Proposals for a Cost-Conscious Era: K-12 Spending Accounts

(This post also appears at Rick Hess Straight Up.)

Given today’s shrinking budgets and the tough half-decade that looms for K-12 funding, we can no longer afford to remain wedded to “this…and that” reform or to be blasĂ© about whether we’re getting sufficient bang for our buck. However, the necessary shift in mindset will not happen on its own. After all, K-12 schooling has long been a place where superintendents and principals earn much grief for making cuts but little recognition for smart savings or boosting cost-effectiveness. What’s needed most are politically viable proposals that make it easier for local, state, and national leaders to get serious about K-12 productivity.

This week, I’m touching upon four such ideas that I’ve written about recently for National Review and, in more detail (with my colleague Olivia Meeks), for the Wisconsin Policy Research Institute. Today, I want to talk about how “K-12 Spending Accounts” (KSAs) can help focus educational reform on solving specific problems, increase familial choice, and create healthy incentives for families to consider the cost of educational services.

The power of price-sensitive consumers to squeeze costs is untapped in K-12. Parents currently gain nothing from choosing a more cost-effective district school or charter school (which is one reason why cost-effectiveness data is nearly impossible to come by). K-12 Spending Accounts would leverage the insights of school choice in a way that begins to foster cost-awareness and widens the applicability of choice in a world of home schooling and online learning.

The freedom to switch schools has great appeal for urban parents desperate to escape awful schools, but does little for the vast majority of suburban parents who like their school but might like to take advantage of a different math or language program. Permitting families to redirect a portion of the dollars spent on their child through a Health Savings Account (HSA) analog would address unmet needs, allow niche providers to emerge, foster price competition, and make educational choice relevant to many more families.

KSAs require revamping state or local funding formulas so that per pupil spending is broken in two pieces: the dollars that continue to flow to districts for “core” mandated instruction and those deposited in each child’s account which could be directed to the school for the usual “non-core” courses or for instruction from other state-approved providers.

The intuition should be familiar from last year’s health care debates, when analysts right and left flagged the problems with third-payer purchasing and the lack of incentives for consumers or providers to think much about cost. Today, of course, school spending entails a zero percent contribution from parents. Consequently, parents gain nothing from choosing a more cost-effective school. Absent are any mechanisms enabling cost-sensitive parents to redirect school funds to other state-okayed educational expenditures (such as college or tutoring) if they choose more cost-effective instructional options.

States could facilitate this kind of dynamic by borrowing the familiar notion of Health Savings Accounts from the world of health care reform. Except, because the state funds schooling for every student, it can go these family-funded plans one better in the case of K-12 Spending Accounts.

KSAs are a chance to address parental concerns while infusing price consciousness into K-12 schooling. Take the case of foreign language learning. Providers like Rosetta Stone or its various competitors might apply for KSA eligibility. Rosetta Stone, for instance, offers instruction in 31 languages, including Mandarin and Arabic. Some parents might prefer enrollment in one of those languages to the usual French or Spanish, or might deem the alternative provider superior to the instruction available in their local school. Sufficiently wealthy parents can already afford these kinds of services on the side. But, for other families, such an option is currently off the table. It needn’t be.

How would this work? In the case of foreign language instruction, providers would have to clear a state approval process. Each approved provider would, just as if they were bidding on any state contract, specify unit prices. Parents would then be free to use KSA funds at their child’s school or at any state-approved provider.

The KSA model turns “school” choice into something broader, makes it relevant to suburban families, and transforms it into a tool that helps better serve the particular needs of all children. It loosens the expectation that every school will meet every need for every child and enables specialized providers to meet varied needs. And it introduces price competition in a sector where it has long been absent as parents, for the first time, have cause to comparison shop since the dollars they save could be spent on tutoring, computers, or SAT preparation.

Comforted by perpetually rising budgets, educators have long disdained notions of “efficiency.” The altered fiscal landscape has changed the game, calling for a new playbook when it comes to productivity and efficiency. The kinds of proposals we’ve discussed this week offer a starting point when it comes to crafting smart, viable strategies that begin to address incentives, cost-effectiveness, and cost structures.

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