Opinion

Commentary: School Districts Are Major Purchasers of Health Care. What If They Tore Up Their Expensive Contracts and Demanded Better?

By Jim Millaway | March 6, 2019

At bargaining tables across the country, school districts and teachers unions are dealing with the fallout from skyrocketing expenses driven in large measure by out-of-control health care costs. In Los Angeles, for example, where teachers recently settled their first citywide strike in 30 years, the district has to find a way to pay for guaranteed lifetime retiree health benefits estimated to cost $250,000 per employee. Those benefits will eventually be phased out for younger employees, but for the next decade or so, they will gobble up funding that is badly needed elsewhere.

An increasingly absurd amount of education funding doesn’t go toward productive uses like teacher pay, books, and supplies. Some school districts have to make awful choices as a result. In Oklahoma, where I live, hundreds of schools are closed on Fridays. Tax money that’s meant to give our kids a solid education is instead funding a mass transfer of wealth from the middle class to our legacy health care system.

Across the nation, employee health care can account for more than 20 percent of a school budget, even though teachers themselves have been forced to bear more and more of those costs. A teacher making $40,000 a year, paying $7,000 in health insurance premiums and a $3,000 deductible, ends up shipping a quarter of his or her income to the health care industry every year. But if districts could get a better deal, more funds would be available for more productive uses.

One solution is to reject health care plans that lack transparency and market-based pricing. To do that, districts will have to tear up existing agreements and establish direct connections to their health care providers. Most insurance and benefits plans today are managed by multiple third parties who negotiate on cost, quality, and convenience without asking for input from teachers or school boards.

Districts are major purchasers of health care services, which gives them the leverage to demand more. It’s possible to lower costs without sacrificing quality by negotiating directly with hospitals or other local health providers. Some of them would gladly lower their prices in exchange for a steady flow of patients. Hundreds of facilities, like the Surgery Center of Oklahoma, are even publishing their prices online, providing customers with information they’ve never had access to before.

By combining the power of bulk purchasing with transparent pricing, school districts could drive down costs for an entire community — while smashing the gear-grinding bureaucracy that comes with the status quo of our health care system. Their success could empower other employers, including private-sector companies, to negotiate better deals on their own.

Districts know they can’t compete with the private sector for personnel. Schools can’t offer stock options or big cash bonuses. But historically, they’ve been able to offer generous benefits to compensate for lower pay.

With their health care benefits at risk, quality teachers are feeling the pull of the private sector more strongly than ever. Districts know they will lose some of their best people, and have to struggle even harder to land bright young candidates, if they can’t find a way to protect their health benefits.

Teachers strikes are never a good thing. They disrupt the lives of thousands of people, including kids and parents who have nothing to do with the dispute. But we hope these strikes have fostered a growing recognition that teachers and school leaders have been fighting the wrong adversary. Increasingly, we need to understand that infighting only helps the status quo. It’s time to work together to significantly lower health care costs and use the savings to pay for the people and services that add actual value to our public school systems and our communities.

Jim Millaway is CEO of The Zero Card, a supplemental benefit program that lets employers dramatically lower plan costs while improving benefits.

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