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What School Districts and City Governments Are Doing Differently in 2026 to Cut Health Costs

Picture of Elite Corporate Medical Services Elite Corporate Medical Services : Dec 23, 2025 1:27:37 PM

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Public sector employers like school districts and city governments have long struggled to provide robust health benefits on limited budgets. In 2026, amid rising medical costs and tight funding, many are responding with concrete innovation instead of simply shifting costs to employees.

Across the country, districts and municipalities are using new healthcare delivery models, smarter purchasing, and aggressive prevention strategies to rein in expenses while maintaining—or even improving—the quality of care. If you are a public sector leader or any employer looking for sustainable cost-saving ideas, the playbook emerging in 2026 offers practical lessons you can adapt.

1. Establishing On-Site and Near-Site Health Clinics for Employees

One of the clearest trends in 2026 is the expansion of on-site and near-site health clinics dedicated to public employees and often their families. Instead of relying solely on community provider networks, school districts and city governments are bringing primary care and key services closer to their workforce.

Several city governments have opened employee health centers in just the past few years. In Richmond, Virginia, for example, the city launched “Family Health Center” clinics for workers and dependents, offering primary care, mental health services, and an on-site pharmacy as part of a broader employer-sponsored clinic strategy described by ICMA’s PM Magazine article on employer-sponsored health clinics. The goal: provide accessible, high-quality care in convenient locations while reducing overall health costs for both the city and its employees.

Smaller municipalities are teaming up to share clinics. In California’s Central Valley, the City of Hanford and Hanford Joint Union High School District partnered on a joint employee clinic in 2025. The shared clinic offers acute care, preventive services, chronic disease management, and wellness coaching, all with no copays for eligible employees and their families. By pooling their populations, the city and district achieved the scale required to sustain a dedicated clinic.

These clinics deliver cost savings in several ways:

Reduced external claims. When employees use the clinic instead of an emergency room or outside specialist for appropriate issues, the employer avoids high facility and professional fees.
Earlier intervention. Clinics emphasize preventive care and chronic disease management, catching problems before they escalate into expensive complications.
Lower pharmacy spend. Many clinics dispense common generics on site—sometimes free—reducing reliance on higher-cost retail and specialty pharmacies.

Employees benefit from convenience and more personalized care, which translates into healthier, more productive staff. Orange County Public Schools (OCPS) in Florida partnered with an advanced primary care provider to give employees access to dedicated local clinics. As detailed in Employee Benefit News’ coverage of OCPS’s clinic strategy, the district eliminated deductibles and copays for preventive procedures like mammograms and colonoscopies at those clinics, recognizing that early detection is both life-saving and cost-saving.

The results were striking: OCPS saw fewer high-cost claims from late-stage cancers, lower overall spending, and higher employee satisfaction with benefits. This mirrors broader employer trends identified by Business Group on Health’s report on on-site and near-site clinics, which shows clinics becoming hubs for wellness and chronic care, not just urgent visits.

By 2026, what used to be a novel idea—a school district or city running its own health clinic—is becoming increasingly common. Public employers essentially act as their own managed care providers, ensuring care is delivered in the right place, at the right time, and at a predictable, budgeted cost.

2. Joining Forces Through Pooling and Cooperative Purchasing

A second major strategy is collaboration. Rather than negotiating alone with powerful insurers and hospital systems, public sector employers are banding together to increase their purchasing power and reduce health costs.

One approach is allowing local government and school employees to join state employee health plans. According to the National Conference of State Legislatures (NCSL) brief on strategies for containing costs in state employee health plans, as of 2023 at least 24 states allowed city or county workers to enroll in the state plan, and 27 states allowed public school employees in as well. By joining a larger risk pool, smaller districts and cities can access the same economies of scale and negotiated discounts that states enjoy.

California’s state health plan (CalPERS) is a notable example: after enabling local agencies to buy into its coverage, CalPERS reported saving roughly $40 million per year, underscoring the power of aggregated purchasing. NCSL Similarly, Idaho created a fund to help school districts join the state plan with the explicit goal of lowering their insurance costs through larger-scale purchasing.

Cooperative purchasing is extending beyond medical plans to pharmacy and other services:

Regional consortiums. Alliances of school districts jointly bid for third-party administrators, telehealth networks, or wellness vendors, using volume to secure better per-employee pricing.
State prescription drug pools. Some states have opened their prescription drug purchasing pools to municipalities and schools. Connecticut, for example, allowed municipalities to use the state’s employee pharmacy contracts, which helped generate about $3 million in savings shortly after implementation. NCSL

Many public plans are also exploring reference-based pricing. Montana’s state employee health plan, for instance, tied reimbursements for hospital services to a percentage of Medicare rates—roughly 220%–225% for inpatient and 230%–250% for outpatient care. An actuarial analysis cited in the NCSL brief found that this approach saved Montana’s plan $47.8 million between 2017 and 2019. NCSL

Oregon implemented a similar reference-based approach, capping in-network hospital payments at 200% of Medicare and out-of-network at 185%, yielding $81 million in savings over one plan year. NCSL Building on such efforts, a study from the Brown University School of Public Health estimated that capping hospital payments at 200% of Medicare for all state employee health plans nationally could have saved $7.1 billion in 2022 alone, without significantly harming hospital operating margins. Brown University, “Hospital Payment Caps Could Save Millions for State Employee Health Plans”

For city governments and school districts, reference-based pricing usually requires either state-level policy changes or participation in coalitions that adopt these models. But even where formal caps are not yet feasible, many local employers are pressing for more transparent, value-based contracting that benchmarks hospital prices against Medicare or regional norms.

The bottom line: by joining larger pools, co-negotiating contracts, and using reference prices where possible, public employers are escaping the weak bargaining position that comes with going it alone—and realizing significant savings per employee.

3. Investing in Preventive Health and Incentive Programs to Avert Costs

Negotiating better prices is only half the battle. In 2026, public employers are also focusing heavily on reducing the need for expensive care in the first place, using prevention, wellness, and incentives as core cost-containment tools.

Removing Financial Barriers to Preventive Care

Many school districts and city governments are redesigning benefits so that cost never deters employees from receiving preventive services. Orange County Public Schools’ clinic partnership is a prime example: as reported by Employee Benefit News, OCPS eliminated deductibles and copays for key screenings like mammograms and colonoscopies at its dedicated clinics. The district recognized that skipping screenings to save money often leads to late-stage diagnoses that are far more costly—financially and clinically—than early detection.

Similarly, many city health plans go beyond Affordable Care Act minimums to cover additional preventive services at 100%, such as expanded lab panels, heart health screenings, or extra behavioral health visits. The philosophy is straightforward: spend modestly now to avoid major claims later.

Wellness Incentives and Chronic Condition Programs

Public employers are also rolling out structured wellness incentives that reward employees for healthy behaviors and engagement. Common elements include:

Cash, gift cards, or benefit credits for completing health risk assessments and annual physicals.
Premium discounts for participating in disease management programs or maintaining certain biometric targets.
Points-based programs that recognize participation in fitness challenges, stress management workshops, or nutrition coaching.

These programs may cost relatively little but can prevent major health events if they help even a subset of employees better control blood pressure, blood sugar, or weight. There is also a cultural payoff: employees see tangible evidence that their employer cares about their well-being, which supports morale and retention. That matters, as surveys cited in Employee Benefit News have found that nearly half of employees would consider leaving a job over poor or confusing benefits.

Leveraging Telehealth and Digital Health Tools

Telehealth has become a core preventive and cost-avoidance tool in many public sector plans. Nearly all major city and district plans now include robust telehealth options at low or no cost, encouraging employees to seek care for minor issues and mental health needs before they require higher-acuity visits.

For rural school districts or geographically spread-out city agencies, telehealth can be the difference between getting timely care and going without. Some plans supplement virtual visits with subsidized digital tools for chronic conditions—like diabetes management apps, remote blood pressure monitoring, or virtual musculoskeletal therapy programs—to keep high-risk patients stable and out of the hospital.

Targeting High-Cost Conditions and Engaging Employees as Consumers

School districts and city governments are also zeroing in on cost drivers such as diabetes, obesity, and musculoskeletal disorders. Many now offer diabetes prevention programs (DPPs), targeted back and joint pain clinics, and on-site fitness or mental health resources, sometimes delivered through the same on-site or near-site clinics discussed earlier.

In parallel, employers are educating staff to be smarter healthcare consumers. Using price transparency tools, “know your benefits” campaigns, and aligned incentives, they encourage employees to choose high-value providers and sites of care. For example, a city might waive cost sharing if an employee selects a designated high-value surgery center for a knee replacement, knowing the procedure may cost half as much as at a local hospital. Employees save money up front; the plan saves money on the claim.

Early evidence suggests this prevention-focused strategy is paying off. Some public employers report lower year-over-year increases in health costs after implementing aggressive wellness and prevention initiatives compared to national trends. For context, the KFF 2025 Employer Health Benefits Survey found that average family premiums for employer-sponsored coverage reached $26,993 in 2025, up 6% from 2024. Public employers that keep their cost trend below that benchmark through prevention and smarter utilization are effectively bending their own cost curve.

Balancing Cost Savings with Quality Care

School districts and city governments are demonstrating that it is possible to trim health costs without simply shifting the burden to employees or cutting benefits. Instead of relying on higher premiums and deductibles, they are changing how care is delivered, purchased, and used.

On-site and near-site clinics bring high-value primary care closer to employees and reduce unnecessary claims. Pooling and cooperative purchasing leverage collective strength to negotiate better medical and pharmacy deals. Preventive health investments, wellness incentives, and value-based plan designs tackle the root causes of high expenditures.

The result is a better balance between fiscal responsibility and quality of care. Teachers, city workers, firefighters, and other public servants gain improved access and more personalized support, while budgets benefit from flatter cost trends and fewer catastrophic claims. Private sector employers are increasingly watching these public innovations and adapting similar approaches to their own populations.

If your organization is grappling with rising healthcare costs in 2026, the message from the public sector is clear: doing things differently can pay off. Whether through joining a cooperative, contracting directly for advanced primary care, or investing in smarter prevention, you are not limited to the old playbook of cost-shifting. A value-based, proactive approach can make your employees—and your balance sheet—healthier at the same time.

Explore how your district or city can implement cost-saving health solutions—schedule a free strategy session with our experts.