The focus of most taxpayers on their income taxes, small business taxes and potential estate taxes, with a gripe now and then about local sales taxes, misses a big chunk of the portion they pay every year: property taxes.
Like what you see? Click here to sign up for Accounting Today's daily newsletter to get the latest news and behind the scenes commentary you won't find anywhere else.
While these vary considerably from one locale to another, they have accelerated in the past decade as localities struggle to keep up with the demands of their police, firefighters and school teachers, particularly in the areas of pensions and health benefits.
One such effort to control costs, and thereby reduce property taxes, has been spearheaded by a health insurance trust formed for the employees of 23 school districts in three counties in New York. The trust, an exempt organization formed under Internal Revenue Code Section 501(c) (9), is a VEBA, or Voluntary Employee Beneficiary Association.
“In the last six years, the trend nationwide has been double-digit annual growth in health care premium rate increases,” said Harry Hadjioannou, CPA, the assistant superintendent for business and financial services for Questar III BOCES (Board of Cooperative Educational Services). “The BOCES is a way to create collaboration among school districts and enable them to provide services that the school district could not provide on its own.” More than 30 states have similar bodies.
Hadjioannou also runs the health insurance trust associated with the organization. Although the trust was formed in 1985, the organization began rigorously managing it to control costs only in the last six years, he indicated.
“We had to make some drastic changes, and bring the trend down to a more reasonable rate of increase on an annual basis,” Hadjioannou said. “We became more aggressive with vendor management. We instituted a population health management program and a total plan redesign.”
“In the education business, 85 percent of the cost is salary and benefits,” Hadjioannou observed. “As they took a bigger chunk of our budgets, we had to get more aggressive, so six years ago we decided that we would take control and do a program of cost containment.”
“Back then, if you spent a dollar on health care, you would be spending $1.95 today,” he said. “In our case, for every dollar we were spending six years ago, we are spending just $1.25 today. The difference is our savings that our aggressive vendor management and plan redesign brought into our component school districts.”
Hadjioannou estimates that it amounts to a cost saving of approximately $346 million a year. Even dividing this among the taxpayers of 23 school districts, it comes to a significant savings.
The administrative fees and risk charges by the insurer are far lower than they would be if individual school districts went out and purchased them individually, he indicated. Moreover, he suggested, “a well-run health care program has savings beyond the money that is directly tied to health care. It leads to a reduction in sick days and an increase in the overall productivity of the organization.”
While the use of health care trusts is not unique, the key component in the savings generated by Questar III is the aggressive management of the trust to contain costs. In what sounds like a success story for accountants, Hadjioannou noted that four of the seven board members of the trust, including himself, are accountants. “A lot of what we’ve done is a result of our accountant’s perspective,” he said.