Today, February 20, 2017, the House Appropriations Subcommittee on Article III listened to invited testimony from multiple state agencies, including the Teacher Retirement System of Texas (TRS), as well as public testimony.
The House budget bill will include funding for the TRS-Care retiree health insurance program. The Appropriations Subcommittee on Article III is responsible for education issues in the House budget.
The Appropriations Subcommittee on Article III members are: Rep. Trent Ashby, Chair; Rep. Helen Giddings, Vice-Chair; Rep. Mary E. González; Rep. Donna Howard; Rep. Linda Koop; Rep. John Raney; and Rep. Gary VanDeaver.
Trevor Simmons of the Legislative Budget Board (LBB) testified about TRS’s legislative appropriations request (LAR), and indicated that House Bill 1 (the budget bill) includes $4.8 billion for the TRS pension fund and health care programs for the coming biennium.
Simmons said the budget changes from the previous biennium are due to payroll growth. As our members know, contributions to the pension fund and TRS-Care from the state, school districts, and active employees are based on a percentage of payroll.
Simmons said TRS’s 7.3 percent rate of return in 2016, though less than the projected return of 8 percent, was higher than most other retirement systems for the year. He said the pension fund is in good shape and is moving in right direction.
For TRS-Care, HB 1 includes a total of $650 million for FY 2018-19, which is the projected amount based on the statutory contribution of 1 percent of payroll. HB 1 also deletes Rider 15, which in previous sessions has included legislative intent not to increase retiree premiums.
In TRS’s LAR presented in August, the agency requested $1.35 billion in exceptional funding for the TRS-Care shortfall. The most recently updated estimate is now $1.05 billion. This amount will continue to be updated throughout session.
LBB also presented a possible funding scenario, whereby the state would cover 50 percent, retirees would cover 25 percent, and school districts and active employees would cover 12.5 percent each. The state’s contribution would include $673 million additional dollars for the 2018-19 biennium, equivalent to 2 percent of active payroll.
HB 1 includes a new rider (18) that would provide for shared financial responsibility of the TRS-Care shortfall for 2018-19 (such as what is seen in scenario above).
Brian Guthrie, Executive Director of TRS, said the major focus on TRS’s budget requests for the biennium pertains to TRS-Care. For the third session in a row, TRS-Care shortfalls have been an issue.
Guthrie stated that TRS-Care is in distress, and the agency has done everything it can to forestall insolvency without help from the Legislature or major program changes.
Chair Ashby, who also served on the joint committee to study TRS-Care during the interim between legislative sessions, referenced the joint committee report and encouraged his committee members to read it. He also asked Guthrie about the worst case scenario, pondering what happens to TRS-Care if the Legislature does not add any additional money or make any program changes this session.
Guthrie said the program is unsustainable without additional funding or legislative changes, saying this is due primarily to the funding mechanism, which is based upon metric not associated with rising cost of health care. Though active member payroll is growing, it is not increasing at the same rate as medical inflation. Health care costs will continue to increase, widening the gap between program revenues and costs.
Guthrie also said the Legislature’s decision to remove the rider would allow the TRS board to increase retiree premiums, but reminded committee members that TRS-Care 1 is a free option. Large premium hikes in Care 2 and 3 could result in a migration to the free option. This would create a “death spiral” for the program as a whole: as premiums become unaffordable, members will gravitate to free option which would no longer be supplemented by revenues from Care 2 and 3. The program would quickly run out of money and be forced to close.
Chair Ashby also asked about the Medicare Advantage plan. Ashby said his constituents say many doctors in his district don’t accept Medicare Advantage. Guthrie said TRS is working with providers to educate them about the program, but there are still holdouts. He also said that as long as a physician accepts Medicare, retirees would still have access to coverage and service through TRS-Care Medicare Advantage.
Tim Lee, TRTA’s Executive Director, provided testimony on TRS-Care. He expressed the gratitude that retirees had for the state’s $768 million contribution last session, and he said retirees want “to do all that we can” to help legislators.
“We are fighting the rising cost of health care in this country,” Lee said. “These costs are so huge.”
TRTA believes that retirees can be a part of the solution with some consideration of benefit changes or premiums increases, but it is the rising costs of health care that are jeopardizing TRS-Care sustainability.
TRTA believes a shared-pain solution is the best approach for resolving the TRS-Care issue, and is more representative to how funding shortfalls have been resolved in the past.
Health care costs keep going up and without adding much needed funding to the TRS-Care program, retired teachers will be hit the hardest through massive premium increases and drastically cut health care benefits.
There are no sliver-bullets left for cost savings in TRS-Care. If retired school employees are going to have reasonable health care benefits at an affordable cost, more money is need for TRS-Care.
Chair Ashby said he looks forward to working with TRTA to develop a solution, and that he has appreciated working with TRTA in the past.
Stay tuned to The Inside Line for future updates from the House Appropriations Committee. Changes to TRS-Care funding will be coming hard and fast as the Legislature picks up steam. If you haven’t already, please use our legislator hotline (1-888-674-3788) to contact your Senator and Representative and inform them that TRS-Care is important to you. Our phone script can be found here. Looking for more ways to get involved? Use our TRS-Care page!
Thank You
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