Katy ISD health plan running multi-year deficits; trustees press for options as pharmacy costs surge

Lance Nauman, Katy ISD's director of risk management, presented a semiannual update on the district's self-funded health plans and warned trustees that multi-year deficits have deepened since 2020. He said employee participation is roughly 61–62% (about 8,000 staff participants and roughly 13,000 total plan participants counting dependents) and that the district contributes $385 per employee per month (PEPM). "One of the biggest financial impacts you will see to a health plan are large losses," Nauman said, defining large losses as incidents greater than $75,000 and pointing to catastrophic conditions and specialty medications as major drivers.

Nauman detailed steps taken to manage costs: a market review of administrative-service-provider (ASO) fees yielded roughly $981,000 in annual savings by reducing the per-employee ASO fee; a pharmacy review produced an estimated $7.8 million increase in rebates based on prior-year utilization; and the district's virtual-care program had 23,000 visits last year, which Nauman said helped defer some ER and urgent-care use. Still, he said, pharmacy costs — including specialty medications — have risen sharply (the presentation cited a roughly 47.8% pharmacy increase over a multi-year period) and are a dominant contributor to the 40%-plus year-over-year jump in the 2024–25 deficit.

Trustees pressed staff on options. Some asked whether Katy ISD remains less expensive than the TRS ActiveCare option and whether switching vendors could cause disruptive network interruptions. Nauman cautioned that only a small number of large vendors can serve a district Katy's size and that TRS regional pricing has shifted; he said market access and provider networks risk being interrupted when plans change. He also explained the HEB pharmacy arrangement in place since Jan. 1 and said the plan includes a broad network (he cited roughly 60,000 participating pharmacies on exceptions) but acknowledged employee confusion at rollout and asked for stronger communications.

Board members proposed practical follow-ups: a TRS comparison using the latest available numbers, a deeper look at what employees find when shopping externally, continued pursuit of rebate and ASO savings, and an idea to designate or repurpose a staff member as an "insurance advocate" to help employees navigate plan choices. Nauman and staff said they already perform annual vendor comparisons and maintain customer-service advocates in risk management, but trustees asked for improved outreach and for staff to return with further analysis.