Brief Summary of Substitute Bill

Requires school district employees to pay a minimum health benefit premium subject to bargaining.
Requires school districts and their benefit providers to reduce administrative costs, offer a high-deductible health plan with a health savings account option, reduce family premiums to a three-to-one ratio to employee-only premium, use responsible contracting and competitive procurement for health benefits, and offer full-time employees a plan where the employee share of costs does not exceed that offered to state employees.
Authorizes the Office of the Superintendent of Public Instruction (OSPI) to determine if a school does not meet the reporting requirements of the act, and permits the OSPI to require the non-compliant district to provide health benefit coverage through the state Health Care Authority.
Creates new reporting requirements for school district health benefit programs, and authorizes the Office of the Insurance Commissioner (OIC) to take enforcement action against entities that fail to comply.
Requires the OIC to submit an annual report to the Legislature on school district health benefit plans, and make recommendations on benefit equity, transparency, and efficiency.
Requires the OIC to determine if school districts do not offer plans including a high deductible health plan, meet a three-to-one ratio for family to single employee premiums, offer a plan with premium shares matching state employee levels, and use responsible contracting methods by December 1, 2015. If they do not, the school district must purchase benefits through the Public Employees' Benefit Board beginning the following school year.
Establishes a School Employees' Benefits Technical Working Group within the OIC to provide recommendations to the Governor and Legislature, including on school district employee utilization of the Washington Health Benefit Exchange and Apple Health for Kids.
Appropriates $7 million, General State Fund, to fund an enhancement to the school district classified staff units insurance benefit adjustment factor.
Appropriates $19 million, General State Fund, to increase the school district insurance benefit allocation rate from $768 to $790 for the 2012-13 school year, the equivalent of increasing the rate to $800 per month for the months of January through August 2013.

Background:

In 2010 the Office of the State Auditor conducted a performance review of the public school employees' health benefits purchased by 295 school districts. The report became available to legislators during the 2011 legislative session, and included three main recommendations: streamline the benefits array of school employees to improve efficiency, transparency, and stability; standardize coverage levels for more affordable and equitable health care benefits; and reduce costs by restructuring the health benefits array. Legislation passed in the 2011 first special session (section 213 of the state budget) directed the Health Care Authority (HCA) to develop a proposal for consolidating the purchase of school district benefits to improve administrative efficiency, transparency, and equity. The HCA report delivered in December identified that over $1 billion in public funds is spent each year on school employee benefits for 109,000 employees and the additional 94,000 dependents that are enrolled in benefits.

The state provides funding to school districts to support the purchase of health benefits for employees. For the 2011-13 fiscal biennium, the state provides $768 per full-time equivalent employee (FTE). The amount of the school funding rate is commonly passed through as an allocation to each school district employee through bargaining agreements. In addition, some school districts have, in some instances, bargained local funds that are added to the state allocation.

At the district level, the actual distribution of the health benefit allocation is determined through collective bargaining. There are no state mandated maximum or minimum amounts that a district must spend per employee or FTE. In many districts, the amount provided for health benefits is pro-rated based on the amount of time an employee works; in some districts employees may be eligible for benefits beginning at 10 percent of full-time employment. In other districts, employees working at least half-time are provided the same benefit as a full-time employee.

School district employee contributions vary by district, and often by bargaining unit within districts. Similarly, benefits may be purchased by bargaining unit or other groups of employees, and each bargaining unit or group of bargaining units may receive funding in separate funding pools. Recent studies indicate that significantly more than 1,000 funding pools are operated in Washington's 295 school districts. Employee premiums may vary significantly between districts and funding pools. There is also substantial variation in the share of the costs employees pay between those insuring only themselves, and those insuring families. Full-time school district employees that are insuring only themselves on average pay about 4 percent of the cost of benefits, while those full-time school district employees that insure their families on average pay about 43 percent of the cost.

During study of the school district health benefit system in 2011, the HCA stated that it was unable to collect some of the needed demographic, payroll, and benefits data. The HCA identified a number of the obstacles to data collection that it found and would need to be dealt with to enable analysis of the effectiveness of the administration and purchasing systems employed by districts. Among the obstacles to data transparency identified were: (1) variations in district budget practices; (2) contracts with third party administrators that made it difficult to assess administrative costs; and (3) contracts with benefits carriers which allow the carriers to withhold information about the make-up of premiums, including components of administrative fees, and claims information at the school district, employee bargaining group, or individual member level.

The Office of the Insurance Commissioner oversees Washington's insurance industry, ensuring that companies, agents, and brokers follow state law.

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Summary of Bill:

School districts must modify their benefits for employees to require every employee to pay a minimum premium for the medical benefit coverage, subject to collective bargaining. School districts offering medical, vision, and dental benefits must: (1) offer a high-deductible health plan option with a health savings account similar to that required for state employees; (2) establish employee premiums for full family coverage that are not more than three times the premiums for employees purchasing single coverage, phased in by the fall 2014 school year; and (3) ensure employees are offered at least one comprehensive health benefit plan in which the employee share of the premium for a full-time employee does not exceed the share of premiums paid by state employees. All school district contracts must be held to responsible procurement or contracting standards. In addition, school districts must structure benefit plans to reduce administrative costs for school districts; improve customer service; reduce differential plan premium rates between employee-only coverage and family premiums; protect access to coverage for part-time employees; and use innovative health plan features that reduce the health benefit premium trends and reduce utilization of services.

School districts and school district employee health benefit providers are required to annually submit specified financial and enrollment information on the health benefit plans operated for district employees to the Office of the Insurance Commissioner (OIC). The information is protected from public disclosure, with all other similarly reported data.

If a school district does not comply with the reporting requirements, the Superintendent of Public Instruction must notify the Legislature, and may limit the school district's authority to offer employee benefits to those offered through the state Health Care Authority (HCA). School districts or school district employee benefit providers that do not comply with the data reporting requirements are subject to the enforcement actions of the OIC. Similarly, the authority to operate in the state is removed from any individual or joint local government self-insured health and welfare benefits plan formed by a school district that does not comply with the data reporting requirements contained in the act. In addition, the Attorney General must take all necessary action to terminate the operation of an out-of-compliance self-insured health and welfare benefits program.

Beginning December 1, 2013, the OIC must submit an annual report to the Legislature containing specific information and analysis on school district health benefit plans. The report must include information on detailed financial and performance data such as premium expenses, claims expenses, claim reserves, administrative expenses including compensation paid to brokers, and enrollment data. In addition, the OIC must report on district and provider efforts to reduce administrative costs, improve customer service, use of innovative plan design features, and progress towards reducing the difference in premium rates between single employee coverage and family coverage. The OIC must also review the appropriateness of the legislative goal that full family coverage premiums be no more than three times the premiums for employee-only coverage for the same plan, and report on the goal by December 1, 2013, including any alternative goals that may be recommended.

By December 1, 2015, the OIC must determine which districts have achieved the requirements established for the employee benefits purchasing, and if the Commissioner determines that a district has not achieved the requirements, the school district must purchase benefits through the HCA Public Employees' Benefits Board program, beginning the following school year.

The School Employees' Benefits Technical Working Group is established with broad representation of school district employee groups and management. The working group is established within the OIC by January 30, 2013, and the Commissioner serves as the convenor. The tasks of the working group include: (1) review and analysis of benefits, opportunities and risks enrollment in health benefits plan offered through the Washington Health Benefit Exchange (Exchange) and the Apple Health for Kids program; (2) submitting a report to the Governor and the Legislature by December 30, 2013, on any findings or recommendations on utilization of the Exchange and Apple Health; and (3) providing assistance and advice to the OIC.

An enhanced benefit adjustment factor is provided for classified staff for the 2012-2013 school year, with a $7 million appropriation. The school district benefit allocation is increased for the 2012-2013 school year, with an appropriation of $19 million.