Health-Care Affordability Crisis for School Employees in Retirement

Last week the Texas Legislature began its biennial attempt to reckon with the cost of providing health-care coverage in retirement for the teachers and other education employees who have dedicated their careers to service in Texas public schools.

For more than 30 years now the state has funded its TRS-Care health plan for retired school employees on a pay-as-you-go basis, two years at a time. The pay-as-you-go funding was originally supposed to be merely a stopgap while the Legislature figured out how to provide the long-term funding mechanism needed to sustain the program. Now, all these many years later, the costs of this approach are becoming increasingly apparent, and the result is a pressing need for the Legislature to provide a major new infusion of money to keep TRS-Care solvent through the 2018-2019 biennial budget period starting in September of next year.

State legislators on the Joint Interim Committee to Study TRS Health Benefit Plans heard hours of testimony on this issue on March 30, including invited testimony from Texas AFT legislative spokesman Ted Melina Raab. The bottom line is that current inadequate funding streams leave TRS-Care $1.6 billion short of the estimated amount needed just to keep the program in place through August 2019 without premium increases or benefit cuts.

Last year the Legislature had to put in $768 million in extra funding to keep TRS-Care solvent through the end of the current biennium. Next time the deficit will more than double, and it is projected to keep going up and up in later years if the state fails to replace the inadequate pay-as-you-go system.

Retirees themselves already pay plenty for their TRS-Care coverage, out of pensions that are seldom if ever adjusted with cost-of-living increases. As a group they pay 35 percent of the cost of their coverage currently, in the form of premiums and out-of-pocket costs. The state contributes an amount equaling 1 percent of active school employees’ payroll. The resulting state share of total plan costs is about 25 percent.

Active school employees contribute another 0.65 percent of their paychecks to fund TRS-Care, accounting for 16 percent of the total money dedicated to the program. School districts pay another 0.55 percent of active payroll, putting their share of total plan costs at 14 percent.

With roughly 15,000 more retirees added to the TRS-Care ranks each biennium and with medical and especially drug costs rising far faster than active employees’ pay, all these contributions combined have begun to fall well short of what’s required to keep TRS-Care intact. As a result, the survival of TRS-Care has depended on intermittent infusions of additional cash from the state, occasional premium and benefit restructuring, and higher premiums and out-of-pocket costs for retirees.

Much of the March 30 hearing was devoted to a discussion of alternative funding scenarios to address the current situation. One way to define the gravity of the problem: If retirees had to absorb the full cost of covering the deficit of $1.6 billion for next biennium, their premiums would have to triple starting in September of 2017. At the same time, school districts would be hard-pressed to afford more contributions given the inadequacy of the current school-finance system, which could be held unconstitutional in the near future by the state supreme court. And active school employees’ are dealing with stagnant pay and bearing the rapidly rising costs of their own coverage under their local district health plans or the state TRS-ActiveCare program.

It all comes down to whether lawmakers will face up to the state’s responsibility to fund the costs of public education, including retiree health care. Legislators often say that providing public education is the number-one job of state government, but that declaration has not always been backed up with the funding required to do the job. For instance, while the state provides a subsidy of about $600 a month per person for the health plan that covers retirees from state agencies, it provides only about $125 a month per person for retired school employees. The state clearly needs to make major and ongoing increases in its TRS-Care contributions.

As Texas AFT’s Melina Raab told the joint committee:

Health-care coverage for retired school employees is a critical benefit yet is simply becoming unaffordable. These health-care programs are only sustainable to the extent they provide coverage that is both adequate to retirees’ needs and is affordable to retirees.

To Texas AFT members, in fact to almost all public school employees, the answer to the current situation is obvious—we must have a significant and sustained increase in state funding for retired and active school employee health care. The next Legislature must address the health-care affordability crisis for retired school employees and make immediate and ongoing increases in state funding for retired school employees’ health insurance.

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