BILL ANALYSIS
SB 1435
Page 1
Date of Hearing: August 23, 2000
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Carole Migden, Chairwoman
SB 1435 (Johnston) - As Amended: August 7, 2000
Policy Committee:
P.E.R.&S.S.Vote:4-0
Urgency: No State Mandated Local
Program:NoReimbursable:
SUMMARY :
This bill requires CalSTRS to pay the Medicare Part A premium
for retired members of its Defined Benefit Program who are not
covered by Social Security. 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.
1)Provides that effective July 1, 2001, CalSTRS shall pay to the
federal Health Care Financing Administration (HCFA) the
Medicare Part A premiums for CalSTRS members who retired prior
to January 1, 2001, and are not eligible for Medicare Part A
without payment of a premium.
1)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:
a) Prior to January 1, 2001, elected to allow its employees
to elect Social Security 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 Social Security, if he or she is
less than 58 years of age at the time of the election.
FISCAL EFFECT :
1)According to CalSTRS, the total cost of this benefit is $1.25
SB 1435
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billion over 15 years. (The Teachers Retirement Fund (TRF)
presently has an actuarial surplus of approximately $8.5
billion.)
1)This bill appropriates $500,000 from the Teachers' Health
Benefits Fund to the Teachers' Retirement Board for
administration of the provisions of this bill.
COMMENTS :
1)Gaps in CalSTRS Retiree Health Coverage . Currently, there is
no statewide health benefit program for CalSTRS members,
unlike CalPERS members, who are covered by the Public
Employees' Medical and Hospital Care (PEMCHA). Health
benefits are provided for teachers on a district-by-district
basis, subject to collective bargaining. (However, school
employers contract with CalPERS for retirement and health
benefits for their classified employees). Only a few school
districts offer vested health insurance benefits to retired
CalSTRS members. Some districts make benefits available, but
only subsidize the premium until the retiree reaches age 65
and becomes eligible for Medicare coverage. Some CalSTRS
members were hired before Social Security coverage became
mandatory in 1986 and are not eligible for free Medicare
coverage. Other CalSTRS members receive Medicare coverage due
to other (non-teaching) employment, or because their spouses
are covered. CalSTRS estimates 23,000 (20%) of the retired
CalSTRS members over age 65 are not eligible for Medicare Part
A.
1)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). CalSTRS 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. For members who do 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
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year 2000 is $45.50 per month. Federal law provides that if
a person pays the premium for seven years and meets all other
qualifications, he or she also becomes eligible for 100% free
Medicare coverage.
1)Purpose . This bill requires CalSTRS to pay the Medicare
premiums of CalSTRS retirees who are not covered by Social
Security and need to pay the premium to establish Medicare
eligibility, and meet the other qualifications specified in
the bill. For CalSTRS members who retire after January 1,
2001, this benefit is restricted to members retiring from
school districts that elected to provide Social Security
coverage to their pre-1986 hires, or are in the process of
conducting such an election. This incentive is intended to
encourage school districts to elect to make their pre-1986
hires eligible for Medicare and reduce the cost of their
health care coverage. (Most health care coverage programs for
Medicare eligible retirees, such as PEMCHA, "wrap around"
Medicare coverage, providing additional benefits above this
base amount.)
1)Related Legislation. AB 2383 (Keeley), pending before the
Senate Appropriations Committee, would authorize CalSTRS to
spend up to $2 billion (present value) to subsidize the cost
to school districts of providing health care coverage to their
retirees.
Analysis Prepared by : Stephen Shea / APPR. / (916) 319-2081