BILL ANALYSIS Appropriations Committee Fiscal Summary SB 1435 (Johnston) Hearing Date:5/15/2000 Amended:As introduced Consultant: Maureen Brooks Policy Vote:P. E. & R. 3-0 ____________________________________________________________ ___ BILL SUMMARY: SB 1435 increases the monthly allowance paid to retired members of the Defined Benefit Program of the State Teachers' Retirement System (STRS) in an amount equal to the member's premium for Medicare Part A. The bill limits eligibility to members who are at least 65 years of age, enrolled in Medicare Part B, and not eligible for Medicare Part A without payment of a premium. Fiscal Impact (in thousands) Major Provisions 2000-01 2001-02 2002-03 Fund Admin costs $35 STRF Increase in annual contributions -------approximately $150 million annually----- STRF STAFF COMMENTS: This bill meets the criteria to be placed on the Suspense file. Costs result from monthly premiums of $301 for approximately 17,500 retirees who are now eligible for the benefit and an additional 41,000 members who will receive it upon turning age 65. The present value of total long-term costs is $2.1 billion. The Federal Balance Budget Act (BBA) of 1997 permits retired CalSTRS members and their beneficiaries to participate in Medicare Part A without any premiums if 1) they have paid Medicare Part A premiums for seven consecutive years, and 2) they have worked at least 10 years. CalSTRS members hired after April 1, 1986 are required to pay Medicare taxes and will be eligible for free-premium Medicare Part A coverage. Therefore, SB 1435 will provide a benefit to a limited number of STRS retirees and that number will decline as more members will be subject to mandatory Medicare payroll tax through their employment. SB 1435 provides that the amount for Medicare Part A will be payable directly to the federal Health Care Financing Administration unless the member elects to directly receive the allowance. The bill requires that the amount be adjusted annually to reflect changes imposed in the premium by the federal Health Care Financing Administration. Staff notes that the amount of the premium is not 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.