BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 1435
                                                                  Page  1

          Date of Hearing:   August 9, 2000

            ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL  
                                      SECURITY 
                                  Lou Correa, Chair
                   SB 1435 (Johnston) - As Amended:  August 7, 2000

           SENATE VOTE  :   34-4
           
          SUBJECT  :   Teachers' health benefits: Medicare premiums

           SUMMARY  :   Requires the State Teachers' Retirement System  
          (CalSTRS) to pay the premium of Medicare Part A for specified  
          retired members of the Defined Benefit Program.  Specifically,  
           this bill :   

          1)Establishes a special trust fund known as the Teachers' Health  
            Benefits Fund into which an amount from the employer  
            contributions will be transferred to pay the Medicare Part A  
            premium for specified retired CalSTRS members.

          2)Provides that effective July 1, 2001, CalSTRS shall pay to the  
            federal Health Care Financing Administration (HCFA) the  
            premiums of Medicare Part A for retired CalSTRS members who  
            meet the following requirements:

             a)   Retired from the CalSTRS Defined Benefit Program prior  
               to January 1, 2001;

             b)   Are not eligible for Medicare Part A without payment of  
               a premium;

             c)   Are at least 65 years old; and,

             d)   Enrolled in Medicare Parts A and B at age 65 or as of  
               July 1, 2001, whichever is later.

          3)Authorizes the CalSTRS board to extend eligibility for the  
            Medicare payments to members of the Defined Benefit Program  
            who meet the above requirements and retire after January 1,  
            2001, within a calendar year specified by the board.

          4)Provides, for those members retiring after January 1, 2001,  
            that in order to be eligible for the Medicare benefit, a  
            member must retire from a school district that either:








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             a)   Prior to January 1, 2001, elected to allow its employees  
               to elect Medicare coverage; or,

             b)   On or after January 1, 2001, completed or is in the  
               process of conducting such an election and the member  
               elected to be covered by Medicare, if he or she is less  
               than 58 years of age at the time of the election. 

          5)Provides that the amount paid by CalSTRS to HCFA will include  
            any penalties applicable to enrollment in Medicare Part A or  
            Part B by members who enroll after the age of 65.  This  
            provision applies only to members who are over the age of 65  
            on July 1, 2001.

          6)Appropriates $500,000 from the Teachers' Health Benefits Fund  
            to the Teachers' Retirement Board for administration of the  
            provisions of this bill.

           EXISTING LAW  permits, under the Federal Balanced Budget Act of  
          1997, retired members of CalSTRS 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; and 2)  
          they have worked at least 10 years during their career.

          CalSTRS does not currently provide health insurance, nor play  
          any role in securing health care coverage for its active or  
          retired members.

           FISCAL EFFECT  :   According to CalSTRS, the total cost of this  
          benefit is $1.25 billion over 15 years.  The bill also  
          appropriates $500,000 for implementation of the benefit.   
          CalSTRS estimates ongoing administrative costs at $269,000 per  
          year.

           COMMENTS  : The Federal Medicare Program consists of two different  
          parts: 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.  CalSTRS  
          members pay such a payroll tax only if they were hired into  
          their current job on or after April 1, 1986 or agreed in an  
          election held by the employer to be covered by the payroll tax.   
          Other CalSTRS members receive Medicare coverage due to other  








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          employment they may have had or because their spouse is covered.

          CalSTRS estimates that approximately 11,000 retired CalSTRS  
          members over age 65 are not eligible for Medicare Part A either  
          from their employment or through a spouse.  An additional 18,000  
          members would not be eligible for Medicare coverage either from  
          their employment or through their spouse once they reach age 65.  
           For members who did not qualify for Medicare Part A coverage  
          due to prior employment or through their spouse, 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.

          Every CalSTRS member who was first hired by a district on or  
          after April 1, 1986, is required to pay Medicare taxes and,  
          therefore, is earning quarters toward free-premium Medicare Part  
          A coverage.  Thus, SB 1435 would provide assistance for a  
          limited group of retirees, which will decline in size as more  
          CalSTRS members are subject to the mandatory Medicare payroll  
          tax through their employment.

          Proponents contend that SB 1435 provides a solution to the  
          problem of the high costs of Medicare Part A premiums, which can  
          cause some CalSTRS members to forego health insurance coverage.   
          They also state that this bill is consistent with good public  
          policy for coverage expansion of health benefits for members of  
          CalSTRS.


























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           REGISTERED SUPPORT / OPPOSITION  :

           Support  

          State Teachers' Retirement System (Sponsor)
          AFT College Faculty Guild
          Association of School Administrators
          California Federation of Teachers
          California Medical Association
          California Retired Teachers Association
          California Teachers Association
          Los Angeles Community College District
          Yuba Community College District
           
          Opposition  

          None on file.

           Analysis Prepared by  :    Karon Green / P.E., R. & S.S. /  
          (916)319-3957