The Newport-Mesa Unified School District is bracing for rising healthcare costs, including an anticipated $2.3-million tax increase, as part of the federal Affordable Care Act.
That price tag has created a disagreement between the district's teachers union and its head administrator about how to cover the costs.
Five years ahead of full implementation of President Obama's healthcare reform, employee unions are brainstorming money-saving methods to avoid cuts, but the superintendent has said the increases will affect employee compensation.
"The more I learn, the more anxious I get as it is apparent to me that our benefits, as we know them, are going to be significantly altered," Supt. Fred Navarro wrote in a routine districtwide communication this month.
District employees' medical benefits are considered generous enough to fall under what's known as the "Cadillac tax," scheduled to kick in in five years.
"We have enjoyed a tremendous benefit package for many years, superior to most in Orange County," Navarro wrote.
Starting in 2018, the Cadillac tax provision would charge an excise tax on the total cost of medical premiums above a certain threshold — regardless of whether they're paid by the employee or employer.
Essentially, employers would pay a 40% tax on any amount of a premium that exceeds $10,200 for an individual or $27,500 for a family.
This year, Newport-Mesa's medical premiums were $7,035 for individuals and $21,103.92 for families, according to district officials.
They project those costs will rise by 5.6% each year, a reasonable calculation according to UC Irvine professor Paul Feldstein, a renowned expert and author on the economics and politics of healthcare.
Assuming its benefits plan remains unchanged over the next few years, Newport-Mesa projects its premiums will reach $12,603 for individuals and $32,971 for families in 2018.
That means the district would be taxed an extra $961 on each individual premium and $2,188 on each family premium, adding up to the $2.3 million tax.
In his districtwide communication, Navarro said the $2.3 million tax penalty is the monetary equivalent of a 1.3% raise for employees.
"We will have to come to terms that one way or another, our costs will dramatically increase and no matter how you look at it, it's going to hit everyone's pocket book," he wrote.
More than 300 part-time employees could also become eligible for benefits under the Affordable Care Act, costing the district an additional $5 million under the current medical plan, Navarro said.
Newport-Mesa already spends $33.4 million out of its $230-million budget to cover medical benefits for its 2,301 eligible employees, said John Caldecott, executive director of human resources.
Newport-Mesa Federation of Teachers is in the middle of negotiations with the district for next year's contract, and at a May 14 school board meeting, the union's leadership objected to Navarro's email.
The superintendent was too quick to place the burden of increased costs on employees, NMFT Executive Director Nicholas Dix said in an interview.
"People were very anxious," he said. "They were alarmed. They were kind of upset by the communication that Dr. Navarro sent out. It was a little frustrating because the communication basically seemed to concede the point that we're going to have to pay more increased cost no matter what we do."
A committee of employee representatives is exploring ways to keep premiums below the Cadillac threshold while maintaining benefits, Dix said.