700,000. Curious about how the system worked, he called the insurance company and learned they would never pay an entire bill like that. It would shrink significantly after negotiations with the hospital.
Although unrelated to the district, the situation opened Gordon's eyes to the system as "a dense thicket of rules and regulations." Now, he says, "I know much more about it than probably I ever cared to know."
Experts say administrators should study basic terms, like formulary, and acronyms, like HMO vs. EPO, so they can participate in discussions about insurance costs. Help in navigating the system doesn't hurt either. Ezaki suggests looking for insurance consultants who are familiar with the nuances of municipalities. They should be willing to dole out research-based advice, even if it's advice that administrators may not want to hear.
Lesson 2: Engage in peer discussion
When it comes to health care, the one certainty is that no district is alone. Two years ago, administrators and insurance committee members representing most districts in Idaho met to talk about trends and cost issues. "Insurance operates in isolated vacuums of information," says Jim Shackelford, executive director of the Idaho Education Association. At the one-day forum, which he organized, participants shared cost-controlling strategies and got a macro view of the national and international health-care industry. While there was a mood of anxiousness about lack of control over their fate, Shackelford says it was a constructive day. "It's just a good way to learn and to make plans for the future."
Lesson 3: Buddy up
How to improve Idaho's statewide health insurance pool so that larger districts can benefit was a discussion topic at the forum. Pooling resources to get better rates is a solution districts are increasingly considering today. Yet, as the Sacramento-area districts that hired Ezaki's firm now know, more employees on an insurance plan don't necessarily mean less cost. One problem they encountered was differing employee demographics. "We have younger, newer teachers who typically make less demands on hospital care," Gordon says of Elk Grove. Another issue is that each district has multiple bargaining units that would have to approve a streamlined benefit agreement, Ezaki says. "You have to have some kind of common denominator on expectations."
Still, all is not lost. The districts may be able to collaborate on one piece of health insurance, such as a disease management program, chiropractic coverage or a prescription plan, Ezaki explains.
Lesson 4: Shop around
"I don't personally... get too comfortable with any one specific carrier," Dupuis says, adding that he compares rates every two or three years. "If I find one with similar benefits and a cheaper price, I will poll the staff and see what they think." In Milwaukee, Toth says the district managed some quick relief this summer when it began self-funding its HMO. Health-care providers have "a margin built in because they're assuming risk. It was driving up the rates," she says, adding that administration fees are still just a fraction of total costs.
Lesson 5: Send an SOS to stakeholders
Experts advise inviting all stakeholders --current and retired teachers, education support professionals, the school board and the community at large--to discuss health cost-cutting. "It's not something we should be fighting over. It's something we should be cooperating on to get the best deal for all of our employees," Gordon says.
When changes are made, it can mean having to explain cuts in coverage, higher co-pays and a restricted choice of providers. San Juan uses multiple means of communication, from face-to-face time with employees during open enrollment to information sent via e-mail and mail, Fleming says.
Milwaukee's superintendent is quick to point out the urgency of reforming health care plans to employees, the board and the public. In fact, Toth says her boss William Andrekopoulos has been quoted as saying, "This year we are driving our budget to the emergency room in an ambulance. Next year, if we do not make any changes, we will be driving our budget to the morgue." Employee cost-sharing is part of the strategy. "It's unrealistic to think we can absorb everything 100 percent," Toth says. According to Dupuis, most U.S. districts now have their employees paying some percentage of premiums.
Lesson 6: Avoid a take-it-or-leave-it approach
Offering employees a choice of plans is some consolation for contributing to rising costs. In New Bedford, employees can choose a family, two-person or individual plan, Dupuis says, so single employees don't end up subsidizing large families. Elk Grove offers three plans, the first of which has no premium cost for employees at all. For an add-on cost, they can get plans with more benefits, including a Kaiser Permanente program with a one-stop health- care system that means "you don't have to race all over town" for various services, Gordon says.
Some districts also offer employee incentives for those who don't need coverage at all. In Humble (Texas) Independent School District, for instance, no-cost dental coverage is available to employees who get medical from another source. Districts may also entice employees with a dollar value to stay off the health plan, Dupuis says, adding that he could see them considering, say, a $500 per month incentive.
Lesson 7: Separate the goods
The design of Milwaukee's Preferred Provider Organization mail-order prescription drug plan is one of its biggest cost headaches, Toth says. The out-of-pocket cost (for 90-day supplies): $5 for generic medications and $7 for brand names. A carve-out plan for prescriptions is under consideration to potentially save the district money, she adds. Elk Grove is looking to address prescription costs by finding a broker for the services to reduce some of the management fees, Gordon says. The district may also create a separate hospital plan in the future.
Lesson 8: Haggle
When an increase hits, "we don't just have to absorb it," Dupuis says. "We can go back and deal with the insurer and say, 'We don't want a 12 percent increase. How best do we reduce the premium on this specific plan?' " This may mean an increase in individuals' costs but can keep the district from having to make a major change in benefits, he explains.
Lesson 9: Keep them healthy
"At the end of the day, you do lack control over these systems," Gordon says. "Ultimately the only thing you have control over is your own behavior, as an employee, as a person." Wellness programs have been explored and widely implemented in the private sector, and now districts are following suit. In fact, at the Idaho forum, many shared their success in helping to educate employees about wise health choices through these types of programs, Shackelford says.
While Gordon says he would never want to discourage people from getting services they need in order to save the district money, he does see the value in helping them navigate the system. "It's a big business, but, so isn't ours a big business? We have to be as diligent as possible in watching the taxpayer's and employee's dollar."
No matter how diligent administrators are in exploring options for lowering health-care costs, certain hurdles will probably always be too tall to scale completely. Here's some advice on keeping complications in check:
KEEP INSURER BRAND NAMES OUT OF UNION CONTRACTS When negotiating with unions, some districts make the mistake of agreeing to offer a specific brand of health insurance. "It basically locks you in," says Richard R. Dupuis, chair of the human resource and labor relations committee of the Association of School Business Officials. Instead, the contract might include promise of a plan structure, such as an HMO, or a description of required benefits.
KNOW YOUR REGIONAL CONSTRAINTS In areas where there are few choices for medical groups and facilities, keeping insurance costs down by jumping to a new carrier may not always be an option. Additionally, state laws may dictate the district's health-care contribution; in Texas, for instance, districts must pay at least $225 per employee per month. Laws may also limit the taxing power of certain districts. As a regional system, Dupuis' school district in Massachusetts cannot rely on a city or town to pick up health insurance costs, for example. A consultant can help wade through the health-care waters; just make sure the person or firm is familiar with the options in your area.
FOCUS ON WHAT YOU CAN CONTROL "Ultimately we can only do so much at the school district and state level. ... We cannot control what a drug company's research budget is going to be, or what a hospital's budget is," says Jim Shackelford, executive director of the Idaho Education Association. "This issue is so much controlled by what is going on nationally and even internationally." Still, he says, there are areas that can be explored on the local level, such as pooling resources with other districts and continuing to rely on each other for information.
Melissa Ezarik is features editor.