While schools always seem to be facing tight budgets, there’s another crisis we can’t afford to overlook - rising health care costs.

"Health insurance premium costs have increased far above the increase rates of inflation and taxes," says Ron Wilson, OSBA's Associate Executive Director.

Benefits amount to over 38 percent of the total compensation package for school employees, according to the Oregon Dept. of Education.

A decade ago, most districts paid the full cost of employee health premiums. In 2001-02, only 23 percent of district, ESD and community colleges pay the full premium for employees.

"To be responsible stewards of taxpayer dollars, boards no longer have a choice - they must advocate for cost-sharing plans at the bargaining table," Wilson says.

OSBA recommends several strategies for cost-sharing, including premium caps, phasing out Early Retirement Incentives and offering "cafeteria" plans where employees can choose where to spend their health care dollars.

"Most districts bargaining last year chose a straight cap for both licensed and classified staff," Wilson says. A straight cap is where the employer contributes a set dollar amount toward insurance premiums - regardless of the total amount.

"We're also helping boards share costs of future, unknown increases," Wilson adds, "for instance, an employer could pick up the first 10 percent of the premium increase and the employees the second 10 percent. Then if the rates increase over 20 percent, the union could choose to take up to one percent off the salary settlement to dedicate towards the employer premium contribution."

To explore the best options for your situation, contact Wilson. OSBA's new Insurance Language book also details insurance agreements from districts, ESDs and community colleges bargaining last year. To order the book, visit OSBA's Publications section on our Web site.

How are boards handling increases?

Since many contracts guaranteed fully paid insurance in the past, boards had no choice but to absorb the costs - a practice they can no longer afford.

The situation was compounded by 40-45 percent of Oregon boards attempting to cut costs with Early Retirement Incentive (ERI) programs, which offered district-paid health insurance to retirees. Though they initially looked promising, the ERI costs are draining already tight budgets.

“Many employers have moved to lower cost plans with higher deductibles and co-insurance rates,” said OSBA Director of Human Resource Development Ron Wilson, noting that managed care options have been considered such as Preferred Provider Plans, Point of Service Plans and HMOs.

In 2001-02, out of 116 school districts, five ESDs and 11 community colleges, only 23 percent are fully paying the insurance program for employees. The remaining 88 percent use some form of insurance cap and cost-sharing method. These practices are becoming the new “norm” in health benefits.

These methods include:

• Full Pay Method: The employer pays the full premium cost for the designated health plan, regardless of cost. 
• Straight Dollar Cap: The employer contributes a set dollar amount toward payment of the insurance program, regardless of actual total amount.
• Dollar Cap and Split the Increase: The employer contributes a set dollar amount toward payment of the premium, and splits the premium increase 50/50 with employees.
• Percent Cap and Split the Increase: The employer contributes a set percentage of the premium, regardless of the actual price of the insurance coverage, and splits the premium increase 50/50 with employee.
• Dollar Cap and CPI Formula: The employer begins with a dollar cap on the premium and then adds a percentage based on the CPI.
• Dollar Cap and Percent Increase: Parties determine a set percent or a limit to the percent increase.
• Straight Percent Cap: The employer contributes a set percentage of the premium, regardless of the actual price of the insurance coverage.
• No Increase: The cap is set at a single level for the entire contract.

Reasons behind cost increases

What’s really behind today’s higher health care costs? There are no simple answers, or easy targets to blame. Several issues and players have an impact. The following information was provided by William M. Mercer, Incorporated, OSBA’s insurance consultant.

Health care providers are demanding fee increases

Oregon is feeling the effects of a physician shortage. Doctors in Oregon have historically been paid less than those in other states and this is being magnified by the increase in the state’s cost of living figures. Retaining and recruiting physicians is more costly than ever.

The physician shortage means that physician practices are full and physicians do not feel the need to discount their fees.

Physicians are leaving the "managed care system" to more directly control their patients’ care and regain more financial independence.

Oregon’s aging population increases demand for medical care

The greater percentage of older citizens in Oregon now means that more people are using the health care system. The latest census figures show that Oregon’s population has a higher percentage of people ages 45 to 60 than other states.

Insurance companies have little choice but to raise rates

Most Oregon insurers have operated at a loss while holding down premiums to increase market share and now must raise rates to maintain their long-term viability.

All insurers are struggling to stabilize provider networks by creating financially attractive contract arrangements that will encourage providers to stay in their PPO (Preferred Provider Organization) and HMO networks. Higher fee schedules result.

Health care inflation is running at three times the rate of the general consumer price index and trends suggest there is no relief in sight so rate increases cannot be deferred any longer.

Employers and employees search for ways to cope

Schools and their employees are struggling to deal with the escalating cost of health care benefits at the same time they are suffering budget cutbacks. Common strategies include changing to lower-cost benefit plans and sharing higher costs through premium rate caps.

Advantages of OSBA-sponsored health plans

OSBA Insurance Trust negotiates aggressively to assure that its plans receive the most competitive renewal terms. The Trust’s size (number of people enrolled in programs) is used as leverage to obtain the most advantageous rates for school districts.

The OSBA Insurance Trust also has the ability to moderate the magnitude of rate increases by "buying down" increases through using its reserves. While subject to trustee approval each year, during the last five years, savings from reserves have averaged four percent annually.

he OSBA program includes a variety of plan choices which allow schools ample selection to meet their benefit and financial needs. Many districts are eligible to offer more than one plan option to create employee choice. And, there are plenty of lower cost plans to consider with new options to be introduced this summer in response to member requests.

This chart displays the percentage of school districts, ESDs, and community colleges that use these methods, including differences between classified employee groups and licensed/faculty groups.