Feb. 19, 2016: February Board News
Staff Presents Considerations for 2017 STRS Ohio Health Care Program Changes; Board Discussion Expected to Continue in MarchDuring the February meeting of the State Teachers Retirement Board, STRS Ohio staff presented a number of items for the board to evaluate as it considers potential health care program changes for 2017. The presentation follows discussion that took place at the board’s annual retreat in January regarding the funding challenges facing the health care program. Staff’s primary objective is to consider plan adjustments that remain consistent and competitive with the health care marketplace. The items submitted for consideration fall into three general categories: plan design, plan eligibility and plan subsidy. The board did not take action on any of the proposed changes and is expected to continue to discuss the items at its March meeting.
Plan Design Changes for Consideration Include:
•Discontinue Alere disease management program for non-Medicare enrollees.
•Increase emergency room copays to $75 from $65 for Medicare plan enrollees.
•Increase in-network and out-of-network deductibles for Health Care Assistance Plan enrollees.
•Move Medical Mutual non-Medicare enrollees residing outside of Ohio to a Basic Plan administered by Aetna.
•Increase urgent care copay to $40 from $35 in all plans.
•Discontinue health care plans offered by HealthSpan.
•Discontinue coverage for proton pump inhibitors (all are available over the counter).
•Adopt preferred network for retail pharmacies and increase copays at non-preferred network pharmacies by $10; narrow retail network for Medicare plan enrollees.
•Discontinue the one-half copay program for diabetic prescriptions.
•Increase coinsurance percentage for specialty drugs to 15% from 10% and the per-prescription maximum to $600 from $500.
Plan Eligibility Changes for Consideration Include:
•Discontinue Medicare Part B reimbursements for survivors and beneficiaries who were age 65 by 2008.
•Discontinue offering coverage to sponsored dependents of unmarried retired teachers (does not include incapacitated adult children).
•Change dependent children premium to a per child premium.
Plan Subsidy Changes for Consideration Include:
•Reduce STRS Ohio subsidy multiplier to 1.9% from 2.1% for non-Medicare enrollees
•Phase-out Medicare Part B reimbursement over three years.
•Add $50 surcharge to enrollees who have Medicare Part B-only coverage.
The proposed changes focus on reducing STRS Ohio’s long-term plan costs and extending the solvency of the health care fund. Board Receives 2015 Member Survey ResultsAt the February board meeting, Dr. Marty Saperstein presented the findings of the 2015 membership survey. Phone surveys were conducted in November and December with active members and retirees. Notable findings from the survey results included:
•Despite pension plan changes, most members have positive overall impressions of STRS Ohio.
•Trust and confidence in STRS Ohio increased significantly for actives, while retiree’s feelings remained positive.
•Compared with last year, more actives and retirees feel the pension system is financially sound.
•Most members — actives and retirees — still consider their pension an excellent or good value.
•Members clearly distinguish between their pension benefits and health care coverage; more consider their pension benefits an excellent or good value.
•Most members are satisfied with communications and most believe STRS Ohio is open and honest in its communications. There continues to be growing interest in electronic and online communications.
•Three out of five active members plan to teach longer than they originally thought, and the most common reason cited is the pension plan changes.
Board Considers Updates to Funding Policy, Strategic GoalsThe Retirement Board and staff continued their work on refining the board’s funding policy. Executive Director Michael Nehf reviewed with the board a draft of a revised funding policy that includes the stated goal of managing “the risk of unanticipated benefit changes and to safeguard members’ benefits in the long term.” The draft policy lays out clear criteria for making decisions regarding changes to funding and benefits, as well as when those changes should be considered by the board. The board also reviewed proposed changes to STRS Ohio’s strategic goals for 2016, including a new goal to address STRS Ohio’s health care funding challenges. Staff also recommended an addition to one of the current strategic goals that would address strengthening STRS Ohio’s business continuity capabilities. Board action on these updates could be considered at its March meeting. Retirements ApprovedThe Retirement Board approved 176 active members and 173 inactive members for service retirement benefits. Other STRS Ohio News Health Care Fund Drops by $196 Million in 2015 Year-end analysis shows the health care fund net position was $3.258 billion as of Dec. 31, 2015, a decrease of $196 million from the prior calendar year net position of $3.454 billion. Premiums received from health care recipients in calendar 2015 increased to $331 million from $286 million in calendar 2014. Payments from the health care fund in calendar 2015 increased to $693 million from $658 million in 2014, a 5.3% increase. Effective July 1, 2014, the allocation of 1% of employer contributions to the health care fund was discontinued and directed to the pension fund, resulting in no employer contributions to the health care fund for 2015. Financial and claim information from the health care fund were provided to actuaries at Segal Consulting, who will present the health care valuation report to the board in March.
Health Care Funding Challenges Will Be Key Focus in 2016
During its 2016 retreat, the State Teachers Retirement Board took an intensive look at the funding challenges facing the STRS Ohio Health Care Program. The board retreat, held at the STRS Ohio offices in Columbus, provided the board an opportunity to review in depth health care presentations from staff and consultants. The key takeaway is that the projected life of the health care fund has significantly dropped due to increasing health care claims payments and the lack of a dedicated source of funds for health care. The Challenge — a Closer Look
•In late 2011, the board adopted a strategic framework for health care based on receiving a continuous allocation of 1% of the employer payroll contribution (about $100 million annually). By the end of 2013, the health care fund solvency grew to 49 years.
•Effective July 2014, the board discontinued the 1% employer allocation to the health care fund in an effort to strengthen the financial condition of the pension fund and as part of STRS Ohio's plan to eliminate its unfunded liabilities in less than 30 years (as required by state law). The projected life of the health care fund dropped to 19 years. The hope was to restore this funding for health care within a few years.
•Today, the suspension of employer contributions to health care will continue because all of the employer contribution is needed for the pension fund. Depletion of the health care fund is now a major concern. While the projected life of the health care fund is expected to be about 17 years, this figure is an average — meaning there is a 50% confidence level that the health care fund has at least 17 years of solvency. Depending on the strength of the financial markets, the amount of health care claims and whether additional funding is available, there is a chance the life of the fund could be 10 years or less.
Next StepsThe Retirement Board identified several steps for staff to pursue while continuing to study potential funding solutions. These steps include:
•Work with membership and stakeholder groups to determine the components that deliver a plan that represents a good value and determine how long — with a high degree of confidence — STRS Ohio can offer a meaningful plan.
•Evaluate the impact of additional health care plan changes in the areas of eligibility, plan design and subsidy levels.
•Work with membership and stakeholder groups on approaches to increase funding for retiree health care.
•Continue open and honest communication with the membership and stakeholders.
The Retirement Board and staff will explore options to allow STRS Ohio to continue providing a health care program that is of value to members and will communicate with members throughout the discussion of possible options. STRS Ohio will use its website, newsletters and eUPDATE email news service to keep members informed. Additional facts about the STRS Ohio Health Care Program
•Health Care Program costs for fiscal year 2015 totaled $673 million — more than $1.8 million in health care expenses per day. The total cost has grown more than 51% since 2005 when the program costs were $444 million.
•Health Care Program has 131,193 enrollees in 2016, an increase of nearly 17% from 2006 when the number of enrollees was 112,310.
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Aug. 2015 Update:
STRS Ohio’s Total Fund Return for Fiscal Year 2015 Ranks High Among Public Funds
During the August meeting of the State Teachers Retirement Board, Investment Department staff reported that STRS Ohio’s total fund return for the year ending June 30, 2015, was +5.45%. The board’s investment consultant, Callan Associates, reported that STRS Ohio’s one-year return ranked in the top 3% of its public fund universe. Pensions & Investments, a national publication on money management, recently published a list of public pension fund investment returns for the one-year period ending June 30, 2015, with STRS Ohio outpacing other top funds including CalSTRS (4.8%), Oregon Public Employees (4.3%) and Illinois State Board of Investment (4.3%).
STRS Ohio’s fiscal year 2015 return was consistent with staff’s annual plan forecast of moderate, positive returns. The total fund return beat its performance benchmark by 0.37%, meaning the system’s active management of the funds — rather than relying on index funds — added approximately $180 million in value after all investment costs during the fiscal year. The 5.45% return follows a strong +16.83% return in fiscal 2014. The value of investment assets as of June 30, 2015, was $74.2 billion.
Board Adopts Fiscal 2016 Budget Addendum; Fiscal 2015 Operating Expenses Total $1.7 Million Under Budget
In June, the Retirement Board adopted the fiscal year 2016 operating and capital budgets. At that time staff also submitted a budget addendum to the board, recommending an additional capital budget request for $1.6 million to upgrade software used for member and employer data. The board took action on that request during its August meeting, voting to adopt the addendum to the fiscal 2016 capital budget.
Final figures for fiscal year 2015 show that STRS Ohio’s operating expenditures were approximately $1.7 million less than budgeted for the year. Less than expected expenditures for salaries, performance-based incentives and professional and technical services accounted for much of the savings. Each month, STRS Ohio posts approved administrative expenses on its website.
Board Discusses Health Care Funding
STRS Ohio health care staff led a strategic discussion with the board regarding funding of the retirement system’s health care program. In March 2014, the board took action to improve pension funding, discontinuing the allocation of 1% of employer contributions to the Health Care Fund. The 2015 health care valuation indicated the loss of this 1% contribution reduced the solvency period of the Health Care Fund by 29 years — it is now estimated to remain solvent until 2034. The board plans to continue these discussions throughout the year ahead as it evaluates the financial condition of both the pension and health care funds.
The Retirement Board approved 3,480 active members and 173 inactive members for service retirement benefits.
Other STRS Ohio News
Paperless Open-Enrollment Packet Offered to Health Plan Enrollees
Enrollees in the STRS Ohio Health Care Program will have the option this year to receive paperless open-enrollment information. The e-delivery option is being promoted through emails that are being sent to enrollees with an email address on file with STRS Ohio. The first email was sent Aug. 18 to more than 71,000 enrollees and included instructions on how to select this delivery option.
In mid-September, a second email will be sent reminding enrollees they have until Sept. 27 to take advantage of the online delivery opportunity. Enrollees must register for an online personal account on the STRS Ohio website. The open-enrollment packet will be available in late October and educates enrollees on the 2016 health care program, including eligibility, coverage and premiums. The personalized letter and supporting materials available electronically are the same as the paper-based materials, which are scheduled to mail in October.
STRS Ohio is continuing to evaluate other communications that can be delivered effectively through the Web.
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