Hoover Daily Report

Special Education Insurance for Schools of Choice

Monday, May 19, 2003

Laws on the education of handicapped students are a major challenge for charter schools. Schools that remain connected to school districts must pay hundreds of dollars per student to support the central office special education unit. Schools that maintain no connection to school districts must pay for whatever services their handicapped students need, including placement in residential facilities costing as much as $50,000 per pupil.

This sets up a dilemma: To avoid the financial ruin that could result if a seriously handicapped child were to enroll, many charters stay close to the very districts whose control they hoped to escape. Further, charters that rely on school districts often get far less than they pay for. Because charter schools hope to avoid labeling children as handicapped, they work hard to solve students' learning problems early. Charters therefore pay a lot for district schools that are careless with the "handicapped" label.

Schools in a voucher system could face the same dilemma. As long as public funding brings an absolute obligation to provide special education services, schools must either affiliate with districts or take huge risks.

Some charter schools are forming special education risk pools, which are good until one school's unexpected costs create havoc with many schools' budgets.

A better solution would be insurance for special education costs. Schools could buy insurance coverage from commercial underwriters, including deductibles for small extra costs and "catastrophic coverage" for the rare instance when a student requires residential placement. A mature insurance program could be loss rated, so that schools with excellent track records of solving children's problems without applying the "handicapped" label would pay less than schools that use the label carelessly.

A special education insurance program would be good for schools and for children. Schools would know in advance what special education would cost each year-no awful surprises. Students would also benefit from schools' efforts to solve learning problems before they became overwhelming. Children who truly need special services would also benefit because the funding would be guaranteed by insurance.

No insurance underwriter has offered such insurance, for two reasons: First, school districts have covered their own costs, largely by robbing other general education accounts to pay for their burgeoning special education offices. Within districts, the managers of special education have had no incentive to control costs, and superintendents are afraid to cross the groups that represent handicapped children. Second, information about individual schools' expenditures has been hidden in district budgets that record costs by function, not by school.

An insurance industry could emerge rapidly, however, if philanthropies offered to support start-up insurance funds and pay excess losses for small pilot projects. Charter and voucher-funded schools could buy insurance for a few hundred dollars per pupil and have their costs adjusted annually on the basis of experience.

This small innovation, which relies more on business entrepreneurship than on policy activism, could make a huge difference in the numbers of groups willing to start schools of choice and in the financial survival of new schools.