Concord’s school district will receive a surprise $2 million bill on Wednesday from the risk pool that administers health insurance for its employees, upending the district’s financial position and leaving it scrambling to cover the cost partway through the school year.
The charge is part of a $30 million assessment levied by SchoolCare, the nonprofit that manages health insurance for Concord and approximately 90 other school districts and other public entities. The assessment is necessary to cover claims that vastly exceeded the organization’s projections and depleted its reserves over the past two years, SchoolCare executive director Lisa Duquette said.
In addition to Concord, the school districts in the capital region on the hook for a portion of the assessment include Allenstown, Chichester, Deerfield, Epsom, Franklin, Kearsarge Regional, Pembroke and Shaker Regional.
The payments — which begin accruing interest on Jan. 1 — will be proportional to the size of the districts’ annual contributions to the pool. Because of its size, Concord will owe among the most.
Members of the pool were informed of the upcoming assessment last week.
Pamela Walsh, the president of Concord’s Board of Education, described the expense as a “huge shock” and questioned why SchoolCare didn’t inform members earlier.
“As soon as they realized there was a problem, they should have given people a heads up so that school districts could have had a better understanding this was coming,” she said in an interview.
Duquette said her organization only became aware of the extent of its shortfall after receiving an actuarial report in August. SchoolCare’s board worked diligently to consider its options and elected to issue the assessment on Sept. 21, she said.
“Within 48 hours, we had that information up to the members,” she said.
Secretary of State David Scanlan, whose office oversees pooled risk management programs like SchoolCare, said in a statement that SchoolCare “has been transparent with our office throughout the process and actively engaged in ensuring its members are treated fairly and responsibly.”
Concord’s board was briefed on the assessment by Duquette on Monday.
The board ruled out laying off employees but said that everything else “is on the table” in order to absorb the cost. Board members appeared ready to withdraw money from existing trust funds, and they discussed implementing hiring and traveling freezes and reorganizing staff but did not come to any decisions.
“This is why we have trust funds, so that there isn’t a tremendous cut or tremendous shock to the community,” board member Jim Richards said. “We do have options that will not hurt students, teachers or the educational programs.”
Causes of the shortfall
Healthcare costs have risen precipitously in recent years, driven by increases in the cost of medical bills and prescription drugs.
The growth has led insurance plans in New Hampshire to increase by between 8% and 13% in the past year, according to Kirsti Karpawich, an insurance consultant for the district.
“This is just new territory,” she said. “We’re really in new air right now.”
Medical costs have risen due to workforce shortages and hospital consolidation, Karpawich said. Drug expenditures have increased both because of the release of high-cost new treatments, like gene therapies, and because of the normalization of relatively inexpensive drugs, like Wegovy and Ozempic.
Risk pools like SchoolCare have been unable to keep pace with the rising costs. The organization had a shortfall of $10 million during the 2023-24 year and anticipates a $12 million deficit once all claims are processed for the 2024-25 year, Duquette said.
The costs and benefits of risk pools
New Hampshire’s pooled risk-management programs were authorized by a 1987 state law and were seen at the time as a way for small public entities to save on insurance costs.
Rather than buying insurance directly from a for-profit company like Cigna or Anthem, members would buy from non-profit pools that serve as middlemen, administering the coverage themselves and giving members control over decision-making. This model saves costs because the administrative fee pools pay to the insurer is far lower than what an insurer would charge directly.
The downside of the model is that when the total cost of the claims exceed the amount that the member entities pay in, the pools have to shoulder the excess themselves. Pools rely on reserves to cover small shortfalls, but when consecutive deficits deplete those reserves, they impose assessments to cover the cost and rebuild the fund.
SchoolCare, which was established in 1995 and provides coverage for more than 20,000 people, has never before issued an assessment, according to Duquette. For 12 consecutive years, from 2012 to 2023, the organization returned surpluses to members. Concord received just under $6 million over that span, according to Duquette.
SchoolCare’s assessment comes as other risk pools in the state are also experiencing significant challenges. Earlier this year, New Hampshire Interlocal Trust, which administered health insurance to 17 towns and school districts, shut down. Another program, HealthTrust, was under scrutiny due to its lack of financial reserves, according to Scanlan.
“That’s what we want to avoid,” Duquette said.
Concord board members pressed her on her level of confidence that the present assessment would sufficiently right the ship.
“This is intended to be a one-time assessment to pay for this year’s claims and rebuild the claims for the prior year,” she said.
Footing the bill
Concord’s board will meet twice next week — on Monday and Wednesday — to discuss how to cover the cost. It had prepared to finalize the local education tax rate on Wednesday, though that deadline may now be pushed back.
The $2 million charge comes on top of the district receiving $670,000 less in adequacy payments from the state than the Department of Education had estimated last year. The city’s property valuation also came in nearly $500,000 less than projected.
The board did not discuss increasing the tax rate settled upon last spring to cover the charge from SchoolCare, along with the loss in revenue and lower-than-expected valuation.
“I think what we’re looking at first is where we can make reductions and where we can use our reserve funds to cushion the tax rate,” Walsh said.
The budget approved in March had been set to increase the local school tax rate by $0.61 per $1,000 in value, or $244 on a home valued at $400,000.
Down the line, the board will have to decide whether to stick with SchoolCare for its insurance needs. Duquette projected school districts and other members will experience double-digit increases in rates next year, which she said is on-par with or slightly lower than private for-profit providers.
Walsh said the district will have to make a “business assessment” about whether SchoolCare remains the best option going forward.