Thursday, September 18, 2014

KSBIT and millions of dollars being charged to Kentucky districts

The Kentucky School Boards Insurance Trust (KSBIT) used to offer school districts two self-insurance pools: one for workers' compensation insurance and one for property and liability insurance.

For many years, the costs of participating seemed lower than the premiums charged by commercial carriers and many Kentucky districts signed on.  "These self-insured pools allow school districts to combine their resources while sharing the risk," according to the KSBIT board of trustees.

The part about "sharing the risk," highlighted above, has always been the catch.  If this kind of risk-sharing pool doesn't have enough money to pay expected claims, it can send the members an additional assessment to fill the gap--and KSBIT developed some big gaps.

The problems became very public in January 2013 and has been in the headlines pretty much ever since.  KSBIT no longer runs the pools, and the Kentucky Employers' Mutual Insurance (KEMI) has taken over handling claims by the former members, but KSBIT's former members are still on the hook to contribute enough to cover claims for the years they participated in each pool.

In May, the Franklin Circuit Court entered orders that specify each participating district's required payments for the $37 million worker's comp gap and the $8.8 million property and liability hole. 

Now districts are working out how to pay those shares off in varying ways, all of them painful.  For example, Fayette County will pay off its $3.1 million assessment over five years, and Madison County will pay $1.2 million over time as well.  Fleming County will pay $351,803 over 10 years, and Harlan Independent is working out plans to pay $258,728.

Unsurprisingly, many district leaders are concerned about how the hole got so deep and whether better choices by KSBIT leaders could have avoided these difficult new payments.  All reports seem to agree that the problems built up over multiple years.  I found this report on a briefing from Kentucky Commissioner of Insurance Sharon Clark helpful, but I still don't know enough to say much about how responsibility should be apportioned.  

Here's the question I most wish I understood: if KSBIT had charged the right amount every year, so that no district would be facing unexpected billing now, would it still have been a better deal than other insurance options?  Or, put another way, if districts could have known then what they know now, would they still have decided KSBIT was the best deal on offer at the time?

What I do know is that these payments are currently consuming resources I'd rather have available to serve kids now in Kentucky schools: the KSBIT collapse is definitely not good news!

--Posted by Susan Perkins Weston

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