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.
The 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.