October 13, 2005
RETIRED TEACHERS' HEALTH INSURANCE
By: Judith Lohman, Chief Analyst
You asked for a history of state requirements for retired teachers' health insurance. You were especially interested in any differences between those retiring before passage of the 1986 Education Enhancement Act and later retirees.
This report updates our 2004 report on the history of the state's health care subsidies for retired teachers' health coverage (2004-R-0509).
Health insurance for retired teachers is provided either by the Teachers Retirement System (TRS) or by the retiree's last employing board of education. The cost is shared by the state General Fund, contributions from active teachers, and retiree contributions (CGS §10-183t).
The major factor that determines how a retired teacher gets health coverage is not when he retires but whether he participates in Medicare Part A. Those who do may choose a Medicare supplement plan provided by TRS. Those who do not must be offered coverage by their last employing board of education. The law requires local boards to offer retirees the same plan they offer their active teachers.
Federal law requires all state and municipal employees hired on or after April 1, 1986 to contribute to and participate in Medicare. Connecticut teachers hired before that date were excluded from both Medicare and Social Security under a 1951 state law. (TRS members are still not covered by Social Security for their Connecticut teaching service.) Because of the federal requirement, teachers who retired recently are more likely to be covered by Medicare and thus eligible for the TRS Medicare supplement plan.
The TRS first began offering health insurance coverage for retired TRS members in the mid-1950's through a group health insurance plan. At first, retirees were responsible for paying the full cost for the coverage and monthly premiums were deducted from retirement benefit checks. In 1978, in response to rising health insurance costs, the legislature required the state to pay 10% of TRS retirees' health insurance costs (25% for disabled retirees) (PA 78-228).
During this time, retired Connecticut teachers did not receive Medicare except through a spouse or through other employment because, by state law, teachers were not covered by either Social Security or Medicare for Connecticut public school teaching service (CGS § 7-454).
On March 19, 1986, Congress passed a law requiring all state and local government employees, including Connecticut teachers, to be eligible for, and contribute to, Medicare if they were hired on or after April 1, 1986.
In May 1986, the General Assembly passed the Education Enhancement Act, which dramatically raised Connecticut's teacher salaries over the ensuing three years. At the same time, in an effort to provide better coverage to retirees at a lower cost, it also required local boards of education to offer health insurance benefits to retirees and spouses who did not have Medicare Part A (PA 86-1, May Special Session).
The legislation also transformed TRS' group heath insurance into a Medicare supplement plan, with participation limited to retirees eligible for Medicare Part A. It increased the state's contribution to the TRS plan premium from 10% to 25% and from 25% to 45% for disabled members. The state contribution came from General Fund appropriations. The state provided no subsidy to local school boards for the cost of providing mandatory coverage for TRS retirees not eligible for Medicare.
In 1989, the General Assembly established a separate Health Insurance Premium Account (HIPA) to subsidize health insurance for retired teachers and their spouses (PA 89-342). The account was funded by the 1% supplemental contributions that active teachers contributed from their salary in addition to their pension contribution. These contributions were previously used to fund TRS survivor benefits. Instead, the 1989 law allocated $500,000 annually from these contributions to survivor benefits with the remainder going to HIPA.
HIPA was required to contribute 75% of the cost of the TRS plan premium, with the state paying the remainder from the General Fund. There was no cost to the retiree. The 1989 premium was $87.51 per retiree per month. The state was also required to fund any shortfall in HIPA contributions to the state plan.
PA 89-342 also required the state to subsidize the cost of local board coverage for their retired teachers. The subsidy amount was the same as the TRS plan premium, with funding for subsidies coming exclusively from HIPA. The state subsidy could be used only to offset retiree contributions, not to reduce costs to the local boards. The law allowed local boards to either pay any premium costs that exceeded the subsidy themselves or to charge the retirees for those additional costs.
Monthly per-member premiums for the TRS plan (and therefore the local board subsidy) were:
● $89.51 in January 1991
● $117.43 in January 1992
● $129.40 in January 1993
● $117.43 in January 1994
In January 1994, TRS established its own self-insured plan with a monthly, per-member premium of $100. That increased to $105 in January 1996 and $110 in July 1996.
By 1998, rising health insurance costs led the General Assembly to modify retired teacher health insurance benefits. PA 98-155 required TRS to establish one or more basic plans to be offered at no cost and one or more optional plans under which retirees paid the difference in the premium cost between the basic and optional plans.
The act changed the mandatory General Fund state contribution for the TRS plan to the greater of 25% of the cost of the basic plan or 25% of the rate in effect for FY 1998 ($110 per month). This meant the General Fund contribution could not fall below its 1998 level of $27.50 per month even if plan costs went down. If premiums increased, the state had to pay 25% of the amount from the General Fund. Thus, premium savings had to be used to reduce the burden on active teachers' contributions through HIPA. In addition, the state had to pay 25% of the local board subsidy, previously funded entirely by HIPA, from the General Fund.
In 2000, the legislature severed the relationship between the TRS plan premium and the local board subsidy by freezing the local board subsidy at the amount paid in 1998, which was $110 (PA 00-187). It also required retirees covered by the TRS plan to contribute 25% of the basic plan premium. The state was still required to pay 25% of the plan cost from the General Fund, with the remainder coming from HIPA.
Despite adjustments, rising health insurance costs continued to put pressure on HIPA. In response, the General Assembly passed PA 03-232. Under the act, active teachers' contributions to HIPA increased from 1% of salary to 1.25% as of July 1, 2004. As of July 1, 2005, the act increased the state contribution to the TRS plan and to subsidies for local board coverage for retired teachers from 25% to one-third of either the cost of the TRS plan or the cost in effect for FY 1998, whichever is greater. Finally, also as of July 1, 2005, premium copayments for retired teachers covered by the TRS plan increased from 25% to one-third of the basic plan premium.
Since passing PA 03-232, the General Assembly has made only one minor adjustment in retired teachers' health coverage. PA 05-98 requires those receiving health benefits through TRS plans to be actually participating, rather that just eligible to participate, in Medicare Part A. The act also made several technical changes.