Health Care Fund Status Update
The annual actuarial valuation of STRS Ohio’s Health Care Fund shows that strong investment returns and good claims experience had a positive effect on the fund. In addition, limiting future subsidy increases for Medicare enrollees to 6% and freezing future subsidies for non-Medicare enrollees significantly improved the funded status. The fund balance as of Jan. 1, 2018, was $3.69 billion — an increase of $469 million from the previous year’s valuation report. Segal Consulting said assuming the fund earns 7.45% in all future years and all other plan experience matches assumptions, the fund is now projected to remain solvent for all current members.
The valuation also showed that benefit payouts for 2017 totaled $517 million, an average of more than $1.4 million per day. The positive news for the Health Care Fund is tempered somewhat by the volatile nature of various components of the valuation report. Examples of these components include investment returns, government subsidies and rebates, plan enrollment and utilization, and Affordable Care Act taxes. These were areas that led to gains for the Health Care Fund in 2017, but are not predictable for 2018 and beyond. The health care valuation report is completed on an annual basis; however, the timing of the next health care valuation has been moved to July 1, 2018, to align with the next pension valuation.
In the months following the health care valuation, the board has discussed steps that STRS Ohio could consider to reduce the investment rate of return volatility for the Health Care Fund. Staff shared potential pros and cons of lowering the investment risk in the fund portfolio. Staff shared that with no current employer funding, the Health Care Fund is more susceptible to the economic cycle, and reducing investment risk means reducing the severity of possible negative investment return outcomes. However, reducing investment risk would also reduce some potential gains if investment markets continue to climb significantly above current levels. The board indicated it will continue its discussion on the Health Care Fund at future meetings.
Board Approves 2019 Health Care Premiums
The State Teachers Retirement Board approved health care program and dental and vision premiums for 2019 at the May board meeting. Staff works with health care consultants and actuaries to develop expected costs for the health care plans. Lower than anticipated health care claims during the review period for STRS Ohio’s self-insured plans had a positive impact on 2019 premiums for these plans. This means premium increases will be smaller than the consultants’ original projections. About 92% of enrollees will have a $0 increase. Premiums for 2019 are now posted on STRS Ohio’s website.