District officials worry ‘Obamacare’ will drive up insurance premiums

It’s a potential storm that’s still more than a year away from hitting, but the Cloquet School District is looking ahead to potential mandates from national health care regulations that may drive up costs sharply beginning in 2014.

The Patient Protection and Affordable Care Act – AKA Obamacare – will make additional requirements of employers beginning next year, and the district is meeting with its insurance consultants to determine potential impact.

“Our new health insurance program runs from September 2013 to September 2014,” Superintendent Ken Scarbrough said. “We don’t have to worry about compliance with the new laws until 2014-15, but our teachers’ next contract would run from 2013-2015, so the law will hit in the middle of the contract.”

The news, when it arrives, may not be good from a cost standpoint. Utilization of the district’s existing health care plan is running above premiums paid for this year according to consultants, meaning the district and employees will likely be asked to pay more – perhaps much more – in the coming year.

Early estimates, which all sides note are just that, indicate that health insurance premiums may rise by as much as 25 percent for employees next year.

“If we bid now, our utilization rate is about 105 percent of premium,” Scarbrough said. “If we used our plan at 80-85 percent, you’d expect your premiums to go up at the medical inflation rate which is about 8 percent. We have shared costs with the employees and as insurance rates go up, employees pay a greater share of their insurance.”

But in 2014, the outcome might be considerably more difficult to fathom.

The health care law, which Scarbrough said is changed by authorities an average of 57 times each week, will require employers to offer health care coverage to some staff who were previously considered part-time employees. The new law defines a full-time employee as one who works 30 or more hours per week.

“The period for averaging that 30 hours used to be over 12 months,” Scarbrough said. “But changes are being made all the time and we’re being told it will be averaged over nine months. Of course, to call a teacher a part-timer is demeaning because we know the hours they put in, so we don’t do it.”

The issue is that part-timers as currently defined don’t qualify for health insurance benefits. They might under the new law.

“The averaging formula becomes really important,” Scarbrough said. “The issue is when we start looking at the potential costs, which may bring a significant cost increase to the district.”

The reason for the potential cost increase is this: Eighty to 90 current district employees who don’t currently qualify for health care benefits would have to be offered a plan that doesn’t cost them more than 9.5 percent of their household income should they be redefined as full-time staff.

“That could be very expensive,” Scarbrough said. “We can’t figure out the household income until those employees file their taxes, but we might be looking at budget reductions because of the insurance and asking how we keep staff in place.”

Scarbrough noted that many of the district’s current part-time staff work on a 160-day calendar.

“If we divide that into the nine-month work year, we come out under 30 hours per week, but if the standard is different we get a lot more who qualify.”

Not surprisingly, the health care issue has attracted the attention of the state teacher’s union, Education Minnesota.

Education Minnesota state spokesman Chris Williams was careful not to attempt to prioritize the district’s potential spending decisions, but noted that administrators have tough decisions to make.

“Investing in the health of the educators who work with children all day is important both for the employees and the students, but it’s up to local administrators and educators to prioritize that investment,” he said in an e-mail interview.

Williams also noted that the Legislature had passed several bills in recent years to allow employees who collectively bargain to buy health insurance as a group to drive down costs.

“The plan would have saved about $41 million a year, but former Governor Tim Pawlenty vetoed them all,” he said. “Education Minnesota will work to pass a similar bill this year, hopefully with a better result.”

Beginning in 2014-15, the district will also be required to offer “Minimum Essential Coverage” to full-time staff.

“We have to offer a plan that will cover 60 percent of medical expenses,” Scarbrough said. “We’re self-insured and we’re a high-use group. Our rates have been increasing substantially. If you pay out over $10,000 on a policy you get the ‘Cadillac tax’ which is a 40 percent excise tax.”

Scarbrough and district representatives are meeting with the district’s health care consultant, Paul Peterson of Eagan, Minn.

“We’re trying to figure out what we’re looking at,” Scarbrough said. “At the state level, we need a plan in place for the exchanges by 2014. Some districts are hiring ‘navigators,’ who will guide them through the changes to the law.”

Williams noted that smaller districts like Cloquet’s – which he said pulled out of a co-op buying plan that might have reduced costs – may have trouble with the new law.

“School districts all over the state are seeing big increases in their health care costs. It’s not fair, but it’s also not surprising,” he said. “School employees are small buyers in the insurance market. Small buyers tend to pay more per insured than large groups.”

Scarbrough said any long-term solution would have to be done in close consultation with the union.

“They (Education Minnesota) are visiting with their membership,” he said. “Right now they are dealing with the same uncertainty we are. They are pushing for universal health care, and mandated school insurance coverage for employees. They have been pushing that for years.”

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