Rising health benefit costs are eroding total teacher compensation and eating into budgets reserved for other mission-critical areas at charter schools across the country. Those are the alarming findings from BuyQ’s national survey of charter management organizations representing 15,500 charter school employees and 129,000 students across 13 states.

According to survey results, a majority (74%) of CMOs are struggling to provide competitive health benefits to teachers and staff. That’s largely due to rising costs. Asked to estimate how much their health insurance benefit costs have risen year-over-year during the last three to five years, more than half (52%) of CMO respondents say theirs have increased annually by an average of 6% or more. Meanwhile, more than three-quarters (76%) of respondents say year-over-year per-pupil revenue growth during the same time period has averaged less than 6%.

When Health Benefit Costs Rise, Other Critical Areas Suffer

To make ends meet, 60% of respondents said they are diverting funds from other mission-critical areas. The most common targets of cuts are administrative/support staff salaries and teacher salaries, cited by 50% and 43%, respectively, of CMOs who indicate they are limiting investments in other areas to keep up with rising health benefit costs. Investments in the number of teachers and administrative/support staff, facilities maintenance and improvements, academic and student support programs, and school supplies and equipment are also being cut.

Nearly nine in 10 CMOs have asked teachers to share in the cost burden by increasing their portion of premiums over the last three to five years. Among those CMOs, 45% report that teacher premium increases have exceeded or closely tracked teacher salary increases, effectively wiping out pay increases. In many cases, CMOs have also increased teachers’ out-of-pocket-costs through higher deductibles, coinsurance and/or copayments. Not surprisingly, a significant portion (43%) of respondents say health benefit cost increases are impacting their ability to attract and retain top teaching talent.

Strategies Needed to Contain Costs Over the Long-term

Despite these troubling outcomes, only about one-third of CMOs report having a plan in place to manage rising health plan costs over the long term. And report results indicate that CMO leaders and boards are less involved in the managment and selection of their health benefit plans than may be necessary for significant improvement.

These results are alarming and should raise concern within the charter school community. Charter schools already operate on fewer dollars per student and generally offer lower salaries than traditional public schools. As health benefit costs continue to rise, the challenge for CMOs to compete in a tight labor market while continuing to fund other mission-critical areas only grows.

The good news is, due to their operational autonomy and their relatively large employee size, CMOs are well positioned to take advantage of proven strategies to gain greater control over their health benefit costs. And a majority (70%) of CMOs responding to the survey agree that better management of their health benefit programs could result in cost savings. But a lack of awareness about the cost-saving strategies available may be keeping CMOs from pursuing options that are in the best interest of their budgets, their staff and their students.

Fewer than one-third (30%) of CMO respondents say they have a good grasp on what steps other similarly-sized employers are taking to control health benefit costs. And, survey results show that few CMOs are embracing cost-saving strategies popular among large employers in other sectors.

For example, only 13% of CMOs participating in the survey provide employees with health benefits via a self-funded plan, while a majority of covered workers at large employers (200+ employees) overall are in self-funded plans. [1] And, few CMOs are taking full advantage of popular cost-containment products designed to lower claims costs, the main driver of premiums for large employers. Examples of such tools include prescription plan carve-outs, reference-based pricing and wellness programs.

Recommendations

CMO decision-makers who want to be more proactive in managing health benefit costs, should consider the following four recommendations, summarized here from BuyQ’s report:

Recognize the threat: Cost-shifting tactics, like raising premiums and out-of-pocket costs, weaken teacher total compensation and do little to curb rising health benefit costs over the long term. Unless CMOs simultaneously target the underlying drivers of their health benefit costs, these tactics will eventually reach their limits of viability, making it increasingly difficult for CMOs to fund other vital operational areas while competing for top teachers. CMOs that recognize the very serious threat of rising health benefit costs will be taking the first important step towards meaningful action.

Seek engagement from the top: CMO leadership and boards must recognize the import and the impact of rising health benefit costs, then take the necessary steps to empower their organizations to address the issue. Without appropriate buy-in and engagement from the top, efforts to effect positive change may fall short.

Educate yourself and your team: Start your education by seeking a greater understanding of the drivers of your health plan costs, specifically your CMO’s own claims data. Then, educate yourself on the tools available to better manage those claims costs. Develop a strong understanding of differences between a self-funded and fully insured plan. Don’t rely solely on your broker for information. Talk to peers at other CMOs and at employers outside the charter school community about what they are doing to control the cost of their health plans.

Develop a long-term strategy: Effective management of health benefit costs goes well beyond making disconnected, single-year decisions at renewal time. Instead, CMOs must seek to understand and explore how fundamental changes to their health plan could impact their budget over the long term, particularly as they grow. Look for a partner that understands the variety of cost-saving options available, has experience implementing them, and can guide you through a manageable, but impactful plan for improvement.

With health benefit cost increases showing little sign of abating, the time is ripe for CMOs to become more strategic, and perhaps more open, to embracing a different way of delivering those benefits to employees.

Access a full copy of the report: Condition Critical: Findings from BuyQ’s 2018 National Charter Management Organization Health Benefits Survey.

Marco Rafanelli is the Co-Founder and CEO of BuyQ, the only national group purchasing organization dedicated exclusively to serving charter schools.

Notes:

1. Kaiser Family Foundation. 2018 Employer Health Benefits Survey (Washington, DC: Kaiser Family Foundation, October 2018), https://www.kff.org/health-costs/report/2018-employer-health-benefits-survey/.