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: SB 1435 Page 2 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 SB 1435 Page 3 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. SB 1435 Page 4 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