Retirement board says proposed cut to state subsidy won’t immediately affect retired teachers but will draw on health fund

State Rep. Tammy Exum, chairing the Appropriations Subcommittee on Education, heard on Wednesday that a proposed Office of Policy and Management change to reduce the state's contribution to retired teachers' health coverage from one-third to one-quarter in fiscal years 2026 and 2027 would not immediately increase retirees' out‑of‑pocket costs.

Helen, a representative of the Teachers' Retirement Board, told the subcommittee that “there'll be no impact to the teachers, Senator Austin, our retirees. That they'll still have that one‑third covered.” She said the health fund would “use the difference between the one‑third and the one‑quarter of the fund to maintain that one‑third contribution for the retirees in budget year 26/27.”

The board provided numbers to illustrate the near‑term fiscal effect: an estimated $13 million in the first year and $15 million in the second year of the proposed change. Board staff reported the Teachers' health fund balance at about $270,000,000 as of Jan. 31 of the current year and said the two‑year draw would lower the balance by roughly $28 million under the board’s basic projections, which were prepared by the plan’s healthcare vendor, Siegel.

Why it matters: board officials and senators said the change would not immediately shift costs to retired teachers because the fund would make up the difference, but they warned that reducing the state contribution increases reliance on the fund’s assets and could create an operating loss in 2027 under current projections. Helen and fiscal staff stressed that projections include many variables — claims, premiums, market changes and effects from federal law — and are not guarantees.

Bruce, identified in the hearing as the pension attorney, and board staff referenced recently received OPEB actuarial work prepared under Governmental Accounting Standards Board guidance (GASB Statements 74 and 75). Helen said those reports indicate the plan “is solvent, based on the OPEB reports,” but cautioned that changes such as those produced by the Inflation Reduction Act and Medicare policy shifts could alter costs going forward. Board staff noted that CMS issues a “call letter” each year outlining Medicare changes that can affect retiree benefit costs.

Senator Austin pressed for historical context; board staff reminded the panel that between 2010 and 2018 the health fund was “not funded or funded sporadically,” which contributed to severe fiscal strain and near‑bankruptcy of the retired teachers’ health plan. Board staff said prior changes, including a 2018 introduction of a Medicare Advantage option and other benefit adjustments, produced large savings — staff cited roughly $144 million in identified savings from actions taken in 2022 and earlier.

Committee members asked follow‑up questions about the actuarial and GASB reports, how OPEB reporting differs from funding ratios, and what assumptions underlie the board’s projections. Board staff repeatedly emphasized uncertainty: “we use some basic projections, which have not been confirmed in the market,” one speaker said, noting that premiums and federal policy changes for 2026 remain unknown.

Looking ahead: committee members asked the board to provide more granular actuarial detail and comparisons (including funded‑ratio context) and to identify risks tied to shifts in federal Medicare policy. No formal committee action or vote was recorded during the discussion.