The Teacher Retirement System of Texas (TRS) finalized its sustainability study of the TRS-Care retiree health insurance program last week. Earlier this year, the Texas Retired Teachers Association (TRTA) reviewed the possible options as the study progressed and received feedback from thousands of our members.
TRS-Care is facing a funding shortfall of nearly $750 million, as you have read many times over the past year and a half. When we first heard about this crisis, the shortfall was projected to be closer to $1 billion. While it is good news that the shortfall is not as high as originally expected, $750 million is still a considerable financial gap that must be overcome if our public education retirees are to have access to affordable healthcare.
YOUR PREMIUMS COULD DOUBLE if the Legislature does nothing in 2015 to address this issue. TRS ably reduced the shortfall by introducing the Medicare Advantage program nearly two years ago. That program currently has a 70 percent participation rate, resulting in a savings of about $300 million by August 31, 2015. The Medicare Part D prescription drug plan, which is at 80 percent participation, will save TRS-Care $162 million by August 31, 2015.
TRS has exhausted its options for extending the life of TRS-Care, and the Legislature must make some funding decisions in 2015. TRTA is ready and willing to work with all legislators to devise a long-term solution that provides retirees with access to a quality health care program at an affordable cost.
TRTA believes the Legislature effectively managed their role in pension fund decisions last session, but has woefully underfunded the TRS-Care program for more than a decade. TRTA will not support any legislation that puts the burden of the financial shortfall solely on the backs of retirees!
The final sustainability study conducted by TRS presents seven options that may be considered by the Texas Legislature in 2015. Some of the options presented work as stand-alone solutions, while others would be combined to achieve program savings.
- Pre-fund the long-term liability
- Fund on a pay-as-you-go basis
- Fund for a 10-year solvency
- Retiree pays full cost for optional coverage
- Require purchase of Medicare Part B; mandatory participation in Medicare Advantage and Medicare Part D plans
- Fixed contribution
- Consumer driven plan for the non-Medicare population
While these options are all on the table and are likely the basis for developing a short and long-term solution for TRS-Care, no one can say that any of these proposals will represent the final word on legislative action for the program.
We MUST stay vigilant and active in the coming session. TRTA’s success will be based largely on our growing membership’s involvement. Please know that we need your help, active involvement, and membership to resolve this issue. We will never give up on working for our retirees and pre-retirees and their health care and pension benefits!
Option 1: Pre-fund the long-term liability
Option 1 is very similar to how the pension trust fund is funded and managed, in that investment income pays a substantial portion of the benefits. For example, the pension fund receives a contribution from the state of 6.8 percent of active teacher payroll. The annual required contribution (ARC) to fund TRS-Care in advance would need to be 5.86 percent. Bear in mind that the current state contribution to TRS-Care is only 1 percent.
TRS-Care also receives contributions from the school districts and active employees, which combined with the state’s equals 2.2 percent. To advance fund TRS-Care, these rates would need to increase by 2.7 times. This equals $1.061 billion per year or $2.122 billion for the biennium.
While this would extend the life of TRS-Care indefinitely, the cost associated with doing so is very high. This does not preclude increases in retiree premiums, which would likely increase each year to keep up with medical and pharmacy cost trends.
Option 2: Fund on a pay-as-you-go basis
This short-term solution is the current method for funding TRS-Care, a method TRTA considers broken and inefficient. The major flaw with this method is that it does not provide a long-term sustainability plan for TRS-Care. It could be handled in multiple ways.
2a. Increase only the state contribution (from 1 percent to 2.23 percent in 2016-17, and to 3.19 percent in 2018-19)
2b. Share the increase proportionally by the state, school districts and active employees (current rates are state 1 percent, active employees .65 percent and school districts .55 percent) with no change in premiums for retirees.
State Active Employee District
2016-17 1.56% 1.01% .86%
2018-19 1.99% 1.30% 1.10%
This option would impact active school employees who have experienced multiple increases in premiums over the years for their TRS-ActiveCare insurance program.
2c. Share the increase proportionally and include retiree premium increases
State Active Employee District Retiree Premiums Increase By
2016-17 1.35% 0.88% 0.74% 34.8%
2018-19 1.62% 1.05% 0.89% 20.2%
Bear in mind that premiums for a TRS-Care 3 participant with 25 years of service is $295 per month, meaning their premiums would increase to $398 per month in 2016 and to $478 per month in 2018.
2d. Reduce benefits along with a premium increase.
In this option the drug benefit for TRS-Care 2 and 3 Part D plans would be reduced to the TRS-ActiveCare 2 level. Premiums would increase to approximately $311 per month in 2016 and $376 per month in 2018. This scenario assumes that the contribution rate increases in 2c apply.
Option 3: Fund for a 10-year solvency
In Option 3, TRS would project expenditures for 10 years and adjust contributions accordingly.
3a. Increase only the 1 percent state contribution rate to 3.87 percent (no increase in active employee or school district contributions or retiree premiums).
3b. Share the increase proportionally by the state, active employees and school districts with no retiree premium increases.
State Active Employee District
Biennium 1.00% 0.65% .55%
2016-25 2.31% 1.50% 1.27%
3c. Share the increase proportionally and include retiree premium increases.
State Active Employee District Retiree Premiums Increase By
Biennium 1.00% 0.65% .55%
2016-25 2.01% 1.30% 1.10% 14.9%
In this option, premiums would increase 14.9 percent each biennium. For example, a TRS-Care 3 retiree with 25 years of service at a $295 per month premium rate would increase to $339 per month in 2016 and to $592 per month by 2024.
Option 4: Retiree pays full cost for optional coverage
TRS-Care 1, catastrophic coverage, is required by law to be offered at no premium cost to the retiree. In this option, the full cost of TRS-Care 2 or 3 would be the responsibility of the retiree (presently it is subsidized). Premiums would increase substantially as well.
For example, a retiree on TRS-Care 3 with 25 years of service who has a premium of $295 would have a premium of $616 per month for FY 2016. For a TRS-Care retiree and spouse who are both non-Medicare, a $635 per month premium would increase to $1811 per month for FY 2016. Increases would be required each year to keep up with cost trends.
Option 5: Require purchase of Medicare Part B; mandatory participation in Medicare Advantage and Medicare Part D plans
TRS currently does not require that Medicare-eligible participants purchase Part B. The standard Part B premium is $104.90 per month for 2014. TRS-Care participants must have both Medicare Part A and B to participate in the Medicare Advantage program.
In this option, all retirees with a retirement date of September 1, 2015 or after and their dependents would be required to purchase Part B when they are first eligible. Retirees who do not purchase Medicare Part B would be enrolled in TRS-Care 1 (retirees who retired prior to September 1, 2015 would be grandfathered).
This option includes mandatory participation in Medicare Advantage and Medicare Part D for all eligible TRS-Care participants. The incentives currently offered to enroll in these plans would be removed. Those who opt out would be moved to TRS-Care 1.
Several of our members have informed us that their doctors are not accepting this Medicare Advantage program. While 90 percent% of providers in Texas accept the plan, there are isolated areas in Texas where it is not. Because of this issue, TRS would establish an appeal process where participants could opt out and be covered under a TRS-Care standard plan.
Option 6: Fixed contribution
A Health Reimbursement Account (HRA) would be created for current non-Medicare TRS-Care 2 and 3 retirees. New non-Medicare retirees would have the option of choosing the HRA or TRS-Care 1. TRS would deposit a monthly stipend, and the retiree would obtain coverage in the federal exchange. At age 65, these retirees would have an open enrollment opportunity for TRS-Care Medicare Advantage and Part D plans.
One example of the monthly stipend amount is $502 for a TRS-Care retiree with 25 years of service and is not Medicare-eligible. Please note that this option does not contemplate a contribution to the HRA for a dependent. Low-income retirees might be eligible for a subsidy through the federal government but would have to forfeit the HRA.
Option 7: Consumer driven plan for the non-Medicare population
This option eliminates TRS-Care 2 and 3 for the non-Medicare population. The general idea is that patients are referred to managed care procedures inside a contracted network of providers. Steerage programs aim to motivate participants and their dependents to choose better health care providers. The challenge for employers and other payers is finding the right mix of health care services, communication and rewards to shift patients to health care providers that deliver higher value.
This option introduces preferred networks. Enrollees in certain urban areas would be required to participate in an Accountable Care Organization (ACO). These organizations share in the risk of cost and must meet quality of care metrics.
Those retirees residing in non-urban areas would have access to a broader network, but the plan design would include a tiered network with copay differentials that would steer them to providers with performance based contracts.
This option assumes reference based pricing, which refers to the reimbursement of a fixed amount for certain medical services. Examples of such services include CT scanning, MRI, cataract removal, and colonoscopy procedures.
Under this option, retiree premiums are set to be equal to the current contributions for TRS-Care 3 enrollees with 30+ years of service, $280 per month per non-Medicare retiree.
The chart below summarizes how each option impacts all stakeholders who are impacted by the options in the TRS-Care sustainability study.
In previous versions of the study, other options, such as combining TRS-Care and TRSActive-Care were considered. Those options have since been eliminated.
Time for Action!
We are now a little over a month away from the beginning of the 84th Legislative Session. We want to help you magnify your voice! TRTA is in the final stages of producing the fourth quarter issue of The VOICE. We are preparing a special section for you to take action. It includes vital facts about the TRS-Care program, and also provides a section for you to write a message to your legislators. Expect to receive your issue in mid-December!
We will hand-deliver these personal messages to every legislator in Austin! If our members use the special section, it will create a tidal wave of powerful messages to legislators as they start the 84th Legislative Session.
TRTA is ready to work every minute of every hour of every day of every month of this legislative session for you!
Help us make the most of the coming opportunities by preparing your fellow TRTA members and your legislators for the days of work, opportunity and victory on our vital legislative agenda!
Thank you for being a member of TRTA! It is your steadfast support that allows us to be the state’s lead advocate for protecting your retirement and health care benefits. If you are not a member of TRTA and want more information about joining, please contact us at 1.800.880.1650. Follow us on Facebook! Visit our YouTube channel for regular video updates.