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Wednesday, July 2, 2014

Picking apart the teachers' insurance "fix" just approved by the legislature

Posted By on Wed, Jul 2, 2014 at 2:42 PM

The crisis in the public school employee (PSE) insurance system is complicated. The politics behind it are complicated. The solutions just passed by the legislature to once again shore up the troubled fund — those are complicated, too. But the underlying reason behind the fund’s insolvency is simple: the public isn't paying enough for its share of PSE insurance. Before diving into the policy details, here’s one straightforward numerical comparison from that goes to the heart of the issue.

According to an estimate in a 2012 paper on national health insurance costs summarized in Education Next, the “typical” public school teacher in Arkansas pays 65 to 70 percent of his or her premium for family coverage. Data from the Bureau of Labor Statistics shows that an average public school teacher in the U.S. pays for about 34 percent of his or her health insurance premium for family coverage. (Lest these numbers be accused of masking pro-labor sympathies — the researchers are from the U of A’s Walton-funded Department of Education Reform and are associated with the George W. Bush Institute.)

At the heart of the US employer-based insurance system is a contract between worker and management to split the cost of health coverage. For teachers in the country as a whole, their employer — ie, the public — pays for about two-thirds of premiums. (That’s also about the same rate as private-sector employees nationally.) For teachers in Arkansas, their employer covers only about one-third of that cost.

Put another way, the average Arkansas teacher bears twice the share of premium cost as the average American teacher, or, for that matter, any average American worker with employer-based insurance.

There are plenty of caveats here about making an apples-to-apples comparison — some Arkansas school districts contribute far more for their employees than others, for example — but the big picture holds true. Also, because PSE insurance has seen multiple rate hikes since 2012, it’s likely that the “typical” percent of premium borne by an Arkansas school employee now has climbed past 70 percent.

It seems obvious that the public’s share of school employee premiums needs to rise dramatically. But that’s where the complications begin to creep in: who actually employs teachers? Is it the school districts or the state of Arkansas? Statutorily, the answer is clear — teachers are employees of districts, not the state itself. Fiscally, it could not be more convoluted. Most money spent on public education flows from the state to the districts, but districts are also considered autonomous agents that can spend that money how they choose and levy local taxes of their own.

Yet state and district are both public entities. The fundamental fact is that Arkansas taxpayers (locally and statewide) employ school staff, and we’re stiffing them on insurance premiums. Some of the changes that were just passed this special session are good ideas and some are questionable, but none add to the employer contribution for PSE insurance. Out of the $36 million total savings expected by the legislature, none come from additional public revenue. That’s why many teachers deride this “fix”, like the one created in the previous special session last fall, as a Band-Aid on a gaping wound. Privately, some legislators and state policy experts say the same thing.

click to enlarge David Sanders (R - Little Rock)
  • David Sanders (R - Little Rock)
Sen. David Sanders, a Republican member of the legislative task force that designed the package of changes just passed by the legislature, disagrees. He prefers a decidedly more positive comparison. “It’s a football analogy,” he said. “We’re advancing the ball down the field. We’re getting there.”

Sanders, along with task force chairs Sen. Jim Hendren (R) and Rep. Harold Copenhaver (D), emphasize that the committee is already working on bigger, more systemic recommendations for the 2015 regular session. It seems as though two possibilities for seriously reconfiguring PSE insurance are shaping up, options which are in a way diametrically opposed (see the end of this post).

Will the legislature actually make some major changes to PSE insurance when it reconvenes in six months...or, if the recently-applied Band-Aids hold until then, will they punt on the hard decisions yet again? That depends on how serious Hendren, Copenhaver, Sanders, and the other task force members are about forcing a real debate over revenue and political control. If the latest temporary patches sufficiently mute the chronic rumbling of the PSE fund going into next spring, the General Assembly will be tempted to ignore the headaches the issue creates. (Then, six or eighteen months later, the next actuarial crisis in the fund erupts.)

If teachers and the right legislators make enough noise, though, it could be a major topic at the Capitol in which case, expect it to intertwine with the inevitable resurrection of the fight over the private option.

Now, for teachers and others intimately involved in this issue — let’s look at some of the details of what the legislature just passed and what it’s pondering for the future. If anyone has questions about some of the other changes I didn't address, please leave a comment and I’ll try my best to get an answer.

Part-time public school employees — newly defined by legislation as those working under 30 hours per week — will no longer be eligible for PSE insurance. That will save the state an unknown amount in monthly employer contributions, but nobody is quite sure how much; the best estimate is $5 million, according to Copenhaver. It’s estimated that some 4,000 staff fall into this group — bus drivers, cafeteria workers, custodians, paraprofessionals, and so on.

The good news is that once they become ineligible for insurance through their school, they become eligible for assistance under the Affordable Care Act. Depending on an employee’s income, he or she will likely either get a federal subsidy to help defray the cost of buying personal insurance on the ACA exchange or else get fully paid coverage via the private option.

The bad news is that 2015 reauthorization of the private option is up in the air. Ironically (and outrageously), many of the legislators that tried to strip funding for the program in the 2014 fiscal session just now voted to move part-time school employees onto the exchange / private option. Among them are task force members Hendren, Sen. Cecile Bledsoe, Rep. Alan Kerr, and Rep. Bill Gossage. Other leading Republican legislators who do support the private option — such as Sen. Jonathan Dismang and Rep. John Burris — made it more difficult last year for people to learn about signing up for subsidized coverage under the health exchange by yanking money for outreach and advertising from the Arkansas Insurance Department. (Dismang and Burris also voted for the bill this special session to encourage part-timers to seek coverage on the exchange.)

Concern about the future of the private option is why the Arkansas School Boards Association (ASBA) opposed the move to exclude part-timers

“I give Sen. Hendren high marks for making a really legitimate attempt to solve a difficult problem,” said Ron Harder of ASBA, “but it would have made the pill easier to swallow if part-time state employees — including legislators — had had to lose their insurance as well.” The option of booting part-time state employees was originally considered and then discarded by the task force. Harder said that the change also might make it more difficult for small, struggling districts to recruit and retain part-time employees.

If a school employee’s spouse has access to insurance through his or her own employer, the spouse is no longer allowed the option of buying into the PSE plan. Some have asked why it makes sense to shrink the PSE insurance pool by kicking out spouses, as well as part-timers (see above). Doesn’t a larger pool make for a healthier fund?

Not always, said David Sanders. “This is about adverse selection,” he explained. Spouses that participate in the PSE plan are actually twice as expensive to insure as school workers, which makes sense for the following reason. PSE insurance is frankly a pretty bad deal, all in all, because the employer contribution is so low. Yet despite the high costs, its Gold plan offers rich benefits — appealing to those who will rack up a lot of claims. Most spouses who do work choose to take their own employer’s insurance, because it’s likely much cheaper. For a spouse, getting covered by the PSE fund makes sense only if he or she really needs that Gold insurance, meaning he or she is likely quite sick. That means a claims rate 100% higher than that of school employees themselves.

There’s a similar incentive problem for part-timers (they only participate in PSE insurance if they desperately need it, so their claims rate is inordinately high). Moving both populations out of the PSE pool should make it healthier.

This is one of several changes the task force recommended that did not require legislative action; it will be instituted administratively by the Employee Benefits Division (EBD), which runs the PSE plan. The premiums on a bare-bones, high-deductible Bronze plan will rise significantly — but because those costs were already low ($11/month for individual only), the increase shouldn't be devastating. The scary prospect about rising rates has always been hikes in the already huge premiums on the Gold plan. This time around, instead of a rate hike, the Gold plan will add a sizable deductible (it was previously $0) but will see its monthly premium reduced significantly. That should reduce utilization of the Gold plan somewhat.

For employees, this is all a mixed bag. It will hopefully nudge the overall pool towards better actuarial health. But, all in all, it is still asking more money from employees when the public’s employer contribution share is already far lower than the national average. It should also be mentioned that no one is quite sure exactly what the exact figures from the EBD will be, and won't until 2015 rates are announced by that agency's actuaries later this year. The task force estimates these changes will put an additional $21 million into the plan. (Translation: the bulk of this "fix", $21 million out of $36 million, still comes from enlarging the share of school employees' contributions.)

There’s plenty more. The composition of the the EBD board will be changed to include more representation from school employees. Money available for a bariatric surgery benefit (weight loss surgery) will be reduced dramatically, from around $16 million to $3 million. Districts will be required to remit the federal payroll tax (FICA) savings on their contribution towards PSE insurance back to the state. There’s a new dependent eligibility verification requirement, and every Bronze plan member will have to participate in a health savings account (HSA).

So what does 2015 hold? There are two systemic reforms being discussed at the moment.

One would be to merge the PSE fund with its sister, the Arkansas State Employee (ASE) insurance fund. The EBD board administers both pools, but their dollars are kept separate and state employees are given an employer contribution at a rate far more generously than that of school employees (who are, again, technically the employees of districts rather than the state). It’s a peculiar set up that’s fed some of the perverse incentives at play in the fund. Would combining the two pools stabilize the PSE fund, or would it merely sink the ASE fund as well? That all depends on whether the public bumps up its employer contribution to school employees’ premiums. If it doesn't, it’s hard to see how merging the two funds would do anything but create a bigger crisis in the long run.

The other option is to move in the other direction: privatization. “It may get to the point where people say ‘we want local control,’” said Sanders.

It’s seductively simple. Why not let districts have complete control of this problem? The problem is that once again, it would do nothing to address low employer contributions. Districts like Little Rock that already pitch in a generous additional contribution of local millage to what the state provides will surely be able to buy comparable insurance in the private market. But the majority of the state’s 240 districts add little or no local money to the state’s pittance for insurance. Some districts might be able to convince local voters to approve new millages; many others surely would not. Putting schools districts in control of their own insurance — individually or at the co-op level — won’t change the simple fact that their employees’ share of premiums is twice as high as it should be.

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