HCA Recommendations for STRS Retiree Health Care

February 9, 2004 The following recommendations are those of Health Care Associates, a consortium of Ohio groups including AAUP, OEA, Inter-University Council, and others. The Ohio Faculty Council presents the HCA recommendations for information purposes only and does not necessarily endorse them.

1. Retiree Health Care Plan Design - Maintaining Affordability

The HCA believes that STRS took reasonable and prudent steps in designing the health care plan for 2004 in order to stabilize and sustain the system for the long-term. The HCA supports the recommendations of the STRS Board and staff to carefully examine cost trends and usage data over the course of 2004 to better understand the impact of the changes on members, their families and STRS.

The current in-network health care plan design provides the following basic features:

Plus Plan

Annual deductible per enrollee: $500
Out-of-Pocket Maximum: $1,500 single, $3,000 family
Lifetime Benefits Maximum per individual: $2.5 million
Hospital, Skilled Nursing and Home Health Care services: Enrollee pays 20%
Outpatient Services: Enrollee pays 20%

Prescription Drug Coverage

Retail Co-Payment (30-day supply):

  • Generic: $15
  • Select Brand Name: $35
  • Other Brand Name: $75

Mail Service Co-Payment (90-day supply):

  • Generic: $30
  • Select Brand Name: $70
  • Other Brand Name: $150

Prescription drug annual out-of-pocket maximum: $2,500

HCA supports the basic structure of the current health care plan design for continuation into the foreseeable future with one significant modification: The annual out-of-pocket maximum for prescription drugs should be reduced to $1,500 and the co-pay for high cost name brand prescription drugs should be reduced. This change is necessary to improve affordability for retirees and should be enacted as soon as possible.

HCA recognizes that for some low-income retirees the effects of health care cost increases is a hardship. HCA supports STRS efforts in 2003 to create hardship assistance. As promised by the Board last year, it is time to revisit those provisions and improve them by including household incomes and health care costs in the program.

2. Eligibility for Retiree Health Care and Premium Subsidy

HCA supports the service based subsidy framework that provides 2.5% of premium support for each year of service with a cap of 75%. The HCA continues to have concerns with the denial of access for members with less than 15 years of service. This limitation is having a detrimental impact on higher education's capacity to recruit and retain faculty.

HCA supports restoring access to health care, without premium subsidy, for retired members with 5-15 years of service credit as part of a package of policy changes that ensures affordable health care into the future.

3. Maintaining the Focus on Health Care Cost Containment

Rising health care costs are the largest risk to STRS' ability to continue to provide affordable health care to Ohio's retired educators. HCA strongly recommends that STRS take immediate and aggressive steps to reduce the rate of increase in health care costs while maintaining quality services. HCA has provided the following recommendations previously and continues to believe that they provide the best opportunities for cost containment.

Health Care Cost Containment Strategies

  1. Continue to explore prescription drug procurement options including negotiations with the current Pharmacy Benefits Manager versus a Request for Proposal process (RFP).
  2. Further investigate patient health risk assessment and patient care management options including a potential RFP process.
  3. Accelerate consideration of the hiring of a physician and pharmacist.
  4. Push current third-party administrators on the development of concentric provider networks and consider concentric networks from other sources.
  5. Continue to explore procurement options including direct negotiations with drug companies.

4. Medicare Prescription Drug Reimbursements

The recently passed federal Medicare Prescription Drug Bill legislation provides an opportunity for STRS to seek federal support for retiree prescription drug costs.

HCA strongly recommends that STRS investigate the potential of taking advantage of Medicare prescription drug reimbursements while maintaining quality services for eligible retirees.

5.Funding Requirements for Maintaining Affordable Retiree Health Care

One of the keys to maintaining affordable healthcare is the continuation of the Health Care Stabilization Fund (HCSF) and the employers' contribution to the support of retiree health care costs. The current shared cost arrangement is as follows:

2003 Health Care Funding Shares by Source

Source Percentage of Cost

  • Active Employees 0%
  • Retirees (annual premiums) 30%
  • Employer contributions (HCSF) 50%
  • Employer 1% Financing 20%
  • Total 100%

HCA recommends that STRS seek to create a Health Care Trust Fund (HCTF) to provide ongoing support for retiree healthcare using retiree premiums, proceeds of the Health Care Stabilization Fund (HCSF), the 1% employer contribution and up to an additional 2% employee contribution as needed. Employee contributions to the HCTF should be phased in over time in marginal increments so as to minimize the burden on active educators. As economic conditions improve, STRS should increase the employer set aside for health care from within the current 14% contribution.

Based on analysis provided by Hewitt Associates, HCA believes that it is possible and affordable to maintain the Health Care Trust Fund for the long term so as to:

  1. Provide ongoing support for retiree health care
  2. Keep pace with increased health care costs
  3. Maintain and if possible improve the current shared arrangement for retiree health care costs.

6. Legislative Requirements

Last year STRS and HCA agreed to seek legislative enhancements that would allow STRS to create individual Retiree Medical Accounts. HCA continues to believe that these accounts would provide a valuable tool for retirees to use as they face a future of increased health care costs.

To implement the recommendations provided above STRS would need two specific changes to the current statutes:

  1. The creation of a Health Care Trust Fund to house retiree premiums, the proceeds of the Health Care Stabilization Fund, and employer and employee contributions.
  2. The capacity by the STRS Board to increase employee contributions and dedicate them to health care.

7. Expectations for Health Care

Many of us would like to provide a guarantee that Ohio's educator retirees will receive affordable quality health care into the future. STRS has worked hard in providing health care but it is not likely that given the many uncertainties of the future that affordable health care can be guaranteed. That is why it is critical that STRS take action to implement the full range of HCA recommendations regarding affordability, eligibility, cost containment, Medicare reimbursements and funding.

It is also important that if we ask active educators to set aside monies out of their paychecks for health care, monies be available to subsidize their health care when they retire. This means that we must work toward a set of fiscal polices that promises that educator contributions for health care will be protected and used only for health care. That monies set aside will be invested wisely with the goal that they will be available when educators retire.

Taken together these actions will set in place a sound foundation for the future that makes affordable health care a reality.