A Survey Of School Districts' Health Insurance
Office ofLEGISLATIVE AUDITOR GENERALState of UtahREPORT NUMBER 2011-07July 2011A Survey of School Districts’Health InsuranceAll 41 school districts in Utah offer health insurance benefits totheir employees. Utah allows school districts to seek their owninsurance coverage rather than require they use the state’s program.Large school districts independently purchase health insurance, butmost smaller school districts reduce costs by combining to purchasehealth insurance. Several other states permit school districts toindependently purchase health insurance similarly to Utah; however,we are aware of three states in which school districts and stateemployees have the same health plan and benefits.This audit surveyed 10 school districts in Utah, and found thathealth care costs and benefits vary for each school district. Thepremiums for the family plan varied by 6,000 among the surveyedschool districts. The premium was not adjusted for differences inbenefits or the health of the members. Also, the premium cost sharingbetween the school districts and employees varies greatly.One factor affecting high premiums is the variation in the districts’procurement practices. Consistent bidding practices for healthinsurance fosters competition, and helps school districts obtain healthinsurance at lower prices. However, four of the ten school districtshave not bid their health insurance in more than five years.Office of the Utah Legislative Auditor GeneralSchool districts’health insurancecosts and benefitsvary a great deal.One factor affectinghigh premiums is thelack of consistentbidding practices bysome schooldistricts.-1-
Medical benefits offered to employees also affect premiums.Medical benefits vary significantly among the school districts. Twoschool districts have richer benefits than the benefits offered to stateemployees, while several other school districts offer health plans withreduced benefits to help control health care costs.Audit Scope and ObjectivesTen urban and ruralschool districts weresurveyed to reviewhealth insurancecosts.We were asked to review health care costs and coverage for schooldistrict employees and their families. The requestor wantedinformation concerning the costs and coverage differences amongschool districts. Ten school districts, both urban and rural, weresurveyed to determine differences in health care costs and the value ofschool districts’ health plans. For this survey, ten school districts werecontacted to review: The plans offered to district employeesA five-year premium history and premium cost sharingHealth care costs as a percentage of total school districtexpendituresA comparison of medical benefits among the school districtsThe school districts’ health insurance procurement historyWe also looked at how school districts in other states obtain healthinsurance compared to Utah.Variation Exists in School DistrictsHealth Plans and PremiumsIn Utah, as is common in many states, larger school districts haveenough employees to obtain lower health insurance rates. Smallerdistricts pool together to have the number of employees necessary toget reduced health insurance rates. However, we are aware of threestates that require school districts to join their state employees’ healthplan to gain the economies that come with a larger employee base.The audit also found that premiums are dissimilar among schooldistricts.-2-A Survey of Health Costs of School Districts (July 2011)
School Districts IndependentlyPurchase Health Plans for EmployeesLooking at all 41 school districts in Utah, larger school districtshave the staff and resources to independently purchase healthinsurance at competitive rates. However, many school districts inUtah are relatively small and typically have neither the staff expertisenor the size necessary to obtain competitive health insurance rates.As a result, most of Utah’s smaller districts join together topurchase health insurance within a self-insured pool. Health insurancepools can offer several potential advantages for smaller districts. Lower Premiums Are Possible—By acting collectively, smalleremployers try to gain the same kind of bargaining power thatlarger employers have when it comes to purchasing healthinsurance. Also, by forming pools, members should be ableto realize better economies of scale for administrative costs.Premiums Are More Predictable—For a small employeegroup, an employee who suddenly incurs very high health carecosts can have a significant adverse effect on premiums.When small districts join together, the health costs of anyindividual employee are spread across more participants,reducing the effect a single employee may have on thepremiums for the whole pool.With the exception of two school districts, all of the smaller schooldistricts (with fewer than 900 fulltime equivalent employees (FTEs))have created pools to purchase health insurance. Thirteen schooldistricts have joined together in one risk pool through the UtahSchool Board Association (USBA), purchasing their health insurancethrough the Public Employees’ Health Program (PEHP). Nineschool districts have joined together in a risk pool and purchase theirhealth insurance through Educators Mutual Insurance Association(EMIA). The remaining 19 school districts purchase health insuranceindependently, outside of any group insurance pool. (Different healthproviders have varying guidelines for the number of employees neededfor an employer to be a stand-alone purchaser. One health providerrequires 100 employees, another generally requires 500 employees.)Office of the Utah Legislative Auditor GeneralHealth insurancepools help smallerschool districts tocontrol premiumcosts.Most of the smallerschool districts inUtah have joinedpools to purchasehealth insurance.-3-
Most School Districts Offer Only One Health InsuranceProvider. Among the 41 school districts, four districts utilize twohealth insurance providers to give their employees more plan options,while the other 37 school districts each have only one health insuranceprovider. Sixty-three percent of the school districts health insuranceproviders are PEHP or EMIA. The remaining 37 percent utilize fourprivate or non-profit health insurance providers. It is important tonote that a health insurance provider may offer one or more healthplans to school districts. School districts may select one or multiplehealth plans to offer to employees.Of the 10 schooldistricts surveyed,6 districts offermultiple health plansand 4 districts offerone health plan.The Number of Health Plans Offered to School DistrictEmployees Varies. We did not gather health plan data for all 41school districts. We reviewed a sample of 10 school districts for thisaudit. The survey showed that four of the ten school districts offeronly one plan to their employees. Five school districts offer employeestwo to six health plans, while one school district offers eight plans.The plans vary in cost and richness of benefits. All 10 surveyed schooldistricts have selected health plans on a self-insured basis. Selfinsurance means that employers assume all or some of theresponsibility for any health care costs of their covered employees.Several States’ School Districts PurchaseHealth Insurance Similarly to UtahSchool districts canindependentlyprocure healthinsurance or poolwith other schooldistricts.Twelve states were contacted to determine how school districtsprocure their health insurance. The audit found that six of the twelvestates have a process similar to Utah’s. School districts canindependently procure their own health insurance or they can poolwith other school districts to procure health insurance.Six of the contacted states have either voluntary or mandatoryparticipation in their state employees’ health plan. Figure 1 describeshow other states’ school districts procure health insurance.-4-A Survey of Health Costs of School Districts (July 2011)
Figure 1. Summary for School Health Plan Design in Other States.In most states school districts procure their own health insurance. Fourstates allow schools districts to either procure their own health plans orvoluntarily participate in the state’s health plan.StateArizonaColoradoSchool DistrictsIndependentlyProcure HealthPlansXXVoluntaryParticipation inState Health PlanXMandatoryParticipation inState Health nnsylvaniaTexasWashingtonWyomingUtahXXXXXXXXXLike Utah, schooldistricts in 6 of the 12contacted states donot allowparticipation in theirstate’s health plans.XXThree states require school districts to participate in their stateemployees’ health plan to help control health care costs: Georgia requires all school districts to participate in their stateemployees’ health plan. Oregon requires all school districts to participate in their stateemployees’ health plans unless they qualify for an exemption.A school district can procure their own health insurance if theycan procure a health plan that does not cost more than theirstate’s plan and the benefits are comparable. Only a few schooldistricts in Oregon have met this exemption. Three states requireschool districts toparticipate in theirstate’s health plan.Texas requires school districts with fewer than 500 employeesto participate in their state’s health plans. School districts inTexas with more than 500 employees can participate in theirstate’s health plan, or they can independently procure healthinsurance for their employees.Office of the Utah Legislative Auditor General-5-
Neither Arizona nor Wyoming requires school districts toparticipate in their state employees’ health plan, but school districtscan choose to participate in the plan. In Arizona, no school districtshave chosen to participate in the state employees’ health plan. InWyoming, only one school district has chosen to participate in thestate employees’ health plan. That school district’s health costs werereduced as a result of the reduced health benefits. The state’semployees’ health plan was not as rich in benefits as the district’sprevious health plan.School Districts’ Premiums VaryIndividual school districts offer different plans and benefits to theiremployees. It is difficult to compare different health plans accuratelybecause premiums are based on plan design and the health of theemployees. To provide a basic overview of premium rates in eachschool district, we compared premiums for family coverage in thehealth plan with the highest membership. Figure 2 shows the familypremium for each of the 10 school districts in the sample. Thepremium has not been adjusted for benefits or risk.Figure 2. Annual Premiums for the 2010-11 Plan Year for the FamilyPlan. The average premium for the 10 school districts was 14,097.There is a 6,600difference in premiumrates among the 10school districts.Premium was notadjusted for benefitsor risk.School DistrictRichJordan*Premium 16,71616,434Iron15,002Salt Lake City*Davis*School DistrictTooeleGranite*Premium ark City10,078*The plan with the highest membership was used for this figure for school districts that offer morethan one health plan.The school district with the highest premium was Rich School Districtwith an annual total premium of 16,716. Park City School Districthad the lowest premium at 10,078. Among the 10 school districtsthere is a 6,638 spread in premium rates that we believe can bepartially attributed to bid negotiations and services provided.For the Past Five Years, School District Premiums IncreasedSlightly More than the State Premiums Increased. Premiumincreases over the past five years have varied among the reviewed-6-A Survey of Health Costs of School Districts (July 2011)
school districts. Figure 3 shows that the school districts’ overallpremium increase the past five years has, on average, approximated thestate’s rates increases at 24 percent overall, compared to the state’s 21percent.Figure 3. School District Premium Increases from 2007-11. Premiumrates were compared using the family plans for each the school districtsand the state.School DistrictPark CityNeboPercent7%14School DistrictWasatchDavisPercent25 %28Tooele14Rich34Granite15Iron36Jordan15Salt Lake City56State Employees’ Premium IncreaseThe school districts’overall premiumincreases for the pastfive years haveaveraged 24 percent.21 %Note: If a school district offered more than one plan, the plan with the highest membership wasused for this comparison. Also, the State’s Advantage Care and Summit Care health plans wereused to compare premium rates with the school districts.Park City School District had the smallest premium rate increase.In 2007 Park City had the lowest premium among the 10 schooldistricts reviewed. In 2011, Park City still has the lowest premiumrate. That school district offers one plan for its employees. Salt LakeCity School District has had the highest rate (56 percent). In 2007,Salt Lake City had the second lowest premiums among the 10 schooldistricts. Even with the 56 percent increase, three other schooldistricts’ premiums were higher than Salt Lake City’s as of the2010-11 plan year.Total Health Care Costs Are Similar Among School Districts.The annual total premium the employer pays as a percent of annualexpenditures was reviewed for each school district. Nine schooldistricts spent between 8 and 11.5 percent of total expenditures formedical costs. One school district, Rich, spent more of their totalexpenditures for medical costs. However, Rich School District issmall, with only 37 FTEs. This school district does not have as manydifferent types of expenditures as other school districts in the sample.Nine of the 10 schooldistricts spentbetween 8 and 11.5percent of totalexpenditures forhealth insurance.Employee Portion of the Premium Varies Widely. Healthinsurance as a percent of total compensation was also reviewed.However, the 10 school districts vary in the health insurance benefitthey provide to employees because of employee cost sharing.Office of the Utah Legislative Auditor General-7-
Through employee representation and negotiation, some districtemployees have taken a higher salary rather than having the schooldistrict pay all or most of their health insurance premiums. Otherdistricts pay a higher percentage of the insurance premiums and thusdo not offer the salary adjustment.Cost sharing ofpremiums variesamong the schooldistricts from a highof 100 percent to alow of 53 percent paidby the district.For example, two of the 10 school districts pay 100 percent of thehealth insurance premiums, and another school district pays 98percent of the premiums. At the other end of the spectrum, oneschool district only pays 53 percent and another school district pays 67percent of the health insurance premium. Employees are required topay the difference. It is not reasonable to compare and summarize thehealth care benefit as a percent of total compensation between schooldistricts, since the components of total compensation are negotiated orset differently in each school district. However, it is important to notethat the state pays 90 percent of the premiums for state employees(beginning July 2011). Five of the ten school districts pay less than90 percent of the premium for their employees.A variety of factors affect premium rates such as: Benefit plan designThe experience or health of group membersCompetitive procurement practicesCosts of medical procedures and service—including theunderlying costs of new technologies and drugsHealth insurance provider selected (network discounts andadministrative costs vary between providers)It is not possible to review all factors that affect premium rates, but forthis audit, medical benefits and procurement practices were reviewed.They will be discussed in the next section of the report.School Districts Should Evaluate ProcurementPractices and Medical BenefitsCompetitively bidding health insurance helps to reduce favoritismand obtain insurance plans at the lowest practicable price. However,four of the ten school districts have not competitively bid for theirhealth insurance in more than five years. Three of these four districts-8-A Survey of Health Costs of School Districts (July 2011)
have the highest premiums of the ten school districts surveyed.Consistent competitive bidding can help control health insurancecosts.Also, medical benefits were compared for each of the ten schooldistricts. Medical benefits vary significantly among school districts’health plans. Only three school districts have benefits as rich as thestate employees’ medical benefits.School Districts ShouldConsistently Bid Health InsuranceThe audit found that four of the ten school districts have notcompetitively bid for their health insurance in more than five years.Best practices for contract management suggest that a common termframe for contracts is three years. Options to renew vary, butgenerally, contracts terms do not run longer than three years. Thepurpose of competitively bidding goods and services is to ensurefairness, efficiency, and security. Competitive bidding aims to preventfavoritism and fraud, stimulate competition, and obtain goods andservices at the lowest practicable price for the best interest oftaxpayers.Competitive biddingaims at obtaininggoods and services atthe lowest practicableprice.Figure 4 shows the last year each of the 10 school districtscompetitively bid for their health insurance.Figure 4. School Districts’ Procurement History. Five or half of theschool districts surveyed have competitively bid their health insurance inthe last three years.School DistrictYear Last BidSchool DistrictYear Last Salt Lake City*2009Jordan2005Nebo2010Tooele*2006Park City2010*Salt Lake City School District and Tooele are in the process of bidding their health insurance forthe 2011 -12 plan year.Four school districts have not bid their health insurance within the lastfive years. Tooele School District has not bid its health insurance forfour years, but is in the process of bidding for the 2011-12 plan year.Office of the Utah Legislative Auditor GeneralFour school districtshave not bid theirhealth insurance forthe last five years.-9-
Five school districts have bid their health insurance within the lastthree years.Wasatch School District participates in the USBA’s risk pool.USBA procures health insurance for the school districts thatparticipate in its risk pool. USBA last bid in 2008 but they do notplan on bidding again for about two more years. USBA reported it isan expensive and time-consuming process to complete. USBA hasbeen with PEHP since the risk pool was formed in 1998; USBAreported that PEHP has been the most competitive each time theyhave bid. Salt Lake City School District last bid in 2009, but is in theprocess of rebidding to try to better control their health care costs.Three of the fourschool districts thathave not bid theirhealth insurance infive years have thehighest premiums inthe survey.Procurement practices can have an effect on health care costs.Three of the four school districts that have not bid their healthinsurance within the last five years have the highest premiums of the10 school districts for the current plan year (see Figure 2). Also, twoof the school districts, Iron and Rich, have had high premium rateincreases over the last five years (see Figure 3). School districts shouldconsistently bid their health insurance to help control their costs.Benefits Vary Significantly AmongSchool Districts’ Health PlansThe richness ofbenefits varied by 19percent among thesampled schooldistricts.One of the factors that affects premium is the richness of themedical benefits that health plans offer to school district employees.Using a medical benefit adjustment process to compare districts, theaudit found that medical benefits are not the same for school districtemployees throughout the state. Benefits varied by 19 percent amongthe sampled school districts.Medical benefits were compared for each of the 10 school districtssurveyed. For school districts that offer more than one health plan toemployees, the plan with the highest membership within the districtwas used for this comparison. Each district’s medical plans wereactuarially benefit-adjusted to compare the richness of benefits to thatof the state employees’ Advantage Care and Summit Care health plans.The state’s health plans were used as a baseline to compare benefitswith the 10 sampled school districts. The audit of PEHP released inJanuary 2011 showed that the state’s health plans, mentioned above,were not overly rich in benefits; in fact, the state was lower than the- 10 -A Survey of Health Costs of School Districts (July 2011)
average of other major insurance carriers that were used in thecomparison. Although most of the school districts reviewed hadlower benefits than the state, premiums were higher. Only threeschool districts’ benefits were as rich as the state’s plans.School districts in Utah have reduced benefits to help controlcosts. As stated earlier in the report, as a requirement for schooldistricts in Oregon to procure their own insurance, districts mustselect health plans that have comparable benefits to the stateemployees’ benefits.The state of Oregonrequires that schooldistricts’ health planshave comparablebenefits to the stateemployees’ healthplans.Other States Have Not ImplementedCost Savings StudiesWe are aware of three states that have completed studies of schooldistrict health care costs. Those studies that we could identifyreviewed the possibility of unifying school districts to gain economiesof scale in health insurance purchases. All of these states have a largenumber of districts that do not pool for purchases.In 2004, a Pennsylvania study showed that if its 629 small schooldistricts pooled with the state plan, an estimated annual savings of 2,183 per school employee could be achieved. The study alsoreported that most school districts in Pennsylvania provide districtemployees with good or very good medical benefits. It appears thatpart of the savings would come from reducing benefits byparticipating in a statewide plan. The recommendations from thisstudy were never implemented. School districts maintain localcontrol.Washington completed a study of school district health care costsin 2010. Washington’s 295 school districts spend more than 1billion a year on health benefits. State employees are enrolled in morethan 200 medical plans, and more than 30 percent of the employeeshave medical plans 14 percent richer than the largest federal employeemedical plan. The study showed that by restructuring the system—creating a separate statewide self-funded benefits program withstandardized coverage for school districts—Washington could saveabout 90 million a year. This savings mostly comes from a decreasein medical benefits. As of this report the recommendations have notbeen implemented.Office of the Utah Legislative Auditor GeneralStudies in otherstates show potentialsavings by poolingschool districts;however, schooldistricts still maintainlocal control.- 11 -
Kansas also completed a study about a year ago. Many schooldistricts in Kansas were interested in forming a new statewide pool.This study concluded that sampled school districts would not benefitfrom joining a statewide pool, either because it would not save money,or because more out-of-pocket costs would be shifted to employees.The study identified only one district of the 22 sampled that couldpotentially save money by joining the state employees’ health plan.Recommendations1. We recommend that the Legislature look at options to helpschool districts maintain cost-effective and adequate healthinsurance plans, such as: Creating a statewide pool for school districtsAllowing small school districts to join the state’s riskpool2. We recommend that school districts competitively bid for theirhealth plans every three years to five years.- 12 -A Survey of Health Costs of School Districts (July 2011)
Agency ResponseOffice of the Utah Legislative Auditor General- 13 -
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Office of the Utah Legislative Auditor General- 15 -
health insurance providers to give their employees more plan options, while the other 37 school districts each have only one health insurance provider. Sixty-three percent of the school districts health insurance providers are PEHP or EMIA. The remaining 37 percent utilize four private or non-profit health insurance providers. It is important to
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