Is The Grass Greener On The Other Side?
Most districts exiting the government health plan have failed while others have achieved unusual success. What makes the difference?
By Bill Rusteberg
It’s that time of year again when districts across the state are considering their health insurance options. Do they continue with TRS ActiveCare (TRSAC) or seek coverage on the commercial market? They have until December 31 to make their decision.
Over 90% of Texas school districts are members of the TRS ActiveCare (TRSAC) government health plan. For the past 20 years member districts were prohibited from leaving the program until now.
With the passage of Senate Bill 1444 member districts have the option each year of dropping out but must give notice by December 31 in the year they make that election for an effective date of September 1 the following year. Once a district exits the government plan TRSAC is prohibited from competing for their business for five years.
What should districts do?
That’s a question we’ve been asked by several districts in the past several weeks. Here’s a few thoughts and advice. Take it for whatever its worth.
There are three motivations driving districts to consider exiting TRSAC: Cost, Benefits and Local Control.
Cost – Moving From TRSAC PPO Network To Another PPO Network
Will a district save money by switching from one PPO plan to another? If that’s you’re hope you will likely be disappointed.
In every instance we know of there has not been a single district outside of TRSAC that has sustained rates lower than TRSAC over time by adopting a legacy PPO plan replacement.
The Eagle Pass ISD has some of the highest rates on the planet with an employee only rate of +$900 per month on one of their three plan options (Rates for the other options are slightly lower). The Brownsville ISD, the largest employer south of San Antonio contributes over $600 per employee per month however that’s not enough as they dip into general funds every year to make up for plan deficits. The El Paso ISD suffered an $18 million loss in their first 16 months following their move from TRSAC. These are just a few examples.
Other examples of failed attempts to outperform TRSAC include Killeen ISD’s struggle to maintain a competitive health plan on their own. Killeen ISD’s health plan is so out of control they recently decided to throw in the towel and join TRSAC, for an estimated savings of $10,000,000.
What plausible reasons could we come up with for these failures? Could failure to achieve desired results be tied to PPO managed care contracts? The answer is obvious to those who know the truth.
Do discounts between PPO networks vary greatly or are they all about the same? Common sense dictates that if they vary greatly then the network with the best discounts would win business every time through significantly lower rates. But we know that’s not the case. Years ago TRSAC changed from Blue Cross to Aetna for promised savings. It didn’t happen. Then they changed back to Blue Cross and nothing changed, costs kept escalating.
Changing the logo on one’s I.D. card doesn’t lower costs. No matter what PPO network one is on, they all have many of the same ingredients driving costs. Annual escalator clauses guarantee increasing costs every year, compounded year after year. Contract outliers effectively turbocharge hospital costs, the largest component of any plan’s spend. In every instance its been our experience that moving from one PPO network to another never saves money.
Could failure be tied to poor advice from marketers recommending TRSAC alternatives? Who’s to say, we can only guess. Underfunding risk producing artificially lower rates facilitated through misplaced trust makes for an attractive alternative, helping to justify a move away from TRSAC, making sales easier than they should be. Shadow pricing TRSAC rates on a hope and a prayer rather than underwriting risk properly is a recipe for disaster, yet we’ve seen this on several occasions, particularly at the El Paso ISD in their initial move away from TRSAC.
The Texas School Health Benefit Plan (TSHBP) program covering 61 school districts is an example of underwriting gone wrong. It’s an underwriter’s worst nightmare. Their book of business has suffered significant losses over the past year. The Denton ISD Board of Trustees learned that in their July 2023 board meeting. The reinsurer for the TSHBP suffered losses in excess of $80,000,000 in less than 12 months. Loses will be much higher when factoring in additional losses through the end of the plan year plus runoff claims. Estimated losses could be as high as $140,000,000, making this one of the largest reinsurance losses in the history of health care finance. Denton officials were informed that the TSHBP board approved raising rates for all 61 participating districts by 15% for directed care plans and 30% for Aetna plans while at the same time retaining the right to levy additional premiums during the plan year if funding proves inadequate to cover claims and expenses.
Districts should be cautious. From our vantage point many have not been cautious enough. Most districts exiting TRSAC have failed to retain independent experts to properly evaluate risk. Rather, many have placed full trust and dependency on soliciting marketers vying for their business.
Cost – Moving From TRSAC PPO Network To A Non-Network Plan
On the other hand, a handful of districts outside of TRSAC have fared much better. They have adopted certain innovative risk management strategies including a movement away from managed care contracts. These districts are few in number but stand out as examples of how health care costs can be reduced while improving benefits at the same time. Their road map for success is one others thinking about leaving TRSAC should follow.
It takes unusual political courage adopting these strategies, a rarity seldom found within political subdivisions when addressing health care costs. Breaking away from 40 years of managed care and trying something new is difficult. Political hurdles makes a move to non-PPO plans and other proven risk management strategies highly problematic. In every instance these districts who’ve solved healthcare have strong leadership at the top backed by supportive board trustees.
These few districts have achieved good success. Two small South Texas districts joining together by establishing a risk pool have maintained current rates for the past 15 years without any reduction in benefits. Located a 20 minute drive away from the Brownsville ISD (BISD) plan members go to the same hospitals and doctors as BISD plan members, yet their employee rate is less than $350 vs +$600 at BISD and benefits are better.
Another district has maintained current rates going on four years without reducing benefits. A recent article in Texas Lone Star, a TASB publication, describes Lockhart ISD’s success in controlling health care costs by adopting risk strategies missing from the TRSAC program. Del Rio ISD is yet another example of how a district can solve health care. These are just a few examples of how costs can be reduced while benefits are improved at the same time.
There are many more examples in the corporate world.
A Word Of Caution
Regardless of which strategy is to be employed upon leaving TRSAC we must understand the TRSAC is a defined contribution plan wherein districts are only required to contribute $150 per employee per month. Many districts don’t contribute much more than that. The state contributes $75 bringing the total minimum contribution to $225, an artificially low and unreasonable funding rate in today’s world of rising health insurance costs. Very few districts pay up to 100% of the employee only rate leaving some employees without insurance due to affordability.
District employees needing insurance the most because of known and ongoing costly medical conditions make up the premium difference no matter how much it costs. Younger and healthier employees don’t necessarily join their district’s plan because they believe they are invincible and never get sick or they find health insurance can be a lot cheaper on the outside. Thus a statistical death spiral entails due to adverse selection as younger and healthier members leave while the older and sickest stay. Adverse selection effectively guarantees the need for systematic additional funding over time to a level of eventual unaffordability for all.
That’s been a problem for the TRSAC program. The good news for TRSAC member districts is the state legislature has historically refused to allow the program to fail by gifting millions when plan deficits loom. In the past 12 months the state has thrown a $588 million life saver to TRSAC. Meanwhile non-TRSAC districts are miles down the beach without a life guard in sight.
A recent study by Segal Consulting on behalf of TRSAC trustees concludes “If additional funding was allocated to make up the 20-year gap, the total state and employer contribution would be approximately $600 per employee per month.” This clearly means current funding is unrealistic as the true number needed is much higher than what most districts are contributing.
The ERS health plan for Texas state employees is a further indication of market rates. The state contributes 100% of the employee rate, slightly more than $600, in line with Segal’s TRSAC study as noted above.
Since most districts only fund a minimal amount or slightly more than what the state mandates, districts in that category leaving TRSAC while continuing their current funding will have problems maintaining a competitive program. A defined contribution plan with low district and state contributions is a proven recipe for disaster. These districts should remain with TRSAC because they won’t do any better on the commercial market.
Benefits & Local Control
Fully-insured plans offer various levels of benefits to pick and choose from with limited flexibility to custom design a program fitting district needs. A self-funded plan offers more flexibility. Whether fully-insured or self-insured, legacy health plans have various financial barriers to health care such as deductibles, co-pays and co-insurance features. Over time these financial barriers have increased producing the unintended effect of raising health care costs for everyone.
A more logical approach is to remove most financial barriers by employing directed care strategies in partnership with community health care providers. If structured properly costs will reduce significantly while providing plan members with better benefits and a better health care experience. To accomplish this an independent TPA is needed to manage claims.
All health care is local. A partnership with local providers including retail pharmacies will bring alignment among all stakeholders working together for the common good.
Blue Cross, United Healthcare, Cigna and Aetna cannot and will not manage many of these strategies as it is not in their business plan and not in their best financial interests.
Prerequisites For Districts Considering Commercial Healthcare Alternatives
Districts serious about offering better benefits while controlling rampantly rising costs should consider the following:
- District contribution should be set at 100% of the employee only rate for all full-time employees. Expect a minimum district contribution of $350 per employee (not including state contribution).
- Move away from PPO networks or in the alternative establish a dual option plan providing plan members a choice between a traditional PPO network plan and a non-traditional non-network plan. An emphasis on direct primary care and concierge cash pay upstream care is important.
- If an insurance committee is deemed politically important to the decision making process, reliance is dependent upon an extensive educational process so committee members are well informed. Limit size of committee to no more than 10. Include board representation, administration and rank & file members.
- Perform an independent actuary study prior to making a decision to move from TRSAC. This is the first step every district should make.
- Commit to a five year plan with goals to be attained each year through detailed tracking.
- Retain outside experts on a fee basis or through value based contracts tied to predetermined goals and metrics.
To help in determining if a district is a viable candidate for change the following questions need to be answered:
- How long has your superintendent been at your district?
- Is the Board of Trustees split or united?
- How much do you currently contribute and are you willing to contribute more if needed? If so, how much?
- Do you have an insurance committee? If not, do you plan to have one
- If you were able to get everything you wanted what would that look like?
If your district has weak leadership, a split board, and unwilling to consider anything other than a traditional managed care plan as well as unwilling to fund what is necessary to achieve 100% employee participation you should stay with TRSAC.
If you have strong leadership, a unified board, and have the political courage to prevail by trying something new while practicing strict financial discipline, you will likely succeed in offering better benefits for your employees through the commercial market.