State hears need for more revenue to sustain retiree health-care

A Texas House Appropriations Subcommittee hearing today looked at the continuing problem of the “pay-as-you-go” retiree health-care system for retired school employees under the Teacher Retirement System of Texas–TRS-Care. That reliance on TRS coming to the Legislature every two years for funding is what has led to declining benefits and increased premiums for retirees when the lawmakers don’t put enough into the system to cover shortfalls.

The good news is that estimates for what is needed to sustain TRS-Care actually are down from a projected $500 million at the end of the legislative session last year to $410 million with current estimates. The bad news–as stated by TRS Executive Director Brian Guthrie–is that the “hole keeps getting bigger, and we’re filling it as fast as we can, but it’s not enough.” Guthrie testified that it would take $5 billion just to sustain TRS-Care through 2023.

More good news is that the outcry from retirees after sustaining significant benefit cuts and premium increases last year has made a significant impact. Your voice does matter in what happens at the Capitol. Subcommittee Chair Rep. Trent Ashby (R-Lufkin) noted that he has heard from numerous constituents with concerns over the plan changes, and the majority of subcommittee members seemed to be in agreement that retirees not face further benefit cuts or premium increases.

The pressure from retirees even spurred Lt. Gov Dan Patrick and State Sen. Joan Huffman (R-Houston) to urge TRS not to implement planned premium increases of $50 a month for those under age 65 on the plan, which the TRS board will vote on in September. Patrick said he was confident that the Senate would find funding to negate the need for the increase. Of course, both Patrick and Huffman were at the helm of deliberations when the 2017 cuts and premium increases were enacted. TRS-Care faced a $1 billion shortfall, the Legislature added $483 million to the plan in the last regular session, then added another $212 million in a summer special session to soften the blow of what would have been enormous benefit cuts and premium increases.

The band-aid wasn’t enough to stave off serious hardships for many retirees, as noted in numerous media stories and comments to Texas AFT on the issue. As one member told us:

Retired after 35 years from coaching and teaching. My type 2 diabetic med went from $100 for 90 days to $1,565 for 90 days. I can not afford to continue the medication and there is no affordable alternative. I also no longer go to my doctor for check ups because I cannot afford the cost of lab fees.

The main problem with funding TRS-Care is that there is not enough dedicated revenue to meet the plan’s needs. The plan is funded by a combination of contributions from retiree plan members, active school employees and school districts based on payroll, state funding, and a smaller amount of federal funding. Employee/district contributions from payroll amount to about 30 percent of the funding. Yet, as payroll keeps rising at less than 3 percent per year, health-care costs are rising at about 7 percent, which leaves the state scrambling every two years trying to make up a growing annual shortfall.

“I’m just really concerned that we come back year after year…but we need to find some sustainable revenue streams,” said subcommittee member, Rep. Donna Howard (D-Austin). Howard said possible solutions would be changes to the Rainy Day Fund to allow for investments of that fund into a “Legacy Fund” for health-care and pensions.

Texas AFT government relations representative, Ted Raab, told subcommittee members that the state needs to pre-fund TRS-Care for the long-term sustainability of the plan. “Also look at taking a chunk of the ESF [Rainy Day Fund] and putting it into an investment fund for TRS-Care….so that as someone looks at entering the profession now or in five or ten years can say this is something I can depend on. I know my salary is going to be below the skills and training I have….but I will be able to depend on a modest but sustainable pension and health care fund.”

Also at issue in the hearing was the significant loss of plan members–about 30,000, or 15 percent of all members–from retirees trying to save money with plans outside of TRS, which impacts revenue to the system.

One idea that arose during the hearing was giving school employees a substantial salary increase, which would increase payroll and put more money into retiree health care. It’s hard to argue with that strategy.

We’ll be following the retiree health care issue at the Capitol as we head into the next legislative session in January, and we’ll provide coverage of the TRS Board meeting on September 20 and 21.

View the TRS presentation on TRS-Care here.