Today, the Texas Retired Teachers Association (TRTA) continues its discussion about the Teacher Retirement System of Texas (TRS) sustainability study about the retiree health insurance program TRS-Care.
In our first Inside Line article about the TRS-Care study, we reviewed Option 1: Pre-fund the long-term liability. Today, we move on to Option 2: Fund on a pay-as-you-go basis for the biennium.
If Option 2 sounds familiar to you, that is because the current method for funding TRS-Care is the pay-as-you-go basis. However, because TRS-Care is facing a funding shortfall of approximately $1 billion, changes would need to be made to this methodology to pay for the shortfall itself and for the costs associated with the program for the next funding cycle.
Presently, TRS-Care is funded by several sources: retirees pay premiums and co-pays; the state makes a contribution equivalent to 1.0% of the active public education payroll (presently that amount is $285 million per year); the school districts contribute .55% of the active teacher payroll; active employees contribute .65%; and other contributions, such as federal dollars, are sometimes contributed to the program.
With Option 2, TRS has presented several possibilities for increasing the contribution amounts:
- Increasing the state contribution only;
- Increasing the state, school district and employee contributions proportionally;
- Increasing the state, school district, employee and retiree contributions proportionally; and
- Making the state contribution based on the number of covered retirees instead of the active teacher payroll.
As we mentioned in yesterday’s article, we are starting with a deficit: the $1 billion shortfall. If, for example, the contribution amounts did not change AT ALL from all sources, that deficit would continue to grow each biennium. With this information we can see that the shortfall would be $1 billion in the 2016-17 biennium, then would be $1.5 billion in the 2018-19 biennium. This deficit would only continue to grow at the current contribution rates.
This means that every legislative session, the Legislature would have to revisit the issue, as this option does not establish a long-term funding solution for the program. In this coming biennium (2016-17), they would have to pay for the deficit PLUS any expected costs for 2016 and 2017. Then the following session, they would have to pay for the next deficit (expected to be even higher) PLUS any expected costs for 2018 and 2019.
TRTA would be returning to the Legislature every session asking for more and more funding simply to keep the program functioning for another two years. This occurs because TRS-Care does not EARN any money (like the pension fund does), but only accrues expenses. Because there is no guarantee that the state would bear sole responsibility for increasing this funding every session (remember, there are school district, active employee and retiree contributions), it is possible that retiree premiums could continue to rise every session as well as taxpayer contributions.
Here are a few examples of how Option 2 could work:
Increasing the state contribution only:
- State increase from its current 1.0% (of payroll) to approximately 2.5%
Increasing the state, school district and employee contributions proportionally:
- State increase from 1.0% to 1.7% (an increase of .7%)
- School district increase from .55% to .9% (an increase of .35%)
- Active employee increase from .65% to 1.1% (an increase of .45%)
Increasing the state, school district, employee and retiree contributions proportionally:
- State increase to 1.43%
- School district increase to .89%
- Active employee increase to .93%
- Retiree premiums increase 85% (estimated) as of September 1, 2016
The above-mentioned figures would be for the 2016-17 biennium only, and would be recalculated for the following biennium to make up for the new shortfall and pay for the program’s costs for 2018-19.
Making the state contribution based on the number of covered retirees instead of the active teacher payroll:
This method of determining contributions merely changes calculated, but does not eliminate the need for those contributions. In other words, the shortfall still exists as do the projected costs. Instead of looking towards payroll to pay for the cost of the program, the state would look to the number of participants in the program.
For example, the state’s current 1.0% contribution is roughly equivalent to paying $106 per TRS-Care participant per month (the school district’s .55% is equivalent to $71 per month, the active employees .65% is equivalent to $80 per month). If we assume that all three will bear a proportional increase in their contributions, this is like saying the state will have to pay $177 per participant per month, the school districts will have to pay $100, and the active employees $115 (for the 2016-17 biennium).
Basically, this method of calculating contributions uses a dollar amount as opposed to a percentage. As we mentioned earlier, this does not change the fact that in this Option 2 scenario, there is still a $1 billion shortfall to pay for as well as the actual cost of the program for 2016-17.
No Easy Solution
As you can tell from TRTA’s review of these two TRS-Care options, the challenge ahead of us next legislative session is significant. Even as we continue to study these difficult recommendations about TRS-Care sustainability, we must not lose our commitment to the cause. Thousands of public school employees and retirees are counting on TRTA to lead an unyielding, unwavering, unrelenting effort to protect these vital health care benefits.
We have faced significant challenges before, but our success is rooted in our members’ and friends’ willingness to be engaged and vocal.
As we continue to educate our members and all interested parties on this important topic, please know that we will offer educational and advocacy resources to use when discussing this health care crisis with our elected leaders. They need to hear from you as we prepare for the coming legislative session.
Keep in mind, our TRTA members will receive a special advocacy guide in the upcoming issue of our association publication, The Voice. Look for it this summer.
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 over the next several days as we provide detailed updates about the remaining seven options being studied by TRS to improve and sustain the TRS-Care health insurance program. Our next update is about Option 3: Funding for 10-year solvency.
Share these articles with every retiree you know, as well as with active school personnel! Your input is important. Contact us at email@example.com with your concerns.