COLUMBUS, Ohio – Over the next five years, leaders of Ohio’s 10 largest school districts expect their costs for employee retirement and health insurance benefits to increase by an average of 29 percent.
The rising cost of employee benefits – particularly health insurance – will consume 33 percent of all new K-12 spending among the 10 districts from 2014 to 2018. Put another way, one out of every three new dollars spent by these districts will wind up in a pension fund or health insurance company’s coffers, and will have no impact on student achievement whatsoever.
EAGnews’ analysis is based on figures contained in each district’s five-year financial forecast, as filed with the Ohio Department of Education. As one South-Western City school official explained in the notes accompanying that district’s five-year forecast, these projections are a “hypothetical representation of a district’s financial future based on historical trends and known facts.”
In other words, none of these spending projections are set in stone. The actual spending figures could be less – or more – than predicted. Still, Ohio taxpayers should find this information helpful as they sort through all the campaign rhetoric about the need for additional school funding leading up to the November elections.
Each district represented in this analysis was one of The Buckeye State’s 10 biggest districts, as determined by 2011-12 student enrollment data.
The Unaffordable Care Act?
Employee benefits are driving K-12 spending increases, but what does that mean, exactly?
“Benefits” is a generic word that refers to all of the non-salary payments an employee receives from the district, either directly or indirectly. These payments include worker’s compensation, Medicare and retirement contributions, and health insurance benefits.
The biggest of these payments is, of course, health insurance. Health insurance is also the biggest factor in the rising benefit costs.
Why are health insurance costs surging for school districts?
In a few cases, the jump in employee benefits can be partially explained by a growing student enrollment. The Olentangy Local School District, for example, has been experiencing a serious influx of students for several years. From 2014 to 2018, officials expect their student body to grow by another 10.8 percent. Since more students mean more teachers, the higher benefit costs are understandable.
Likewise, the Columbus City district showed an increase of 2.8 percent during the just-completed school year, as reported by The Columbus Dispatch.
But most districts aren’t experiencing much growth. A recent report from Future Think, a company that forecasts student enrollment for districts nationwide, predicted that Ohio’s school-age population will drop by 2 percent by 2018 (the latest year included in the five-year forecasts).
In other words, for most districts the huge bump in employee benefit costs are not attributable to a student surge.
One typical factor in increasing school health insurance costs is the role of union collective bargaining. Simply put, teacher unions and other employee unions negotiate for the best benefits possible, at the lowest possible cost to employees. Some school districts, for instance, still agree during collective bargaining to pick up 100 percent of the cost of employee health insurance premiums. That makes the coverage more expensive for the district and less for employees.
But the main culprit of the heightened expenses is the new federal health law, known as the Affordable Care Act or “Obamacare.”
School leaders are anticipating an increase in federal healthcare-related taxes beginning Jan. 1, 2015. As Columbus City school leaders explained in their forecast notes, those taxes “could increase health care costs by as much as 2 percent.”
Districts are also bracing for Obamacare’s 40 percent “Cadillac Tax” that will be levied on health plans that are deemed excessively generous by the federal government, beginning in 2018. Given that school employee unions typically demand lavish health care packages during contract negotiations, the “Cadillac Tax” could present a major financial problem for numerous Ohio districts.
But most worrisome are the annual increases in health insurance premiums.
Part of the annual price jump is due to the fact that districts are now legally required to offer insurance to part-time employees. Adding people to the rolls adds to the overall expense. The rest of the big increase is due to the fact that insurance companies are required to offer more services to customers, such as allowing “children” to stay on their parents’ insurance plan until they turn 26 years old, and “free” birth control.
It all adds up to bigger bills for school districts – and by extension, taxpayers.
For example, Cleveland City school officials are planning for healthcare rates to increase an average of 9.4 percent in fiscal year 2015 through 2018.
Officials with the Lakota Local and the South-Western City school districts are both planning for annual increases of 10 percent over that same span.
Though Toledo schools expect the largest increase (42.7 percent) to their fringe benefit costs of all the districts EAGnews examined, officials did not offer a clear explanation for the anticipated jump. It’s probably safe to assume rising insurance costs play a significant role.
The Hilliard City School District’s expected health insurance premium increases – 5 to 8 percent – are the lowest of any district examined by EAGnews.
Westerville’s five-year forecast was not accompanied by explanatory notes on the Ohio Department of Education’s website.