A prolonged deficit in the county school system’s health-care fund budget is projected to balloon to $50 million by the summer.
The shortfall, which last year was $22 million, has resulted from an imbalance in the school system’s health-care fund, depleted since 2011 as money was pulled to pay for other uses, said Rafiu Ighile, the school system’s chief financial and technology officer.
The county’s new school superintendent is proposing a four-year plan to reduce the fund’s red ink, which could include increasing health insurance rates for employees.
Under its self-insured system, Howard County Schools pays for 85 percent of each employees’ health care claims, including employees and retirees’ health insurance, life insurance and voluntary benefits; employees cover the other 15 percent.
For seven years, the school system has been using money from its health-care budget line to pay for other major expenses, primarily salary increases and a countywide pre-kindergarten program.
Fund transfers and spending are ultimately approved by the Board of Education. An independent audit is being conducted to determine why the change in funding occurred, Ighile said. The school system is paying the firm Baker Tilly Virchow Krause $100,000 to audit its finances dating to 2010; the audit is to be complete by June.
In his budget proposal, Superintendent Michael Martirano wants a four-year plan to pay off the debt and incrementally increase the amount the school system pays to health-care claims. The plan will restructure the school system’s finances and establish more regulated budget review processes, Ighile said.
The health-care fund slid from $21.6 million in 2011 to $1.6 million in 2015 before hitting a deficit of $16.5 million in 2016, according to school system data.
Howard County is not alone. Anne Arundel County is also facing a deficit caused by shifting money from its health fund to cover teacher raises and other operating expenses.
A fund transfer to cover costs should be used as a one-time fix, according to Donald Kettl, a public policy professor at the University of Maryland who specializes in government budgeting. When used continually, it will eventually create a deficit and require structural changes to solve, he said.
As health care costs continue to increase, organizations are having trouble coming up with the money to pay for them, Kettl said. In self-insured programs such as Howard County’s school system, a few unusually large medical bills can drastically effect an organization’s estimates of its projected yearly costs.
“Everybody is struggling to find a way to control health care costs,” Kettl said. “But nobody wants to tell Howard County school employees ‘we’re not going to cover that for you anymore.’ It’s trying to balance the needs with expenses.”
Bargaining with unions and raising employee premium rates is a common way organizations are trying to fix their health fund deficits, Kettl said, which has led to increasing tensions between unions and employers.
Ighile said school officials are hopeful the union will agree to “help us out,” but declined comment on the details of the school system’s proposal because contract negotiations are ongoing.
Union president Colleen Morris also declined to divulge details of contract negotiations, but characterized talks as going well.
Martirano’s $594.5 million funding request to the county in his budget proposal specifies $11.4 million for one-time expenses, including startup costs for new programs, $366,000 towards former Superintendent Renee Foose’s $1.65 million severance package and approximately $8.4 million to pay down the deficit.
The plan is focused on cutting costs where possible and making “holistic changes” throughout the school system to be more efficient, Ighile said. He declined to give details of what those changes could include.
“The name of the game is efficiency,” Ighile said.
The school system’s budget process continues on Jan. 30 with a public hearing; the school board is scheduled to approve a budget on Feb. 22.