TRS Update to TASPA 2015 Summer Conference

Transcription

1 Teacher Retirement System of Texas TRS Update to TASPA 2015 Summer Conference July 16, 2015

2 TRS Overview The Teacher Retirement System manages a $135 billion trust fund and provides pension and health care benefits. TRS serves 1.4 million active and retired members. One of every 20 Texans is a member of TRS. The average retirement payment is $1,995 per month with $8.5 billion paid in retirement benefits in FY The pension trust fund earned a return of 16.9% for FY The 25-year return rate as of August 2014 is 8.8%. The assumed rate is 8.0%. As a result of changes during the 83 rd Legislative session, increased funding and investment returns; the fund is currently actuarially sound. 2 TRS manages two major health programs: TRS-Care for retirees: 244,784 participants TRS-Active Care for actives: 482,684 participants

3 Legislative Update A total of 6,476 bills were filed in both the House and Senate during the 84 th Legislature. Of those, only 1,329 passed both chambers and were sent to the Governor. Approximately 21% of the bills made it through the legislative process this session. For example, a total of 56 bills were referred to the House Committee on Pensions. Of those, 14 made their way to the Governor s office. The Governor has three options: sign the bill into law, allow the bill to become law without his signature, or veto the bill. The last day for the Governor to sign or veto legislation was Sunday, June 21 st. In total, the Governor vetoed 42 bills and line-item vetoed provisions in HB 1 and HB 2. 3

4 Legislative Update HB 1 State Appropriations: Maintains State Contribution of 6.8% towards the pension fund. States the intent of the Legislature that TRS shall not increase retiree health premiums for 2016/2017. HB 2 State Supplemental Appropriations: Provides biennial funding for TRS-Care in the amount of roughly $768 million. HB 2168 Annuity Payment: Moves the payment date for retirees from the first working day of the month to the last working day of the previous month. This is not a 13th check or an additional payment for

5 Legislative Update HB 2974 Omnibus bill provisions, including: Annual compensation" is service in a 12-month period to be determined by rule of the TRS Board rather than the standard school year for service credit. Membership eligibility in retirement system is established through one employer. Membership does not terminate if the person continues to work for a TRS covered employer in a part time position that is not eligible for membership. Limits the amount of out-of-state service credit that may be purchased to 5 years rather than 15 for an IRS plan qualification requirement. Creates a legislative joint interim committee to study TRS-Care and ActiveCare. 5

6 Legislative Update Legislative joint interim committee to study TRS-Care and Active Care: Created by SB 1940 and HB Composed of 3 Senators and 3 State Representatives. Report findings and recommendations is due January, 15, Focus of the study is to examine and assess: the financial soundness of the plans; the cost and affordability of plan coverage; and the sufficiency of access to physicians and health care providers under the plan. 6

7 Legislative Update Legislative joint interim committee to study TRS-Care and Active Care: Additional focus specifically on TRS-ActiveCare to study: the impact of allowing school districts and other participating entities in the uniform group coverage program for active employees under Chapter 1579, Insurance Code, to opt out of that program; the impact, should participating entities be authorized to opt out of the program, of allowing or prohibiting future participation by previous participating entities that have opted out; and the impact of establishing a regional rating method for determining premiums charged in different regions of the state for the benefits provided under a group coverage plan established under the program. 7

8 TRS-ActiveCare TRS-ActiveCare was created in 2001; went into effect September 1, 2002, originally for small districts. Since then, most larger districts have chosen to join the plan. There is no provision to opt out. Three self-funded options administered by Aetna: ActiveCare 1-HD, Select, and ActiveCare 2. Three fully-insured regional health maintenance organizations (HMOs) in select service areas: FirstCare, Scott & White, Allegian FY 2015 Enrollment (participants) ActiveCare 1 & 1-HD 188,945 ActiveCare 2 169,086 ActiveCare Select 73,816 HMOs 50,837 TOTAL 482,684 8

9 TRS-ActiveCare Funding TRS-Active Care is funded by: State contribution $ 75 per month School district contribution $150 per month (minimum) Employees Premiums The State contribution has remained the same since the plan began in 2002 and is funded to the districts through the school finance formula. Since 2003, there have been ten premium rate increases. Benefits have also been reduced since ActiveCare 3 was discontinued in

10 TRS-ActiveCare Key Findings During the interim, TRS conducted a study on the sustainability and affordability of TRS-ActiveCare. TRS-ActiveCare has an affordability issue. State and minimum district contributions have not changed since the inception of the program in The employee s share of the total premium cost has increased significantly. As premiums have increased, employees are selecting lower benefit plans. Districts that do not participate in TRS-ActiveCare and administer their own plans may feel more accountable for the affordability of coverage. There is a disparity between TRS-ActiveCare benefits and premiums in comparison to what is available to Texas state employees (under ERS). 10

11 11 TRS-ActiveCare Premiums

12 TRS-ActiveCare Study - Options 1. Return funding ratios and benefits to FY 2003 levels. 2. Health Savings Accounts (HSA) 3. Self-funded EPO 4. Eliminate uniform statewide coverage 5. Eliminate coverage for spouses 12

13 TRS-ActiveCare Option 1: Return funding ratios and benefits to FY 2003 level Option 1 Return funding ratios and benefits to FY 2003 level. In FY 2003, employees paid 29% of the cost of ActiveCare 2 Employee Only. The minimum State/District contribution paid 71%. In FY 2015, that ratio is 59% for employees and 41% for the State and District. For FY 2016 funding only for ActiveCare 2 84% employer increase from $225 to $414 per month For FY 2016 funding including restoring benefits to FY 2003 level 104.9% employer increase to $461 per month 13

14 TRS-ActiveCare Option 2: HSA Option 2 Provide only a high deductible plan with a Health Savings Account and eliminate all other current plans. Assumes employer contribution of $400 per month ($350 for the premium and $50 for the HSA). The employer may contribute more to the HSA. Assumes an employee only coverage premium of $37 per month. Assumes plan design with a $1,800 annual individual deductible. Eliminates adverse selection 14

15 TRS-ActiveCare Option 3: Self-funded EPO Option 3 Provide only a self-funded Exclusive Provider Organization (EPO) plan Plan design would be the ActiveCare Select plan (offered 9/1/14) Eliminates adverse selection Retains premiums (no fully-insured HMOs) Current ActiveCare Select employee only premium is $450 per month. If this single plan had been offered for FY 2015, the premium would have been $405 per month (10% less). Projected FY 2016 premium is $433 per month (the employee s share would be $208). 15

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17 TRS-ActiveCare Option 5: Eliminate coverage for spouses Option 5 Eliminate coverage for spouses Affordable Care Act does not require that employers offer spousal coverage. Younger, healthier spouse may migrate to Federal Public Exchange. ActiveCare spousal coverage is subsidized by other tiers. Elimination of spousal coverage would reduce ActiveCare premiums by 2.3%. 17

18 Combine TRS-Care and TRS-ActiveCare Option 1: Offer same benefit as ERS HealthSelect Significant difference in the level of funding per employee/retiree between ERS and TRS TRS-Care-3 TRS-AC 2 TRS-AC 1-HD ERS HealthSelect Monthly Premium $90-310* $330** $100** $0 Medical Deductible $300 $1,000 $2,400 $-0- Out-of-pocket maximum $3,700 $6,000 $6,350 $6,350 Drug Deductible $-0- $200 brand-name drugs Combined with medical deductible $50 Retail short term 1 Generic Brand preferred Brand non-preferred $10 $25 $40 $20 $40 $65 20% after deductible $5 $35 $60 Mail Order and Retail-Plus (90 day supply) Generic Brand preferred Brand non-preferred $20 $50 $80 $45 $105 $180 20% after deductible $15 $105 $180 * Premium range based on years of service and Medicare eligibility. ** Assumes $75 state contribution and $150 minimum district contribution. Districts can contribute more to lower employee costs. 18

19 Combine TRS-Care and TRS-ActiveCare Option 1: Offer same benefit as ERS HealthSelect Employer (state and district) contribution would need to increase to $12.3 billion for the biennium. Required funding would be greater if employer also provided 50% contribution toward cost of dependent coverage. Assumes all districts would participate 19

20 Combine TRS-Care and TRS-ActiveCare Option 2: Increase employer funding to $400 per participant Combines TRS-Care and TRS-ActiveCare and increases funding from the employer (state and district) from $189 per retiree and $225 per active employee to $400 per month. With the $400 per month contribution employee only and retiree only coverage the FY plan could be offered at a premium of $58 per month. The only option for Medicare eligible participants would be a Medicare Advantage plan with the same benefits as Care 2. 20

21 R Legislature Bills filed on TRS-ActiveCare that did not pass: HB 1597 would have increased the state's contribution to the cost of coverage under TRS-ActiveCare. The state premium sharing assistance specified in Education Code, Section (c) would double from the current $900 per year ($75 per month) to $1,800 per year ($150 per month) for the and subsequent school years. HB 3453/SB 1232 would have allowed the Board of Trustees to establish regional rates for ActiveCare premiums. It would have allowed school districts to opt-out of ActiveCare. HB 3657 would have directed TRS to conduct a study of the benefits and disadvantages of establishing a regional rating method for determining premiums charged in different regions of the state for benefits provided under TRS-ActiveCare. 21

22 TRS-Care (for retirees) TRS-Care was created in 1985 as an interim solution to provide health care to TRS retirees but has endured for more than 30 years. It was redesigned in 2004 to provide an additional decade of solvency. The TRS Board is authorized to make plan design decisions and set premiums. Optional plans may be offered, including coverage for eligible dependents. Retirees selecting an optional plan pay a premium based on the plan selected, years of service, and Medicare status. TRS-Care currently offers three plan options and is administered by Aetna. TRS-Care 1, the basic plan, provides catastrophic coverage. TRS-Care 2 and TRS-Care 3 offer more comprehensive benefits, including a carve-out prescription drug benefit. 22

23 TRS-Care for retirees Funding Sources 23 Retiree Premiums & Cost Sharing 38% Other Contributions 11% District Contributions 13% State Contributions 23% Active Employees 15% *The funding is based on active member payroll and not actual health care costs. State Contributions: 1.0% of active member payroll by law. Active Employees: Contribute 0.65% of payroll. District Contributions: Contribute 0.55% of active member payroll. Retiree Contributions: Retirees pay premiums for any plan option other than TRS Care-1. Other Contributions: Includes Medicare Part D subsidy and investment income.

24 TRS-Care Balance Projection Fund Balance (Incurred Basis in Millions) As Of December 2014 $890.9 $741.0 $551.0 $457.9 $ $ $

25 25 TRS-Care Study Key Findings During the interim, TRS conducted a study on the sustainability and affordability of TRS-Care. TRS-Care is facing a severe projected funding shortage for of $768 million (as of December 2014). Without additional funding, the sustainability of the program in its current structure is at significant risk. There is no correlation between funding streams and health care claims costs. Non-Medicare retirees are the biggest cost driver to the program. They cost 4.5x more than Medicare retirees. With provider and benefit level choice, comes additional cost. There is a disparity between TRS-Care benefits and premiums in comparison to what is available to Texas state employee retirees under ERS. For example, the premium for Retiree Only coverage under ERS is 100% funded by the state.

26 What s Next New plan rates and benefit changes for TRS-ActiveCare effective September 1, Anticipate legislative hearings on TRS-Care and ActiveCare during the interim. Legislative report and findings will be published on the state website no later than January, 15, For information and updates please visit us at: 26