Kyrene School District employees will be picking up a larger share of the cost of health insurance for their spouses and children next school year because the district’s benefit trust fund has plummeted to a “dangerously low” level.
During a Governing Board meeting last week, the administration laid out its plan to shore up the Kyrene Employee Benefit Trust, which covers the claims and expenses for employees’ medical and dental and vision plans.
The fund’s reserves have plunged in recent years from a high of $16 million in the 2014-2015 fiscal year to about $3.5 million as of last December – less than half the $7.2 million the trust’s advisors recommend for the fund’s reserve.
If the trust went bust, Kyrene Chief Benefits Officer Deb Spurgin told the board, “The district would end up having to pay for any claims.
“If there’s no trust money, it would have to come from somewhere from the district,” Spurgin said. “The other thing that would happen is that likely the trust would be dissolved and we would have to go to a fully insured model.”
And because Kyrene has a balanced budget, the loss of the trust fund would mean officials would have to turn to the district’s operating reserves – money that normally covers expenses created by emergencies or other unexpected costs.
To shore up the benefit fund, the district plans a series of changes in the fiscal year beginning July 1 in the two plans that are available for employees to get health coverage for their spouses and children.
While individual employees’ coverage will continue to be free – a perk that Kyrene and other districts still use to attract talented teachers – teachers and staff will have to pay an anywhere between $768 to $2,064 more a year for coverage for their children and spouses.
The specific annual increase will depend on which plan they choose and what family members are covered.
In addition, the district will be increasing the deductible for those family members’ coverage under both plans and terminating any coverage for doctors and medical services not included in the insurer’s network.
The deductible is what an employee pays out of his or her pocket before the plan will cover 80 percent of a covered family member’s medical expenses.
Additionally, the district is raising the total out-of-pocket expenditure for employee’s spouses and children.
The district’s insurer, UnitedHealthcare, could decide to pay for medical treatments outside its network if it could not be provided by any medical professional within its network.
Spurgin’s presentation said two trends impacted the trust fund’s precipitous decline in recent years.
For a few years, the trust’s reserve was twice the recommended level. That's because the district had been putting around $10 million into the fund above its annual contribution and the money deducted from employees' pay. Last fiscal year, the district put $88 million into the fund and employee deductions accounted for another $22 million.
But in recent years, that extra annual contribution was redirected toward salary increases.
“Our excess reserves were exceeding the recommended reserve balances,” Spurgin told the school board. “So, decisions were made during that time. I know that we all remember the tough economic times that teachers and staff were not getting raises in those years. And so, during those years, in order to keep more money in our total compensation pie into salaries, less money was being put into benefits during those years in order to help that happen.”
“We were able to keep pretty consistent over all of those years and more money was kept in people’s pockets during that time,” Spurgin added.
At the same time in recent years, skyrocketing medical costs have exacted an enormous toll on the fund reserve.
Between 2016-17 and 2018-19, she said, an increasing percentage of medical payouts went to individual claims exceeding $50,000 – rising from 38 percent to 48 percent of the total annual cost.
To underscore the rising cost of medical care, Spurgin said that in 2018-19, there were 18 claims that each cost the fund $127,000.
In the current fiscal year, the fund already has nine employees with claims of at least $144,000 each. The fund is reimbursed by a stop-loss policy for any individual claims exceeding $250,000.
Beyond “a higher than anticipated inflationary trend,” Spurgin said that employees’ overall age is also impacting claims.
“Musculoskeletal claims both in and out of network increased quite exponentially,” Spurgin said. “So, what we’re seeing is some of the factors of age and our demographic group.
“As we age, we have more hip surgeries, knee surgeries, replacement costs and, unfortunately, sometimes revisions of replacements that don’t go well. And so, we’re seeing all of that excessive spend in those categories.”
Also adding to soaring medical expenses is the cost of new drugs and cancer treatment she said.
“Injectables are coming into the marketplace that can cost several thousand dollars per injection or even tens of thousand dollars per injection,” she explained. “And they’re fantastic drugs that people need in order to continue to be contributing and living a good solid life.”
“We’re very grateful that there are drugs that are coming down the pipeline, but it is eye-opening because those types of claims can now cost the plan an enormous amount of money,” Spurgin said, adding:
“It isn’t for your typical claimant that we used to see because we used to know if someone was out for a long period of time where they were likely going to have high medical cost claims. Now that’s not always the case.”
Several board members expressed shock at the soaring costs of care – which Spurgin called “truly a nationwide crisis.”
Board member John King said the increases in what employees must pay to cover their spouses and children “are necessary if we want to keep this trust going.
“And right now, it’s precariously on the edge of the cliff – about ready to fall off unless we do something, take these drastic moves,” he said.
Board member Kevin Walsh called the fund level “dangerously low” while Michelle Fahy noted, “It seems like you can’t have a knee replacement for $50,000 anymore. It seems like any kind of major surgery or even minor surgeries over that.”
At the same time, the district doesn‘t want to give up the free coverage for employees themselves, calling it a perk that allows them to compete for talent amid a teacher shortage.
The district pays $540 per month for each of the approximate 1,500 employees covered by one of the two health plans. The district has a total 1,600 employees and the remainder have opted out of coverage.
Spurgin also noted that Kyrene is not alone in grappling with the pressures on its benefits fund, stating other districts have eliminated out-of-network coverage and made other adjustments.
“It is a big change in this next year, but there was a lot of concern and commitment because we want to continue to attract and retain high quality talent within Kyrene,” she said.
“It’s important to us for the free medical plan. We’re holding onto that thing, um, as long as we possibly can. Surrounding districts still have one – not all of them do. Some are starting to remove that as an option for cost-savings purposes, but we feel like it’s really important for us to offer that as an attraction incentive.”