May 2007 Board News from STRS

From STRS, May 18, 2007
MAY BOARD NEWS

This week, the State Teachers Retirement Board held its monthly meeting. Following the regularly scheduled meetings, a report titled "Board News" is posted on the STRS Ohio Web site, as well as mailed to a number of members and education organization representatives who have requested it. The May report follows.

BOARD REVIEWS HEALTH CARE PLAN DESIGN CONSIDERATIONS FOR 2008 AND BEYOND

At its May meeting, the State Teachers Retirement Board continued its discussion about potential health care premiums and plan design changes for calendar year 2008. The proposed changes are:

• Offer a pilot voluntary Medicare Advantage Plan option for benefit recipients and their dependents who are age 65 or older. This plan combines both traditional Medicare benefits and STRS Ohio's secondary medical coverage into one plan. A Medicare Advantage Plan could offer a lower premium, plus care management programs for the enrollees. In addition, it would simplify claims-filing for enrollees because they would not have to coordinate their coverage between Medicare and their STRS Ohio-sponsored plan. Currently, there are about 74,000 individuals who could qualify for this plan option.

• Add coverage for over-the-counter Prilosec at retail with a $5 copayment while increasing corresponding copayments for the generic and brand-name (Tiers 1, 2 and 3) prescription drugs in the same drug class (the proton pump inhibitor class of medications used to treat Gastroesophageal Reflux Disease [GERD]). Last year, about 83,000 prescriptions for drugs in this class were filled by Caremark. This change would encourage plan enrollees to move to over-the-counter Prilosec, which is the least expensive drug in this category, by reducing their out-of-pocket costs if they switch.

• Increase the Basic Plan's prescription drug maximum annual benefit to $10,000 from $5,000. With this change, a plan enrollee would pay 100% of the full cost of Tier 2 and Tier 3 drugs only after STRS Ohio has paid $10,000 in retail and mail-service prescription costs. (The Basic Plan, which offers lower premiums in exchange for higher out-of-pocket costs, is available through Aetna and Medical Mutual.) By reducing each enrollee's risk of exceeding maximum coverage, more health care program participants may enroll in this option.

• Offer a voluntary pill-splitting program for 6-15 drugs. Under this option, an enrollee, upon obtaining a prescription from his or her physician, would fill a 15-day prescription for double-strength pills that can be divided in half at home by the enrollee. In return, the enrollee would pay only half the current copayment amount.

During the discussion about plan options, staff also presented preliminary premiums for calendar year 2008. The two main drivers of health care premiums are the health status of the plan enrollees in the different risk pools (e.g., Medicare versus non-Medicare enrollees; subsidized enrollees versus non-subsidized enrollees) and the coverage that is offered through a plan. Only substantial changes to plan design/coverage levels affect premiums significantly.

Staff noted that if no plan changes are made for calendar year 2008, a 30-year benefit recipient enrolled in Medical Mutual's Plus Plan could potentially see a 15% increase, or $25 per month, in the premium. The Medical Mutual Basic Plan premium for a 30-year retiree could increase by 21%, or $19 per month. For Medicare recipients, the increases could be smaller, from 0% for a 30-year retiree enrolled in the Basic Plan to 12%, or $8 per month, for a 30-year retiree in the Plus Plan. Coverage for spouses who are enrolled in Medicare could increase 7% ($23 per month) for the Medical Mutual Plus Plan and 4% ($6 per month) for the Basic Plan. Non-Medicare spouses would potentially face higher percentage increases: 19% ($111 per month) for the Medical Mutual Plus Plan enrollees and 18% ($56 per month) for the Basic Plan.

At the June board meeting, the discussion about the health care program for calendar year 2008 will continue, including how premiums could be impacted by the implementation of these proposed plan design changes. The board also asked staff to look at several other options, such as the impact of additional promotion of the use of generic drugs. In June, the board will be asked to approve any final plan design changes for calendar year 2008. Then, in August the board will be asked to approve the 2008 premiums. These premiums will reflect the impact of any adopted plan design changes plus take into account claims data from the first six months of 2007.

As part of its discussion about the health care program, the Retirement Board also reviewed the Medicare Part B reimbursement program. Ohio statute requires STRS Ohio to pay all Medicare Part B participants a minimum reimbursement of $29.90 per month -- regardless of whether or not they are enrolled in the STRS Ohio Health Care Program. Because this is a "guaranteed" benefit, staff is recommending that this liability be fully funded and accounted for separately. The amount needed from the Health Care Stabilization Fund is estimated at $464 million plus .05% of future employer contributions. Since the current Part B reimbursement level that STRS Ohio is providing exceeds the statutory requirement of $29.90 per month, the portion of retiree reimbursement above the $29.90 would remain a liability for the Health Care Stabilization Fund. Staff also recommended that the current reimbursement dollar level for Medicare Part B be maintained for calendar year 2008. This discussion will also continue at the June board meeting.

BOARD APPROVES CHANGES TO REEMPLOYED RETIREE HEALTH CARE COVERAGE

House Bill 272, which was introduced by Rep. Michelle Schneider (R-Madiera) in fall 2005, included provisions to limit health care coverage for reemployed retirees -- regardless if their employer is public or private. This proposed change was in reaction to a continuing trend by employers to shift reemployed retirees' health care costs to the public pension plans. These provisions were removed before the bill was passed in January 2007.

Anticipating that this might occur, the State Teachers Retirement Board approved a motion in August 2006 directing staff to revise administrative rules to enable STRS Ohio to enact the same reemployed retiree health care provisions as those originally contained in H.B. 272.

The revised rules, which were approved by the Retirement Board at its May meeting, will only allow STRS Ohio to provide secondary coverage to any health care plan enrollee who is employed in a public or private position and is eligible for health care coverage through his or her employer. These provisions apply if: (1) the employer provides coverage to other employees in comparable positions; (2) the cost for the coverage is no more than the cost of coverage offered to full-time employees; and (3) the plan provides medical and prescription drug coverage. The rules apply only to individuals who are not eligible for Medicare.

The effective date of the change is Jan. 1, 2009, to allow time for current contracts to be revised for those reemployed in public positions.
RETIREMENTS, INVESTMENT TRANSACTIONS APPROVED

The Retirement Board approved the following retirements and investment transactions:

• 121 active members were approved for service retirement; 57 inactive retirements were approved.

• In April, fixed-income purchases totaled $403 million, domestic equity purchases totaled $888 million and real estate purchases totaled $179 million.
ADDITIONAL ITEMS REPORTED AT THE MEETING BY EXECUTIVE DIRECTOR DAMON ASBURY

PROPOSED LEGISLATION IMPACTS STRS OHIO AND ITS MEMBERS

For the last few weeks, staff has been spending a significant amount of time on House Bill 151. This bill requires the state's five retirement systems to divest themselves of foreign companies doing business in Iran, which would result in an estimated $9 billion purge of foreign securities. In addition to costs incurred from the forced sale of assets, other costs include administrative expenses incurred for the managed funds and "lost opportunity costs" on future investments. Last week, the Ohio Retirement Study Council (ORSC) recommended the Legislature reject the "As Introduced" version of H.B.151, sponsored by Reps. Josh Mandel and Shannon Jones.

Executive Director Asbury testified before ORSC and the House Financial Institutions, Real Estate and Securities Committee about this system's concerns with the bill. The three primary concerns raised with legislators are: (1) the money in the trust fund belongs to the participants -- this divestiture mandate puts a foreign policy objective above the board's fiduciary duty to invest in the sole interest of the membership; (2) there will be significant costs of complying with this mandate, costs borne by the membership and not the public; and (3) the bill sets a dangerous precedent of using trust fund money to achieve political or social agendas.

It is anticipated that a substitute bill will be introduced that narrows the scope of the legislation, but still violates the primary concerns of the pension systems. As a result, STRS Ohio still remains opposed to any mandated divestiture.

Also before the House Committee on May 17 was sponsor testimony on House Bill 152. This bill would require school boards to offer private vendor alternative retirement plans (ARPs) to new employees and those with less than five years of service credit. ARPs are currently available through 10 separate companies to full-time public college and university faculty. This bill would expand the offerings to all K-12 educators and part-time public college and university faculty. STRS Ohio will testify in opposition to this bill in the next few weeks.

WORK CONTINUES ON PHARMACY BENEFITS MANAGER SELECTION

STRS Ohio, OPERS and SERS staff members continue to work on selection of a pharmacy benefits manager (PBM). The Ohio State University (OSU) has officially requested to join the group. OSU was involved in early discussions in 2006 that ultimately led to the PBM request for proposals (RFP). In those earlier discussions, OSU expressed interest and support for a group purchasing approach, but chose not to join at that time. Since then, OSU has reviewed its original decision. Not only will OSU increase the market presence of the RFP, but OSU also has pharmaceutical and benefits expertise that could be beneficial to the overall project. OSU currently has more than 46,000 covered lives.

COUNSELING AND MEMBER EDUCATION RECEIVE HIGH MARKS IN THIRD-QUARTER SURVEYS

More than 3,500 STRS Ohio members completed satisfaction surveys for counseling and member education services they received during the last quarter. This represents about half of the members served. The respondents rated the counseling service a perfect 10 in 49% of the responses and the member education programs a perfect 10 in 30% of the responses. About 90% of the respondents rated overall service as outstanding. Courtesy, knowledge and professionalism continue to be the highest-rated attributes. All attributes received an outstanding rating from at least 90% of the respondents.
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