Seeking a ‘Path Toward Stability’ for Health Care, TRS Switches Administrators

The change will save the troubled medical benefits programs $754 million over the next five years.

Struggling to fund its medical benefits programs, trustees of the largest public pension system in Texas voted Friday to switch administrators, which is expected to save its health care plans $754 million over the next five years.

The Teacher Retirement System of Texas (TRS), which is ending contracts with Aetna and Humana, selected Blue Cross and Blue Shield of Texas (BCBSTX) and UnitedHealthcare (UHC) for roughly 705,000 public employees and retirees. The plan for workers starts in September, while the plan for retirees will begin in January.

“Our members’ health care is now and will always be a top priority,” TRS Board Chairman Jarvis Hollingsworth said in a statement. “And these new contracts support TRS’ health plans on the path toward stability.”

TRS is hoping the savings from the switch will put its health care programs back in shape. TRS, which is the second-largest purchaser of health care in Texas after the Medicaid program, pays nearly $4 billion a year in health care claims.

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In fact, TRS Chief Health Officer Katrina Daniel told the board prior to voting on Friday that the system has more participants in its medical benefits programs than it does current annuitants. The benefits contracts cover more than 700,000 participants, versus roughly 435,000 retirement annuity recipients.

“The size of these plans is huge and that sometimes can be eclipsed a little bit because our pension program is so large and so strong,” Daniel said. “But I wanted to make those points just to emphasize the magnitude of the decisions that you’re about to make.”

As of August, the TRS public pension system reported it was 76.4% funded, but its medical benefits program for retirees is just 2.7% funded.

A TRS spokeswoman said the fund is developing new rates and benefits for active employees that it will present to the board in April. The Texas legislature budgeted $231 million, which, in addition to the $754 million in savings, will help keep premiums and benefits for retirees the same through next year.  

The spokeswoman said savings from the switch come from greater network discounts for medical services, as well as lower administrative fees and Medicare Advantage cost reductions.

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