According to an L.A. Times story earlier this week, a Los Angeles charter school is trying to avoid retiree healthcare costs by paying its veteran teachers to leave the school and return to the Los Angeles Unified School District (LAUSD). El Camino Real Charter High School is offering its veteran teachers up to $30,000 if they retire with the district rather than the charter school.
There’s clearly something unsettling about the incentives here, and the story spurs several questions around benefit accessibility, cost, and responsibility:
- How well is the current retiree healthcare structure actually benefitting employers and employees? El Camino Real is acting in its own financial interests by offering buyouts, but it also suggests that the financial incentives have become so bad that they’re willing to pay their most experienced teachers to leave. LAUSD may attract these veteran employees, but then will need to foot the bill for retiree healthcare benefits (and pension contributions). In the article, LAUSD officials spoke about creating rules against this sort of practice. Would that restrict their ability to hire veterans? Should districts make decisions about who to hire based on retiree healthcare obligations?
- Why was an individual charter promising retiree healthcare at all? Unlike regular healthcare costs, which are somewhat more predictable—they may rise in a given year, but are still a function of the current workforce—health benefits for retirees are a long-term obligation. In that sense, they’re uncertain, because costs may balloon rapidly if retirees live longer or incur unprojected expenses. Retiree health insurance in California is currently collectively bargained at the local district level, and El Camino is just now realizing that they bargained for more than they could afford. Providing its own benefits package could distinguish the charter school, but in this instance it seems to have become more of a burden than a gain.
- Who should be responsible for funding retiree healthcare? LAUSD is a larger school district and can presumably better cover the uncertain costs than an individual charter school. The state may be even arguably better equipped to fund benefits. CalSTRS, the state pension system, has decided not to wade into retiree health insurance, and says it may consider financing retiree health benefits if the funding becomes available (but this seems unlikely). Having a state provider could centralize retiree health benefits and prevent smaller school districts or charters from having to fund benefits on their own.
- But it could also make things more complicated. While not on the same scale, retiree healthcare faces similar underfunding issues as pension benefits. And the state is already saddled with massive unpaid pension debt, now totaling $74 billion.
- The other elephant in the room is to what extent retiree healthcare coverage should be a part of a teacher’s compensation package. For better or worse, most employers don’t offer any form of retiree health benefits; workers need to independently figure how to afford health care in retirement, usually through a combination of private insurance and Medicare.
This story seems to spur more questions than answers, but it’s a signal of a strange set of incentives that California has created for its teachers and schools.