The legislative task force assigned to solve the public school employee insurance crisis discussed the possibility of a major structural overhaul this morning: combining the insurance plans for public school employees (PSEs) and Arkansas state employees (ASEs) into a single pool. Also on the agenda was talk of merging the retirement system for teachers with the system for public employees. News that the legislature has been musing that possibility triggered alarm bells among retired teachers, who packed the audience this morning wearing “Hands Off My Retirement” stickers distributed by the Arkansas Education Association.
If nothing else, this morning’s meeting established that the retirement system merger is almost certainly dead in the water. Nobody seems to think it’s a good idea — not the heads of either retirement system, not teachers’ groups and not most legislators. Before exploring why, let’s first examine the possibility of combining the two insurance systems. It warrants further discussion, but only if policymakers also address the fundamental underfunding problem with the PSE insurance plan.
A quick recap. About 84,000 public school employees and their dependents are insured through the PSE plan. Their monthly insurance bills are unworkably huge, because they pay about two-thirds the total cost of their premium. Their employers — that is, the school districts for which they work — and the state splits the remaining third. That’s backwards compared to most employer-provided insurance (whether public sector or private), which typically requires employees to cover only about one-third the cost of their premium. Indeed, that is the case for state employees. Arkansas state employees have much cheaper insurance than do their counterparts in the schools, because their employer — the state of Arkansas — contributes a much larger sum towards premiums. There are about 66,000 state workers and their dependents on the ASE plan.
Both systems are administered by a single state entity, the Employee Benefits Division (EBD) and the exact benefits offered under the ASE and PSE plans were identical until this year (they’re still mostly the same).
Two plans, two different levels of contributions from the public. One is fairly stable, the other underfunded and perpetually sinking. Why not remove the slender partition between the two and establish parity by putting state employees and school employees into the same pool? A legislative staff attorney told the committee that there’s nothing in state or federal law that would prevent such a merger. Many states — 18, to be exact — already have their insurance systems set up such that teachers simply participate in the state employee plan. And everything else being equal, it’s better to have a larger pool of participants. After all, spreading risk among a larger group is the point of insurance.
But the problem is exactly that something isn’t equal: the employer contributions to the respective plans. EBD Director Bob Alexander presented a sheet to the task force that shows the consequence of blending the two pools in 2015 (note that nobody is actually talking about doing this as soon as plan year 2015; this sheet is strictly hypothetical):
As one would expect, merging would result in a substantial rise in premiums for state employees (up 33 percent) and a substantial drop in premiums for school employees (down 23 percent). Republican Sen. Jim Hendren, who chairs the task force, put it bluntly and honestly: “a change like this would be good for PSEs and bad for ASEs.”
This would undoubtedly result in a great deal of resentment towards teachers by state employees, fairly or not…just as I’ve heard some teachers voice anger that state employees are treated as favorite sons by EBD while they themselves struggle with crushing premiums. That sort of finger pointing can go back and forth forever: teachers work fewer hours over the year than state employees BUT many also put in literally hundreds more hours of grading and lesson planning at home. Teachers salaries are, on average, higher than state employees BUT classified employees’ salaries are not AND pay varies widely from district to district BUT it also does among state employees, which is a label encompass everything from prison guards to staff attorneys at DHS.
For those truly committed to weighing grief and calamity, legislative staff provided a sheet that illustrates some of the complexities of comparing compensation between two large, highly diverse pools of employees.
Alexander told me after the meeting that it also could be ruinous in the long run to combine the ASE and PSE systems without adding more money overall, especially considering the PSE pool is larger. Merging a smaller, well-funded system with a larger, poorly-funded one isn’t a recipe for actuarial health: it could cause more adverse selection and wreck employee participation rates.
The sheet provided by Alexander assumes no new money is added. How much extra money would it take to fund a blended plan at the same level that ASE currently enjoys? That is, how much money would it take to achieve parity between the two systems without inflicting pain on state employees?
About $60 million, said Alexander. If retirees are included, about $95 million. Not one time — every year. “Basically, it’s a funding issue,” he told the task force.
Hendren stressed that the task force is “nowhere near the voting for anything stage — we are at the data-collection stage right now.” In September, he said, the task force will look at another proposed overhaul of the system: allowing school districts to purchase insurance on their own or in collaboration with other districts. That’s also why he wanted to discuss combining the Arkansas Teacher Retirement System (ATRS) with the Arkansas Public Employee Retirement System (APERS). “When you start talking about parity, you’ve got to consider everything,” Hendren said.
What do retirement funds have to do with insurance? Well, a lot of retired teachers get their insurance through the PSE plan. While it’s difficult to perform apples-to-apples comparisons with retirement, the comparison sheet above indicates that the average benefits received by teachers is somewhat greater than those received by public employees. So the implication seems to be this: if combining the insurance systems would be “good for PSEs and bad for ASEs”, maybe the pot could be sweetened (or soured, depending on your perspective) by spreading retirement wealth in the other direction.
After today, it looks like that possibility is off the table. The head of ATRS, former state senator George Hopkins, told the task force that it would lead to a wave of teacher retirements. As many as 13,000 teachers who are currently eligible for retirement might leave the classroom. “That would devastate the public school system,” he said, explaining that the job of ATRS is to meet the employment needs of schools by stabilizing retirements. It’s especially crucial to coax extra years of service from teachers in high-demand subject areas “I can go through 40 examples of how we have fine tuned our system to retain teachers.”
Unlike with the insurance systems, it’s also too simplistic to think of one system simply offering a better benefit than the other, said APERS Director Gail Stone. She agreed with Hopkins that merging the systems didn’t make sense, saying that the systems had “two very different cohorts of people” and had evolved over time to meet different needs. Stone added that only two states (North Carolina and New Jersey) have combined their teacher and public employee retirement systems. “As far as saving money, I don’t think you would,” she said.
Between such testimony and the crowd of retired teachers, Hendren agreed that the idea was going nowhere. “Obviously, we did not see an interest in merging the retirement systems,” he conceded after the meeting concluded. But combining the insurance systems is still on the table.
(A number of other education stakeholders were also scheduled to speak, including representatives from the AEA, the Arkansas State Teachers Association and others, but Hendren said they’d have to give their testimony at the September meeting instead because of the length of the preceding discussion.)
Support for education reporting provided by the Arkansas Public Policy Panel.