Member Alert: This is our most important update! Please read and send to your friends, family, and fellow retirees! TRTA will NOT be able to succeed this session without your help and membership support!
Today, February 24, the Teacher Retirement System of Texas (TRS) presented a detailed accounting of the TRS-Care retiree health insurance program sustainability study to the House Appropriations Subcommittee on Article III. The study, which was mandated by the Texas Legislature in 2012, was updated for the coming biennium and completed in 2014 by TRS. You can read the study in its entirety here. In late 2014, TRTA conducted a comprehensive review of the study options, which you can read here.
The House Appropriations Committee’s responsibilities include determining the funding availability for bills passed by the Texas House. The Article III Subcommittee members are Chairman Trent Ashby, Vice Chairman Helen Giddings, and Representatives Donna Howard, Marisa Marquez, Dade Phelan, John Raney and Gary VanDeaver.
“TRS-Care is one of the biggest issues that we as a subcommittee face this session,” said Chairman Trent Ashby.
Chairman Ashby and the other committee members asked several hard-hitting questions as today’s meeting progressed and are taking the TRS-Care short-term and long-term solvency issues very seriously.
Brian Guthrie, the Executive Director of TRS, delved into the systemic flaws that have led to the TRS-Care shortfall.
“This is not an issue that is new for TRS. This is actually an issue that we have been looking at for some time,” Guthrie said.
The immediacy of the shortfall has turned the issue into a crisis, which could surpass $768 million and cause TRS-Care to become insolvent by January 2016.
“There are no easy solutions to this problem,” Guthrie said. “If you want to have a fix that is more than just a one-off solution, there are some difficult policy discussions involved with that.”
Guthrie provided details on the make-up of the TRS-Care tiers, mentioning that more than half of all TRS-Care participants utilize TRS-Care 3. 31% of TRS-Care participants are non-Medicare as they are younger than age 65, while another 8% are over age 65 but do not qualify for Medicare A.
The contribution structure was discussed, and Guthrie reminded committee members that the rates contributed by the state (1%), school districts (.55%) and active employees (.65%) are based on active teacher payroll. Guthrie stated the contributions are based upon a “metric not related to the cost of health care and providing that care.”
The medical expenditures of TRS-Care have out-paced the contributions. Other factors contributing factors include increasing pharmacy costs and more retirees participating in the program.
Even if the $768 million shortfall is paid for in full by the state now, because of the systemic funding issues with the program, TRS would return to the Legislature in two years asking for another large supplemental appropriation as high as $1.5 billion.
Today’s hearing was a more analytical view of the various options TRS has explored for resolving the funding shortfall. Unfortunately, TRS and TRS-Care participants already have picked all the “low-hanging fruit” to try and control the rising costs of the program. At this time, most of the options discussed by TRS involve increasing contributions (including retiree premiums), altering benefits or making eligibility changes.
To put a finer edge on it, these proposals may increase costs on retirees or active school employees or both.
Guthrie reviewed the sustainability study option by option. The first option considers different ways to pre-fund TRS-Care, similar to how the pension trust is funded. This is a substantially expensive option, and could result in a threefold increase from the state, actives, school districts and retirees. If only the state contribution of 1% increased, it would need to rise to at least 5%. Bear in mind that 1% of active teacher payroll equals nearly $600 million per biennium, meaning an additional $2.4 billion would be required from to state to fund this option. Pre-funding would require a commitment of at least 30 years from the state.
The second option details methods for pay-as-you-go, which is the current method of funding (a two-year fix). This includes everything from having only the state pay for it to spreading the cost among all stakeholders. For example, this option could raise retiree premiums 54% over the next four years. A retiree under age 65 with 25 years of school service could pay nearly $500 per month under this option.
The third option includes methods for maintaining 10 years of solvency for TRS-Care. Pursuing this option possibly would require an additional $8 billion from the state over the next 10 years. This option would also increase premiums to almost $600 per month by 2024 for retirees under age 65 with 25 years of service.
The next several options look at shifting costs (to the retiree or dependent) and changing behavior. Option 4, for example, would require the retiree to pay for the cost of insurance for anything above catastrophic coverage (TRS-Care 1). Premiums would increase in this scenario exorbitantly, to as high as $616 for an individual or nearly $1800 for a retiree and spouse. This potentially could deplete a retiree’s entire annuity!
TRS Option 5 focused on mandating Medicare Advantage and Medicare Part D plans for Medicare-eligible participants. Representative Phelan asked if there has been any pushback from doctors and other medical providers on accepting the TRS Medicare Advantage plan. Guthrie said yes, particularly in rural areas. There are pockets of the state where Medicare Advantage plans are not accepted. Members could appeal the mandatory participation in the program if providers do not accept Medicare Advantage plans in their area. Savings of $159 million could be achieved if this option were put into place.
TRS has done a great job developing a widely accepted and very benefit-rich Medicare Advantage option. It has been reported by TRTA members around the state, however, that considerably more work is necessary to expand Medicare Advantage acceptance by providers who may not want to accept our Aetna-based plan.
Unfortunately, some other large provider networks around the state may have their own agenda to be the TRS-Care Medicare Advantage provider. In addition, other providers say they do not accept ANY Medicare Advantage plans, BUT may be part of a network that HAS agreed to take the TRS-Care Medicare Advantage plan. Often, though, provider office personnel do not understand this arrangement and tell retirees our plan is not accepted. This confusion must be addressed by TRS, as the Legislature seriously may consider mandatory Medicare Advantage.
The next two options change the delivery of health care for the non-Medicare population. These options are generally not popular among retirees.
One is a health reimbursement account (HRA), meaning the retiree would receive a stipend and use the funds to purchase their own health insurance on the federal exchange or private market. The stipend would equal approximately $502 per month per retiree. Representative VanDeaver asked how retirees feel about this option, and Guthrie stated that it is not a popular one. This option is heavily dependent upon federal action on the Affordable Care Act (ACA). TRS-Care participants would be forced into the individual market and subjected to considerable cost uncertainties, reduced plan options, higher out-of-pocket costs, and even less member protection.
The final option is a consumer-directed health care plan, including disease management. These options are referred to as Accountable Care Organizations (ACOs) and generally are more applicable to the pre-65 population as a way to contain costs. An example is using the Austin Regional Clinic for all services, including primary care and specialists. This reduces choice for the member, forcing them into a specific network. This option is being tested in several areas of the state for TRS-Active Care, but results of effectiveness cannot be determined until it has been in place for a full year. This type of plan would be hard to create for rural areas.
To read TRTA’s full review of each option, please click here.
What Happens Now?
TRTA is working for you! We are pursuing this issue to protect your access to reasonable, affordable health care options. We are also fighting to improve the retirement security of all our members through other legislative initiatives. Your MEMBERSHIP is vital and is MAKING a BIG DIFFERENCE. We need you! We need ALL TRS retirees to join us and help solve these major legislative challenges.
TRS has made preliminary presentations to multiple committees in both the Texas Senate and House. Many committees must now enter decision-making phases. Tomorrow, the Appropriations Subcommittee on Article III will begin deliberating their decision document, and plans to make recommendations about TRS-Care and a variety of other issues by March 9, 2015.
TRTA is meeting with legislators at the Capitol on a daily basis, particularly committee members, to discuss the sustainability study options and how all potential scenarios would impact our retirees living on fixed incomes.
We will work hard to ensure that the cost of this shortfall does not fall squarely onto the backs of our public education retirees!
We know that many of our members are ready to start sending emails on this important topic. As the session rolls along, we will create more communication opportunities.
Thank You!
Please be sure to stay tuned into the Inside Line throughout the 84th Legislative Session, as we will be bringing you all the latest updates on our broad legislative agenda, including any bills concerning TRS-Care, the continued funding of the TRS pension trust fund, pension increases for all TRS retirees, and also congressional issues such as the WEP and GPO.
Thank you for your membership in the Texas Retired Teachers Association (TRTA). 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.
