Rising Healthcare Costs Affect Nearly Every District
Nearly all district leaders surveyed (98%) said rising healthcare costs are having a measurable impact on their budgets. For the 2025-26 school year, 92% of district respondents said employee insurance benefits consumed up to 30% of their district’s operating budget, i.e., their general fund.
When asked to examine how much health insurance premiums have increased for their school district over the last two fiscal years (2023-24 vs. 2025-26):
School superintendents and business leaders identified several major drivers behind the rising premiums, including rising prescription drug costs (60%), expensive treatment claims (56%), and an increasing utilization of high-cost specialty medications (56%). Other reasons cited included a higher utilization of medical services (52%), rising health provider fees (44%), higher projected trend costs from actuaries (25%), an increasing utilization of mental health services (16%), reinsurance or stop-loss insurance premium increases (16%), a lack of insurance providers (11%) and less favorable provider terms and network discounts (11%).
As healthcare expenditures consume a growing share of budgets, district leaders aren’t only being forced to reassess employee health benefits packages; they are increasingly having to make very difficult decisions about K-12 staffing, student services, and other educational investments.
One in five district leaders (20%) said that rising healthcare costs were causing significant structural deficits.
Districts Struggle to Manage Rising Costs
The adverse impact of rising healthcare costs on school finance and operations cannot be understated. When asked to share the severity of budgetary pressure their school district was experiencing, only 2% of respondents said there was no measurable impact, and 12% said the costs were still manageable. However, nearly half (47%) said that rising healthcare costs required reallocation of funds and resources, 15% said they were forced to cut district programs and services, and one in five district leaders (20%) said that rising healthcare costs were causing significant structural deficits.
The top five tradeoffs districts have had to make to navigate increasing healthcare costs include:
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Tapping reserves, fund balances, or “rainy day” funds to cover premium increases—52%
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Modifying benefits packages (e.g., increasing deductibles, co-pays, employee premium contributions, etc.)—46%
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Delaying hiring staff—34%
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Reducing spending on instructional materials or technology (or delaying updates and adoption cycles)—31%
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Offering less generous health coverage/insurance policies for employees and their families—28%.
Throughout the report, testimonials from superintendents and school business officials highlight why these growing financial pressures cannot be ignored. Tapping reserves to cover rising healthcare costs is forcing districts to forgo opportunities to invest in facilities, address deferred maintenance, and improve safety. Higher healthcare premiums are causing districts to redesign benefits and shift more costs onto employees. Many districts must provide less generous raises, delay step increases, and forgo hiring additional teachers and service providers. Some of the significant opportunity costs highlighted by district leaders included not being able to invest more in early learning, instructional technology, STEM curricula, and other staff and student needs. Several district leaders describe how unsustainable increasing healthcare obligations are, with insurance costs approaching or even exceeding salaries for certain positions, forcing difficult decisions to scale back family health coverage. Meanwhile, districts with no other option are being forced to raise local taxes to offset rising costs.
As healthcare costs continue to increase, school districts require strong, sustainable, and predictable funding at all levels to navigate these challenges. The report offers several recommendations to support schools, including greater federal investments in Title I and IDEA to alleviate fiscal pressures associated with unfunded mandates, strengthening health insurance risk-sharing systems, modernizing state school funding formulas to reflect the real costs of operating schools, and reviewing state and local revenue and reserve policies to ensure districts can effectively respond to rapidly rising costs.
For district leaders, every budget cycle requires balancing rising healthcare obligations against competing educational priorities. Superintendents and school business professionals must continue to identify efficiencies, generate alternative revenues, evaluate benefits and compensation strategies, and find innovative ways to continue delivering valuable student programs and services without undermining district financial stability. At the same time, policymakers must ensure school systems have the resources and flexibility needed to keep pace with rising operational costs. When resources are limited, every dollar spent on escalating healthcare expenses is a dollar unavailable for staffing, instruction, and student supports. Students, families, and communities depend on district leaders and policymakers to ensure rising healthcare costs do not come at the expense of educational opportunities.