BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 1435
Deborah V. Ortiz, Chair Hearing date: April 24, 2000
SB 1435 (Johnston) as introduced 2/7/00 FISCAL: YES
STRS: PAYMENT OF MEDICARE PART A TO CERTAIN STRS RETIREES
WITH MONIES FROM THE STRS FUND
HISTORY :
Sponsor: State Teachers Retirement System Board of
Administration
California Retired Teachers Association (CRTA)
Prior legislation: see below
SUMMARY :
Would increase the monthly allowances paid to retired STRS
members to cover the premium for Medicare Part A; to qualify,
the member must be at least 65 years of age, enrolled in
Medicare Part B, and not eligible for Medicare Part A without
the payment of a premium.
BACKGROUND
1) Chapter 991, Statutes of 1985 (AB 528 - Elder) required
school districts which provide health insurance to permit
enrollment of STRS retirees in district health plans at the
retirees' expense.
2) Chapter 1006, Statutes of 1989 (AB 265 - Elder)
authorized school districts to conduct elections for active
STRS members, allowing them to choose to join Medicare at
their own expense.
3) Resolution Chapter 100, 1990 (AJR 71 - Elder)
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memorialized Congress to establish a process for STRS
retirees to purchase the "quarters" needed to meet Medicare
Part eligibility.
4) Chapter 968, Statutes of 1998 (SB 1528 - Schiff) required
STRS to conduct a study on the feasibility of a health care
program, including vision and dental, for active and retired
STRS members, and their beneficiaries, children and dependent
parents.
5) Chapter 740, Statutes of 1999 (SB 159 - Johnston)
required STRS to develop such a health care program, but
provided that the Legislature must approve implementation .
6) Federal Balanced Budget Act (BBA) of 1997 , Public Law
105-33 permits retired STRS members and their beneficiaries
to participate in Medicare Part A without payment of a
premium under the following conditions: a) they have paid
for Medicare Part A premiums on their own for seven years in
a row; and b) they have worked at least 10 years during
their careers.
7) EXISTING FEDERAL MEDICARE PROGRAM
Medicare has two different programs: Part A covers
hospitalization costs, while Part B covers physician visits.
Most employees pay a Medicare payroll tax equal to 1.45% of
salary and become eligible for Part A coverage at age 65 if
that payroll tax is paid for ten years (40 "quarters"). STRS
members pay such a payroll tax only if they were hired on or
after April 1, 1986 or agreed, in an election held by the
employer, to be covered by the payroll tax. Other STRS
members receive Medicare coverage due to other (non-teaching)
employment, or because their spouses are covered.
8) 20% OF STRS RETRIES ARE NOT COVERED BY MEDICARE PART A
STRS estimates 23,000 (20%) of the retired STRS members over
age 65 are not eligible for Medicare Part A either from their
employment or through their spouses.
For members who did not qualify for Medicare Part A coverage
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due to prior employment or through their spouses, the cost of
the Medicare Part A premium for the year 2000 is $301 per
month. The Medicare Part B premium for the year 2000 is
$45.50 per month.
9) FEDERAL BUDGET BALANCING ACT (BBA) PERMITS STRS RETIREES
TO PARTICIPATE IN MEDICARE AT REDUCED COST AFTER 1/1/98
Effective January 1998, the Federal BBA permits retired STRS
members and their beneficiaries to participate in Medicare
Part A without payment of a premium if:
a) they have paid for Medicare Part A premiums on their own
for seven years in a row, and
b) they have worked at least 10 years during their careers.
Individuals who are 65 or older who have earned 30 or more
quarters (but less than 40 quarters) are entitled to a 45%
reduction in their Medicare Part A premiums.
If the person pays the reduced premium for seven years and
meets all other qualifying conditions, he or she also becomes
eligible for 100% free Medicare Part A coverage.
10) STRS CURRENTLY HAS NO HEALTH PLAN FOR MEMBERS
STRS currently neither provides health insurance, nor plays
any role in securing health care coverage for active or
retired STRS members.
ANALYSIS :
THIS BILL provides that:
a) there shall be an increase in the monthly retirement
allowance of STRS members who are at least 65 years of age,
enrolled in Medicare Part B, and are not eligible for
Medicare Part A without paying a premium,
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b) the increase will be the amount of the monthly Medicare
Part A premium,
c) the increase will be paid to the federal Health Care
Financing Administration, which administers Medicare, or
directly to the member,
d) the amount of the Medicare Part A premium paid by STRS
shall not be considered a vested benefit, and will not be
added to the member's allowance in determining future cost
of living increases and supplemental purchasing power
payments,
e) the Medicare Part A payment amount will be adjusted
annually to reflect changes imposed by the Federal
Government.
FISCAL IMPACT :
1) The committee is advised that every STRS member who was
hired on or after April 1986 is required to pay Medicare
taxes and, therefore, is earning quarters toward free-premium
Medicare Part A coverage. Thus, this bill would provide
assistance for a limited group of retirees, which will
decline in size as more STRS members are subject to the
mandatory Medicare payroll tax through their employment.
2) According to STRS , this bill would have the following
actuarial impact:
a) lump sum cost: $994 million, or
b) expressed as an increase in the STRS contribution rate
(which is currently 8% employee + 8.25% employer = 16.25%
of statewide teacher payroll): .496%.
COMMENTS:
1) SUPPORT :
California Federation of Teachers (CFT)
California Medical Association (CMA)
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2) OPPOSITION :
None to date.
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