As you know, we have been carefully tracking the House Budget Bill (HB192 / HCS1) to make sure our legislative priorities are included. As it stands, the House Budget Bill has language that concerns us and jeopardizes the long-term stability of the TRS Medical Insurance Fund. The language is highlighted in red below:
1 who are less than age 65 who do not qualify for the maximum health insurance
2 supplement payment for single coverage shall be determined by the same graduated
3 formula used by the Teachers’ Retirement System for Plan Year 2020.
4 Notwithstanding KRS 161.420 and 161.550, any General Fund contribution to the
5 Teachers’ Retirement System medical insurance fund in fiscal year 2020-2021 in excess
6 of the actuarially determined contribution shall carry forward and be considered the
7 General Fund contribution for fiscal year 2021-2022. The Teachers’ Retirement System
8 Board of Trustees shall report the amount carried forward to the Interim Joint Committee
9 on Appropriations and Revenue by August 1, 2021.
Before I explain our concern, let me properly define some key terms.
The Actuarially Determined Contribution (ADC) is determined each year based on a set of contribution and investment assumptions by professional actuaries. The ADC is the contribution required, that if assumptions are met, will guide the TRS Medical Insurance Fund to 100 percent funding.
The Statutory Required Funding is a funding formula determined by statute or law. The statutory funding specified in the HB540 – the Shared Responsibility Law of 2010 – dictates that:
The receipt of federal subsidies like Medicare Advantage, an unprecedented 10-year economic expansion, lower than expected medical inflation, and best-in-class investment performance has caused the TRS Medical Insurance Fund to be 61.7 percent funded. Higher than originally projected.
This language, if allowed to remain, would result in the Commonwealth not fully funding their statutory required amount as agreed in the 2010 Shared Responsibility plan (HB540). Instead, each year the KY General Assembly would fund only the Actuarial Determined Contribution while current teachers, retired teachers, and school districts continue to make their statutory contribution.
In other words, since the fund has experienced lower than expected medical inflation, the receipt of federal subsidies like Medicare advantage, an unprecedented 10-year economic expansion, and strong TRS investment performance, the General Assembly is now seeking to contribute less to the fund while the education community must continue to statutorily fund its obligation.
Our concern is “some” legislators think they are fully funding the Medical Insurance Fund by meeting the actuarially determined contribution. This was not the agreement and why we see “notwithstanding” language in this portion of the budget bill. The fund is receiving over the actuarially determine contribution 1) because it was originally drafted that way, 2) because since 2010 we have seen strong markets and TRS has made wise investment decisions with the fund, 3) Federal subsidies and rebates allow TRS to keep their costs lower than expected, 4) Medicare Advantage was believed to be short-lived in 2010 but is still going strong.
Our fear is if the General Assembly only meets the actuarially determined contribution as in HB 192/HCS1, the TRS Medical Insurance Full Funding will not be realized for several years – if ever, and if Medicare Advantage were to go away, a market downturn was to occur, Federal Subsidies and Rebates were to go away, or if the TRS Experience Study were to lower the assumed rate of return for the medical insurance fund. The TRS medical fund could experience the same fate in the next decade that we are seeing with our pension fund.
Now is not the time for the state to back of meeting its statutory obligations to this fund.
We are asking that the Commonwealth fully fund the Full Statutory required funding, the .75% of certified teacher payroll, and the subsidy for under 65 retirees. The actuarially determined contribution wording confuses the situation because the statutory funding is greater than the actuarially determined contribution. By using the actuarially determined contribution in the Bill language one can say they are fully funding medical insurance when in actuality it is not meeting the terms of the Shared Responsibility Plan. HB 192HCS1 doesn’t include the $52,434,000 TRS requested for the Medical Insurance Fund.