The Texas Senate is expected to vote soon on House Bill (HB) 3976 by Rep. Trent Ashby (R-Lufkin), a bill to reform the state’s healthcare program for retired educators. The Texas House approved the bill unanimously earlier this month. Here’s a look at the background and history of the legislation, as well as its current status.
Part I: How did we get here?
For at least the past four years, the TRS retiree health insurance program known as TRS-Care, has been headed toward a financial disaster. During the 83rd legislative session in 2013, the legislature began supplementing formula funding for TRS-Care to cover a projected shortfall. In the 84th legislative session in 2015, lawmakers increased the amount of supplemental funds to $768 million again to cover the TRS-Care shortfall. Covering the projected shortfall this session would take more than $1 billion above and beyond what the current funding formulas call for. That amount, already considered unsustainable, is only projected to rise in future years.
The issues driving TRS-Care toward disaster are runaway health care inflation and a statutory requirement to offer a free health insurance option.
TRS-Care presently has three funding streams: premiums associated with TRS-Care 2 and TRS-Care 3, since TRS-Care 1 is free; formula funding generated from the state, school districts, and active TRS members; and Medicare reimbursements from those over 65 who are on Medicare. The formula funded part of the equation is based on active TRS member payroll. Specifically, the state pays 1 percent of payroll into the fund while school districts pay .55 percent and active members pay .25 percent. Active TRS members’ total payroll generally increases over time at about 2 percent each year. This in turn means the formula funding for TRS-Care similarly increases over time at about 2 percent.
Unfortunately, healthcare costs have increased at over 7 percent annually for many years. This has led to a situation where the costs for TRS to pay healthcare claims has dramatically exceeded the funding available to pay for those claims, and the gap between funding and costs is only growing.
Without the legislature writing a check to cover the funding gap described above, TRS-Care would go into what is known as a death spiral. TRS would be forced to dramatically raise the premiums on TRS-Care 2 and 3, which are the current paid options offered to retirees, in order to cover the cost of all TRS-Care claims. The dramatic increase in the cost of these optional plans would drive more retirees to choose TRS-Care 1, the free option. As more retirees migrated to TRS-Care 1, the funding stream from premiums would dry up, further increasing the gap between revenueand the cost of paying claims, and the whole system would collapse.
How has the state responded? The short answer is – not well!
State lawmakers currently have, and have previously had, only three options for addressing the TRS-Care problem. One, they can work to legitimately bring down the costs of retiree health care. Two, they can pay the additionally costs. Three, they can shift the costs to someone other than the state, i.e. retirees, school districts, and active teachers.
Legitimately bringing down healthcare costs, while likely possible, is challenging at the state level and at best a long-term process. Much of what impacts healthcare costs involves federal law over which state legislators have little or no control. Effectively that leaves as the only viable options putting in more money, either from the state or from somewhere else.
Knowing that this problem was approaching, legislators could have taken action six or eight years ago and aggressively pushed TRS-Care participants toward healthier and therefore cheaper outcomes, eliminated the free option under TRS, and at the same time increased the TRS-care formulas. Had they made these changes back then, before TRS-Care was facing a giant funding deficit, the pain to the state and to retirees would have been very minimal. However, back when these issues weren’t yet urgent, it was easier to keep ongoing state costs at a minimum and keep the potent voting block of retired teachers happy by ignoring future realities. Even when deficits between TRS funding and the cost of paying claims began to appear over the last two sessions, while times were good and state coffers were flush, it was easier to simply write one-time checks to prop up the system and ignore the oncoming train wreck.
Now that state revenues are lean and the TRS-Care deficit has grown into a billion dollar hole, it’s too late to reap the slow savings associated with bringing down costs. Lawmakers are unwilling to take on billion dollar ongoing funding increases, and the pain that retirees will experience from the state’s shifting the cost of covering the funding gap to them will be substantial, and in some cases, possibly lethal.
Part II: Where are we now?
The Senate State Affairs committee has legislative oversight for TRS-related issues in the upper chamber, and it is chaired by Sen. Joan Huffman (R-Houston). Having no intention of asking her colleagues to fund the TRS-Care deficit for a third session, Sen. Huffman starting crafting a plan during last year’s interim that was designed primarily to shift the cost of paying for TRS-Care to retirees. Stakeholders, including active and retired teachers, were given an opportunity to provide their input at one perfunctory hearing. However, by the time of that hearing, the majority of the plan that was to become Senate Bill (SB) 788 was already in place.
In early February 2017, SB 788 was filed. As originally filed the bill eliminated TRS-Care plans 1-3 and replaced them with two plans: one plan for retirees under the age of 65 and one plan for retirees age 65 and older.
- The under 65 plan was a high deductible plan with a first deductible of $4,000. After the participant hit $4,000 in out-of-pocket costs, the plan would have transitioned to offering 80/20 coinsurance coverage up to a maximum out-of-pocket cost of $7,150. After hitting the max out-of-pocket cost in a given plan year, the plan would have covered additional in-network costs at 100 percent. Like all high deductible plans, there are no medical or drug co-payments; you simply pay 100 percent (or 20 percent after the first $4,000 deductible has been met) of the full contracted price for the drug or medical service. As filed, the SB 788 plan was projected to require premiums of $430 a month. Thus, the total annual cost for participants covered by the plan would have been between $5,160 and $12,310. (For perspective, the average TRS annuity is approximately $24,000 a year.)
- The 65 and over plan in SB 788 would have replaced all current TRS plans with a Medicare Advantage plan. Under a Medicare Advantage plan, Medicare is the primary insurance and the advantage plan is supplemental insurance designed to cover what Medicare does not. The deducible for this plan was projected to be $500 with monthly premiums of $140.
Even with these changes delineated under SB 788, TRS projected that TRS-Care would still have a funding deficit of approximately $300 million during the upcoming biennium and increasing deficits in subsequent years. As filed, the Senate plan did not increase the TRS-Care funding formulas. Instead, the Senate envisioned writing another one-time supplemental check to cover the balance of this biennium’s deficit, leaving a continuing and growing problem for future legislators to address.
Thanks to the tireless efforts of active and retired teacher advocates and receptive House members, the plans for TRS-Care while far from perfect have continued to improve over the course of this legislative session. SB 788 has been left pending, as the House bill, HB 3976, continues to proceed.
As it stands today, the TRS-Care bill moving forward still eliminates the current structure and replaces it with two age-dependent options.
- The under 65 plan is still a high deductible plan with an out-of-pocket first deductible of $3,000 and maximum out-of-pocket cost of $7,150. The monthly premium will start at $200 a month for the first year and will increase for the following three years to approximately $370 a month. The plan also includes language that lets a TRS retiree opt out of the pre-65 plan and opt back into TRS for the 65-and-over plan once the retiree becomes Medicare eligible. Additionally, members under 65 who have retired due to a disability before January 1, 2017, will not have to pay premiums for the first four years. The plan will also cover a list of generic maintenance drugs, such as blood pressure and cholesterol medications, free of charge.
- The 65-and-over plan is essentially the same as filed, but TRS at the request of multiple legislators is committed to expanding access to medical providers willing to take the TRS-Care Medicare Advantage plan. Restricted access to doctors has been one of the primary concerns about the Medicare Advantage plan.
In addition to better plan design, HB 3976 as it currently stands increases the state’s share of the funding formulas from 1 percent to 1.25 percent and increases the district’s share from .55 percent to .75 percent. The active employee share is not being increased at this time. These increases in formula funding give some assurance of a continued increase in regular appropriated spending in future years. This is a very important step for the continued existence of the retired educators’ health insurance program.
For those educators who have retired, especially those under age 65, or for those considering retirement in the near future, the changes to TRS-Care contemplated in SB 788 and HB 3976 are a lot to consider. ATPE members may contact our Governmental Relations team if you have specific questions about the bill. We also highly encourage you to contact TRS directly for questions about your retirement or your specific coverage questions about TRS-Care. You can contact Senate author Sen. Huffman or House author Rep. Ashby if you want to express your support, opposition, or any commentary on the legislation. Please remember to be courteous and respectful if you choose to contact one or both of the legislators, and remember that while this bill is not by any stretch perfect, TRS-Care health insurance will cease to exist altogether if no bill passes at all.