I've been trying to explain some of the cost drivers that confront us in public education. Today, I'm going to talk about health insurance contributions made by the district to our public employees. I apologize that this material isn't simple. I can't help that. When I joined the board of education, it was complex. It's still complex. One of the reasons that I write these posts, is that I believe that its really important for citizens to understand how the finance system works. Our Board of Education has been working really hard to involve members of the community, average citizens and community leaders, in understanding how we budget, and the budget challenges that we face. My thinking is that providing factual detailed information about school finance assists in that purpose. As I share this information, I'm not trying to justify increased spending, or decreased spending, or increased compensation or decreased compensation. My belief is that the facts, once you understand them, speak for themselves.
In a prior post in this series, I explained that in the last year, the legislature raised school district contributions by one half percent per year for the next four years, raising our costs by $500,000 per year, for a grand total unfunded cost increase of $2 million. I explained next how the funding formula for special education reduces our funding by $350,000 per year, so that during the biennium, our funding will be cut by $700,000. I explained, however, that federal law prohibits us from cutting special education expenses to balance the special education budget, requiring us to transfer that out of regular education. Then, in my last post, I explained that lanes increase employee compensation by about $190,000 per year, for a total cost increase of about $380,000 for the biennium. Now to health insurance.
The district has two kinds of coverage agreements with its employee groups. Some groups have fixed dollar contribution agreements--that is, by agreement, we pay a fixed dollar amount towards their premiums, no matter what the premiums will be, until we agree to a higher amount. Some employees, typically licensed employees with single coverage, have their full premiums paid, and our cost of coverage rises with the premium increase, no matter how much the increase.
The District's cost for health insurance contributions rise in two ways. With respect to most of our employees, we make agreed fixed dollar contribution amounts towards family or single health insurance. When we enter into our bargaining agreement with, for example, our custodians, our clerical workers, or our paraprofessionals, the agreement designates a fixed contribution, specified for that particular bargaining unit, towards the total health insurance premium for each employee. Now different bargaining units have different preferences for the level of insurance contribution that we provide. Sometimes, the negotiator for a group will say, we'd like to take some of the total cost of our compensation in this year's agreement, and move some of the dollars off of salary and move it over to health insurance contribution. When they do that, its cost neutral, and we would be foolish to refuse to do that, since we're not changing the total cost to the district.
Now for these bargaining units, the ones with fixed dollar premium contributions, our costs stay the same throughout the two year term of the bargaining agreement. When the bargaining agreement comes to an end, our health insurance costs for these employee groups stay exactly the same. We know exactly what our premium costs will be during the contract, and then under the "continuing contract" provisions of PELRA, we continue to pay that same dollar amount towards insurance for these employees during the period when we negotiate the contract.
What happens under a fixed dollar contribution agreement, when the cost of health insurance rises. That will happen in the second year of the contract, around October, when the insurance carrier announces its rate increase, which may be anywhere from 5 or 6 percent to 20 percent. For employees covered by the fixed dollar contribution agreement, the employee covers the increase. If the employee's insurance premium is $1000, and the District contributes $500, then if the premium goes up to $1100, the District still contributes $500, and the employee has $100 more deducted out of the paycheck. It is easy to estimate the total cost of the package, because we have not agreed to pay the increase.
When employees work under a fixed dollar contribution agreement, they push us very hard to keep their insurance coverage economical and affordable. When the insurance company announces its premium increase, the employee group often wants us to bring those costs down, because they don't want to pay more for their insurance premiums. Indeed, at times there is a bit of friendly friction between the employees with full premium coverage and those without over what kind of group policies we should buy.
I want close this post by emphasizing several things. Sometimes folks rail against health insurance costs for public employees. But providing these benefits is an important attractor --an asset for us in encouraging qualified employees to work for us. The cost of health insurance, paid on behalf of employees is tax exempt, so a dollar of health insurance coverage provides more than a dollar's value to the employee. Providing coverage that employees value represents a wise use of the public's money. The issue for those of us who are involved in the decision making process is to make sure that the plans we select are cost effective, and that we provide coverage that is financially sustainable. Because the cost of health care is going up so fast, this is a great challenge to all governmental units, and I'll have more to say about that in the next post.
OK. That's a lot for one post. I've started in this post to explain the difference between fixed dollar contribution agreements and full premium agreements. I'll continue this discussion in tomorrow's post.