Mercer projects 10% employee contribution scenario as Virginia Beach school health fund dips to $4.3M

Mercer and district staff presented updated health-plan projections to the Virginia Beach School Board, showing a projected $126.0 million gross cost for the 2026 plan year and a scenario for 2027 that includes a 10% increase to employee and retiree contributions.

David Keo, senior principal with Mercer, said the plan-year projection reflects claims through March 31, 2026 and a modest improvement in claims experience. "The projection of 126 million for the full year 2026 is a slight improvement," Keo said, noting the 2026 estimate relies on updated claims and excludes a previously shown one‑time infusion.

Under the 2026 projection Mercer showed employer contributions of about $103.0 million and employee and retiree contributions of $17.5 million, with a projected reliance on the health fund of $5.5 million that would leave an estimated year‑end balance of $4.3 million (the board's target reserve was shown as about $21 million). For a 2027 illustrative scenario, Mercer estimated a total gross cost of $137.6 million; under a modeled 10% increase to employee and retiree contributions the projection would produce a small contribution back to the fund and a projected ending balance of about $6.9 million on Dec. 31, 2027.

Crystal P., the district chief financial officer, emphasized the difference in growth rates between employer and employee contributions: "These projections are demonstrating that the increase in our employer contributions continues to significantly outpace the increase in employee contributions," she said, explaining that employer costs are expected to grow more rapidly in the near term.

Board member Miss Rogers pressed staff on sustainability, asking, "I think my overall question is is this actually sustainable?" Rogers said she was concerned that rising health costs could impair the division's ability to retain employees and preserve student services and urged staff to evaluate alternatives to the district's self‑insured model.

Presenters explained tradeoffs between self‑insurance and fully insured arrangements: self‑funding can reduce long‑term premium charges and state premium taxes but requires the district to absorb year‑to‑year volatility; fully insured plans shift risk to a carrier but typically include a risk premium and may increase ongoing costs. Staff told trustees they are working with the consolidated budget/benefits offices to study options and initiatives aimed at improving population health and affordability, including outreach and wellness efforts to reduce utilization over time.

Trustees also asked about a previously discussed $5.8 million reversion that had been shown in earlier exhibits; staff said they removed that line item from the current exhibits after learning the funds remain in a city reserve account and the city has not yet released them for the district's health fund. "At this time those required qualifications are not present and so we do not expect the city to release that," staff told the board.

The board indicated it wants more analysis. Staff said they will bring refined exhibits back under administrative matters and continue to work on alternatives to help contain costs and preserve benefits while maintaining competitiveness for staff recruitment and retention.