Today’s Health Care Situation

1. How much does health care coverage cost today in Ohio?

• Typically, group health care plans for active teachers annually cost employers about $3,400 for individual coverage and nearly $8,000 for family coverage.

• Health care costs go up as people get older. Good health care coverage for a healthy single person age 60 costs more than $6,000 per year. Federal Medicare helps people age 65 or older with the cost of their medical expenses. However, Medicare does not cover most prescription drugs.

2. How is active teacher health care coverage arranged and paid for?

• Federal and Ohio law states teachers’ employers can negotiate with teacher professional organizations over the terms of employment, including offering benefits like group health care and how much teachers pay for it.

• Ohio law states a bargaining agreement that contains terms for active teacher health care coverage becomes the obligation of the employer to provide for the term of the contract.

• When school board budgets are built, the cost of salaries and benefits for teachers, including their health care coverage, is included for the term of the contract.

3. How does this differ from the way retiree health care works?

• Ohio law requires public school teachers and their employers (such as school boards) to contribute to the State Teachers Retirement System of Ohio (STRS Ohio) to fund future retirement, survivor and disability benefits when members become eligible.

• Ohio law does not authorize the State Teachers Retirement Board to negotiate with teacher professional organizations over the terms of retired teacher health care.

• Ohio law allows the State Teachers Retirement Board to help retirees by arranging for them to have access to health care plans it negotiates with vendors like Aetna and Medical Mutual.

• Ohio law does not authorize the State Teachers Retirement Board to use any of the money it has today or that it will collect in the future on health care if it needs those dollars to guarantee the payment of pensions and disability benefits.

• Those retirees who choose to enroll in the STRS Ohio Health Care Program must pay a portion of their health care cost, up to 100% of the premium cost.

4. How is the STRS Ohio Health Care Program funded today?

Money to pay for retiree health care costs is held in a separate account known as the STRS Ohio Health Care Stabilization Fund. This special fund to help retirees is supported by: Employer contributions not needed annually to guarantee pensions and disability benefits.

Premiums paid by enrollees in the program.

Money that the Retirement Board set aside earlier and accompanying investment earnings that have not yet been used to pay health care bills.

5. What has the Retirement Board done in the past to help retired teachers pay the cost of their health care insurance?

• The board has pushed every possible dollar into the Health Care Stabilization Fund to help pay a portion of retirees’ health care coverage costs. These special allocations total $2.9 billion since they began in1983. The balance in this fund today is about $2.5 billion. Without the board’s actions, the plan’s ability to help retirees with the cost of their coverage would have been exhausted in 1990.

• The board has created a premium structure that rewards time in the classroom. Retirees with 30 years of service to Ohio pay the lowest premium. Short-service retirees pay 100% of their premium. With its limited ability to help, the board feels this is equitable.

• The prescription drug plan has copayments that encourage use of cost-effective generic and formulary drugs and mail-service.

• The Retirement Board requires retirees to enroll in Medicare when eligible.

6. What’s the outlook for retired teacher health care in Ohio today?

• The Retirement Board is seeing double-digit increases in medical and prescription drug costs due to advances in medical technology, expensive “miracle” drugs and aggressive advertising of brand-name drugs.

• All older Americans, including Ohio’s retired teachers, are making increased use of prescription drugs and medical services to improve the quality of their lives.

• Experts tell the Retirement Board that it should anticipate that health care will cost $1,000 a month by the year 2010 for a single retired teacher under age 65 without dependents.

• More than two consecutive years of unprecedented losses caused by a sustained fall in stock markets have caused a major decline in the funding status of STRS Ohio pension benefits. Consequently, at the urging of the executive director, the Retirement Board voted on Nov. 15, 2002, to raise the employee contribution rate to 10% from 9.3% effective July 1, 2003. This is the maximum the board can ask teachers to contribute under existing Ohio law. To further bolster the pension fund, the board also reduced the allocation of employer contributions to subsidize health care to just 1% of teacher payroll. This action built on last month’s plan to put more of the employer contributions into pension support than had been done in fiscal year 2002.

The combination of additional contributions from teachers and moving 3.5% of the annual employer money from the health care fund to pension fund support was necessary, given the board’s fiduciary duty under Ohio law. Generally Accepted Accounting Principles and Ohio law require the board to use the money it collects to fund pensions in a way that amortizes the system’s unfunded pension liability in 40 years or less. These increases in allocations to the pension fund were necessary to get the funding period down to that level.

Implementing them will reduce the funding period to 39 years. The board’s action in November ensures that service retirement, disability and survivor benefits for our future retirees are not jeopardized.

• With the allocation change in employer contributions, the Health Care Stabilization Fund will be depleted by 2008 if no other changes are made.

• If the fund is depleted, all current and new retirees wanting STRS Ohio health care coverage will need to pay 100% of their annual premium. The Retirement Board will do all it can to see that this does not happen, but its legal role in Ohio is to protect the retirement system’s funds to pay promised pensions and disability benefits.

• STRS Ohio retirees can expect extensive changes beginning in 2004. Each following year, the Retirement Board will have to reevaluate the health care funding situation and make additional changes as necessary.

7. What are STRS Ohio’s goals for tackling the health care funding problem?

• Continue to provide retirees with access to quality health care.

• Fairly share the projected funds it can use to help with the cost of retiree health care among current and future retirees for at least 10 years going forward.

• Preserve choice.

• Use our size as buying power to get the best price from vendors.

• Announce necessary changes as far in advance as possible and phase them in to allow active teachers and retirees time to plan for higher premiums.

8. How can I keep informed about changes to the STRS Ohio Health Care Program?

• Read the materials that you receive from STRS Ohio.

• Watch for articles in your STRS Ohio newsletters.

• Browse the STRS Ohio Web site (www.strsoh.org), particularly the “STRS Ohio News” on the home page.

• Attend one of the regional meetings being held around Ohio in February and March.

• Send your questions or comments to HCcomments@strsoh.org.