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Below is the HillCo client report from the July 10 House Pensions Committee and House Appropriations Subcommittee on Article III joint hearing.

The committees met in a joint hearing to consider the following interim charges:
 
Study the affordability of health care for active public school employees. Examine how premiums and out-of-pocket costs have increased over time and how these increases have affected employees and school districts, and make appropriate recommendations.
 
Examine the immediate and long-term fiscal impact of the Teacher Retirement System (TRS) health care plan (TRS-Care).
 
 
Pattie Featherston, Analyst, Legislative Budget Board (LBB)

  • The Teacher Retirement System (TRS) is a defined benefit plan
  • Over 1.3 million members and annuitants
  • $8.1 billion paid in benefits in 2013
  • $128 billion in fund assets
  • Unfunded liability is $28.9 billion
  • Funded ratio is 80.8%
  • Amortization period is 28 years
  • Amortization period is a notable improvement and allowed for a retiree benefit increase
  • Approximately $1.7 billion in appropriations each year for FY13, 14 and 15
  • Employer contributions were increased to 6.8% last session
  • Employee rate will be increased to 7.7%  by 2017
  • For ISDs not participating in social security, must contribute 1.5% to the fund
  • The minimum retirement age was increased from 60 to 62
  • An annuity reduction of 5% will apply for each year a retiree is younger than 62
  • Health care program will see some changes as well
  • TRS-Care was created as a self-funded program in 1985
  • TRS-Care is held in a separate trust fund
  • Aetna is currently the benefit administrator
  • Total benefits paid in FY13 were $1.2 billion
  • Three plans to choose from providing varied ranges of coverage
  • Medicare eligible participants have another plan to choose from; around 68% of those eligible are participating
  • TRS-Care funding is pay as you go
  • Fund balance is estimated to be depleted by 2016
  • Appropriation for current biennium is $495 million
  • The state currently contributes 1% of payroll each year into TRS-Care
  • Investment income is minimal because of low fund amounts
  • Chairman Bill Callegari asked about the decrease in the fund balance
    • In the 12-13 biennium the state contribution was lowered to ½ of 1%
  • In the 83rd session, minimum retirement age was increased from 60 to 62 for certain plans
    • Associated savings will begin in FY20
  • Chairman John Otto noted that legislation last year is the reason things are improving for the fund so significantly

 
Brian Guthrie, Executive Director, TRS

  • Administer the ActiveCare program as well as TRS-Care
  • Both programs revenue streams are no longer sufficient to cover the costs of the programs
  • ActiveCare was designed to be a program where the revenue streams were fixed and incremental increases in cost would be borne in the form of premium increases to members
    • Becoming an affordability and access problem for members
  • State contributions, member contributions and ISD contributions make up TRS-Care funding
  • All are based on a factor of active members covered payroll
  • There is a disconnect between revenue streams and cost drivers
  • Showed a surplus in the trust fund for a period of time; will not have a surplus in the near future so investment income will be going away
  • State can pay no more than 55% of the total cost of the program and retirees must pay at least 30% according to statute
    • Retirees currently pay 37.8% of program costs; state currently pays around 23%
  • Premiums for optional coverage above TRS-Care 1, the catastrophic plan offered at no cost to employees, are based on years of service and Medicare status
  • A provision was passed last session that employees will not be eligible for the two higher plans until age 62
  • Different funding streams have been added over time including ISD contributions, Medicare and federal subsidies
  • Trust fund balance was positive until 2011 but now expenditures are outweighing funding; by the end of FY17, fund balance will be a negative $875 million
  • Will be submitting an appropriations request asking for the state contribution and an exceptional item for the funding gap
    • Actively seeking other solutions as well; programmatic changes should be considered that can change the dynamic in terms of what the shortfall will look like
  • Rep. Diane Patrick asked why more people aren’t subscribing to Medicare Advantage
    • Some providers do not accept that plan and some members are worried about changing plans
    • There was an effort by Aetna to convince providers to accept the plan which was very successful but there are still holdouts
  • A study was performed to consider options for making the fund more stable
  • Options include prefunding the long term liability or funding on a pay as you go basis for the biennium
  • Otto noted it may be prudent to choose a short term solution to fix the problem until the changes take place that are expected in 2020 due to retirement age increase incentives
  • Other options include funding for ten year solvency or requiring retirees to pay the full cost for optional coverage plans
  • Another option is mandatory participation in the Medicare Advantage plan
    • An incentive is currently there for members to participate which includes decreased premiums and copays
  • Otto asked how the mandatory participation would work for people living in areas with no participating providers
    • It would not be mandatory for people who cannot find coverage; would be hard to draw those lines
  • Could switch to a defined contribution plan such as a health reimbursement account where retirees could shop for their own coverage
  • Could modify the standard plan by reducing benefits offered
  • Another option is to implement steerage where members would be required to go to certain providers and pay a higher copay for going outside the network
  • Last option is to combine TRS-Care and ActiveCare; would pool a larger population, introduce a healthier population into the plan to get scalable benefits; likely would not work
  • Rep. Phil Stephenson noted that the program cannot require older people to pay more; would have a huge economic impact on the very old retired population
  • Retiree premiums have not been raised since 2005; whatever changes are made will shock the system because premiums have been held at the same level for so long
  • Rep. Greg Bonnen noted another factor to consider is that increasing costs are a big part of the problem so reducing health care costs would be a big help; Aetna needs to be engaged in the conversation; price transparency would be a big help in pushing members to make good choices
  • ActiveCare covers members who are still employed; before implementation ISD coverage varied greatly based on geography and size of employee pool
  • Now, ISDs with less than 500 employees are required to participate in ActiveCare
  • State contribution is set at $75 per month per employee which flows through school funding formulas
  • ISDs must contribute $150 per month per employee
  • Otto asked if the population is too narrow to bring premiums down or if the coverage is too rich
    • There was a requirement in statute which was recently eliminated that required coverage to compare to TRS plans; that was eliminated because many members were moving to ActiveCare 3 but now the same problem is happening with ActiveCare 2
    • Cost patterns are much in line with well managed funds, the problem is funding because a bulk of the premium is borne by the employee
  • 90.5% of eligible entities participate in ActiveCare but the holdout entities are very large so there are still many members who do not participate
  • Callegari asked what the impact would be if there was 100% participation
    • It would be insignificant because many non-participants are in expensive urban areas and there is already such a large group population
  • Options to help the program include increasing funding; offering a high deductible plan with a health savings account; establishing premiums based on age, geography or length of service; offering a self-funded or fully insured statewide HMO; moving to a defined contribution plan with a health reimbursement account so they could shop for their own coverage

 
Beaman Floyd, Texas Association of School Administrators

  • There has been a 30% increase in the voluntary expenditures school districts have made in the last 10 years above and beyond the $150 required payment; some school districts have made significant increases, some have not
  • Interested in looking at solutions; many school districts are looking at their options and trying to solve the problem within their own ISD

 
Nicole Conley, CFO, Austin Independent School District

  • Recent cuts in school district funding have been a large part of the struggle for ISDs
  • In FY11 moved from a fully insured plan to a self-funded plan; AISD contributes around $450 to each employee for health care
  • Have had to pass on plan costs to employees to a large extent
  • Looking at multiple options to drive down some health care costs within the system
  • Rep. Donna Howard noted revenue is a large part of the issue for AISD because of being property wealthy and having 60% of free and reduced-price lunch students; need the money to assist those high-needs kids as well as to offer competitive salaries

 
Tim Lee, Executive Director, Texas Retired Teachers Association

  • The average retiree annuity has gone up in the last few years
  • Facing a major shortfall in TRS-Care but that is not a surprise
  • TRS retirees have consistently paid the highest portion of TRS-Care total cost since the inception of the program
  • Basing funding on how much teachers get paid is not an adequate funding method to compete with inflation
  • TRS-Care needs more money; the immediacy of funding needs should be addressed before any other programmatic changes can be made

 
Josh Sanderson, Association of Texas Professional Educators

  • The issue is mainly related to cost distribution
  • State funding has been static and ISDs are constricted financially
  • Employee premiums have increased by 238% over the life of the program
  • Average teacher pay is a little over $48,000; that pay rate on top of increasing premiums will begin to affect teacher quality
  • Qualified individuals need to be incentivized to come into and stay in the system

 
Anne Fickel, Texas Classroom Teachers Association

  • In the last ten years, teacher pay has increased by 22%; in the same time period, medical care has increased by more than 100%
  • On average, workers contribute 29% of their family health coverage costs; teachers in Texas contribute 89%
  • Members cannot bear to wait for a school finance solution to have their health plan situation solved
  • Otto asked if teacher groups will work with the legislature to find a short term solution until school finance is figured out and the health care market settles
    • We have been treading water for a long time at this point; something has to be done even if it is a short-term solution

 
Ted Melina Raab, Texas American Federation of Teachers

  • If the regular session ends and nothing has been done to decrease benefits or increase premiums with a path laid out to achieving a permanent solution, it could be considered a minor victory
  • Because this is so tied to school finance it is understandable if a long term solution is not achieved in the regular session

 
John Grey, Texas State Teachers Association

  • Looks forward to working with legislators next session in finding a solution to the problem
  • Increasing health care costs are significantly affecting teachers’ lifestyles and health care choices

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