BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1435|
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THIRD READING
Bill No: SB 1435
Author: Johnston (D)
Amended: As introduced
Vote: 21
SENATE PUBLIC EMP. & RET. COMMITTEE : 3-0, 4/24/00
AYES: Ortiz, Karnette, Soto
NOT VOTING: Haynes, Lewis
SENATE APPROPRIATIONS COMMITTEE : 7-0, 6/12/00
AYES: Johnston, Bowen, Burton, Karnette, Kelley, Leslie,
Perata
NOT VOTING: Alpert, Escutia, Johnson, McPherson, Mountjoy,
Vasconcellos
SUBJECT : Teachers' health benefits: Medicare premiums
SOURCE : State Teachers Retirement System Board of
Administration
California Retired Teachers Association
DIGEST : This bill increases the monthly allowances paid
to retired State Teachers' Retirement System 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.
ANALYSIS :
Background
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Chapter 991, Statutes of 1985 (AB 528 - Elder) required
school districts which provide health insurance to permit
enrollment of State Teachers' Retirement System (STRS)
retirees in district health plans at the retirees' expense.
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.
Resolution Chapter 100, 1990 (AJR 71 - Elder) memorialized
Congress to establish a process for STRS retirees to
purchase the "quarters" needed to meet Medicare Part
eligibility.
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.
Chapter 740, Statutes of 1999 (SB 159 - Johnson) required
STRS to develop such a health care program, but provided
that the Legislature must approve implementation.
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:
1.They have paid for Medicare Part A premiums on their own
for seven years in a row.
2.They have worked at least ten years during their careers.
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
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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.
20% of STRS Retirees 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 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.
Federal Budget Balancing Act 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
1.They have paid for Medicare Part A premiums on their own
for seven years in a row.
2.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.
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
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retired STRS members.
This bill provides that:
1.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.
2.The increase will be the amount of the monthly Medicare
Part A premium.
3.The increase will be paid to the federal Health Care
Financing Administration, which administers Medicare, or
directly to the member
4.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.
5.The Medicare Part A payment amount will be adjusted
annually to reflect changes imposed by the federal
government.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
Fiscal Impact (in thousands)
Major Provisions 2000-01 2001-02
2002-03 Fund
Admin costs $35
STRF
Increase in annual -- Approximately $100 million
annually -- STRF
contributions
Costs result from monthly premiums of $301 for
approximately 11,000 retirees who are now eligible for the
benefit and an additional 29,000 members who will receive
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it upon turning age 65. The present value of total
long-term costs is $1.26 billion.
The Federal Balance Budget Act (BBA) of 1997 permits
retired STRS 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 ten years. STRS members
hired after April 1, 1986 are required to pay Medicare
taxes and will be eligible for free-premium Medicare Part A
coverage. Therefore, this bill 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.
This bill provides that the amount of 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.
Senate Appropriation Committee 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.
SUPPORT : (Verified 6/13/00)
State Teachers' Retirement System Board of Administration
(co-source)
California Retired Teachers Association (co-source)
California Federation of Teachers
California Medical Association
Congress of California Teachers
Los Angeles Community College District
Yuba College District (if amended)
TSM:cm 6/14/00 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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