Texas State Government and Long-Term Obligations Teacher Retirement System — TRS-Care

The Teacher Retirement System of Texas (TRS) administers two health benefit programs: one for current public school employees and their dependents, the Texas School Employees Uniform Group Health Coverage Program (TRS-ActiveCare); and one for retirees and their dependents, the Texas Public School Retired Employees Group Benefits Program (TRS-Care). This overview addresses TRS-Care only.

TRS-Care is a self-funded program, established in 1985 through Chapter 1575 of the Texas Insurance Code.²⁸ As of Aug. 31, 2016, the TRS-Care program covered about 261,500 retirees, dependents and surviving spouses. Aetna administers the health plan while Express Scripts administers the pharmacy benefit.²⁹

TRS-Care faces a large and growing shortfall. In the absence of supplemental appropriations or changes to the plan’s design, retiree premiums could triple starting on Sept. 1, 2017.³⁰

TRS-Care Solvency Issues

TRS-Care funding is linked to active public school and charter school employee payrolls and not to actual health care costs. Rising costs, an increasing retiree population and a contribution system that hasn’t changed in more than a decade have led to an ongoing funding shortfall. In 2015 alone, the Legislature contributed $768.1 million in supplementary appropriations to cover this funding gap.

A November 2016 report by the Joint Interim Committee to Study TRS Health Benefit Plans projects the TRS-Care shortfall at $1.3 to $1.5 billion for the 2018-2019 biennium, and $4 to $6 billion for the following biennium.³¹

Funding

TRS-Care receives state general revenue contributions equal to 1 percent of the salaries of all active public education employees. In addition to these contributions, TRS-Care is funded by retiree premiums as well as contributions from active public education employees and local school districts. The active public education employee contribution rate is 0.65 percent of payroll, while school districts contribute 0.55 percent of payroll.

At its creation in 1985, TRS-Care was expected to remain solvent for just 10 years, with the understanding that additional funding or benefit changes would be necessary to maintain the plan. Its funding formula hasn’t changed since 2005, however, and hasn’t kept pace with plan costs, requiring periodic supplemental appropriations.³²

In 2003, for instance, the Legislature appropriated $516 million from the Texas Economic Stabilization Fund to cover a TRS-Care shortfall. More recently, the Legislature made supplemental appropriations to TRS-Care in fiscal 2013, 2014 and 2015 (Exhibit 3).

Exhibit 3: Funding Sources for TRS-Care, Fiscal 2015

Source: Joint Interim Committee to Study TRS Health Benefit Plans

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Cost Drivers

Major causes of TRS-Care shortfalls include:

• pharmacy costs. Prescription drugs accounted for about 45 percent of claims (net of rebates) in fiscal 2015. Costs for patented, costly “specialty” drugs rose by about 30 percent in fiscal 2015, compared to a 13 percent increase for non-specialty drugs.
• emergency room costs. From fiscal 2011 to 2015, the number of emergency room visits by TRS-Care members rose by 13 percent, from 227 to 256 per 1,000 members. Members aged 70 and older have the highest rate of emergency room use.
• chronic conditions. Individuals with claims for more than $150,000 were the primary cost driver for TRS-Care in fiscal 2015. Of these members, 71 percent had complications stemming from chronic diseases such as heart disease, diabetes, hepatitis, arthritis and other long-lasting conditions. High-cost claimants represented more than half of the 9 percent in total cost growth for TRS-Care in 2015.
• growing population. Since fiscal 2011, the TRS-Care population has risen by 3 to 6 percent annually. From fiscal 2011 to 2015, the number of members under age 65 who were ineligible for Medicare rose by nearly 11 percent, from 71,071 to 78,858. Participants under age 65 have the highest medical costs because TRS-Care is the primary payer for their medical expenses until they become eligible for Medicare. In fiscal 2015, 88 percent or $65 million of the increase in medical claims for TRS-Care’s self-funded plan was generated by enrollees under age 65.³³

Joint Committee Plan Options

The 2015 Legislature created a Joint Interim Committee to Study TRS Health Benefit Plans to examine the sustainability of TRS-Care and affordability of TRS-ActiveCare and present its findings before the beginning of the 2017 legislative session.

The committee’s November 2016 report offered a series of proposals for TRS-Care, based on the assumptions that current state, school district and active employee contributions would not increase and participant costs would rise. These include:

• Health Reimbursement Accounts. Retirees ineligible for Medicare would receive $400 each month in a Health Reimbursement Account to be used to purchase health insurance or for any medically eligible expense.
• High-Deductible (HD) Plan. The HD plan would provide non-Medicare-eligible retirees with a high-deductible plan similar to the current TRS-Care 1 (for catastrophic coverage). The plan would have a $4,000 in-network deductible. Estimated retiree-only plan costs for a participant would be about $430 monthly.
• Medicare Advantage Plan. This plan would be the only one available to Medicare-eligible retirees through TRS-Care. Medicare-eligible retirees would be expected to enroll in Medicare Advantage and Medicare Part D for prescription drug benefits. The plan would have a $500 deductible. Estimated retiree-only plan costs to the participant would be about $146 monthly. All current TRS health care options for Medicare-eligible retirees would be eliminated, including TRS-Care 1 (catastrophic coverage) currently offered for retirees only at no cost to the participant.³⁴

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