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In deal with unions, LAUSD takes small step toward cutting healthcare costs

Members of the union representing L.A. Unified School District teachers, United Teachers Los Angeles, hold a rally outside of Helen Bernstein High School in Hollywood.
Members of the union representing L.A. Unified School District teachers, United Teachers Los Angeles, hold a rally outside of Helen Bernstein High School in Hollywood.
Kyle Stokes/KPCC

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The Los Angeles Unified School District's healthcare bills are rising fast. Of every dollar the district spent this year, 14 cents went to "health and welfare benefits." By 2031, that amount could be 28 cents.

Late Thursday night, L.A. Unified officials and representatives of the eight labor unions representing district employees took what they hope will be a first step toward curbing those costs — even if it's only a baby step.

The parties announced they have reached a tentative deal on healthcare benefits for the next three years. As part of that agreement, L.A. Unified would freeze the amount of money it pays each year — $1.1 billion — to fully cover the healthcare premiums of nearly 60,000 district employees, 36,000 retirees and more than 92,000 of their dependents.

But the unions' representatives promised none of these beneficiaries would see their costs go up under the deal. Instead, the eight unions — who, along with the district, jointly manage the nuts-and-bolts of employees' healthcare plans — agreed to dip into a reserve fund to cover any cost overruns.

The L.A. Unified School Board and members of each union must still vote to ratify the tentative agreement for it to take effect.

"After years of district threats to our healthcare," the unions said in a joint statement, "it is a victory to have all unions remain steadfast against any concessions."

L.A. Unified's chief labor negotiator, Najeeb Khoury, estimated the contribution freeze would save the school district more than $190 million over the next three years.

But the deal would likely prompt few, if any, changes to health plans themselves. The district would continue to pay the full healthcare premiums for employees and their dependents. L.A. Unified would also continue to provide lifetime coverage for retirees — even though the district isn't putting enough money away each year to cover the future costs. The unfunded liability for this benefit is approaching an estimated $14 billion.

Without changes to these basic facts of healthcare, the price tag for the district's healthcare is likely to continue to increase.

"It’s an important step," Khoury said of the tentative agreement. "I don’t think it’s a sufficient step. It’s not as if this deal solves all of these problems, but I think this deal allows us to start turning the tide."

While the district provides most of the cash to cover annual healthcare costs, each of the eight unions take a direct role in managing how that money gets spent. Each of the unions plus an L.A. Unified representative get a vote on the nine-member "Health Benefits Committee," which directs a consultant to manage the district's health plans, Khoury said.

In theory, the tentative agreement provides the union with an incentive to begin reining in healthcare costs.

The union agreed to tap into a Health Benefits Committee reserve fund to help cover the costs of the district freezing its healthcare contribution. Currently, the fund has nearly $300 million in it.

L.A. Unified agreed to guarantee that at least $100 million will remain in that fund on Dec. 31, 2020 — so long as the unions could also find a way to shave $200 million off the unfunded retiree benefits liability, likely through enacting changes to health plans.

But that provision doesn't really kick in unless this reserve fund dips below $100 million, and Khoury said the district projects that fund will not likely dwindle that much.

"It's a step in the right direction," said L.A. Unified school board member Nick Melvoin, who has been outspoken about his eagerness to enact more drastic changes to the district's benefits structure. "I guess my question is whether it's a big enough step to set us all up for success."

But the unions see the $100 million reserve guarantee differently. Rather than seeing the district's freeze in healthcare payments as an incentive to cut costs, they essentially see it as the district kicking the can down the road — and that tapping into the reserve is a gift from the unions.

Over the next three years, "healthcare premiums will definitely increase," said Alex Orozco, a United Teachers Los Angeles officer who represented the teachers union in the health negotiations. If there is a guaranteed $100 million left over, that's essentially a downpayment on healthcare bills in 2021 that are almost assured to be much higher.

"Even though they’re funding [healthcare] at 2017 levels, we know that come 2021, that reserve is definitely going to play a role into getting us another agreement," Orozco said, adding later, "We will have a reasonable reserve — but it won’t be enough, obviously."

"But that’s part of the point," board member Nick Melvoin said when told of Orozco's argument. Melvoin said the tentative agreement "puts pressure on [unions], for the first time ever, to control costs."

Melvoin was not yet prepared to say whether he would vote against the tentative healthcare agreement.

No other L.A. Unified school board member offered a reaction as openly critical as Melvoin's. Board president Mónica García called the agreement "an important step." Board member Ref Rodriguez called it a "first step."

"We now have three years," said board member Richard Vladovic, "to deal – once and for all – with our [unfunded retiree benefits] issue."

The tentative agreement on healthcare arrives as L.A. Unified representatives continue talks with each of the unions on their own, separate labor agreements.

Khoury was asked whether the money the district saved by freezing its healthcare contributions might be immediately used to bring more generous salary offers to the bargaining tables. His answer seemed to be: it might.

"We’re in a place where it’s very difficult for us to increase our cost of labor — the amount of money that it costs per employee here," Khoury replied. "Now, it’s going to cost us a little less than our projections on health and welfare … so that might enable us to provide something on the salary front where the total cost of labor per individual doesn’t go up even if we provide salary enhancement."

"Now," Khoury added, "whether what we will be able to provide and what the unions want is at the same place — probably not at this point."