TRS Letter Outline .tx.us



March 29, 2002

To The Administrator Addressed:

Re: Public School Employee Health Insurance

The purpose of this letter is to provide additional information and guidance to school districts and open-enrollment charter schools concerning statewide public school employee health insurance requirements for 2002-03. The letter outlines the types of information that will be needed from all entities to which the new law applies, the computations that will be made for each component, and questions and answers that have been generated since the previous communications from the agency. Texas Education Agency (TEA) and the Teacher Retirement System (TRS) have collaborated to provide this information in order to be as consistent in our guidance as possible for an evolving program.

Information Needs

Certain information will be needed from school districts in order to determine whether each entity has met its legal requirements and to compute some components of state assistance. There are seven critical determinations related to the flows of funds from the state and from entities that provide health coverage:

• Active employee health coverage or compensation supplementation ($1,000 per employee annual benefit)

• Maintenance of effort (indexed to 2000-01 health insurance contributions)

• Minimum effort ($1800 per participant level)

• State assistance for meeting minimum effort (transition assistance)

• Gain from formula changes ($900 per participant level)

• Additional state aid for school employee benefits (hold harmless)

• Social Security matching for certain districts

In general, the data elements needed for the computations are:

• 2000-01 entity employer health insurance contributions

• 2000-01 active contributing TRS member

• Current year (2002-03 or later) active contributing TRS members participating in or covered by health insurance (generally referenced in this letter as “participants”)

• Current year (2002-03 or later) active contributing TRS members employed by the entity

• Gain from formula changes (old law versus new) to the Foundation School Program, including gap aid

The TEA has directed independent auditors to disclose 2000-01 employer health insurance contributions in a footnote to the independent audit reports for that year. The remaining elements must be either collected separate from existing reports or added to the existing information flows to TRS or TEA.

Active employee health coverage or compensation supplement

Each employee of a school district, charter school participating in TRS ActiveCare, regional education service center, or another educational district whose employees are eligible for membership in the TRS is entitled to an annual amount of $1,000 that may be used for health insurance contributions, health care expenses, or compensation. (see Texas Insurance Code (TIC) Art. 3.50-8) Employees of open-enrollment charter schools that have chosen not to participate in TRS ActiveCare will not receive this benefit. TRS is directed to flow this benefit amount to employers in equal monthly installments, and will contract with TEA to provide part of that service. It is expected that the monthly distribution will occur by the 20th of each month or the next business day. The payment amount will not be combined with any other state aid payment to the employer.

The amount of funds distributed each month will be based on the monthly count of continuing employees that are actively contributing TRS members, adjusted for any dual-employment situations that may exist. TRS will provide a model explanation of this benefit and an election form that must be completed by eligible employees.

Because the current Regular Payroll Report submitted to TRS does not identify the situations that require adjustments, separate reporting of the employment counts will be necessary. Another problem with the existing Regular Payroll Report is that some employees are not reported during the summer when there is no payroll activity, even though continuing employees would need to be reported to continue the flow of funds for the $1,000 benefit.

In order to make the necessary payments, a separate reporting of an aggregate count of employees will be made each month by the 10th of that month. After review and processing of that month’s employment count and any corrections to preceding months as reported by each entity, TEA will submit payment information on behalf of TRS to the state Comptroller, and payments should be deposited by the 20th of the month or the next business day. Any data submitted after the monthly cutoff date will not be processed until the following month. TEA is developing a web-based reporting system on behalf of TRS to obtain this information monthly from each school district or other entity.

The amount of payment in a month will use the following computation:

# of active contributing TRS member employees

                              ÷ 12

Result

                       × $1,000

Payment Amount

After the month’s payment, any correction to that month will result in an adjustment amount, which will be netted against future payments. TEA is also developing a payment system and associated reports to provide information on the monthly computations.

Maintenance of effort

TIC Art 3.50-9 prohibits school districts and other entities from reducing contributions toward school employee health insurance from the 2000-01 levels, except for declines in employment. The law requires a computation of a “maintenance of effort “ level of funding that the employer must maintain. This requirement applies to each entity regardless of the entity’s choice to participate in TRS ActiveCare, with the exception of open-enrollment charter schools. If an open-enrollment charter school chooses not to participate in TRS ActiveCare, the maintenance of effort requirement does not apply. The computation is as follows:

2000-01 aggregate employer health insurance contributions

                                               ÷ 2000-01 full-time employees

Result

                          × 2002-03(or later year) full-time employees

Maintenance of effort amount for 2002-03 (or later year)

For purposes of this computation, a full-time employee is defined as an active contributing member of TRS. The count of full-time employees for 2000-01 will use the higher of the average count of members between September 2000 and May 2001 or between September 2000 and August 2001 as reported on Regular Monthly Payroll Reports. The proposed count may be viewed on the TRS web site under the “Maintenance of Effort Calculation” topic. Each subsequent year’s count of full-time employees will be provided through the monthly reporting of employment needed for computation of the $1,000 employee benefit. Each month’s data will be aggregated for the entire year and divided by 12 to finalize the maintenance of effort computation.

Minimum effort

Each entity, with the exception of open-enrollment charter schools that do not participate in TRS ActiveCare, must contribute at least $150 per month ($1800 per year) per participant (an employee that elects health insurance) as the employer’s share of health insurance. If the maintenance of effort level for the year is less than the minimum effort amount, the district may be eligible for transition assistance (described below).

The computation of minimum effort for a month is as follows:

Current month participants

                                          × $150

Monthly minimum effort amount

Each month’s minimum effort amount is summed for a year to determine the annual amount. Participation levels will also be reported through the web-based system currently under development by TEA.

State assistance for meeting minimum effort (transition assistance)

Each entity, with the exception of open-enrollment charter schools that do not participate in TRS ActiveCare, may be entitled to additional state assistance if the minimum effort amount exceeds the maintenance of effort amount in the given year. The amount of additional assistance is limited, and declines each year until the transition assistance expires. In computing the additional assistance, any excess gain from formula changes in the Foundation School Program must also be considered. An excess gain for this purpose is the difference between 75% of the formula gain (including gap aid) and $900 per insurance participant, if the amount of $900 per participant is less than 75% of the total gain.

Excess gain is computed in the following manner:

(0.75 × Total amount of gain from formula changes, including gap aid)

   - ( $900 × # of health insurance participants)

Excess formula gain, but not less than zero

In the computation above, the number of health insurance participants is determined as the average for the year, based on each month’s reported number of participants. For 2002-03, the annual amount of transition assistance will be computed by using average count of participants as follows:

Total 2002-03 minimum effort amount ($1800 × average # of participants)

                             - 2002-03 maintenance of effort

Result, but not less than zero

                      - Excess gain from formula changes

Transition assistance for meeting minimum effort,

but not less than zero

In 2003-04, the annual amount of transition assistance available is reduced by $300 per participant:

($1500 × average # of participants)

                              - 2003-04 maintenance of effort

Result, but not less than zero

                      - Excess gain from formula changes

Transition assistance for meeting minimum effort,

but not less than zero

By 2008-09, transition assistance is eliminated. If in any year a district adopts a maintenance and operations tax rate of $1.50, the amount of transition assistance is frozen at the lesser of the level of the preceding year or the level available in 2002-03.

In order to initiate payment of transition assistance for a given year, TEA will use the reported count of participants for September to determine whether transition assistance is to be paid. Final determination of transition assistance amounts will be made at the end of the year using full-year participation information. TEA and TRS will share all necessary computations to determine the transition assistance amount, and the amount will be submitted to the Comptroller by TEA on behalf of TRS.

Each entity must report participation in health insurance, regardless of whether the entity participates in TRS ActiveCare, secures health insurance through directly contracting with providers, or is self-funded. The only exception to this requirement is for open-enrollment charter schools that have chosen not to participate in TRS ActiveCare.

Gain from formula changes

In addition to the identified minimum effort amount, each district must also expend an amount of state support for school employee health insurance equal to $900 per participant. The source of state support is the additional state aid provided by formula changes affecting state aid computed in TEC Chapter 42, or the additional revenue a district is able to retain under TEC Chapter 41 as a result of changes in the equalized wealth level. For purposes of computing gains, any state aid received under TEC §42.2513 (gap aid) is counted as a gain due to formula changes.

In general, most districts will experience a gain from formula changes that will likely exceed the $900 per participant amount by a significant margin. Because the actual amount gained under the formulas will not be finally known until all data for the year is final, the final measurement of gain will not be completed until approximately six months after the conclusion of a school year.

For districts eligible for state aid, the comparison of state aid to measure gains in 2002-03 will be:

2002-03 state aid using 2002-03 formulas

- 2002-03 state aid using 2000-01 formulas

Gain in state aid for 2002-03

For property-wealthy districts (those that must exercise an option under TEC Chapter 41), gain will be measured by comparing the revenue retained after recapture payments under the new equalized wealth level (EWL) versus the revenue retained before the change. For 2002-03, the comparison will be:

2002-03 net local revenue retained after discounts using $305,000 EWL

- 2002-03 net local revenue retained after discounts using $295,000 EWL

Gain in available revenue for 2002-03

Special entities that are not eligible for state aid through the Foundation School Program will receive a direct allocation of $900 ($75 per month) for each participant. This amount will be paid directly by TEA.

Additional state aid for school employee benefits (hold harmless)

When 75% of the formula gain does not exceed the cost of $900 per participant, additional state aid will be paid to the district (see TEC §42.2514). Because school districts and other entities bear a requirement to spend the $900 per participant for health insurance coverage regardless of whether they participate in the TRS ActiveCare program, the additional state aid is available to each entity, except for those open-enrollment charter schools that have chosen not to participate.

The computation of the additional amount of state aid is:

($900 × # of participants)

                - (0.75 × gain from formula changes)

Additional state aid if result is greater than zero

The hold harmless provision for additional state aid is a permanent feature. There is no phase-out of this assistance in current law. It should also be noted that the computation involves the use of an average count of participation based on monthly reported counts of participants, as does the minimum effort calculation. Each entity must report participation in health insurance, regardless of whether the entity participates in TRS ActiveCare, secures health insurance through directly contracting with providers, or is self-funded. The only exception to this requirement is for open-enrollment charter schools that have chosen not to participate in TRS ActiveCare.

Social Security Matching

For a few entities, the employer must pay an employer share of social security retirement contributions for all employees. These entities were unable to withdraw from the Social Security retirement system and are now required by federal law to continue participating in that system. For those school districts that made employer contributions for social security retirement benefits for all employees on January 1, 2001, the legislature provided additional support related to the active employee health coverage or compensation supplement. If employees take the supplement as compensation, additional social security taxes would be incurred.

School districts in this circumstance will receive an additional amount of state aid equal to the employer’s share of social security retirement contributions on the additional compensation. This amount is computed as 6.2% of the additional compensation taken by employees. There are fewer than 50 school districts to whom this provision will apply. In order to receive the additional amount (at most $62 per employee taking the compensation option), school districts will need to apply to the TRS and provide supporting information.

Attachments

In the attached materials, the flows of information between school districts, charter schools, and other entities and the TRS and TEA are described. Also attached are additional questions and answers that have come up over the past several weeks. School districts and charter schools are encouraged to review the materials on the TEA and TRS web sites related to health insurance. In particular, the state aid template contains a significant amount of helpful information on health insurance computations. A special worksheet for charter schools on the subject of health insurance will be available soon.

If you have any questions on funding, please feel free to contact the School Finance and Fiscal Analysis Department at (512) 463-8994.

Sincerely,

Joe Wisnoski, Assistant Commissioner for

School Finance and Fiscal Analysis

Attachment 1

Information flows – what will districts need to report to TRS and when; what TRS/TEA will do

| |School District or Non-charter Entity |Charter Schools |

| |Participating in TRS |Not Participating in TRS |Participating in TRS |Not Participating in TRS |

| |ActiveCare |ActiveCare |ActiveCare |ActiveCare |

|2000-01 Entity Health |Included in independent audit report filed with TEA by December 29, 2001* |

|Insurance Expenditures | |

|2000-01 Full-Time Employees |Available from 2001 membership reports previously filed with TRS. See TRS web site under the “Maintenance of |

| |Effort Calculation” topic. |

|Adjusted Monthly Counts of |Submit aggregate data online by 10th of each month |N/A |

|TRS-eligible Employees | | |

|Counts of Health Insurance |Submit aggregate data online by 10th of each month |N/A |

|Participation | | |

|Deposit of health insurance |To TRS via Texnet by the |No deposit |To TRS via Texnet by the 6th|N/A |

|contributions |6th of the month | |of the month following the | |

| |following the month | |month billed | |

| |billed | | | |

|Formula gains |Computed and reported when summary of finances and |Amounts included in regular state aid payments; separate|

| |Chapter 41 estimates provided; amounts included with |reporting will be developed |

| |regular state aid payments or as reduced recapture | |

|Payment date for monthly |By 20th of each month or next business day |N/A |

|installments of $1,000 annual | | |

|employee compensation amount | | |

* Entities that do not normally file audit reports with TEA must provide equivalent information that has been attested to by the entity’s auditor.

Attachment 2

Question and Answer

Q1 What is a full-time employee for purposes of maintenance of effort computation? Texas Insurance Code Art 3.50-9 does not define “full-time” for purposes of determining maintenance of effort.

A1 A full-time employee will be measured as a current active contributing member in TRS. The current proposal for measuring full-time employees is to use monthly aggregate counts submitted online each month by each entity for the computation of the maintenance of effort level for 2002-03 or subsequent years.

Q2 A school district takes over the fiscal agent responsibility for a special education shared service arrangement. The district now employs 30% more staff overnight. When the state computes maintenance of effort, will the district be required to contribute on behalf of these “new” employees?

A2 Yes, the district is now the official employer for the new staff. This additional cost should be factored into the expense of the shared service arrangement, and should be shared among the participating districts proportionately to the extent that direct service costs impact the cost sharing arrangements.

Q3 Does a retired teacher get the $1,000 compensation or health insurance supplement?

A3 Retired teachers are specifically ineligible for this supplement. Statute limits the supplement amount to employees eligible for membership in TRS, other than retirees. The supplement is also not provided to employees of open-enrollment charter schools that have chosen not to participate in TRS ActiveCare.

Q4 How do we count 2000-01 employees to determine the full-time employee count?

A4 Full-time employee for funding purposes is defined as a currently active contributing member of TRS. The TRS uses the higher of the average from September 2000 through May 2001 or September 2000 through August 2001. The count is published at the TRS web site under the “Maintenance of Effort Calculation” topic.

Q5 If a district has excess maintenance of effort, can it apply the “excess” to benefits other than health care, such as a 401(k) or 403(b) employer match? Must the additional benefit be uniform for all employees? Can the additional benefit be something that not all employees take advantage of, such as partial dependent coverage contributions, or a retirement savings program?

A5 The excess may be applied to benefits other than health care. Because the law does not require each employee to benefit in exactly the same proportion, it is possible that some additional benefits might not be utilized by each employee. School districts are encouraged to find additional benefit programs with broad appeal and that are accessible to all categories of employees. While no specific charge was made to track and report on the added benefits made available in cases where an excess exists, it is expected that the 78th Legislature will have an interest in this information. TEA will ask districts to report on the uses of excess maintenance of effort prior to the next legislative session.

Q6 How should we count employees that are only on contract for ten months for purposes of determining full-time employees for 2000-01 and future years? What about for any additional state assistance (hold harmless)?

A6 Full-time employees for 2000-01 will be the higher of the average count of active contributing TRS members from September 2000 through May 2001 or September 2000 through August 2001. The source of the data for the historical count is the regular monthly payroll reports of membership submitted to TRS. For future years, school districts will enter a monthly count each month by the 10th for the current month. These monthly counts will be aggregated for the year to determine whether any hold harmless funding might be necessary. They will also be used to determine the flow of the $1,000 annual benefit for each employee.

Q7 If a district does not participate in TRS ActiveCare (more than 1,000 employees), and the district’s employee-only health plan costs only $200 per month, what can it do with the other $25 per month that the combined state assistance and minimum effort generate?

A7 The district is under an obligation to expend $225 per month per participant on health insurance. This obligation is an aggregate spending requirement. The district may offer partial or full support for optional coverage (dependents), but must expend at least the $225 per month amount as an average across all employees covered by health insurance.

Q8 What are the consequences if a district offers options that should reach the appropriate level of maintenance of effort or minimum effort, but employees choose plans that cost less? Must the district increase contributions for subsequent years to “spend down” any excess left over in a year?

A8 There are no current rules for how to address this issue. It is likely that information on the match between district plans and employee behavior in the first year of the program will be reviewed to determine what regulations should be applied.

Q9 How will 10-month payrolls work for paying the $1,000 annual benefit?

A9 The supplement will be paid in 12 monthly installments computed in the manner described above. If a district allows employees to be paid over only 10 months, it may choose to provide the full $1,000 over only 10 months or it may choose to provide supplemental payrolls for those employees for the two extra months. Note that the state’s payment computation relies completely on the reports provided by the district to the state.

Q10 Can districts hold the $1,000 annual benefit until the end of the year?

A10 No.

Q11 If the employee elects to use the $83.33 per month for benefits, will this benefit need to be identified separately in financial accounting records?  i.e., will there have to be two employer contributions on the benefits side?

A11 Procedures and rules for appropriately accounting for the $1,000 benefit are still under development by the School Financial Audits Division. At the present time, the benefit amount must be deposited to fund 418 and expended using object code 6132. Additional information will be transmitted at a later date from the School Financial Audits Division.

Q12 If an employee elects to use the $83.33 per month for a Flexible Medical Reimbursement account but the employee is already contributing the maximum to the flex plan, does the flex plan have to add the additional $83.33 to the flex plan?

A12 No. The rules and caps adopted by the employer or established by Federal tax law will prevail.

Q13 If an employee elects to put the $83.33 in the flex plan but does not submit claims for the full amount by the deadline provided in the plan, will the remaining balances be returned to TRS?

A13 Remaining funds must be handled like any unused funds under Federal tax law and the plan document.

Q14 What will be the timing of the $1,000 supplement to school districts?

A14 Payments will be deposited in school district and other entity accounts by the 20th of the month or the next business day.

Q15 Is the $1,000 compensation or health care supplement subject to overtime?

A15 TEA has asked the State Auditor for an opinion on the subject of overtime applicability. An official response is pending at the time of this letter.

Q16 Will ESCs that pay social security be eligible for additional state aid for the employers share of the social security payments caused by employees taking the $1000 benefit as compensation?

A16 Yes.

Q17 For employees that are not TRS eligible in school districts that are not in TRS ActiveCare, what insurance coverage must a district provide?

A17 There is no requirement for school districts to provide health insurance coverage to this group of employees.

Q18 A district offers a $10,000 deductible medical plan with a $50,000 lifetime maximum. Will that qualify as a medical plan for purposes of maintenance of effort or minimum effort?

A18 No

Q19 A school district will continue its current contract for health insurance until January, 2003. The premiums for the current plan are more than $225 per month, and the district’s maintenance of effort requirement equates to $250 per participant. Since the state funding of $75 per month per participant must be spent on health insurance, and the district has no increase in costs for four months, it will either fall behind in maintenance of effort early in the year or not expend the full $75 per month in state funding on health coverage. Can the district leave the $250 contribution in place and then temporarily increase its local contributions for the last 8 months to catch up on maintenance of effort? Can it increase the combined contribution in the first four months (add the state’s $75 toward dependent coverage, etc.), then reduce it for the remainder of the year?

A19 Either of the two options presented could allow the district to meet its obligations. For the entire year, the district must satisfy both the maintenance of effort requirements and the requirement to use the state funding toward health insurance.

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