Should Texas Establish Medical Savings Accounts for Retired Teachers?

By Ronald L. Scott
rscott@central.uh.edu

Despite opposition from several teachers’ organizations, the Texas legislature recently passed HB 3257, which amends the Insurance Code to establish a program of employee “Health Reimbursement Accounts” (HRAs) for active schoolteachers.  During the last biennium, the state contributed $1,000 annually per active teacher towards health insurance costs, but the money was not specifically earmarked for health care expenses.  It could simply be taken as a salary supplement.  Under the new law, the state contribution (now reduced to $500 annually) will go into individual HRA accounts administered by the Teacher’s Retirement System (TRS).  Funds in the HRAs may be spent only for medical expenses including health care insurance premiums, co-payments and deductibles. Unused funds in an HRA roll over to the next year, unlike current “cafeteria” plans, which allow for participants to establish medical reimbursement accounts but require that funds in such accounts be exhausted during the calendar year or lost.

The Association of Texas Professional Educators (ATPE) asked Governor Rick Perry to veto HB 3257 for several reasons.  The ATPE told members “being required to use an HRA eliminates your right to choose how to use the pass-through.”  ATPE also argued that a majority of employees will have to use the funds for premiums leaving little money for other medical expenses and that estimated administrative costs of $16 annually are too high.  See http://www.atpe.org/GovernmentalRelations/lanarch02.htm.

Citing many of the same reasons put forth by ATPE, the Texas Federation of Teachers said that Governor Perry “should have vetoed” the bill, and that “HB 3257 adds insult to the injury of the cut in your state supplement for health insurance, by dictating to you what you can do with the reduced sum that will be provided by the state beginning next school year.”  See http://www.tft.org/legis/archive2.cfm?hotid=329.

The Texas Classroom Teachers Association (TCTA) was more moderate in its views, noting that “HRAs offer many advantages, including the ability to accumulate funds unspent on health care expenditures over the course of your career…” but that they would have preferred to make HRAs optional than mandatory.  See http://www.tcta.org/pub/updates/wrapup.htm.

Teachers planning to retire in the near future could benefit from some form of medical savings account.  Retired teachers are eligible for a program called TRS-Care which is offered at three levels of coverage.  At the lowest level, TRS-1, the state pays the entire premium for the retiree only, but the deductible is $4,500 annually, substantially more than many retired teachers could afford.  The highest level of care, TRS-1 has a deductible of only $240 but the premium is $215 per month, an increase of 33% over last year.  Adding a spouse to the coverage results in a monthly premium of $555, up 37% from last year.  TRS-2 (the middle level of coverage) has a deductible of $1,800.  See http://www.trs.state.tx.us/.

At the federal level, Congress is considering legislation to create two forms of tax-preferred medical savings accounts-- Health Savings Accounts (HSAs) and Health Savings Security Accounts (HSSAs).  Unlike earlier federal medical savings accounts, these accounts may be available to anyone under age 65, not just small employers or the self-employed.  HSAs will allow contributions of $1,000 for individuals and $2,000 for families.  HSSAs will allow contributions of $2,000 for individuals and $4,000 for families with those aged 55-64 allowed to contribute even more.  HSAs work in conjunction with relatively high deductible health insurance while HSSA holders are not required to purchase health insurance.  See H.R. 2596.

If the federal legislation passes in its present form, Texas should consider altering the deductible amounts for TRS-Care to better coordinate with contributions allowed under HSAs and HSSAs.  Texas should also consider whether TRS could administer HSAs and HSSAs.  Finally, a major hurdle individuals face when directly paying for own care is the higher prices they face from health care providers compared to the discounted rates enjoyed by insurance companies.  In Texas HB 3247, this problem was creatively and properly addressed.  Section 4(F) provides that a health benefit plan used to provide coverage under the program must be designed to ensure that an employee who purchases coverage is entitled to pay no more than the health plan for the services rendered.

Many may well be confused by the multiple varieties of medical savings accounts, flexible spending accounts, HRAs, HSAs and HSSAs.  Properly structured, HSAs and HSSAs should receive a better reception by teachers than HRAs.  If Texas coordinates its teachers’ retiree health insurance with the new federal legislation, teachers planning to retire in a few years could establish accounts during their working years to lessen the financial impact of retiree health insurance in the future.

08/20/03