Board Adopts Health Care Program Improvements for 2023 Plan Year, Increases Premium Subsidy to Retirees
During its April meeting, the State Teachers Retirement Board adopted several changes to the STRS Ohio Health Care Program that will have a positive impact on nearly all plan enrollees. The changes will increase the subsidy level for health care premiums, modify Medicare Part B reimbursements and adjust certain health plan coverage features as outlined below.
Board approved plan changes for the 2023 plan year:
- Increased premium subsidy to 2.2% per year of service (up to 30 years of service or 66% maximum) from 2.1% per year of service (up to 30 years of service or 63% maximum). With this improvement, more than 95% of benefit recipients will have a health care premium decrease beginning Jan. 1, 2023.
- Improved the primary care physician copay for the Medical Mutual and Aetna Basic Plans and the Health Care Assistance Plan to a $20 copay for each visit.
- Decreased the drug maximum out-of-pocket limit to protect enrollees from a catastrophic event. Limit recommended to decrease to $4,000 for Medicare and non-Medicare plans.
- Changed pharmacy network to one of Express Scripts’ high performing networks. This will produce $2.4 million in annual savings that will be used to lower premiums.
- Replaced the current $29.90 Medicare Part B reimbursement to a premium credit of $30. This credit will also be applied to survivor benefit recipients and annuitants who do not currently receive Medicare Part B reimbursements.
STRS Ohio staff also provided the board with a preview of 2023 health care plan premiums. The board is expected to act on 2023 premiums at its June meeting.
STRS Ohio Investments Benefit From Diversification, Active Management
STRS Ohio Executive Director Bill Neville shared positive news about the pension fund’s historical investment returns. STRS Ohio has received questions about fund performance compared to the performance of various index funds. Staff put together a comparison of STRS Ohio total fund performance from 1999–2021 versus the S&P 500 Index, the Russell 3000® Index and various portfolios containing a blend of U.S. stocks and bonds. These comparisons used return data and accounted for STRS Ohio’s monthly cashflows. At the end of the period, STRS Ohio’s funded ratio stood at approximately 88%, with assets of about $92 billion. The analysis showed that if STRS Ohio’s portfolio was 100% invested in the S&P 500 Index over that same time span, the pension’s funded ratio would have been approximately 47% and assets would have totaled about $49 billion. Similar analysis on the Russell 3000® Index produced a funded ratio of approximately 66% and an asset total of about $69 billion.
Staff compared actual performance to a basket of indexed U.S. stock/bond mixes and STRS Ohio’s actual performance resulted in a better outcome than all of the stock/bond mixes reviewed. These results emphasize the importance of maintaining a diversified portfolio and the historical value of active management.
Proposed STRS Ohio Operating, Capital Budgets Shared With Board
STRS Ohio’s Finance Department presented its proposed system budgets for fiscal year 2023 (July 1, 2022–June 30, 2023). The proposed operating budget totals $112.5 million, an increase of 4.9% from the current year budget. Staff shared that the increase is higher than recent years in part because fiscal 2023 includes 27 pay periods, instead of the usual 26. This is a product of being a bi-weekly payroll employer.
This unusual occurrence happens every 10–11 years. The 27th pay period accounts for $2.1 million of the increase in the proposed budget. While staff does not receive step, COLA or automatic salary increases, the budget does include a 3% increase for merit-based wage adjustments, including promotions.
The budget proposal reflects 521 full-time equivalent associates, a net reduction of nine positions from the current year budget. The proposed budget shows a decrease in the fees for the actuary and investment consultants and a decrease in contract services. Proposed increases are included for custodian banking fees, due to higher investment values and new regulatory requirements; increased costs in insurance and supplies; and data processing equipment.
STRS Ohio’s proposed capital budget for fiscal 2023 totals $7.9 million, a 13.7% decrease from the current year. Combined, the proposed fiscal 2023 capital and operating budgets are about 3.4% higher than fiscal 2022. Staff will share the proposed budgets with the Ohio Retirement Study Council. The board is expected to vote on 2023 budgets at its June meeting.
The Retirement Board approved 85 active members and 69 inactive members for service retirement benefits.
Other STRS Ohio News
STRS Ohio earns auditor of state’s top rating for transparency for second year
Last month, Ohio Auditor Keith Faber posted the results of the annual Sunshine Law compliance review. The auditor’s office launched its STaRS (Star Rating System) program to promote government transparency. In both fiscal year 2020 and 2021, STRS Ohio received the Highest Achievement in Open and Transparent Government Award, the highest possible rating from the auditor’s office. In fiscal 2021, STRS Ohio was recognized for implementing “Best Practices” in all seven areas.
Separately, the National Conference of Public Employee Retirement Systems (NCPERS) also recognized STRS Ohio with the Certificate of Transparency for participating in the 2021 NCPERS Public Retirement Systems Study. The certificate acknowledges the system’s contribution to furthering open disclosure, increasing the range of data available to learn from and contributing to the public’s understanding of public retirement systems.