Texas is quickly running out of money to fund healthcare for retired teachers, and lawmakers aren’t sure what to do about it.
“We’ve exhausted most of those resources,” Brian Guthrie, executive director of the Teacher Retirement System of Texas, told members of the state Senate Finance Committee on Wednesday. “It’s not sustainable, is the bottom line.”
The state’s largest public retirement system – funded by a mix of state and teacher contributions – expects its health insurance program to become insolvent in the 2016 fiscal year. It also projects a $768 million shortfall by the end of 2017. That’s largely because of soaringhealth care costs and lawmakers’ piecemeal approach to funding a system that experts have long considered unsustainable.
Unless lawmakers provide that cash, the retirement system has just two main tools to keep the fund solvent: hiking premiums for the fund’s more than 233,000 retirees and their dependents, or cutting their benefits.
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Several senators on the budget-writing committee promised to keep the fund afloat. But they were reluctant to shift the burden onto the retirees, including many who live on fixed incomes.
“I think everyone is very sympathetic to retired teachers, and very sympathetic to the fixed income they live on,” said Sen. Joan Huffman, R-Houston. “We’re going to try to do it without putting it on that back of teachers.”
How lawmakers might do that is unclear.
“We’re looking at all options,” said Sen. Jane Nelson, R-Flower Mound, chairwoman of the committee. “I don’t think anyone wants to do nothing.”
Teachers already pay for much of the program. In 2013, retiree premiums made up about 36 percent, according to Legislative Budget Board estimates, while the state chipped in 24 percent. Active teachers and school districts were the next-biggest contributors, followed by federal subsidies and investment income.
Current law requires the state to chip in an amount equal to 1 percent of the payroll of active public educators — about $495 million for the 2014-15 budget cycle. Both House and Senate budget proposals include $562.2 million in funding for the next two years, just enough to meet the 1 percent requirement.
For now, the Senate and House base budget plans include the language: “It is the intent of the Legislature that the Teacher Retirement System Board of Trustees shall not increase retiree health insurance premiums for the 2016-17.”
If lawmakers choose to tap the general fund to plug the short-term budget gap without making structural changes, the fund would still be short about $1 billion next biennium, Guthrie said.
The fund’s troubles are partly rooted in its hasty creation 30 years ago.
Before 1986, Texas had no health insurance program for retired teachers. When lawmakers created the program, they expected that its initial funding would last until 1995 — long enough to design a more sustainable model, according to an agency study. But lawmakers never did that, leaving the agency to occasionally request more funding to keep the program solvent – as it is doing now.
“This insolvency has been years in the making,” said Robert Norris, a senior analyst with the Legislative Budget Board.