Could Indiana’s financially strapped public schools have avoided teacher layoffs if they’d switched to a cheaper health insurance plan?

For one school district facing a $2.3 million shortfall this year, the answer was yes. By joining the state’s health insurance program — touted as a major cost-saver by Indiana Gov. Mitch Daniels — Portage Township Schools in northwest Indiana cut more than $1 million from its budget and saved at least 20 jobs.

It wasn’t easy. As Portage associate superintendent Ric Frataccia said, it meant renegotiating labor contracts with teachers and other employee unions.

“We had to convince them we were partners in a crisis,” he said.

Now Portage is being held up as a model for Indiana public schools and state universities struggling with $300 million of state-ordered budget cuts. According to a report presented Wednesday to the State Budget Committee, the 290 school corporations and seven public universities in Indiana could save at least $454 million annually if all of them switched to a health insurance program that covers about 30,000 state employees.

The savings would come across-the-board, from eliminating the middleman costs of insurance brokers to shifting more out-of-pocket costs to employees.

An additional $200 million in annual savings are also possible, said Todd Swim, a partner at Mercer, a human resources consulting firm hired by the state budget agency to analyze the health insurance costs of the state and its public schools.

“By no means are we trying to embellish or overstate the case,” Mercer said.

Lawmakers ordered the study during their 2009 special session, after debating then abandoning legislation that would require all schools to join the state health plan.

State law permits schools to join the plan voluntarily, but only five have, including two charter schools.

Officials with the State Personnel Department — which administers the health insurance program — said other school districts have inquired but backed off, citing concerns about labor contracts that have them locked into their current health plans.

Last fall, the Indiana Association of School Business Directors hosted a seminar for school districts interested in the state’s plan. Dennis L. Costerison, executive director of the association, said many school districts found that their current health insurance programs offered better benefits to their employees though at a higher cost to the district than what the state offered.

The Mercer report confirmed that. Swim said about 75 percent of state’s public school districts offer their employees “Cadillac” health plans with premiums, deductibles and out-of-pocket expenses significantly more generous than what’s offered in the private sector.

Mercer defended the state’s plan, which covers 100 percent of wellness costs and includes the option of a Health Savings Account that offers incentives to employees to control how much they spend on health care. The state picks up the cost of the premium and deposits $2,750 into each employee’s HSA each year. Employees keep what they don’t spend.

By switching to the state health plan, Portage and the other four schools saved more than $3,600 per employee in health care costs. Portage administrators said the hardest part was getting everyone — teachers, administrators, and other school employees — to work together to find a solution to their budget crisis.

“All of us had to make a commitment to the truth,” Frataccia said. “It wasn’t a time for game-playing.”

• Maureen Hayden is Statehouse bureau chief for CNHI’s Indiana newspapers. She can be reached at

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