Today, the Texas Retired Teachers Association (TRTA) continues its discussion about the Teacher Retirement System of Texas (TRS) sustainability study of the retiree health insurance program TRS-Care.
In our first Inside Line article about the TRS-Care study, we reviewed Option 1: Pre-funding the long-term liability. We also discussed Option 2: Funding on a pay-as-you-go basis for the biennium. Option 3 covered funding for 10-year solvency. We reviewed Option 4: Retirees pay full cost for optional coverage and Option 5: Mandatory participation in the Medicare Advantage and Medicare Part D plans.
Today, we will review Option 6: Defined contribution—Establish a Health Reimbursement Account (HRA) for non-Medicare Retirees.
Some Very Uncertain Ground
TRTA wants to provide the most accurate information available to our members. We believe you need to have the most comprehensive review of the various options being considered by the Teacher Retirement System (TRS) for resolving the TRS-Care crisis.
It is with this in mind that we want you to know there are many unanswered questions about Option 6. While we will do our best to present the information we have heard in public meetings or have researched through our various partnerships, we admit that Option 6 seems riddled with flaws.
The primary and fatal flaw of TRS-Care Option 6 is the elimination of TRS-Care as we know it today. This means that TRS-Care 1, 2, and 3 for pre-65 retirees (or those who are not age-eligible for Medicare) would be completely eliminated. In its place would be either the federal public exchange that was created by the Affordable Care Act, or a new private exchange created by TRS from which pre-65 retirees could then purchase coverage. As of this writing, we have no idea what a potential TRS-Care private exchange could provide as benefit coverage or may cost in monthly premiums.
Further, Option 6 may allow TRS retirees who qualify for both Medicare Part A (hospitalization) and Part B (physician care) to participate in the Medicare Advantage and Medicare Part D plans. We do not know what the premiums for these plans would be. All we know is that under proposed Option 6, TRS may continue its Medicare Advantage and Medicare D plans.
Option 6 and the HRA Discussion: What is a Health Reimbursement Account (HRA)?
HRA plans are employer-funded medical reimbursement plans. The employer sets aside a specific amount of pre-tax dollars for employees to pay for health care expenses on an annual basis.
The primary requirements for an HRA are that (1) the plan must be funded solely by the employer and cannot be funded by salary reduction, and (2) the plan may provide benefits for substantiated medical expenses only. All employer contributions to the plan are 100% tax deductible to the employer, and tax-free to the employee.
HRAs are most commonly offered in conjunction with a high deductible health plan; however, in this TRS-Care Option 6 scenario, retirees would use the money provided by the HRA to shop for their own coverage.
TRTA understands that TRS-Care Option 6 is introducing the HRA concept as a way for the Legislature to appropriate some dollars towards the cost of retiree care so that premiums may be more affordable for the pre-65 population. This concept, however, may have significant hurdles.
Retirees may not be eligible to have HRAs once they are no longer employed. Typically, HRA accounts are used in employer/employee partnerships so the employee can use those tax-sheltered dollars to pay for health care costs. Since TRS-Care participants are retired and no longer “employed,” we are not sure how or even if these type of accounts can be created for TRS retirees.
TRS may be considering a special class of HRA, such as a Retiree HRA (RHRA), but it was not immediately clear how TRS would implement this option. This option would require legal research and could require legislation to authorize TRS to administer an HRA.
Depending on how, or even if, the HRA may be established under this option, the IRS may see any contribution to a retiree for purchasing insurance as additional income and want to tax those dollars.
What About TRS Retirees with Lower Incomes and Federal Subsidies Linked to ACA?
TRS is taking into consideration that there are many TRS retirees who may meet federal guidelines and qualify for subsidies towards health care under the Affordable Care Act (ACA). Depending on how Option 6 may be implemented by the Legislature, those retirees eligible for subsidies may decide to refuse the HRA funds and participate in the federal ACA with subsidy arrangement.
As you will notice in the explanation below, some of this information will speak about retirees with lower incomes forfeiting this benefit to qualify for federal subsidies if they go to the exchange to purchase coverage. Again, TRTA is very uneasy about these discussions without more information on the details of how Option 6 would actually be implemented. Like so many other aspects of this proposed Option 6, TRTA is left with speculating on how this part of the plan may actually work.
A chart available at this link provides more insight into what income qualifications are necessary to be eligible for subsidized coverage through ACA. The column on the left of the chart tells you if you may qualify for health care tax credits, lower out-of-pocket costs, or low-cost health care through Medicaid.
Option 6 Does Not Seem Favorable to TRS-Care Participants
The TRS-Care crisis is real and must be addressed. TRS is doing what they must in order to provide information to the Legislature and to all interested parties to work out solutions for TRS-Carfe. They are providing information about as many scenarios as possible to address the crisis. Unfortunately, these scenarios are not easy to hear about and digest.
Still, TRTA will not run from any challenge! We are confronting this crisis head-on. TRTA is not in favor of Option 6, and we will do what must be done to ensure that all TRS retirees have access to affordable and quality health care coverage.
What you may want to take away from this update about Option 6 is that the Legislature may choose to eliminate TRS-Care coverage as we know it today and force TRS to manage a Medicare Advantage only option for post-65 retirees who qualify for Medicare Parts A and B. Options for legislative appropriations to HRA accounts is speculative and may disadvantage some low-income retirees who qualify for subsidies through the ACA and the federal exchange.
Perhaps the most significant takeaway is that TRTA views Option 6 as the invalidation of a promise made, a promise kept. Option 6 would have serious repercussions on the financial security of our retirees who, as active school employees, made significant contributions to TRS-Care hoping to have equal access in their retirement years. Now, those active employees are retiring into a funding crisis that could jeopardize their ability to pay for basic costs due to a drastically different health insurance reality.
The TRS Retiree Advisory Committee (RAC) expressed their own concerns about Option 6 and had several questions about how the option would function. Some of those questions included who would be considered the employer in this option: the state of Texas, the school districts or both? The committee also inquired about an estimated amount that would be set aside for each HRA.
At this time, TRS is still studying these areas of option 6 and we do not have a definitive answer for you. However, as the study continues and we receive more information, we will report on Option 6 again. In the meantime, please let us know your thoughts and your questions about Option 6 so that we may provide feedback to TRS.
The TRS-Care Study is Ongoing
As a reminder, the information we are sharing in this special TRTA series on TRS options for sustaining our retiree health care program are part of a study. These options are NOT part of any absolute plan that is being implemented.
Could these options be implemented? Yes. Will TRS make these decisions? Not likely. Will this TRS study guide a conversation on how to deal with these important issues? Yes. Will the Legislature be involved in this TRS-Care crisis before any option or plan is implemented? Yes!
Does TRTA and its membership have an opportunity to lead on this issue and make the outcome better? Absolutely!!!
Ask yourself this one question and feel free to pose it to any other TRS retiree or future retiree you may know: Will the Legislature’s response be more favorable or less favorable to the TRS-Care crisis if we are not organized and TRTA does not play a part? We know the answer is that TRTA members MAKE A DIFFERENCE!
Thank you for being a member of TRTA. If you are not a member and would like to join, please contact our Membership Department at 1.800.880.1650.
Please continue reading the Inside Line as we provide detailed updates about the remaining three options being studied by TRS to improve and sustain the TRS-Care health insurance program. Our next update is about Option 7: Modify eligibility for TRS-Care 3 standard plan.
Share these articles with every retiree you know, as well as with active school personnel! Your input is important. Your membership and support are crucial. Thank you for all your help and support.
Contact us at email@example.com with your questions, thoughts, or concerns.