8-18-06 Rolling Health Benefits onto the Certificated Salary Schedule

Volume 19 For Publication Date: August 18, 2006 No. 18

Rolling Health Benefits onto the Certificated Salary Schedule

We continue to receive questions from districts that are in the collective bargaining process and are considering the possibility of adding the value of health benefits to the certificated salary schedule. What follows are some of the more significant considerations for any district considering such a move.

· The effect on gross pay and income taxes. The concept of rolling health benefits onto the salary schedule means that the value of health benefits is added to each of the cells on the salary schedule. This results in higher gross pay for employees, and those who enroll in a health plan will pay the premiums out of their gross pay. Those who do not enroll should be required to certify that they are otherwise covered. Employees who enroll in something less than the full benefit package will receive higher take-home pay. Our experience is that many employees have coverage another way and can pocket the entire amount.

As a part of rolling health benefits onto the salary schedule, the district should offer a Section 125 plan if it does not already have one. That way, employees can pay for their health premiums with pre-tax dollars.

· Determining the amount to add to salaries. The value of the health benefit package is typically the starting point for determining the amount to add onto the salary schedule. Determining this amount can be a very difficult task at the negotiating table. This is even more difficult in districts where the district’s contribution to health benefits varies employee by employee.

In order to keep total plan costs neutral to the district, the highest amount that would be rolled onto the salary schedule should be the average district contribution toward health benefits. And, since STRS retirement benefits and take-home pay are additional possible benefits to employees when rolling benefits onto the salary schedule, and since the district will be paying more in statutory benefit contributions, you can argue that the amount rolled should be even less than the average health benefit contribution. But employees may assert that, in order to stay cost-neutral from the employee’s perspective, the maximum district health benefit contribution should be rolled onto the salary schedule. Otherwise, some employees will assume a greater cost than others. Combining this action with a major salary increase also helps to reduce inequities.

Some districts and employee groups have not been able to resolve this issue, causing them to abandon the idea of shifting health benefits to the salary schedule altogether. But districts that have a hard cap on benefits have an easier time of it.

· The effect on statutory benefit contributions. The higher gross pay resulting from rolling health benefits onto the salary schedule requires that both the employee and the district pay additional statutory benefit contributions, such as for State Teachers’ Retirement System (STRS) and Medicare. The employee then receives a significant increase in STRS retirement benefits as a result of this increase in base salary.

· The effect on the cost of health plans. As stated earlier, employees would have the option of choosing whether or not to participate in the health plans, assuming that those who opt out provide certification that they are covered elsewhere. From this, adverse selection may occur within the district’s group plans, which can negatively affect the district’s experience factor and cause an increase in the insurance premium cost.

· The effect on comparability. About a dozen districts in California, most of them in the San Francisco Bay area, have shifted the value of health benefits onto the certificated salary schedule. Making direct comparisons of teacher compensation and personnel expenditure data between these districts and the rest of the school districts in California is not simple. Some adjustment needs to made to account for the difference caused by the value of health benefits, and this difference is not always easily quantified. For example, should the average district contribution or the maximum district contribution to health benefits be used for comparison purposes? Therefore, districts that choose to shift health benefits onto the salary schedule affect the ability for easy comparisons to be made between districts.

· The focus of future compensation negotiations. Once a district has shifted health benefits onto the salary schedule, discussions of compensation after that point would typically be narrowed from two major items—salary and health benefits—to one. This may simplify the negotiations process and clarify the financial effect of decisions made at the table; however, you can expect rising benefit costs to be considered by the bargaining unit when setting its salary demand.

While this isn’t a totally exhaustive list of the considerations when rolling health benefits onto the certificated salary schedule, obviously, it is not a simple task. Significant, thorough, and data-driven discussions need to occur in order to settle on a fair resolution of this issue. And, as with most decisions at the bargaining table, it is difficult to change once implemented.

—Sheila Vickers