The Classroom Teacher, spring 2014

Walter Cronkite once said, “America’s health care system is neither healthy, caring, nor a system.”

The woes of modern health care in the U.S. are keenly felt by Texas educators, but are hardly limited to the teaching profession or to this part of the country. There are many reasons for the ongoing and hefty increases in the costs of health care — including high rates of usage and advances in technology — and not much in the way of solutions.

In the parlance of medicine itself, there may not be a cure; instead, policymakers seem to be working on managing the pain. Texas’ two programs for school employees — TRS-Care for retirees and TRS-ActiveCare for current employees — face major challenges. The Legislature will likely tackle at least some of them during the next legislative session, which begins January 2015. But to what extent can we expect tangible progress?

TRS-Care in crisis

The retiree health plan is nearly out of money. When it was created in 1985, the funding structure was not expected to be permanent, and was projected to last no more than a decade. The plan’s revenues are based on contributions from active TRS members, school districts and the state that are calculated as a percentage of employee salaries (in addition to the premiums paid by participants). But, as educators know well, trends in health care costs are on a much steeper trajectory than increases in salaries.

In the absence of legislative action, TRS-Care will be insolvent by 2016, with a projected shortfall of about $1 billion for the next biennium (2016-17). It is not only likely, but also necessary, that lawmakers address the system’s poor health; the question is what form the remedies will take.

One of the main problems with TRS-Care, beyond the issues affecting all health care plans, is the high cost of insuring younger retirees. This may at first seem counterintuitive, as those participants typically have lower claims than older retirees. But because TRS-Care becomes the secondary insurer once a retiree is covered under Medicare at age 65, the claims for those Medicare-covered retirees are significantly lower. Thus, many of the proposals for lowering TRS-Care costs focus on non-Medicare retirees.

With any struggling health insurance plan, the broad categories of solutions are to increase revenues (contributions and premiums) or decrease expenditures. The latter can take the form of restructuring or reducing benefits or changing eligibility requirements. It is too early to predict the route that legislators will take, but the end of this article includes some specific structural changes that were suggested in a TRS study first published in 2012 (to be updated in summer 2014).

While increasing retiree premiums is an option, legislators — sensitive to the lack of increases in retirees’ monthly TRS checks in recent years — have asked TRS not to pursue that alternative in previous years. However, with such a pressing need, and with the implementation of a 3 percent raise in retirement benefits beginning in 2013, a premium increase may indeed be part of the solution.

ActiveCare stable, but unaffordable

The state-administered plan for active employees faces different hurdles. It is first worth noting that only about 60 percent of Texas school employees are enrolled in ActiveCare. (90 percent of the state’s school districts participate, but those not opting in include some of the state’s largest districts, such as Houston and Austin ISDs.) However, the basic funding structure is the same for all employees, so legislative decisions will have far-reaching effects.

In ActiveCare, the state and school districts are required to contribute a specified amount toward employee health insurance premiums: $75 per month, per employee from the state, and at least $150 from the district. A significant number of districts have chosen to contribute more than the required minimum. But as health care costs rise, the burden is not on the state or on the system, it is borne solely by employees.

The minimum required contributions from the state and districts have not changed since ActiveCare’s creation in 2001. The premium for Level 1 employee-only coverage that was free to employees at that time is now $325 per month, so even the cheapest level of coverage costs employees $100 per month in districts that contribute the minimum required amount. Level 2 family coverage that cost $481 in 2001 after the state/district contributions has risen to approximately $1,100.

ActiveCare 3 has become so expensive that fewer than 2 percent of ActiveCare enrollees participate. The employees willing to pay the exorbitantly high premiums — those with the highest claims — remain in the plan, continuing to drive up costs (see “Adverse selection”). Premiums for the current year increased by 25 percent over the 2012-13 plan year, and even that rate hike was not enough to fully cover the skyrocketing costs of the plan.

Adverse selection

Choices in health care coverage almost inevitably lead to a phenomenon known as “adverse selection.”

An employee faced with various levels of coverage who has the ability to change plans from year to year tends to choose the more expensive coverage only if there is reason to believe that the higher level of insurance will be needed — preexisting illnesses, for example, or anticipated surgery. An employee who is generally young and healthy will typically choose a lower level of coverage.

Thus, rather than having all types of plan utilizers in the same system, where the healthier participants can help offset the costs of the high-claims participants, expensive enrollees are bunched together, inexorably driving up the costs of their own high-level plan.

In July 2013, TRS staff actually recommended the complete elimination of Level 3 for the 2013-14 year, and only TCTA’s testimony about the potentially devastating impact of eliminating the plan on such short notice postponed what may be inevitable. TRS prohibited new enrollments in Level 3 for this year, and staff are likely to propose elimination again in June.

TRS staff have noted that overall enrollment in ActiveCare has dropped, and those dropping are generally healthier enrollees.

Effects of the Affordable Care Act

Many have wondered whether the major changes in federal laws governing health care coverage (the Affordable Care Act) have been partially responsible for the downhill trajectory of the TRS health insurance plans.

Mandates for expanded coverage (e.g., including dependents through age 26) and some new fees have increased costs somewhat, but are not considered a major cost driver. Yet some ACA-related issues are already affecting some Texas school employees, and TRS is concerned about potential future damage to ActiveCare.

In some districts, substitute teachers and the teachers who rely on them are feeling the effects. The ACA requires that employers provide health insurance to employees working an average of at least 30 hours per week, and many long-term substitutes could meet that benchmark.

So some districts have limited substitutes’ hours in anticipation of the new employer mandate, which will go into effect in 2015. In addition, TRS staff have expressed concerns about the possibility that the federal health insurance exchanges, which provide affordable insurance through the private market, may end up leeching away younger, healthier ActiveCare participants.

Because school employees have access to employer-provided health insurance, they are not eligible for subsidies in the exchanges and would not likely find a more affordable option there. However, because family coverage is expensive, and because the exchanges can use age-based premiums, younger spouses and dependents may find that the exchanges offer a more affordable alternative to ActiveCare dependent coverage. The loss of such plan participants could damage ActiveCare, which relies on just this type of enrollee to help contain costs.

What you can do

Teachers and other school employees should take an active role in the health care debates. TCTA’s lobby team will seek legislative solutions to get educators relief from excessive premium rates. TCTA members can help by supporting those efforts, and by becoming more informed of their own health and insurance choices.

In its simplest terms, what drives up the costs of using health care is using health care. If everyone ate right, exercised, had low-stress jobs (ha!) and had no genetic disposition toward illnesses or disease, health care might not be such a major issue.

So, to the extent possible, taking charge of health care decisions is crucial, as is examining the costs of medical care with eyes wide open. Individuals with medical issues are often faced with choices in treatments, health care providers, and prescription drugs that may be medically equivalent but financially disparate. Doctors and health insurance companies may partner with patients to find alternatives that save costs without sacrificing quality, though in the end, the highest quality of medical care must always be the goal.

What TRS and the Legislature might do

TRS is updating a previous study on TRS-Care and conducting a new, similar study on ActiveCare to present to the 2015 Legislature. The following are among the suggestions made in the 2012 TRS-Care Sustainability Study, and TCTA expects them to become part of the conversation next session.

TRS-Care

  • Increase funding from any or all current contributors (state, district, active employees) and/or increase retiree premiums
  • Limit or eliminate access to TRS-Care for retirees under age 65 (who are the most expensive to insure, as they are not yet covered by Medicare)
  • Provide under-65 retirees with a Health Savings Account (HSA) stipend and send them to the federal health insurance exchanges or the private market to purchase health insurance on their own
  • Require retirees to pay the cost of optional coverage (benefits above those included in TRS-Care 1, the catastrophic coverage option)
  • Combine TRS-Care with ActiveCare

The ActiveCare study will not be released until summer 2014, but TRS staff have begun conversations about possible plan changes, which could include the following (not all have been mentioned specifically by TRS, but have been considered or are being implemented in other systems):

ActiveCare

  • Provide only one plan rather than the current three levels of coverage (all participants would be enrolled in what is currently ActiveCare 1 or 2 or a new hybrid level)
  • Change benefit levels (increase deductibles, for example)
  • Contain pharmaceutical costs, including limitations on the use of expensive compound drugs
  • Limit provider choices
  • Mandate worksite wellness programs
  • Implement age-based premiums to retain younger, healthier plan participants

What TCTA is doing

The key for school employees and retirees is affordability, and TCTA is stressing that employers — the state and school districts — must increase their financial commitment to employee health insurance.

TCTA provided data at the February TRS Town Hall meeting on health insurance to demonstrate that Texas school employees pay a far greater share of their health insurance premiums than the average for employer-sponsored plans across the country — both in the public and private sectors.

Citing figures from an annual survey conducted by the Kaiser Foundation, TCTA informed TRS trustees that while the average U.S. employee contribution toward employee-only premiums was $83 per month in 2012-13, ActiveCare 2 employees paid $235. The national average employee contribution toward family coverage was $380, while ActiveCare 2 workers contributed $925.

On the employer side, the required contribution for Texas school employees is $225, whether toward individual or family coverage. Nationally, the average employer contribution toward individual coverage is $407, and for family coverage it is $982. (Note that this comparison assumes only the minimum required contribution from school districts; many contribute more, though it is unlikely that many districts contribute enough to reach or exceed the national average.)

TCTA is concerned that some of the potential solutions proposed for legislative consideration would, in fact, further drive up premium rates in the near term. For example, lowering premiums for younger plan participants to try to keep them from leaving the system would almost certainly require increasing premiums for remaining participants, though it might have the long-term benefit of stabilizing the plan. Combining TRS-Care with ActiveCare, while likely a positive move for the struggling retiree plan, would introduce high-claims enrollees into the active program and drive up premiums.

What may be good policy could still hurt the average ActiveCare enrollee, and TCTA has already begun to get the word out that any such proposals must be accompanied by additional funding at levels that would not only offset the resulting increases in premiums, but actually lower the rates that school employees pay.

TCTA will be an active participant at both TRS and at the Capitol as proposals are developed and considered, and we will continue to emphasize to policymakers that the top priority is premium relief.