STRS Newsletter of June 16, 2017

80% of Enrollees Will See No Health are Premium Increases
June 16, 2017
Retirement Board Approves Health Care Premiums For 2018; Approximately 80% of Enrollees Will See No Premium Increase
At the June meeting of the State Teachers Retirement Board, the board approved 2018 premiums for all plans offered through the STRS Ohio Health Care Program. A complete list of these premiums is posted on the system’s website, or can be obtained by calling STRS Ohio’s Member Services Center toll-free at 888‑227‑7877. Additional information about the 2018 Health Care Program will be provided in upcoming newsletters and on the STRS Ohio website. In late October, all plan enrollees will receive personalized health care plan information in preparation for the fall open-enrollment period that extends from Nov. 1–21, 2017.
When determining premiums, the Retirement Board and STRS Ohio staff consider the claims experience of plan enrollees, annual health care cost trend rates and administrative expenses for the program. Factors that proved favorable for 2018 rate setting included: better than projected claims experience for the self-insured plans in 2015 and 2016, and low overall administrative expenses — especially for the self-insured plans. As a result, about 80% of enrollees will have 2018 premiums equal to or lower than their 2017 premiums — including more than 100,000 Aetna Medicare Plan enrollees who will see no increase.
Board Receives Updated Projections on Plans to Improve Health Care Fund Solvency
For much of the past year, the Retirement Board and staff have been exploring options to extend the life of STRS Ohio’s Health Care Fund. The health care program is currently funded through premiums charged to plan enrollees, government reimbursements and investment earnings on the fund. STRS Ohio no longer allocates a portion of the employer contributions to the Health Care Fund, as all of the employer contributions are needed to fund pension benefits. While health care coverage is not a guaranteed benefit, the board recognizes that this coverage is important to STRS Ohio members and benefit recipients.
The Health Care Fund has a balance of about $3.2 billion and is currently estimated to remain solvent for about 18 years. Staff has been working with the system’s actuary, Segal Consulting, to develop options to extend solvency to 30 years or more.
Health care trend projections used in the Jan. 1, 2017, valuation showed expected cost increases (trend rate) over the next decade will be significant. Prescription drug costs alone are expected to increase 235% during that time frame. Segal also applied the new actuarial assumptions adopted by the board in March — including mortality improvement and a lower expected rate of return on investments — and these had a negative impact on the projected solvency period. The board is evaluating several cost models, including some that are based on current subsidy levels. Long-term costs, however, are expected to grow for all enrollees. Most of the cost models maintain a higher premium subsidy percentage for Medicare enrollees than for non-Medicare enrollees. The board will continue its discussion on the health care program in August.
In fiscal year 2016 alone, health care benefit payments totaled about $677 million — more than $1.8 million per day. The health care program currently covers about 126,000 individuals.
Fiscal Year 2018 Budgets Adopted, Administrative Spending Down
The Retirement Board adopted the proposed system budgets for the 2018 fiscal year (July 1, 2017–June 30, 2018). The fiscal 2018 operating budget totals $99.6 million, an increase of 2.8% over the fiscal 2017 budget. Investment items account for all of the increase, as administrative department budgets reflect a slight decrease from the current year. Budget increases in the investment area reflect changes in costs for custodial banking fees, payroll and staffing, and quotation and analytic services. The staffing component will expand STRS Ohio’s internal investment capabilities and recognize that STRS Ohio’s model of managing more than 70% of the system’s assets internally is cost effective. CEM Benchmarking analysis estimates STRS Ohio’s use of internal management saves about $100 million annually for the retirement system (based on median external management costs of STRS Ohio’s peer group of similar-sized retirement systems).
The Retirement Board and staff are mindful of expenses. For example, the fiscal 2018 budget is within one percent of the fiscal 2009 operating budget and the number of full time equivalent staff members has decreased from a high of 735 associates in 2001 to 544 associates in fiscal 2018. Other cost containment measures include spending less on printing costs as more members opt for the online services STRS Ohio offers. The adopted capital budget for fiscal 2018 totals $3.3 million, a 1.7% increase from the current year’s budget. STRS Ohio reviewed its budgets with the Ohio Retirement Study Council during its May 2017 meeting. The board voted to adopt the budgets effective June 22, 2017.
Throughout the year, the Retirement Board reviews monthly expenditures and year-to-date expenditure totals as part of its regular meetings. These items are posted on STRS Ohio’s website following each board meeting.
Retirement Board Chair, Vice Chair Named
The Retirement Board elected retired teacher member Robert Stein as its vice chair for the coming year. According to Board Policies, contributing teacher member Mark Hill (Worthington City Schools, Franklin County), who is currently serving as vice chair, automatically moves into the position of chair. Stein and Hill will assume their new responsibilities on Sept. 1, 2017. Board members receive no compensation for serving on the board other than reimbursement for actual, necessary expenses.
Board Adopts Fiscal Year 2018 Investment Plan
The Retirement Board voted to adopt the fiscal year 2018 Investment Plan presented by staff. The plan details staff’s investment strategy for each asset class in the system’s investment fund. The 2018 Investment Plan calls for near policy objective investment returns and slightly accelerating U.S. economic growth for the upcoming fiscal year.
The board’s investment consultants, Callan Associates and Cliffwater LLC, reviewed and expressed support for the Investment Plan. Staff will evaluate the need to issue an addendum to the Annual Investment Plan once market levels are set on June 30, 2017. STRS Ohio will post the fiscal year 2018 Investment Plan on its website in early July. A copy of the plan is also available by request through STRS Ohio’s Member Services Center by calling toll-free 888‑227‑7877.
Retirements Approved
The Retirement Board approved 373 active members and 114 inactive members for service retirement benefits.