Katy ISD faces a projected $10.8 million shortfall in its health fund for employee insurance plans for fiscal year 2025-26, making it the third consecutive year that rising health care costs will impact the district’s general operating fund.

With 61% of KISD employees enrolled in one of the district’s self-insured health plans for the ongoing 2024-25 school year, health care benefits represent one of the largest operating expenses for KISD outside of salaries, Director of Risk Management Lance Nauman said at the May 12 board meeting.

KISD’s health plan fund—which pays for employer contributions to health insurance—is separate from the general fund, which pays for expenses related to instruction, most notably, staff payroll. To tackle the rising health insurance expenses, KISD will supplement the health plan fund with revenue from the general fund, Nauman said.

This will allow the district to avoid passing on sharp premium hikes to employees until the district’s stabilization efforts, such as plan design changes and increased virtual care utilization, begin to show long-term results, Nauman said.

Growing challenges

Health insurance plan costs are increasing for both KISD and employees due to rising prices associated with medical visits and prescription drugs, Nauman said.

Trustee Rebecca Fox said the district’s 3% staff raises trustees approved for the 2024-25 school year were insufficient to keep up with rising health care insurance costs.

While staff raises for the 2025-26 school year weren’t directly addressed, trustee Dawn Champagne said rising health care costs makes it difficult to support future salary increases.

“If we were going to contribute more [per employee], we would have to pay you less, which would be less money for other people who don’t even participate in [employee health care],” Champagne said.

The health fund budget has had back-to-back $13.7 million deficits in both FYs 2023-24 and 2024-25, Nauman said. Officials project another $10.8 million shortfall in the health fund for FY 2025-26.

Despite the losses, the district has contributed over $61.4 million from the general fund to stabilize the health plan since the 2014-15 school year, supplementing a $531 monthly contribution per employee in the 2024-25 school year, Nauman said.

“We would transfer funds from the general fund to the health fund to help build it up for a rainy day,” Chief Human Resources Officer Brian Schuss said. “If not, the [health] fund would be bankrupt.”

The overview

Even though employee health care plans are a financial burden, the district’s medical claims costs are rising more slowly at 5.4% a year compared to the national average increase of 6% to 10% for K-12 schools, said Justin Elmore, a benefits consultant with Baldwin Group, an insurance and risk management company.

He said this signals the district’s layered approach—focused on preventative care, plan migration and targeted partnerships—is making some headway.

“All those little things add up to keep that trend,” Elmore said. “[KISD has] a trend that is better than most of the clients were seeing.”

Elmore said the following efforts decreased KISD’s health care expenses:

• Plan migration to the more cost-effective plans
• 214% increase of virtual medical visits, improving medication plans and reducing unnecessary emergency room visits
• Increased use of generic medication and partnerships with vendors such as Express Scripts and H-E-B to offer more cost-effective medication access.

At the Legislature

Many districts face similar challenges, largely due to the state’s basic student allotment remaining at $6,160 per student annually since 2019, Chief Financial Officer Chris Smith said. Neighboring district Fort Bend ISD also reported a budget shortfall caused by rising health care costs, Community Impact reported.

“The only way for an employer to do their part is to have access to more money,” Smith said. “I know this board would do it, but, unfortunately, it’s limited to the funding formulas that the state provides us.”

The Texas House passed House Bill 2 on April 16, which would raise the basic allotment from $6,160 to $6,555 and provide raises for teachers and staff, Community Impact reported.

Smith said other House bills aim to help control health care costs and support the district’s efforts to manage spending and improve plan efficiency.

1These bills are:

• House Bill 711, which passed the House on April 25, targets anti-competitive practices by large hospital systems, promoting fairer, more affordable networks.
• House Bill 1599, which hasn’t progressed since it was filed in December, increases cost transparency for providers and insurers, helping employers and patients make informed decisions.

Looking ahead

District administrators are evaluating bids from six vendors for health plan administration and pharmacy services, Nauman said, from which he anticipates potential cost savings.

Administrators will present a finalized plan in June for a board recommendation in September, he said.