Bob Stein

The STRS health-care program should be guaranteed consistent funding by state or federal legislation.  While I fully support HB 315, the current political and economic situation suggests that it is not likely to pass in the next year or so, even in a revised form.  Direct funding of retirement benefits including health-care from federal or state budgets is also common but is unlikely to benefit STRS in the reasonable future.

The December 2008 STRS estimate suggests that the STRS healthcare stabilization fund (HCSF) has a solvency period of about six years.  This means that, at current estimates, significant decreases in health care benefits or health care cost increases are likely to be necessary by 2015.  The HCSF began in 2000 when, largely as a result of investment returns below expectations, STRS retirees were first required to pay for their health-care. Since that time HCSF solvency has mostly been between 13 and 15 years.  2003 was the last time HCSF solvency was six years.  This resulted in health care policy changes for 2004 that increased the solvency to 11 years and also increased retirees’ costs and reduced their overall benefits. My goal is to increase the healthcare HCSF solvency without negative impact on retirees.  Factors to consider include:

• The allocation to the HCSF is related to investment returns.  Discussions tend to separate concerns related to the HCSF and those related to the pension fund. The ability of STRS investments to provide consistent returns is the principal issue for both pension benefits and health care funding.  I believe the pension fund and the HCSF must be considered together.  STRS’s investment models need to be updated to consider the effects of global trade and globalized financial markets.  There are a several actions that the board could take to significantly improve long-term investment performance and perhaps both secure pension benefits and fund the HCSF.  Review details via the "investments" link.

• It has been suggested that STRS eliminate its Medicare program.  The rationale for this is that there are commercially available Medigap policies that can deliver the same level of service as STRS at competitive rates.  While this would increase HCSF solvency to over 30 years, commercially available Medigap policies are priced based on age and health.  Use of commercial plans may increase costs to the least healthy STRS retirees since STRS coverage only considers years of service.  Medicare does not pay for services delivered outside the United States. This may increase concerns for Medicare retirees with commercial Medigap policies who travel or live abroad.  Retirees should be allowed the option of STRS coverage even if STRS promotes the use of Medigap plans.