A new survey of more than 750 district leaders across 42 states finds rising healthcare premiums are already squeezing public school budgets—pushing districts to cut instructional materials, delay hiring, and modify benefits. Researchers and advocates warn tha
For many public school districts, the warning signs have been building in small, budget line by budget line. Now the pressure has reached a threshold that district leaders describe in unmistakable terms: healthcare costs are eating into the money schools need for classrooms. staffing. and even basic educational materials.
A new study from The School Superintendents Association (AASA) and the Association of School Business Officials International (ASBO International) surveyed more than 750 public school district leaders in 42 states. The report. “Rising Premiums. Falling Opportunities: The Budgetary Impact of Healthcare Costs on School Districts. ” finds that 98% of district leaders report rising healthcare costs are having a measurable impact on their budget.
The practical fallout is now visible in the decisions districts make under pressure. To offset healthcare obligations, 46% of school districts have modified employee benefit packages. Another 34% have delayed hiring staff. More than 31% have reduced or postponed spending on instructional materials and technology. while 28% have cut back on the levels of insurance coverage they are able to offer.
That shift from classroom needs to healthcare management is changing what districts can offer educators—making competition for a high-quality workforce harder. If the situation is not resolved. the report authors say it could quickly become a “crisis. ” if it isn’t already. Sasha Pudelski. director of advocacy at AASA. and Elleko Yost. director of advocacy and research at ASBO International. frame the issue as a tipping point.
The study’s timeline helps explain why leaders feel trapped. During the 2025–26 fiscal year, nearly all districts (92%) spent up to 30% of their budget on employee insurance benefits. The report points to several drivers behind the premium surge. including increasing prescription drug costs. cited by 60% of survey respondents; more claims for expensive treatments. cited by 56%; and increased utilization of high-cost specialty drugs such as GLP-1s. cited by 56%.
Lisa Marceau. founder and president of Boston-based advisory firm Alpha Millennial Health and author of “Breaking the System: How Digital Innovators Shape the Future of Healthcare. ” puts the numbers into a longer story. “We are at the tipping point of a cost trend that has been occurring for decades,” she explains.
Marceau adds that the issue is not arriving in isolation. She argues that there is sufficient research linking strong education systems to the health of students, families, and communities. When education systems are strained—programs cut. teacher benefits reduced—the impact ripples beyond district walls. affecting families and communities now and shaping future health status and earning potential for students.
Zahava Stadler. director of New America’s Education Funding Equity Initiative. describes a similar squeeze. but with a sharper focus on accountability. “We want district leaders to use their resources to support students and advance their learning. And we want to be able to hold decision-makers accountable for those spending choices,” she says. Then she turns to the part of the budget districts cannot easily control. “But as these numbers show. lots of school district dollars are spent before they even come in the door. on health benefits whose costs district leaders don’t control. How can we ask leaders to do better with their funding when so much spending is predetermined by factors that have nothing to do with educating kids?”.
The report’s implications extend beyond employee benefits. Marceau points to a shift she says is growing in the private sector: more employers eliminating healthcare benefits entirely. something that was once unheard of. The question for public education. she says. is whether rising healthcare costs will eventually force districts to reduce or eliminate healthcare benefits for educators in order to manage financial risk.
Even now, districts appear to be moving through a first phase of that reality. David DeSchryver. senior vice president and co-director of research at Whiteboard Advisors. a research and policy firm in Washington. D.C. says school boards are “hitting the pause button” on ongoing contracts and any new projects to assess what current expenditure are necessary and how to improve their investment strategies.
But the pressure is not limited to premiums. Stadler warns that federal cuts to Medicaid are set to squeeze states soon. Those cuts. he says. will fall hard on states. leaving them to either fill huge new gaps in healthcare funding or let people lose access to care. “In some states. hundreds of thousands will lose their insurance if the state doesn’t step in and spend more on healthcare. ” Stadler says. “That money will have to come from somewhere.”.
Because states must balance their budgets, Stadler says the biggest pot of state spending outside healthcare is education. He argues that this leaves real reason to worry that states will freeze or cut education funding as healthcare costs rise.
DeSchryver frames the broader strain more widely. “Rising health care costs create pressure on school districts, but this is not a singular issue,” he explains. “If it were only healthcare costs, we wouldn’t hear about it, but it’s not. It’s healthcare costs. plus operational costs. plus gas and transportation. plus salary-schedule pay raises. plus rising special education and clinical service needs. and on and on. All of these are magnified by flat or declining revenues.”.
In the middle of those constraints, the report points to how districts and states might fight back—using leverage and collective bargaining power rather than simply absorbing the cost.
Pudelski and Yost highlight Montana’s school healthcare transformation as an example of moving “from a state of crisis to a position of collective power.” They explain that Montana faced a financial nightmare that would become a catalyst for change. A district in eastern Montana. then part of the Montana Unified School Trust. saw a 72% insurance premium increase in a single year. It was the second-highest spike in the state, far exceeding the already painful average annual increase of 35%.
In 2023. a coalition of education groups in Montana helped draft HB 332. a bill designed to create a unified statewide health insurance trust. Pudelski and Yost say. The coalition building, they report, produced results quickly: 7 out of the state’s 8 largest districts joined the trust. In total, 180 districts opted in, bringing in more than 16,000 employees—far more than the 12,000 required.
Pudelski says that the size of the pool created bargaining power. It enabled more competitive rates with hospitals and clinics while buffering against the risk of high-cost claims.
Alongside those long-term moves, the study points to steps districts can take while the funding picture catches up.
Rachel White. associate professor of educational leadership and policy at the University of Texas at Austin and founder of The Superintendent Lab. an online research hub focused on the school district superintendency. argues that part of the solution must address structural funding. “For example. at the federal level. the government must fully fund the Individuals with Disabilities Act and Title I to free up local dollars that are currently paying for these unfunded mandates. ” White says. “At the state level. legislatures need to continue to modernize funding formulas so they reflect the real rising costs of operating a school — including healthcare.” White also calls for a broader conversation on rising pharmaceutical costs beyond K-12.
In the short term. Marceau says education systems can explore alternative benefit models that give employees more flexibility while reducing employer exposure to cost risks. One option gaining attention. she says. is shifting from a defined benefit model—similar to a pension—to a defined contribution model—similar to a 401(k). Marceau points to emerging forms of this approach. including individual coverage and health reimbursement. direct primary care plus catastrophic care. and the shift to self-funded plans that permit more flexibility.
Because public school systems are among the largest health insurance purchasers. Marceau adds that education systems can engage in negotiations that leverage purchasing power. DeSchryver argues that state agencies are not well positioned to drive that shift forward. “It falls upon local districts. in regional collaboration and cooperatives. to identify best practices and share benchmarks and examples of what successful organizations look like. ” he says.
DeSchryver also notes that schools do not need to start from scratch on organizational strategy. He says there are decades worth of research on performance-based management, Drucker-like approaches to organizational efficiency, and outcomes-based contracting. It is not new, he says—but schools now have to incorporate it in ways tailored to their unique realities.
The report’s most urgent message lands in its simplest terms: healthcare costs are no longer a distant administrative issue. In districts across 42 states, they are shaping hiring schedules, instructional spending, and the benefits educators rely on. And with 92% of districts spending up to 30% of their budgets on employee insurance benefits during the 2025–26 fiscal year. the window to respond may be narrowing faster than anyone would like.
AASA ASBO International healthcare costs school district budgets employee benefits GLP-1s Medicaid cuts HB 332 Montana Unified School Trust hiring delays instructional materials insurance premiums