Report: Shift to state employee health insurance plan would lower costs for Arizona teachers

A new study found that adding public school employees to the state of Arizona’s employee health insurance plan would decrease healthcare costs for teachers and other school workers while increasing the cost burden on local school districts.

Last year, both lawmakers and Democratic Gov. Katie Hobbs said they planned to explore whether adding teachers or entire public school districts to the state health insurance plan could lower costs for the 110,000 employees who work in the state’s 211 public school districts.

They ultimately took a small step in that direction, allotting $250,000 in the state budget to fund a study evaluating the proposal by the Arizona Department of Administration.

The department, which contracted Tempe-based The Segal Group to conduct the study, delivered the results to Hobbs and legislative leaders on Dec. 31, according to a letter provided to KJZZ.

Segal analysts examined projected 2026 healthcare costs for Arizona’s K-12 public school districts by looking at data from 72 of the state’s 110 school districts, including unified, elementary and high school districts of various sizes from all 15 counties.

The study found that state health plans “generally have richer benefits” than the plans offered by school districts and that the total cost to cover all school district employees would decrease by about $20 million if they were moved to the state plan, a reduction of about 2.6%.

“Based on the data collected in the representative sample, our conclusion is that this would generally result in school district employees having access to richer plan options with lower premiums, particularly for dependent coverage,” according to the study.

The study’s authors found moving employees and dependents currently covered by district plans to the state system could save employees a total of $64 million to $69 million annually. Because of the way the state plan is structured, those employee savings would essentially translate to equal added costs for their school district employers, according to the study.

In reality, that cost shift could actually be much larger.

The study found that school districts cover a similar portion of employee healthcare costs compared to the state plan but that the state also provides larger subsidies for dependents.

“The enhanced employer subsidies, particularly for dependent coverage, are anticipated to result in increased overall enrollments for school district employees, as well as more employees

covering their dependents,” according to the study.

Using that projected higher enrollment, the study concluded that employees would save up to $405 million in costs annually, with those costs shifted to the school districts.

The study noted that the exact financial impact on each district would rely on a number of factors, including the district’s size, location in a rural or urban community and what kind of insurance plan it currently uses.

For instance, the study notes that about two-thirds of Arizona school districts participate in a trust to provide employee benefits. Those trusts – including Arizona School Boards Association

Insurance Trust, Valley Schools, Kairos Health Arizona and Rural Schools of Northern Arizona – allow multiple school districts to join together to pool risk and reduce administrative costs.

“The savings opportunity for independent school districts is greater than for those that participate in a trust,” according to the report.

The study concluded that school districts currently enrolled with insurance trusts would save around $2.5 mill annually in plan costs compared to $16 million or more in savings for districts with independent insurance plans.

The study is the latest development as school districts, state officials and lawmakers explore ways to increase pay – or reduce costs – for teachers and school district employees.

The governor’s educator retention task force previously recommended Hobbs work with state agencies to find ways to reduce school district health insurance costs, and the governor’s office explored a possible pilot program with Scottsdale Unified School District.

A spokesman for Hobbs did not respond to a request for comment on the study.

Rep. Matt Gress (R-Phoenix), a former school board member who has worked as a school bus driver and teacher, also previously expressed interest in exploring whether teachers could be added to the state plan without negatively impacting the financial wellbeing of a system relied upon by thousands of state employees.

“We have to do the math to make sure it’s the right call for the state,” Gress said in late 2023. “I certainly don’t want to create more financial problems for the state or the health insurance trust fund.”

Much of the study focused on how the change would affect school districts and their employees, with relatively little information about the impact on the state insurance pool itself, though the authors note that adopting a plan that allows for optional participation by school districts would lead to higher risk for the state plan.

“The claims costs for current State employees are not expected to be impacted by the addition of the school districts,” according to the study. “However, it is anticipated that there will be some economies of scale that would result in reduced operational and administrative costs, at least on a per capita or percentage basis, if not in total annual dollars.”

However, the authors note the impact on the state would ultimately depend on which districts join the plan.

Gress, who will chair the House Education Committee in the upcoming legislative session, said he has not read the Segal study yet.

School districts don’t actually have to wait for Hobbs or the legislature to act, though.

According to the study, state law allows school districts to opt in to the state’s health insurance plan on their own, though none have yet. The authors pointed out a number of disincentives that could stop districts from making the shift, including rules in place governing how.

“This is likely due to the fact that the districts would be responsible for their actual costs, for both claims as well as administrative and operational costs,” the authors wrote.

Unlike the existing law that allows for optional district enrollment in the state plan, the study’s conclusions are based on a scenario in which all public school districts join the state health insurance pool with the same benefits as other state employees, which would result in reduced administrative costs and the elimination of other costs charged by insurance carriers under the districts’ existing arrangements.