Florida TaxWatch Briefing: Extending State Group Insurance to the Florida College System
Case Study: Indian River State College
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Florida’s economy is strong. If Florida were a country, its gross domestic product (GDP) would rank 14th among economies worldwide, and its ambitions do not stop there. Florida aims to be within the top ten economies by 2030. By this time, two in three jobs are expected to require specialized training, a credential, or a degree. To achieve its economic goal, Florida will need to continue developing its specialized workforce. With 120,000 students completing Florida College System (FCS) programs each year, the FCS plays a critical role in providing the talent pipeline necessary to reach Florida’s economic goal and does so at a very affordable cost to students and Florida taxpayers alike.
The FCS cannot adequately support Florida’s workforce development without attracting and retaining talented faculty and staff. Workforce shortages have become increasingly challenging across economic sectors, and the higher education field is no exception. As FCS colleges try to offer competitive salaries and employment benefits, they struggle with the growing costs of health insurance amid limited budgets.
Currently, the FCS colleges must self-insure or self-fund using money from their operating budgets. To help reduce the cost, most FCS colleges insure within a collective called the Florida College System Risk Management Consortium (FCSRMC). Although the larger grouping enables better health insurance rates, the rates are still high and grow each year.
According to the state Office of Program Policy Analysis and Government Accountability (OPPAGA), the FCS colleges pay a total of $144.6 million annually for health insurance to provide coverage to 19,400 enrollees. All the FCS colleges pay a portion of their employee premiums, but none of them subsidizes the premiums for dependents, which can weigh heavily upon an employee’s wallet.
For example, an employee at Indian River State College (IRSC), a member of the FCSRMC, must pay between $1,235 and $1,509 per month to cover a spouse and child (Table 1). Within a year, this can amount to $18,000 worth of premiums, which is extremely expensive for many families, and completely cost prohibitive to low wage employees. The high costs to cover dependents limit the talent pool from which the FCS can seek employees.
Faculty and staff with young families are especially difficult to attract and retain for the FCS with current health benefits. They face high costs to cover their dependents, and as younger entrants of Florida’s workforce, they may be confronted with additional financial pressures, such as entry wages and student loans, that make it harder to budget for health insurance. As a result, FCS faculty and staff tend to be older. At IRSC, not unlike other colleges, the average age of employees is 54. Older employees bring invaluable experience to FCS colleges; however, without young talent, the colleges have less opportunities to develop longstanding faculty and staff with institutional knowledge.
Health insurance options offered by the FCSRMC are susceptible to sharp, unpredictable increases. FCSRMC is reliant upon the continued participation of FCS colleges to lower their health insurance rates. If FCS colleges grow large enough to be as predictable as the FCSRMC, they are able to find better rates on their own. When colleges leave the FCSRMC, the remaining, smaller colleges struggle to keep pace with rising health insurance costs. This is known as “adverse selection” and contributes to a predictable decline. Since these costs are paid with their operating budgets, colleges have to make tough spending choices that could reduce or limit the quality and availability of programs to accommodate for the growing costs.
To address these concerns and strengthen the FCS, Florida should consider extending the State Group Insurance Program (SGIP) to the 28 colleges that make up the FCS. SGIP is the health insurance program available to most state employees. Although FCS colleges share similarities with eligible enrollees, such as reliance upon state funds and eligibility for the Florida Retirement System, the state colleges are not currently eligible to participate in SGIP.
Last year, the Florida Legislature tasked the Office of Program Policy Analysis and Government Accountability (OPPAGA) with conducting an actuarial feasibility study to explore the effects of extending SGIP to the FCS. OPPAGA’s actuarial feasibility study provided low, best, and high estimates to demonstrate the financial impact to the state. The estimates ranged from a net cost of $232.6 million to $316.4 million, with the best estimate projecting the cost at about $313.0 million.
If SGIP were to extend to the FCS, the FCS would no longer directly pay the costs of health insurance premiums for its employees. This change would alleviate budgetary concerns caused by rising health insurance rates, creating greater predictability for the long-term budget outlooks of FCS colleges. A predictable budget is important to FCS colleges because it enables their investment in critical programs as well as initiatives to keep tuition affordable.
Extending SGIP to the FCS would also make it easier and less expensive to provide health insurance to employees with dependents. Not only would the FCS colleges be less susceptible to the disruptions caused by employee turnover, but they would also be able to limit costs associated with hiring and retraining for a position. All of this, of course, impacts the quality of education and workforce development. Since the FCS colleges are publicly funded institutions, it is of taxpayers’ interest that dollars are used for their intended purpose and waste be limited.
Extending SGIP to the FCS is an investment that would directly support Florida’s continued economic growth, the quality of education, and help reduce expensive turnover of personnel. Moreover, for employees who are shouldering the additional burden of escalated healthcare costs, any relief in their current salaries is passed through as direct economic impact in their community. This dynamic provides a double benefit: relief for the employee and employer, and a positive impact on Florida’s economy.
Florida TaxWatch recommends that the state legislature extend SGIP to the FCS, but as the state legislature considers a possible extension of SGIP, it should be cautious of launching a pilot program or extending eligibility in waves. Small colleges are dependent upon the collective numbers provided by the FCSRMC, so extending State Group Insurance to some colleges but not all could impose higher insurance rates on the colleges remaining in the consortium through adverse selection, described above.