March 18, 2005

Retirement Board Adopts Guiding Principles and Goals for STRS Ohio Health Care Program
Recent meetings between the Health Care Subcommittee of the State Teachers Retirement Board, STRS Ohio staff and the Health Care Advocates (HCA) for STRS have resulted in revisions to the Guiding Principles and Goals for the STRS Ohio Health Care Program. At its March meeting, the board adopted this new set of principles and goals.

The Guiding Principles and Goals provide the framework for developing the 2006 Health Care Program Strategic Plan, as well as a longer range plan for 2007–2009. The new Guiding Principles, and accompanying rationale for each, are as follows:

1. Allocate the Health Care Program’s resources to provide a voluntary health care program for both current and future eligible retirees.

   Rationale: Reinforces program’s purpose is for both current and future eligible retirees.

2. Provide a cost-effective health care program focused on quality outcomes and services while meeting pension obligations.

   Rationale: Emphasizes “end” results, not program structure; reinforces fiduciary responsibility of board to meet pension obligations.

3. Continue to strive for a high level of member satisfaction and confidence in the delivery of health care services to the extent resources are available.

   Rationale: Acknowledges member satisfaction may decline as fewer STRS Ohio resources are available to help with the cost of health care coverage.

4. Recognize the longevity of Ohio service credit when allocating available health care resources.

   Rationale: Maintains board’s desire to reward career teachers when allocating health care resources.

5. Promote and provide support for members’ participation in the active management of their health.

   Rationale: Encourages members to take responsibility for managing their health and restates STRS Ohio’s role in providing tools to help members manage their health.

6. Encourage enrollees to use health resources efficiently and to take responsibility for the management of their health.

   Rationale: Encourages enrollees to be wise consumers and reinforces members’ ability and responsibility to influence their health status.

7. Contract with vendors who deliver high-value, cost-effective programs and services.

   Rationale: Emphasizes cost-effective purchasing of health care services focused on retiree populations; encourages partnership with vendors who make a commitment to high quality; bases programs and service selection on proven track record; and encourages assessing high-value programs and services based on evidence in the field.

8. Apply sound business principles in proactively managing the health care program focusing on continuous operational improvement.

   Rationale: Emphasizes the importance of striving to provide a quality health care program despite limited resources; clarifies that “continuous improvement” applies to operations, not benefits.

9. Use data, consistent with state and federal privacy regulations, to identify opportunities for program management, and, when appropriate, solicit member input to evaluate program management options.

   Rationale: Gives staff direction in basing program changes on data and seeking member input in the development of those changes.

The five goals for the STRS Ohio Health Care Program and accompanying rationale are as follows:

1. Continue the integration of Medicare Part D to preserve the viability of the STRS Ohio Health Care Program.

   Rationale: Gives direction on a major, new public initiative that impacts two-thirds of STRS Ohio Health Care Program enrollees.

2. Make necessary changes to the STRS Ohio Health Care Program, including an aggressive cost-management program, to maintain a principal of $3 billion in the Health Care Stabilization Fund through 2009.^*

   Rationale: Changes the goal from a 10-year solvency on a rolling basis that would deplete the fund to maintaining a principal of $3 billion in the Health Care Stabilization Fund; provides a longer-term operating framework.

   *Without any new additional funding, this would require cost savings of $47 million between 2007–2009. This also assumes a 1% employer contribution, Medicare Part D subsidies of $33 million per year and an 8% return on investment.

3. Explore options for new funding sources for the STRS Ohio Health Care Program while meeting pension obligations.

   Rationale: Gives direction to board, staff and stakeholders to develop a strategy for increasing funding to the health care program while meeting pension obligations.

4. Educate members and other stakeholders on the economic realities associated with health care financing and gain necessary support for sustaining health care in the future.

   Rationale: Gives priority to education efforts that help members and other stakeholders understand the challenges associated with the financing of retiree health care; acknowledges that efforts to preserve the health care program need the active support of all stakeholders.

5. Guide members to understand and accept personal responsibility for their health and for the cost-effectiveness of their health care.

   Rationale: Emphasizes members’ role in helping to control health care cost trends.

During the next four weeks, the Health Care Subcommittee will meet with staff and HCA to develop a draft Health Care Program Strategic Plan for discussion at the April board meeting.

Proposed Budgets for 2005–2006 Presented to Retirement Board
At its March meeting, the Retirement Board had its first look at the proposed system budgets for the 2005–2006 fiscal year. The proposed operating budget total of $85,953,800 reflects a 1% decrease from the 2004–2005 fiscal year budget, which totals $86,565,900. (Both of these totals reflect the addition of banking fees, which traditionally had not been included in the operating budget, but are now included to make the budget format conform with new Ohio Retirement Study Council requirements.) The proposed 2005–2006 budget is the lowest operating budget in the past five years. It includes an 11% decrease in travel, 7% decrease in communications, a 22% decrease in supplies and materials, and a 19% decrease in other expenses, plus a $1.1 million reduction in contract services for information technology. The proposed capital budget for 2005–2006 totals $2,994,900. The Retirement Board will be asked to approve the budgets at its May meeting.

In developing the budgets, staff was driven by the following goals:

• Make system operations in all areas as “lean” as possible, without jeopardizing delivery of pension benefits and services and health care coverage to members; adversely impacting investment operations; or failing to meet fiduciary responsibilities or legal requirements.
• Provide an appropriate compensation and benefits package and work environment to attract, retain and engage highly motivated associates.
• Comply with all Board Policies.
• Address Retirement Board priorities.
• Demonstrate and communicate to members that STRS Ohio is managing operating expenses prudently.

Board Approves Associate Compensation Study
During the Retirement Board’s Staff Benefits Committee meeting, the board passed a motion authorizing the executive director to engage an external consultant to complete a full compensation analysis for STRS Ohio. The analysis will include investment and non-investment positions, utilize public and private sector data, and recommend the mix and amount of base pay vs. variable pay for all positions. It is estimated that the board will receive the results of the study within six months.

During the meeting the committee also received an update on the C. James Grothaus Child Care Center. Current staffing, enrollment and tuition rates were reviewed, along with recent cost reductions in operating the center. It was pointed out that the child care center adds value to STRS Ohio and its members as evidenced by:

• Longer retention of associates, thus reducing turnover costs and saving up to $370,000 in recruiting and training costs per year.
• Increased productivity and flexibility of work schedules for associates due to the fact the center is open 11 hours per day.
• Helping to provide career opportunities for women associates, in particular.
• Improving morale and work/life balance for associates.
• Contributing to associate recruitment.

Going forward, it is important that the center reach full enrollment as quickly as possible, and staff presented ideas for marketing the center. Through a combination of increases in revenues and reductions in costs, it is expected that the center will be cost neutral by the 2007–2008 fiscal year.

Retirement, Investment Transactions Approved
The Retirement Board approved the following retirements and investment transactions:

• 35 disability retirements were granted.
• 125 active members were approved for service retirement; 84 inactive retirements were approved.
• In February, fixed-income purchases totaled $512 million, domestic equity purchases totaled $543 million and real estate purchases totaled $25 million.

Additional Items Reported at the Meeting by Executive Director Damon Asbury

Ballots Go in the Mail in April
VR Election Services will be mailing candidate information, ballots and instructions for voting to all eligible voters on April 4, 2005, for this year’s Retirement Board election. The deadline for voting by mail, telephone or Internet is May 2, 2005. The election results will be released on May 7, following certification by the boards of tellers. The candidates for the two retired teacher member seats are: Jeff Chapman, Teresa M. Green, L. Neil Johnson, Dennis Leone and W. David Speas. The candidates for the one contributing member seat are: Rolla Beach, Mary Ann Quilter Flannagan, Mark Fredrick and F. James Norris II.

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