Funding school employee health benefits is a significant part of Gov. Inslee’s 2019–21 budget proposal. The state is currently spending $2 billion on school health benefits. From funds subject to the outlook, the governor would increase that spending by $941 million, including about $646 million at the policy level, to fund a benefits consolidation. (And he would fund this in his current law budget as well as his preferred budget.) Neal Morton of the Seattle Times reported last week that “some lawmakers have grumbled about the $900 million price tag.”

In 2017, as part of the response to the state Supreme Court’s McCleary decision on school funding, the Legislature consolidated school employee health benefits in a new School Employees Benefits Board (SEBB). Previously, school districts bargained and purchased health benefits individually. The idea is that having statewide bargaining and consolidated purchasing will save costs in the system overall. But the new system means that some costs are shifting from employees and districts to the state. Additionally, the Legislature has required changes to benefits that increase costs. Hence the proposed increases in state funds.

Senate staff made a helpful presentation to the Ways and Means Committee on this in November. The figures in the presentation were based on an old estimate of the per employee per month benefit rate. Although the precise figures are no longer accurate, they still illustrate what the different components of the cost are. For example, the presentation says that the new expenditures would increase spending by $860 million; with the new rate information, that figure is now the $941 million in the governor’s budget.

The largest portion of the increase comes from increasing the K–12 benefit allocation rate so that it is at least as much as the rate for public employee benefits (PEB). This is required by 2018 legislation. The same legislation also mandated that the employee share of the premium for family coverage cannot exceed three times the cost for single coverage.

The next largest portion comes from funding the K–12 rate pursuant to the collective bargaining agreement. The SEBB funding rate is higher than the PEB rate because reserves need to be built up for the SEBB and there will likely be more dependents in the SEBB.  

The third big piece of the increase is a change to the benefit allocation factor under the collective bargaining agreement. Historically, the benefit allocation factor has been 1.152 for classified staff. Schools are funded on a full-time-employee (FTE) basis, but more than one person may make up an FTE. When employees work part time, their salary allocation is simply split, but they all still need full health coverage. The benefit factor is applied to the allocation to reflect that. Under the collective bargaining agreement, the factor for classified staff is 1.43 and the factor for certificated instructional staff is 1.02. The state would thus be covering the full cost of benefits for basic education employees (local dollars now cover some of the cost).

Under the governor’s proposed budget, the per employee per month K–12 benefit rate would be $1,170 for fiscal year (FY) 2020 and $1,195 for FY 2021. (The rate is about $844 in FY 2019.)

Ultimately, changing the system is estimated to increase state costs because costs are shifted from employees to the state and it is expected that employees who had previously opted out of coverage will now bring in their families (as the employee portion of family premiums is expected to decrease).