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TRS Board of Trustees Meeting

October 22, 2015

TEACHER RETIREMENT SYSTEM OF TEXAS MEETING

BOARD OF TRUSTEES

AGENDA

October 22, 2015 – 8:30 a.m.

TRS East Building, 4th Floor, Cafeteria

NOTE: The Board may take up the items posted on the agenda in any order during its meeting on

Thursday, October 22, 2015.

The open portions of the October 22, 2015 Board meeting are being broadcast over the Internet.

Access to the Internet broadcast of the Board meeting is provided on TRS' website at

www.trs.state.tx.us.

1. Call roll of Board members.

2. Consider the following administrative matters:

A. Approval of the September 24-25, 2015 Board meeting minutes – David Kelly.

B. Excuse Board member absences from the September 24-25, 2015 Board meeting.

C. Consider the election of the Board Vice-Chair.

D. Consider consenting to the Board Chair's appointment of committee members, and

receive the Board Chair's announcement of committee chairs.

E. Setting, rescheduling, or canceling future Board meetings.

3. Provide opportunity for public comments – David Kelly.

4. Overview of the agenda, including an introduction of issues and instructions for

participating in the health care question and answer sessions with morning and afternoon

panelists – Brian Guthrie and Katrina Daniel.

5. Panel discussion on the health care environment, including the health care market and the

context in which plans such as TRS operate – Ken Shine, MD and Len Nichols, PhD.

6. Panel discussion on strategies for cost containment in health care – Carl King, Aetna; David

Ellis, MD, United Health Care; Dan McCoy, MD, Blue Cross Blue Shield; Glen Stettin,

MD, Express Scripts; and Jane F. Barlow, MD, Caremark.

7. Question and answer session with morning panelists about the health care environment

and strategies for cost containment in health care – Ken Shine, MD; Len Nichols, PhD;

Carl King, Aetna; David Ellis, MD, United Health Care; Dan McCoy, MD, Blue Cross

Blue Shield; Glen Stettin, MD, Express Scripts; and Jane F. Barlow, MD, Caremark.

2

8. Panel discussion on TRS-Care, including the program’s history and structure, its financial

status, past recommendations for sustainability, and current strategies for cost

containment, such as consumer outreach – Carl King, Aetna; Glen Stettin, MD, Express

Scripts; Bill Hickman and Amy Cohen, Gabriel, Roeder, Smith and Co; and Katrina

Daniel, Edward Esquivel, and Yimei Zhao, TRS.

9. Panel discussion on TRS-ActiveCare, including the program’s history and structure, its

financial status, and current strategies for cost containment, such as consumer outreach –

Carl King, Aetna; Jane F. Barlow, MD, Caremark; Bill Hickman and Amy Cohen,

Gabriel, Roeder, Smith and Co; and Katrina Daniel, Edward Esquivel, and Yimei Zhao,

TRS.

10. Receive and discuss invited testimony on healthcare matters from stakeholder

associations – Brian Guthrie.

11. Question and answer session with afternoon panelists about TRS-Care and TRS-

ActiveCare – Carl King, Aetna; Glen Stettin, MD, Express Scripts; Jane F. Barlow, MD,

Caremark; Bill Hickman and Amy Cohen, Gabriel, Roeder, Smith and Co; and Katrina

Daniel, Edward Esquivel, and Yimei Zhao, TRS.

12. Discuss looking forward and next steps regarding health care matters – Brian Guthrie and

Katrina Daniel.

13. Consider personnel matters, including the appointment, employment, evaluation,

compensation, performance, duties, discipline, or dismissal of the Executive Director,

Chief Investment Officer, or Chief Audit Executive – David Kelly.

14. Consult with the Board's attorney(s) in executive session on any item listed above on this

meeting agenda as authorized by section 551.071 of the Texas Open Meetings Act

(Chapter 551 of the Texas Government Code) – David Kelly.

Minutes of the Board of Trustees September 24-25, 2015

The Board of Trustees of the Teacher Retirement System of Texas met on September 24, 2015 in

the boardroom located on the fifth floor of the TRS East Building offices at 1000 Red River Street,

Austin, Texas. The following board members were present:

David Kelly, Chair Nanette Sissney, Vice-Chair Todd Barth Karen Charleston Joe Colonnetta David Corpus Christopher Moss Anita Palmer Dolores Ramirez

Others present:

Brian Guthrie, TRS Rebecca Smith, TRS Ken Welch, TRS Heather Traeger, TRS Jerry Albright, TRS Dale West, TRS Carolina de Onís, TRS Dr. Keith Brown, Investment Advisor Howard Goldman, TRS Steve Huff, Reinhart Boerner Van Deuren T. Britton Harris IV, TRS Steve Voss, Aon Hewitt Rebecca Merrill, TRS Mike Comstock, Aon Hewitt Grant Birdwell, TRS Joe Newton, Gabriel, Roeder, Smith & Company Ronnie Bounds, TRS Ann Fickel, Texas Classroom Teachers Association Patricia Cantú, TRS Philip Mullins, Texas Retired Teachers Association Katy Hoffman, TRS Ted Melina Raab, Texas American Federation of Teachers Bob Jordan, TRS Josh Sanderson, Association of Texas Professional Educator Dan Junell, TRS Ann Baddour, Texas Appleseed Eric Lang, TRS Jim Baker, Unite Here Lynn Lau, TRS Brenda Dulger-Sheikin, State Street Hugh Ohn, TRS Tathata Lohachitkul, Albourne America Mike Pia, TRS James Walsh, Albourne America

Mr. Kelly called the meeting to order at 8:18 a.m.

1. Call roll of Board members and recognize any newly appointed or reappointed

member.

Ms. Lau called the roll. A quorum was present. Mr. Barth arrived shortly after the roll call.

2. Consider the following administrative matters – David Kelly:

E. Consider Board and committee meeting dates for calendar year 2016.

On a motion by Mr. Moss, seconded by Mr. Corpus, the board unanimously approved the

following board and committee meeting dates for calendar year 2016:

TRS Board Meeting: September 24-25, 2015 Page 2 of 10

February 24 – 26, 2016 (already set for Region 10 ESC in Richardson)

April 7 – 8, 2016 (quarterly meeting)

May 13, 2016 (one-day)

June 16 – 17, 2016 (quarterly meeting)

July 29, 2016 (one-day)

September 22 – 23, 2016 (quarterly meeting)

October 28, 2016 (one-day)

December 1 – 2, 2106 (quarterly meeting)

B. Consider excusing Board member absences from the July 24, 2015 Board

meeting.

On a motion by Ms. Sissney, seconded by Ms. Palmer, the board unanimously excused the

absences of Mr. Corpus and Ms. Ramirez from the July 24, 2015 meeting.

C. Consider the election of the Board Vice-Chair.

D. Consider consenting to the Board Chair's appointment of committee

members, and receive the Board Chair's public announcement of committee

chairs.

Mr. Kelly announced that the board would defer the election of the Board Vice-Chair and

appointment of committee members and chairs to a future meeting.

A. Approval of the July 24, 2015 Board meeting minutes.

On a motion by Mr. Moss, seconded by Ms. Charleston, the board unanimously approved the

proposed minutes of the July 24, 2015 board meeting, as presented.


Mr. Jim Baker of Unite Here addressed the board concerning TRS’ investments in Lone Star

Funds. He stated his concerns over practices of discrimination based on race and national origin

by its executives and predatory payday and auto title lending practices. He urged TRS staff to insist

that Lone Star Funds and the firms they invest in comply with Federal Deposit Insurance

Corporation (FDIC) lending standards or divest from related investments.

Ms. Baddour of Texas Appleseed addressed the impact of predatory payday and auto title lending

practices in Texas. She stated that she hoped the board would assess whether TRS’ investments in

a payday lending entity was consistent with TRS’ values.

Mr. Kelly asked Mr. Guthrie to include the topic of social and ethical investing on the agenda of

the annual retreat meeting in February 2016. He also suggested that Mr. Baker and Ms. Baddour

address their issues to the legislature.


4. Discuss and consider investment matters, including Second Quarter 2015

Performance Review – Steve Voss and Mike Comstock, Aon Hewitt.

Mr. Voss presented the trust performance review on a year-to-date basis through August.

Responding to a question from Mr. Kelly regarding how TRS’ ranges of volatility compared with

other peer groups, Mr. Voss stated that it was slightly wider, but still close to policy ranges. He

stated that current ranges provided staff with tactical freedom flexibility, which allowed staff to

adequately rebalance. He also stated for Dr. Brown that other peer groups typically aimed for 5

percent points above or below a broad asset class target range, which was wider for liquid assets.

Mr. Comstock presented the total fund attribution on a one-year basis and a performance summary

ending June 30, 2015. Mr. Voss confirmed for Dr. Brown that an up/down capture analysis for the

whole portfolio was provided to IMD. Mr. Harris stated for Dr. Brown that the hit ratio would

provide the down market data relative to the fund’s benchmark. He stated that historical records

show that the fund’s downside volatility had been lower than typical funds. He stated for Mr. Kelly

that there was more correlation between the depth of a bear market and the advance of the market

in response.

The board recessed at 9:05 a.m. to conduct committee meetings. After the recess, the board

meeting reconvened at 3:16 p.m.

5. Receive a presentation on the 2015 Pension Trust Fund Experience Study and

consider adopting a resolution amending actuarial assumptions for the TRS Pension

Trust Fund – Joe Newton, Gabriel, Roeder Smith and Co.

Mr. Newton provided an overview of the experience study and discussed its purpose, actuarial

standards for setting reasonable assumptions, and specific attributes that impact TRS’ assumption

set. He discussed recommendations made by Gabriel, Roeder, Smith & Company (GRS) and TRS

staff, including:

Continuing an 8 percent investment return assumption;

No longer netting administrative expenses against the investment return and, instead,

adding an explicit administrative expense of 0.12 percent to the normal cost;

Updating post-retirement mortality tables for both disability and service retirees to reflect

recent TRS member experience as described in the study;

Decreasing the inflation assumption from 3.00 percent to 2.50 percent;

Decreasing the ultimate merit assumption for long-service employees from 1.25 percent

to 1.00 percent;

Lowering the payroll growth assumption from 3.50 percent to 2.50 percent; and

Updating the service-based promotional/longevity component of the salary scale as

described in the study.

Mr. Newton explained for Ms. Palmer that the investment return assumption had taken into

account both investment and non-investment expenses in the past, but that new accounting


standards required the return assumption to only account for investment expenses. He clarified for

Ms. Palmer that the proposed change would slightly take pressure off of the 8 percent investment

return target. He also noted some minor recommendations for simplifying the model.

On a motion by Mr. Colonnetta, seconded by Mr. Moss, the board unanimously voted to accept

all the actuarial assumptions recommended by staff and GRS.

Mr. Kelly announced that the board would take up agenda item 7.

7. Review the report of the Policy Committee on its September 24, 2015 meeting –

Committee Chair.

Mr. Colonnetta, Committee Chair, provided the following report of the Policy Committee:

The Policy Committee met today, September 24, 2015. The committee adopted the proposed minutes of the June 11, 2015 meeting. The committee further authorized for public comment and

publication in the Texas Register proposed amendments to Chapters 25 through 49 of TRS rules.

The committee also adopted the annual updates to the Policy Review Schedule.

6. Review the report of the Risk Management Committee on its September 24, 2015

meeting – Committee Chair.

Ms. Charleston, Committee Chair, provided the following report of the Risk Management

Committee:

The Risk Management Committee met on September 24, 2015. Jase Auby provided a review of

the investment risk report.

8. Review the report of the Compensation Committee on its September 24, 2015

meeting, and consider related matters, including the development of a compensation

plan, general compensation matters, and confirming continuation and adoption of the

Performance Incentive Pay Plan for the Performance Period beginning October 1,

2015 – Committee Chair.

Ms. Sissney, Committee Chair, provided the following report of the Compensation Committee:

The Compensation Committee met September 24, 2015. The committee adopted the proposed

minutes of the previous meeting in June. The committee received a presentation on matters related to the current performance incentive plan for investment staff from Jerry Albright. The

committee recommended continuation and adoption of the performance incentive pay plan for the

performance period beginning October 1, 2015. The committee also received a presentation from Keith Robinson, Focus Consulting, and Janet Bray on matters related to the executive

compensation, and the board deliberated on the executive director's performance, duties and compensation in closed session.

On a motion by Ms. Sissney as the committee chair, the board unanimously voted to confirm the

continuation and adoption of the investment performance incentive pay plan for the performance

period beginning October 1, 2015, as recommended by the committee.


Whereupon, the board meeting recessed at 3:30 p.m.

The Board of Trustees of the Teacher Retirement System of Texas reconvened on September 25,

2015 in the boardroom located on the fifth floor of the TRS East Building offices at 1000 Red

River Street, Austin, Texas. The following board members were present:

David Kelly, Chair Nanette Sissney, Vice-Chair Karen Charleston David Corpus Christopher Moss Anita Palmer Dolores Ramirez

Others present:

Brian Guthrie, TRS Garry Sitz, TRS Ken Welch, TRS Heather Traeger, TRS Amy Barrett, TRS Steve Huff, Reinhart Boerner Van Deuren Chris Cutler, TRS Jay Masci, Provaliant Katrina Daniel, TRS Michael Johnson, Bridgepoint Consulting Carolina de Onís, TRS Ann Fickel, Texas Classroom Teachers Association Don Green, TRS Philip Mullins, Texas Retired Teachers Association Barbie Pearson, TRS Ted Melina Raab, Texas American Federation of Teachers Ronnie Bounds, TRS John Grey, Texas State Teachers Association David Cook, TRS Josh Sanderson, Association of Texas Professional Educator Adam Fambrough, TRS Amy Timmons, HP Dan Junell, TRS Victor Ferreira, HP Lynn Lau, TRS Ernie Sanders, HP

Joni Lozano, Caremark

Mr. Kelly called the meeting to order at 10:24 a.m.

1. Call roll of Board members and recognize any newly appointed or reappointed

member.

Ms. Lau called the roll. A quorum was present. Mr. Barth and Mr. Colonnetta were absent.


Mr. Kelly called for public comments. No public comment was received.

10. Review and discuss the Executive Director's report on the following matters – Brian

Guthrie:

A. Administrative operational matters, including goals for Fiscal Year 2015 and

updates on financial, audit, legal, staff services, board administration

activities, special projects, long-term space planning, and strategic planning.

B. Board operational matters, including a review of draft agendas for upcoming

meetings.


C. Event notices or reminders; holiday and other schedules of interest; board

member, employee or other individual recognitions; and expressions of

thanks, congratulations, or condolences.

Mr. Guthrie shared with the board development of annual performance goals for fiscal year 2016.

He stated that the goals were aligned closely with the strategic plan. He laid out the goals in each

category, including operations, leadership, investment management, benefit services, and health

care and how they would be measured. He stated that he had started working with the Executive

Council to develop their developmental goals. He stated that he would provide the board a

quarterly update on the progress of meeting those goals.

Mr. Guthrie provided an update on setting up the satellite investment office in London. He stated

that the office would be formally opened in November and an 18-month assessment would begin

after that. He stated that a press release had been sent to major publications in July and September

to announce the opening.

Mr. Guthrie provided a general update on the agency-related activities. He stated that he had been

elected the Region IV regional vice president for the 2015 National Association of State

Retirement Administrators (NASRA) annual meeting. He also stated that Mr. Green had been

named Texas State Agency Business Administrators (TSABBA) Administrator of the year. He

highlighted the upcoming Texas Retired Teachers Association (TRTA) fall conventions and the

National Council on Teacher Retirement (NCTR) trustee workshop.

Mr. Guthrie reviewed proposed agenda items for the upcoming October and November meetings.

Mr. Guthrie referred the board to the materials updating the board on board-approved contracts

and trustees’ travel expense reports.

11. Receive an update on the TEAM Program – David Cook and Adam Fambrough;

Jay Masci, Provaliant.

Mr. Masci provided an update on the TEAM program as of May 29, 2015 and September 17, 2015

and described the changes of status between two periods. Mr. Kelly suggested adding a plus or

minus sign to indicate whether the project risk had increased or decreased.

Mr. Cook provided an update on the TEAM-program budget for different areas. He projected a

slight increase in the out-year budget because of the hiring of additional staff and contractors and

the purchase of more hardware and software.

Mr. Masci discussed the current milestones. He highlighted two major milestones for the next

board meeting: Line of Business (LOB) Phase 1A-Design and Build and Phase 1-Detailed Level

Requirements. He stated that both milestones were well on schedule.

Mr. Fambrough provided an update on the pension LOB project. He stated that the project status

had been elevated to orange because of gaps identified in some requirements during the testing

process and required changes. He also highlighted key risks identified during this reporting period

owing to lack of experience for large-scale user-acceptance testing and multiple new technologies

within the LOB project.


Mr. Fambrough laid out the current objectives of the Reporting Entity Outreach (REO) project,

including communication, training, and certification. He further discussed the ongoing activities

and mechanism that would help reach these objectives. He also highlighted the key risks associated

with the REO project.

12. Receive a presentation from the TEAM Program Independent Program Assessment

(IPA) Vendor – Michael Johnson, Bridgepoint Consulting.

Mr. Johnson provided an update on the scorecard and observations for the Independent Program

Assessment (IPA). He highlighted the improvement in the REO project and the user acceptance

testing. He reported that the management team had addressed inconsistencies between TEAM

project schedules and current projections, resource allocations and interdependencies by

developing a resource loaded schedule that would resolve the problem. Mr. Johnson also reported

on testing issues. He said that the engagement of Cognizant would help resolve issues by providing

resource estimates and developing test plans. In response to a question from Ms. Palmer regarding

the risk concerning insufficient resources to complete the testing, Mr. Johnson stated that

Cognizant had validated sufficient resources to complete the testing. Mr. Sitz further explained the

process of testing. Mr. Johnson and Mr. Cutler also briefly discussed security controls.

13. Review the report of the Investment Management Committee on its September 24,

2015 meeting, and consider related matters – Committee Chair.

In the absence of Mr. Colonnetta, Committee Chair, Mr. Kelly provided the following report of

the Investment Management Committee:

The Investment Management Committee met on September 24, 2015. Jerry Albright discussed the opening of the London office, then the board received an update on the Strategic Partnership

Network by Mike Pia and Grant Birdwell. Next Steve Voss and Mike Comstock from Aon Hewitt

presented the hedge fund discussion. Following that there was a review of the external public markets portfolio presented by Dale West, Susanne Gealy and Brad Gilbert. The Investment

Management Committee ended with an interview with Sam Zell of Equity Group Investments, which was conducted by Eric Lang.

14. Review the report of the Audit Committee on its September 25, 2015 meeting, and

discuss and consider adoption of the proposed Audit Plan for Fiscal Year 2016 –

Committee Chair.

Mr. Moss, Committee Chair, provided the following report of the Audit Committee:

The Audit Committee met at 8:00 on Friday, September 25, 2015 in the 5th Floor Boardroom. The State Auditor's staff presented their plan to conduct the audit of the TRS Comprehensive

Annual Financial Report for fiscal year 2015. SAO staff also presented the results of the audit of

TRS fiscal year 2014 employer pension liability allocation schedules. Sagebrush Solutions presented the results of the independent audit report on TRS-ActiveCare service providers.


Internal Audit staff and Protiviti representatives presented the results of the audit of information

technology controls with third party investment service providers. Internal Audit staff presented the results of the fourth quarter test results of investment controls, overall opinion on investment

management division internal controls, quarterly investment testing, semi-annual testing of benefit payments, the records management audit, and the follow-up audit on significant benefit

audit findings. Additionally, the status of prior audit and consulting recommendations and audit

administrative matters were presented.

The committee approved the recommendation to the Board of Trustees to approve the proposed Audit Plan for fiscal year 2016. I have a motion.

On a motion by Mr. Moss as the Committee Chair, the board unanimously adopted the proposed

Audit Plan for fiscal year 2016.

15. Review the reports of the Chief Financial Officer regarding expenditures, current

financial review, and other financial matters involving TRS programs – Don Green.

Mr. Green provided a year-end report of cash disbursements from the pension fund for fiscal year

2015 by fund, division, and expense category and a comparison with fiscal year 2014 expenditures

by month.

16. Review the report of the Chief Benefit Officer, and consider the following related

matters – Barbie Pearson:

A. Approve the number of members qualified for retirement.

Ms. Pearson presented the list of members and beneficiaries receiving initial benefit payments

during the period of June 1, 2015 through August 31, 2015.

On a motion by Ms. Sissney, seconded by Mr. Moss, the board unanimously approved the list of

members and beneficiaries who qualified for retirement, disability, DROP, PLSO, survivor, or

death benefits initiated during the reporting period.

B. Approve the minutes of the May 2015 Medical Board meetings.

Ms. Pearson presented the minutes of the May 12, 2015 Medical Board meeting.

On a motion by Mr. Moss, seconded by Ms. Sissney, the board approved the minutes of the

Medical Board meeting, as presented, thereby ratifying the actions of the Medical Board reflected

in those minutes.

C. Consider an appointment to the Medical Board and a resolution authorizing

staff to negotiate and execute a contract with the appointed member.

On a motion by Ms. Sissney, seconded by Mr. Moss, the board unanimously approved the

resolution to reappoint Dr. James A. Reinarz to the TRS Medical Board:


Whereas, Section 825.204 of the Government Code and section 1.7(s) of the Bylaws of the Board

of Trustees (board) of the Teacher Retirement System of Texas (TRS) require the board to appoint as members of the TRS Medical Board (medical board) three physicians licensed to practice

medicine in Texas who are in good standing with the medical profession;

Whereas, Rule § 51.1(c) of the board’s rules provides that members of the medical board shall

be paid, as independent contractors, fees and expenses in accordance with contracts negotiated by the executive director or his designee subject to the applicable resolutions, policies, and annual

budget adopted by the board;

Whereas, The appointed term of one member currently serving on the medical board expires on December 31, 2015; and

Whereas, The Board wishes to appoint to the medical board a member whose term would begin on January 1, 2016 for a five-year term and to confirm the executive director’s authority to enter

into a contract, including any amendment, with an appointed member of the medical board, in accordance with Rule § 51.1(c) and the period of the appointed term specified by the board; now,

therefore be it

Resolved, That the board hereby appoints Dr. James Reinarz to the TRS Medical Board for a term

of five years beginning January 1, 2016 and ending December 31, 2020; and

Resolved, That, in accordance with board Rule § 51.1(c) and the specified period of Dr. Reinarz’ appointed term, the executive director or his designee is authorized to negotiate and to execute a

contract, including any amendment, with Dr. Reinarz as the executive director or his designee may

deem in his or her discretion to be in the best interest of TRS.

17. Consider concurring in the Medical Board’s certification regarding multiple

disability retirees under Section 824.307 of the Government Code, discontinuing

annuity payments for certain retirees, and restoring the retirees to membership –

Barbie Pearson.

Ms. Pearson presented information regarding a determination made by the Medical Board that two

disability retirees were no longer disabled. She stated that the Medical Board had reviewed the

case again and made the final determination that the retirees were no longer certified for disability.

She requested the board’s approval to concur with the Medical Board’s decision and thereby

discontinue the disability retirees’ annuity payments, with their final payment being the September

2015 payment.

On a motion by Ms. Sissney, seconded by Ms. Palmer, the board unanimously voted to accept the

Medical Board's findings, thereby discontinuing the disability retirees’ annuity payments and

restoring them to active status.

18. Review and discuss the Deputy Director’s report, including matters related to

administrative, financial, and staff services operations – Ken Welch

Mr. Welch discussed recent operational matters. He noted that August was a typical month with a

high retirement rate among members and TRS employees. He recognized two TRS employees

who retired in August, T. A. Miller and Mike Rehling, and expressed his appreciation for their

contributions to the retirement system and its members. Mr. Welch also provided an update on the


preparation of the Comprehensive Annual Financial Report (CAFR), upcoming TRTA meetings,

and the Retiree Advisory Committee nominations. He reported that telephone-counseling staff had

exceeded the target on average speed of answer by four seconds. He also described ongoing field

visits and plans to offer remote counseling. He also reported on the upcoming business-continuity

testing of TRS' co-location, or offsite, data replication facility. Mr. Welch concluded his report by

providing a brief update on a few community events, including the Austin Independent School

District Partners in Education Program, the State Employees Charitable Contribution Campaign,

and the annual TRS Tailgate in conjunction with TRS annual employee recognition ceremony.

19. Review the report of the General Counsel on pending and contemplated litigation,

including updates on litigation involving benefit-program contributions, retirement

benefits, health-benefit programs, and open records – Carolina de Onís.

Ms. de Onís stated that no material development had occurred to add to the written litigation report.

20. Consider personnel matters, including the appointment, employment, evaluation,

compensation, performance, duties, discipline, or dismissal of the Executive Director,

Chief Investment Officer, or Chief Audit Executive – David Kelly.

21. Consult with the Board's attorney(s) in Executive Session on any item listed above

on this meeting agenda as authorized by Section 551.071 of the Texas Open

Meetings Act (Chapter 551 of the Texas Government Code) – David Kelly.

The board took up no further business under agenda item 20 or 21.

The meeting was adjourned at 12:00 p.m.

APPROVED BY THE BOARD OF TRUSTEES OF THE TEACHER RETIREMENT SYSTEM

OF TEXAS ON THE 22TH DAY OF OCTOBER, 2015.

ATTESTED BY:

Dan Junell

Secretary to the TRS Board of Trustees

Date

Teacher Retirement System of Texas

Brian GuthrieOctober 22, 2015

Health Care Agenda Overview andInstructions for Question Submission

Health Care Agenda Overview

Morning Session:• Health Care Environment Panel.• Strategies for Cost Containment and Consumerism Panel.• Q&A Session on Health Care Environment and Consumerism (Take

written questions from the town hall audience and online).

Afternoon Session:• TRS-Care Panel.• TRS-ActiveCare Panel.• Stakeholder Association Panel.• Q&A Session on TRS-Care and ActiveCare (Take written questions from

the town hall audience and online).

2

Healthcare Town Hall

During the Health Care Town Hall, TRS will offer two interactive Q & A sessions: One on the health care environment and cost trends and a second specific to TRS-Care and TRS-ActiveCare.

Ways to submit questions.

o Audience in the hall can submit questions on the cards provided at the meeting or by Twitter or Facebook on their mobile devices.

o Webcast audience can submit questions through:

o The internet link on the webcast homepage;

o Twitter at @trsoftexas. For TRS-Care questions, use #trscare. For TRS-ActiveCarequestions, use #trsactivecare. For all other questions, use #trstownhall; and

o Facebook by commenting directly to our TRS Health Care Town Hall post.

TRS will publish FAQs on the TRS website to address questions not answered during the Q&A.

Do not submit questions regarding personal health situations. TRS cannot discuss an individual’s personal health information in this forum.

Ask A Question Feature

• Click on the “Ask a Question” Balloon• Email box will appear• Name and email are optional, but suggested• Submit subject and question• Click on ‘send’ button

4

WHAT IS DRIVING HEALTH COST GROWTH

AND WHAT CAN YOU (OR ANYONE) DO

ABOUT IT?Len M. Nichols, Ph.D.

George Mason University

Teacher’s Retirement System of Texas

Austin, TX

October 22, 2015

www.chpre.org 1

OVERVIEW

• Why We Passed Health Reform Legislation

• What Caused Cost Growth in the Past?

• What’s Driving Cost Growth Now?

• What Are Other People Trying to Do About It?

• What Can YOU Do About It?

www.chpre.org 2

RELATIVE COST OF HEALTH INSURANCE

1…

17.5

0

5

10

15

20

Family Premium / Family

Income*

WHAT THE ACA HAS WROUGHT

• Business models are changing

o Fee For Service pay for value

o Risk Selection Reward those who deliver value

• Rules of competition are changing

o Transparency rewards those good at

information

o Economies of scale rewards size

www.chpre.org 5

GROWTH IN HEALTH SPENDING,

SHARE OF GDP OF HEALTH SPENDING

0

2

4

6

8

10

12

14

16

18

20

1960 1970 1980 1990 2000 2001 2002 2003 2004 2004 2006 2007 2008 2009 2010 2011 2012 2013

NHE/GDP NHE g pc

WHAT CAUSED GROWTH IN THE

PAST?

• Incentives rewarded volume growth

o Fee For Service

o Insurer business model, lack of competition

o Insurance agent business model

o Employer-based tax preference

• Creation of Medicare and Medicaid

• Open-ended incentives for “better” technology

www.chpre.org 7

GROWTH IN HEALTH SPENDING,

SHARE OF GDP OF HEALTH SPENDING

0

2

4

6

8

10

12

14

16

18

20

1960 1970 1980 1990 2000 2001 2002 2003 2004 2004 2006 2007 2008 2009 2010 2011 2012 2013

NHE/GDP NHE g pc

Altarum

Institute

Center for

Sustainable

Health

Spending

www.chpre.org

www.chpre.org

Institute for

Clinical and

Economic Review

Estimate of

“Value” of

PCSK9 inhibitor

ICER-review.org

INCENTIVE

REALIGNMENTCUTS

What Does a Deductible Do? The Impact of Cost-Sharing

on Health Care Prices, Quantities, and Spending

Dynamics

Zarek C. Brot-Goldberg, Amitabh Chandra, Benjamin R. Handel, Jonathan T. Kolstad

NBER Working Paper No. 21632Issued in October 2015

• Studied a forced switch to high deductible health plan in one large employer

• DID cause 11-13% reduction in overall spending

• DID NOT find evidence of:

o Learning to price shop

o more reduction in low value vs. high value care

• ½ of all spending reduction from sickest enrollees; maybe try VBID???

http://vbidcenter.org/

www.chpre.org 23

SUMMARY

• You’re gonna need every arrow in the quiver

• Supporting payment and delivery reform where possible is a no

brainer

• Supporting payment reform (supply side) with VBID and shared

decision making/Patient engagement (demand side) is really

smart also

• There’s a role for higher cost sharing, and also lower cost sharing

o Clinical nuance, dynamic cost sharing are better than one D fits all

www.chpre.org 24

COMMENTS AND QUESTIONS

• [email protected]

• Twitter = @LenMNichols

• www.chpre.org

mailto:[email protected]

Kenneth I. Shine, M.D.


October 22, 2015

Disclosure Member – Board of Directors – United Health Care

26

Reimbursement Fee for Service

Fee for Value

Value = Cost

Quality/Outcomes

27

Cost Drivers Fee for Service Care

3rd Party Payment

Technology

Disease vs. Health Care

Aging of Population

Chronic Illness

Pharmaceuticals

?? Malpractice Costs

28

Quality/Outcomes Patient Safety

“Never Events”

Quality Measures, e.g. HbA1c

Outcomes-Orthopedic Procedure

Head and Neck Cancer

International Comparisons Mediocre

29

Delivery Models TEAM CARE

Health/Medical Homes

Accountable Care Organizations

Bundled Care, e.g. Orthopedic/Heart/Cancer

Population vs. Individual Care Models

Blurred Roles of Hospitals/Doctors/Insurers

30

Reimbursement Models FFS Hybrid Capitation

Bundled Care

Gainsharing

Pay for Quality

Pay for Outcomes

Co-Pays

Health Savings Accounts

31

Information Technology Health Records

Utilization Data

Cost Data

Safety/Management

32

Value Purchasing Controlling Cost

Maintaining Quality

Obtaining Best Outcomes

Pay for Health vs. Disease

Focus on High Utilizers (Galveston)

Data is Key

33

TRS Town Hall

October 22, 2015

1

C. Carleton King, Senior Vice-President

Privileged and Confidential

Aetna’s 2020 Vision

2

AETNA’S MISSION BUILD A HEALTHIER WORLD

Build a consumer-centric healthcare system that promotes high quality outcomes and health and wellness.

Increase members’ HEALTHY DAYS = Per year per member that were both physically and mentally good, as defined by the CDC

PURPOSE

STRATEGIC

PRIORITIES

OUTCOMES

Vision 2020: Building a Healthier World

• PARTNER TO BUILD A VALUE-BASED PAYMENT MODEL that offers consumers more value for their healthcare dollar

• BUILD A CONSUMER-CENTRIC EXPERIENCE by making insurance products simpler and easier to use. Build a consumer-centric health and wellness model to meet individual needs via big data and creating a digital experience

• IMPROVE POPULATION HEALTH AT LOCAL LEVEL through sustainable, competitive pricing and a differentiated consumer experience. We expect to increase retention rates via high consumer engagement and improve our ability to manage member health and wellness

Privileged and Confidential 2

Transformation from Fee for Service to Value-Based Healthcare

Fee-for-Service

Pay for Performance

Patient-Centered Medical Home

Accountable Care Organization

Joint Venture

3

The transaction-oriented

model of the past will

transition to a local

population health

model, focused on

creating value-based

payment models with

providers and engaging

consumers to improve

their health and

wellness.

1

Proprietary Information of UnitedHealth Group. Do not distribute or reproduce without express permission of UnitedHealth Group.

I use in-network providers

I use tier one drugs whenever possible

I use cost transparency tools to find the best

price for care

Defining Health Ownership

I live tobacco-free

I manage my chronic condition

I maintain my ideal body weight

I manage stress in my life

Optimal

Services

I use shared decision making with my physician

to choose appropriate care

I use alternatives to the emergency room when

appropriate

I obtain evidence-based screenings

Optimal

Health

Optimal

Value

2

Motivating Health OwnershipBenchmarking the Strategy

Proprietary Information of UnitedHealth Group. Do not distribute or reproduce without express permission of UnitedHealth Group.

INITIATION AWARENESS ACCOUNTABILITY OWNERSHIP

CORE PLAN

DESIGN

CDHP <20%

PPO or POS

CDHP 20-50%

More HSA

CDHP 50%+

HSA or dynamic account

CDHP 75%+

HSA or dynamic account

COST SHARING

AND FUNDING

(Actuarial Values)

>=90% value (Platinum)

No rewards integration

80-89% value (Gold)

Limited rewards

70-79% value (Silver)

Rewards of ~5% value

<70% value (Bronze)

Rewards of ~5+% value

NETWORK

DESIGN

Broad network

Limited OON cost share

Virtual Visits

High OON cost share

Value based models

Narrow / gatekeeper market models

Micro network designs (ACOs, PCMHs)

Onsite clinics & network augmentation (e.g. telehealth)

QUALITY AND

TRANSPARENCY

myuhc network directory

Basic messaging

Targeted messaging

Cost transparency

Tiering (Premium, POS)

COE incentives

COE coverage mandates

Additional CC resources

CLINICAL

RESOURCES, RX,

INTEGRATION

Initial program deployment

Traditional case mgmt

PHS nurse team

DM (if warranted)

Medical Necessity

Total population mgmt

Needs based model

Ancillary integration

REWARDS,

WELLBEING

STRATEGY

Limited to none

HA reward <$200

Challenges / Health site

Activity based

$300 - $1000

Limited Biometrics

Outcomes based

Consequential

>50% engagement

THE

EXPERIENCE

Plan Basics

Enrollment support

Low awareness of resources

myuhc.com promotion

Consumerism 101

Build awareness around

impact of decisions

and transparency resources

Personalization

Emerging Health Culture

Framing of health care

decisions and impact

Empowerment / Autonomy

Strong Health Culture

Adaptive / concierge model

supporting life stage events

Single experience

Rewards outcomes

Value-Based integration

Multi-year recognition

Autonomy and mobility

Ma

rk

etp

la

ce

E

nro

llm

en

t

UHC Self Insured Book of BusinessUHC


October 22, 2015

Health Care Report

Overview

2

TRS-Care

History of TRS-Care

Current Plan Designs & Benchmarking

Participation

Financial Structure

Sustainability Study

Cost Drivers & Cost Containment/Quality Initiatives

TRS-ActiveCare

History of TRS-ActiveCare

Current Plan Designs & Benchmarking

Participation

Financial Structure

Affordability Study

Cost Drivers & Cost Containment/Quality Initiatives

3

Health Care Coverage for Retired Public Educators and their

Families

History of TRS-Care

4

1981 The Texas Public School Employees Group Benefits Program was passed by the

legislature but vetoed due to lack of funding.

A survey of Texas school districts found that only 429 of the 1,100 school districts offered some sort of retiree health coverage.

14 of the 429 districts also provided contributions to the premium costs.

Every school district endorsed and lobbied the legislature for a group health insurance program.

Districts agreed to payroll deduct a percentage of active teacher salaries to help fund the program.

S.B.387 provided that 1985-86 school year was to be used by TRS to "design, build and implement" the new program to be effective September 1, 1986.

1983

1985

History of TRS-Care

5

Created in 1985, the program is now in its 30th year. It was redesigned in 2004 to

provide an additional decade of solvency.

Catastrophic coverage was to be offered to all retires at no cost, with the Board given the option of offering a more comprehensive option that would be paid for by the retiree. Coverage for dependents was to be paid for by retirees.

The State initially contributed 0.35% and active employees 0.25% of the active employee payroll to fund TRS-Care.

Several increases were made over the years to State and active employee contributions.

School districts began contributing 0.40% of active employee payroll in the 2003-04 school year.

1985 to 1986

1986 to 2009

History of TRS-Care

6

The State contributes 1.00%, districts contribute 0.55% and active employees

0.65% of the active employee payroll to fund TRS-Care.

Medical benefits are offered through three self-funded PPO plans and two fully insured Medicare Advantage plans, each of which are administered by Aetna.

Pharmacy benefits are offered through self funded plans administered by Express-Scripts, including a Medicare Part D plan.

2010 - 2014

83rd Legislative Session passed S.B. 1458, which changed eligibility rules effective

September 1, 2014.

Individuals who retire before age 62 are eligible for TRS-Care 1 only.

At age 62, a retiree may upgrade from TRS-Care 1 to either TRS-Care 2 or TRS-Care 3.

Grandfathering provision if, on or before August 31, 2014, Age + Years of Service (YOS) of the retiree is greater than or equal to 70 or the retiree has a minimum of 25 YOS.

2014 - 2016

FY2016 Benefit Structure

7

1 MOOP includes deductible, coinsurance and copayments.

In-Network Medical Benefits

TRS-Care 1 TRS-Care 2 TRS-Care 3 Medicare

Advantage for TRS-Care 2

Medicare Advantage for

TRS-Care 3

Deductible $1,800 Parts A&B $3,000 Part B Only

$4,000 Non-Medicare $1,000/$2,000 $300/$600 $500 $150

Maximum Out-of-Pocket (MOOP)1

$4,800/$9,600 Parts A&B $6,000/$12,000 Part B Only

$6,350/$12,700 Non-Medicare

$4,400/$8,800 $3,700/$7,400 $3,500 $3,150

Coinsurance

80%/20% (after Medicare payment)

80%/20% (after Medicare

payment)

80%/20% (after Medicare

payment)

95%/5% 95%/5%

Inpatient Hospital Facility

$500 copay per stay

$250 copay per stay

Outpatient Hospital Facility $250 copay $75 copay

Emergency Room $65 copay $50 copay

Urgent Care $35 copay $35 copay

Office Visits $5 PCP $10 Specialist

$5 PCP $10 Specialist

Benefit Structure

8

Pharmacy Benefits

TRS-Care 2 TRS-Care 3 Medicare Part D for TRS-Care 2

Medicare Part D for TRS-Care 3

Retail Copays

Generic $10 $10 $5 $5

Preferred Brand $30 $25 $25 $20

Non-Preferred Brand $50 $40 $40 $40

Mail Order Copays

Generic $20 $20 $15 $15

Preferred Brand $75 $50 $70 $45

Non-Preferred Brand $125 $80 $125 $80

Plan Design Benchmarking

Non-Medicare Retiree Plans

9 * Actuarial Value of the health plan offered to non-Medicare retirees for the 2016 plan year, if available.

Participation by Plan

10

Enrollment History

Fiscal Year Average Membership

Percent Change

2010 204,382 2.2%

2011 210,828 3.2%

2012 223,287 5.9%

2013 234,234 4.8%

2014 243,344 4.0%

2015 251,758 3.5%

2016 259,578 3.1%

Participation by Plan as of August 2015

11

Distribution of Members

Financial Structure

12

FY2015 Revenue Over $2.0 billion was provided by multiple funding sources for TRS-Care. State, District and Active Employee contributions are based on a percentage of active employee payroll rather than by medical trend.

In FY2015, required State contributions totaled almost $300 million. An additional $768 million in supplemental funding was received.

Financial Structure

13

Retiree Premium Contribution Structure

TRS-Care 1 The law requires that a catastrophic plan be offered at no cost for retiree only coverage. Retirees pay for coverage of his/her dependents

TRS-Care 2 and TRS-Care 3 Retiree premium contributions for optional coverages are based on plan election, Medicare

status and Years of Service. (Sample rates for 20-29 Years of Service are shown in the table below.)

Monthly retiree premiums for both Medicare Advantage plans are $15 less than the premium for the traditional medical plans.

Monthly retiree premiums shown below are for 20-29 Years of Service

TRS-Care 2 TRS-Care 3 Medicare Status Retiree Only Retiree & Spouse Retiree Only Retiree & Spouse

Medicare Parts A&B $70 $175 $100 $255

Medicare Part B Only $155 $340 $230 $505

Non-Medicare $200 $430 $295 $635

Financial Structure

14

FY2015 Expenses

Financial Structure

15

Financial Status

16

Fiscal Year Retiree Contributions

State Contributions

Supplemental Appropriations

Active Employee Contributions

District ContributionsInvestment

IncomeCMS& Part D

SubsidiesERRP Subsidy Medical Incurred Drug Incurred

Medicare Advantage Premiums

Administrative Costs

Ending Balance (Incurred Basis)

FY 1986 $0 $0 $250,000 $17,625,194 $0 $572,153 $0 $0 $0 $0 $0 $362,371 $18,084,976FY 1987 $22,617,624 $25,931,680 $0 $18,522,629 $0 $2,568,998 $0 $0 $50,988,845 $7,044,825 $0 $3,941,936 $25,750,301FY 1988 $23,948,600 $31,357,632 $0 $19,598,520 $0 $5,703,832 $0 $0 $16,157,649 $12,441,672 $0 $4,614,755 $73,144,809FY 1989 $25,428,632 $37,420,711 $0 $20,789,215 $0 $8,802,914 $0 $0 $32,926,324 $15,458,710 $0 $5,212,073 $111,989,174FY 1990 $37,556,561 $44,369,915 $0 $22,184,958 $0 $13,098,835 $0 $0 $50,171,919 $19,835,965 $0 $7,186,851 $152,004,708FY 1991 $46,563,787 $47,277,743 $0 $23,638,871 $0 $15,801,047 $0 $0 $82,697,189 $28,683,081 $0 $8,258,029 $165,647,857FY 1992 $56,395,797 $50,392,512 $0 $25,196,592 $0 $17,314,372 $0 $0 $74,307,953 $33,829,694 $0 $8,862,560 $197,946,923FY 1993 $65,154,653 $54,029,406 $0 $27,014,703 $0 $17,181,190 $0 $0 $101,627,864 $40,700,513 $0 $10,067,359 $208,931,140FY 1994 $80,128,944 $56,912,083 $0 $28,456,041 $0 $16,467,438 $0 $0 $108,284,693 $45,712,060 $0 $11,668,828 $225,230,065FY 1995 $89,006,331 $59,849,850 $0 $29,924,925 $0 $16,841,673 $0 $0 $122,054,551 $50,782,093 $0 $12,219,847 $235,796,353FY 1996 $82,622,236 $63,634,087 $0 $31,817,043 $0 $16,818,747 $0 $0 $135,982,304 $57,074,921 $0 $13,593,578 $224,037,663FY 1997 $87,657,784 $67,616,395 $0 $33,808,197 $0 $16,202,440 $0 $0 $148,823,489 $62,530,982 $0 $14,097,454 $203,870,554FY 1998 $91,390,173 $72,210,190 $0 $36,105,095 $0 $15,260,517 $0 $0 $156,537,913 $76,256,158 $0 $14,616,678 $171,425,780FY 1999 $96,474,107 $76,488,424 $0 $38,244,213 $0 $9,762,741 $0 $0 $184,398,533 $93,459,890 $0 $14,905,196 $99,631,646FY 2000 $120,227,960 $85,505,637 $0 $42,738,069 $0 $6,923,485 $0 $0 $203,029,971 $110,903,247 $0 $16,837,127 $24,256,451FY 2001 $131,213,445 $90,118,787 $76,281,781 $45,059,394 $0 $5,824,134 $0 $0 $250,691,898 $139,774,848 $0 $18,237,767 ($35,950,521)FY 2002 $143,797,748 $94,792,026 $285,515,036 $47,378,092 $0 $7,140,560 $0 $0 $287,729,918 $163,979,754 $0 $19,017,292 $71,945,978FY 2003 $162,954,010 $98,340,798 $124,661,063 $49,170,399 $0 $3,394,956 $0 $0 $368,462,963 $203,281,400 $0 $21,690,329 ($82,967,487)FY 2004 $248,552,679 $198,594,194 $298,197,463 $99,297,097 $79,457,387 $4,840,982 $0 $0 $366,840,457 $214,514,500 $0 $26,332,200 $238,285,158FY 2005 $322,780,191 $202,397,566 $64,172,167 $101,198,783 $80,914,228 $11,300,868 $0 $0 $431,036,095 $229,522,988 $0 $33,333,010 $327,156,868FY 2006 $326,844,982 $215,666,940 $0 $140,183,511 $118,607,527 $21,435,792 $34,611,607 $0 $427,553,404 $259,532,887 $0 $34,434,969 $462,985,967FY 2007 $323,957,945 $238,190,720 $0 $154,823,968 $136,008,512 $32,671,539 $52,329,617 $0 $437,519,747 $304,773,401 $0 $35,878,194 $622,796,927FY 2008 $328,505,433 $254,722,174 $0 $165,569,413 $141,672,630 $29,252,347 $59,486,239 $0 $498,767,038 $334,742,500 $0 $39,656,301 $728,839,324FY 2009 $329,723,191 $267,471,299 $0 $173,856,344 $149,562,613 $17,482,143 $61,530,735 $0 $531,239,020 $353,893,845 $0 $43,184,393 $800,148,391FY 2010 $332,481,933 $279,250,547 $0 $181,512,856 $155,918,241 $11,679,229 $70,795,686 $0 $575,539,788 $395,817,017 $0 $45,465,776 $814,964,302FY 2011 $345,164,271 $282,782,431 $0 $183,808,580 $158,724,010 $8,168,640 $66,258,008 $70,629,797 $608,461,321 $384,017,059 $0 $47,151,354 $890,870,304FY 2012 $363,348,030 $271,925,242 $0 $176,751,407 $154,607,926 $5,189,934 $71,575,942 ($2,941,996) $687,987,585 $454,143,825 $0 $48,181,723 $741,013,656FY 2013 $355,685,504 $139,213,557 $102,363,704 $180,824,522 $160,952,396 $3,041,001 $98,628,841 $0 $686,321,003 $496,229,923 $1,075,388 $47,048,587 $551,048,281FY 2014 $363,631,292 $290,775,235 $36,058,148 $189,003,903 $169,847,447 $2,061,745 $135,536,021 $0 $663,776,623 $539,842,962 $27,507,107 $48,894,894 $457,940,487FY 2015 $369,066,459 $304,917,343 $768,100,754 $198,196,273 $179,157,485 $1,495,680 $200,321,166 $0 $746,668,738 $649,457,501 $59,000,080 $51,150,088 $972,919,239

FY 2016 $382,074,538 $311,015,690 $0 $202,160,198 $182,517,320 $3,599,989 $200,412,045 $0 $790,648,492 $763,100,990 $74,052,919 $53,141,963 $573,754,655FY 2017 $389,273,832 $317,236,004 $0 $206,203,402 $185,938,492 $1,714,464 $231,850,009 $0 $844,100,731 $913,049,560 $85,823,699 $52,574,583 $10,422,284FY 2018 $395,769,379 $323,580,724 $0 $210,327,470 $189,428,089 $56,524 $268,782,466 $0 $897,954,813 $1,086,797,088 $99,239,736 $52,906,743 ($738,531,444)FY 2019 $402,156,504 $330,052,338 $0 $214,534,020 $192,987,476 $0 $310,885,986 $0 $957,790,596 $1,287,661,040 $114,320,691 $53,922,955 ($1,701,610,402)FY 2020 $406,796,951 $336,653,385 $0 $218,824,700 $196,618,052 $0 $358,934,600 $0 $1,019,883,521 $1,516,829,080 $131,313,257 $54,341,841 ($2,906,150,413)

NOTES Invoice data through August 31, 2015 This purpose of this report is to project revenue and expenses on an incurred basis and should not be used as a projection of cash flow. 68% participation in Medicare Advantage and 80% participation in Part D plan, which was effective 1/1/2013; CY2015 CMS Subsidy values assumed for Part D Revenue. State Contribution rate of 1%; District Contribution rate of 0.55%; and Active Contribution rate of 0.65%. Enrollment assumptions based on GASB headcounts 4% increase in payroll growth for FY2014; 2% increase in payroll growth thereafter. Medical trends: 7.5% for Care 1; 7.5% for Care 2; 7.5% for Care 3. Pharmacy trends: 13% for Care 2; 13% for Care 3; 13% for EGWP plans. Interest Rate = 0.4% Medicare Part D Risk Score of 0.811 beginning January 1, 2015

ExpendituresContributions

Financial Status

17

2014 Sustainability Study

18

Option Description

Option 1 Pre-fund the long-term liability

Option 2 Fund on a pay-as-you-go basis through FY2019 2(a) increase State contribution only 2(b) increase State, District and Active Employee contributions 2(c) increase State, District, Active Employee and Retiree contributions 2(d) increase State, District, Active Employee and Retiree contributions; plan design changes

Option 3 Fund on a pay-as-you-go basis through FY2025 3(a) increase State contribution only 3(b) increase State, District and Active Employee contributions 3(c) increase State, District, Active Employee and Retiree contributions

Option 4 Retiree pays the full cost for optional coverage

Option 5 Require purchase of Medicare Part B; mandatory participation in Medicare Advantage and Medicare part D plans; otherwise, TRS-Care 1

Option 6 Fixed Contribution for non-Medicare retirees through an HRA

Option 7 Create a single consumer driven plan design for Care-2 and Care-3 non-Medicare enrollees

84th Legislature

19

H.B. 2 - Approved supplemental funding of $768 million into the TRS-Care fund

H.B. 2947 and S.B. 1940 - Establishes a 6 member committee of both house and senate members to conduct an interim study of TRS-Care and TRS-ActiveCare. Examine the financial soundness of the Plan; Assess the cost and affordability of the Plan; Evaluate the sufficiency of access to physicians and health care providers; Estimate the impact of allowing school districts and other participating entities in

TRS-ActiveCare to opt out of TRS-ActiveCare; Estimate the impact, should participating entities be authorized to opt out of TRS-

ActiveCare, of allowing or prohibiting future participation by previous participating entities that have opted out; and

Estimate the impact of establishing a regional rating method for determining premiums charged in different regions of the state for the benefits provided under TRS-ActiveCare.

Cost Drivers

Increase in medical costs

Increase in Rx costs

Maintaining access and choice in managing providers

Increased utilization due to aging population

Potential increase in number of retirees (Non-Medicare)

Potential plan changes in Medicare program

CMS reimbursements for Medicare Advantage and Medicare Part D Plans

Technology increases and development of new biogenetic drugs

20

Cost Containment & Quality Initiatives

Effective Date Medical Plan Prescription Drug Plan

1986-1993 • Implemented and refined pre-certification,

concurrent review and second surgical opinion programs.

9/1/1993 • Implemented TRS Coordinated Care (TCC) Statewide Network of Hospitals;

9/1/1994 • Added statewide physician network to TCC

9/1/2003 • Transition from TCC network to more cost effective Aetna network;

9/1/2004 • Finalized transition from TCC network to Aetna network;

• Implemented Caremark’s Custom Care Mail utilization program;

9/1/2005 • Implemented Aetna’s Compassionate Care Program to case management;

• Implemented Caremark’s Custom Care Retail program

9/1/2007 • Implemented Aetna’s MedQuery Patient Safety program

12/1/2008 • Implemented Aetna’s Disease Management program for non-Medicare participants

9/1/2010 • Implemented Aetna’s Care Advocate Program for non-Medicare participants;

• Implemented Medco’s Therapeutic Resource Centers

21



9/1/2012 • Implemented copay waiver program for certain

Tier 1 and Tier 2 drugs for non-Medicare participants compliant with Aetna’s disease management program.

1/1/2013 • Implemented Medicare Advantage plans for participants with both Part A and B;

• Implemented Medicare Part D plans for participants with either Part A or B;

9/1/2013 • Copay waiver program terminated;

7/15/2014 • Restrictions placed on compound drug prescriptions containing bulk chemicals.

9/1/2014 • Lab results for work performed by Quest

Diagnostics provided to Aetna’s Disease Management teams to identify health conditions;

22


23

Medicare Advantage and Medicare Part D Plan Through August 2015, savings of $400 million are attributable to the implementation of these plans on January 1, 2013.

Compound Drug Analysis In early FY2014, compound drug spend began increasing significantly. Following an investigation into these scripts, TRS implemented new criteria under which these scripts would be paid.


24

ESI Contract Renewal Improved pricing guarantees were negotiated for both the Traditional and Medicare Part D plans for FY2015 through FY2017 resulting in a significant projected pharmacy savings.

FY2014 Cost Avoidance

25

Clinical Program Cost Avoidance Medical plan - $46 million Prescription Drug plan - $126 million

Prepayment Claim Edit Cost Avoidance Medical plan - $685.5 million

Coordination of Benefits Savings Medical plan - $6.5 million Prescription Drug plan - $7.5 million

Subrogation Medical plan - $1.5 million

26

Health Care Coverage for Active Public Education Employees

and their Families

Coverage varied significantly from district to district. Many districts found it difficult to provide stable health care coverage. Most districts were unable to provide coverage comparable to ERS HealthSelect as

required by law In 1996, TRS administered elective district-participation health plan for public

school employees: Minimal district participation (peak of 3 districts participating, 327 covered lives) No district participation after FY1999


27

Prior to 2001

2001-2002 The Texas School Employees Uniform Group Health Coverage program (H.B. 3343)

was passed by the 77th Texas Legislature. TRS was given the authority to begin plan management of TRS-ActiveCare. The bill required districts with less than 500 employees to participate in the health plan

with coverage to be effective September 1, 2002. The State’s annual contribution was set at $900 PEPY, or $75 PEPM. The school district’s annual contribution was set at $1,800 PEPY, or $150 PEPM.

Medical benefits were offered through one High Deductible Health Plan (HDHP)

and two PPO plans, each of which are administered by Blue Cross/Blue Shield of Texas (BCBS) on a self-funded basis.

Pharmacy benefits were offered through self-funded plans administered by Medco/Express Scripts, Inc. (ESI).

Regional HMOs were allowed to offer a fully insured health plan to active employees.


28

2002 - 2014

Medical benefits are offered through one HDHP plan, one self-funded PPO plan

and one EPO plan, each of which are administered by Aetna. The EPO plan takes advantage of both ACO and PCMH provider groups in certain urban/suburban

areas of Texas.

Pharmacy benefits are offered through self funded plans administered by Caremark.

State and district funding requirements have not changed since program inception.

2015-2016

TRS-ActiveCare 1-HD TRS-ActiveCare Select TRS-ActiveCare-2

Deductible $2,500/$5,000 $1,200/$3,600 $1,000/$3,000

Maximum Out-of-Pocket1 $6,450/$12,900 $6,600/$13,200 $6,600/$13,200

Preventive Services Plan pays 100% Plan pays 100% Plan pays 100%

Coinsurance 80%/20% 80%/20% 80%/20%

Hospital Facility 80%/20% $150 copay per visit, plus 20%

$150 copay per day, plus 20%

Physician Office Visits 80%/20% $30 PCP copay $60 Specialist copay

$30 PCP copay $50 Specialist copay

Urgent Care Center 80%/20% $50 copay $50 copay

Teledoc $40 consult fee Plan pays 100% Plan pays 100%

Bariatric Surgery $5,000 copay plus 20% after deductible Not covered $5,000 copay plus 20%

after deductible

Prescription Drug 80%/20% See Slide 31 See Slide 31


29

1 MOOP includes deductible, coinsurance and copayments for both medical and pharmacy benefits, excluding Bariatric surgery cost share.

In-Network Benefits


30

TRS-ActiveCare 1-HD TRS-ActiveCare Select TRS-ActiveCare-2

Deductible $2,500/$5,000

No out-of-network benefits

$1,000/$3,000

Maximum Out-of-Pocket1 $6,450/$12,900 $6,450/$12,900

Preventive Services 60%/40% 60%/40%

Coinsurance 60%/40% 60%/40%

Hospital Facility 60%/40% $150 copay per day, plus 40%

Physician Office Visits 60%/40% 60%/40%

Urgent Care Center 60%/40% 60%/40%

Bariatric Surgery Not covered Not covered 1 MOOP includes deductible, coinsurance and copayments for medical benefits.

Out-of-Network Benefits


31

Pharmacy Benefits TRS-ActiveCare Select TRS-ActiveCare 2

Retail Short Term (1-31 days supply)1

Generic $20 copay $20 copay

Preferred Brand $40 copay $40 copay

Non-Preferred Brand 50% coinsurance $65 copay

Retail Plus (60-90 days supply)



Non-Preferred Brand 50% coinsurance $180 copay

Mail Order



Non-Preferred Brand $50% coinsurance $180 copay

Specialty Drugs 20% coinsurance per fill $200 per fill (1-31 days supply) $450 per fill (32-90 days supply)

1 Retail Maintenance drugs copays are an additional $5, $10 or $15 if the member continues to have the script filled at a retail pharmacy.

Plan Design Benchmarking

Active Employee Plans

* Actuarial Value of the health plan offered to active employees for the 2016 plan year, if available. 32


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Enrollment History

Participation as of August 2015

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Participation by Plan and Coverage Tier

Financial Structure

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FY2015 Revenue FY2016 Expenses Over $1.76 billion is received annually from four funding sources for TRS-ActiveCare. Because the level of legislated State and District funding has not change since inception of the plan, employee’s bear the majority of the costs.

Medical and pharmacy benefit payments account for 91.7% of TRS-ActiveCare expenses.

Financial Structure

Employee Contributions1 to Gross Premium

Coverage Tier TRS-ActiveCare 1-HD TRS-ActiveCare Select TRS-ActiveCare 2

Employee Only $116 $248 $389

Employee + Spouse $687 $897 $1,253

Employee + Child(ren) $390 $537 $767

Employee + Family $1,006 $1,106 $1,296 1 Assumes minimum State/District contribution of $225.

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Total Premium

Coverage Tier TRS-ActiveCare 1-HD TRS-ActiveCare Select TRS-ActiveCare 2

Employee Only $341 $473 $614

Employee + Spouse $914 $1,122 $1,478

Employee + Child(ren) $615 $762 $992

Employee + Family $1,231 $1,331 $1,521

Premium & Contribution Benchmarking

Active Employees

Metric Employee Only Total Premium1

Employee Contribution2 to Employee Only

Premium

Employee & Family Total Premium1

Employee Contribution2 to

Employee & Family Premium

TRS-ActiveCare 1-HD $341.00 34.0% $1,231.00 81.7%

TRS-ActiveCare Select $473.00 52.4% $1,331.00 83.1%

TRS-ActiveCare 2 $614.00 63.4% $1,521.00 85.2%

Employee Retirement System of Texas 3 (HealthSelect) $537.66 0% $1,565.70 32.8%

Texas A&M University (A&M Care) $553.48 1.8% $1,312.89 29.7%

University of Texas (UT Select) $566.96 0% $1,536.81 31.3%

State Health Plan of South Carolina (PEBA) $457.78 21.3% $1,199.60 25.6% 1 Premium and contribution amounts are based on the health plan offered to active employees for the 2016 plan year, if available. 2 For TRS-ActiveCare, employee contributions are based on the minimum employer contribution of $225 PEPM. 2 Premiums include coverage for Basic Term Life Insurance.

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Minimum required State contribution of $75 PEPM Minimum required District contribution of $150 PEPM

A FY2014 survey of Districts asked about contribution rates • 943 out of approximately 1,100 districts participating in TRS-ActiveCare responded to the survey. • 20% of eligible employees receive the minimum District contribution of $150 • 31% of eligible employees receive a District contribution of $151 - $200 • 28% of eligible employees receive a District contribution of $201 - $250 • 21% of eligible employees receive a District contribution of $251 or more

Financial Structure

State and District Contributions

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Financial Structure

39 Source: Kaiser /HRET Survey of Employer-Sponsored Health Benefits, 1999-2015.

Option Description

Option 1 Increase funding 1(a) Increase State and District funding to achieve a 70% contribution rate 1(b) Increase actuarial value (AV) to achieve FY2003 AV level

Option 2 Eliminate TRS-ActiveCare 2 and provide a HDHP with Health Savings Account

Option 3 Offer either a self funded or fully insured statewide HMO plan option

Option 4 Establish premiums based on age, geographic area and years of service

Option 5 Eliminate coverage for spouses

2014 Affordability Study

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84th Legislature

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H.B. 2974 and S.B. 1940 – Establishes a 6 member committee of both house and senate members to conduct an interim study of TRS-Care and TRS-ActiveCare. Examine the financial soundness of the Plan; Assess the cost and affordability of the Plan; Evaluate the sufficiency of access to physicians and health care providers; Estimate the impact of allowing school districts and other participating entities in

TRS-ActiveCare to opt out of TRS-ActiveCare; Estimate the impact, should participating entities be authorized to opt out of TRS-

ActiveCare, of allowing or prohibiting future participation by previous participating entities that have opted out; and

Estimate the impact of establishing a regional rating method for determining premiums charged in different regions of the state for the benefits provided under TRS-ActiveCare.

Cost Drivers

Increase in number of participating entities and employees

Increase in medical costs

Increase in pharmacy costs

State and district contribution toward premium not linked to industry trend

Technology increases and development of new biogenetic drugs

Potential adverse selection due to the availability of public exchanges

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9/1/2002 • Precertification of some medical procedures; • Second surgical opinion mandatory for some

specific procedures;

• Implemented Smart Prior Authorization, Traditional Prior Authorization and Step Therapy programs for many drug classes;

9/1/2005 • Disease Management program implemented;

9/1/2008 • Blue Care Connection implemented; • 24-hour Nurse Line and wellness programs

• Chronic and complex case management through Therapeutic Resource Centers implemented

• Disease Management program implemented; • RationalMed – Evidence based medicine program implemented;

9/1/2012 • Bridges to Excellence program for Diabetes

implemented; • Pilot program for Medical Home Model initiated;

9/1/2013 • Pilot program for Medical Home Model expanded;

7/15/2014 • Restrictions placed on compound drug prescriptions containing bulk chemicals.

9/1/2014

• AC Select plan introduced utilizing ACO and PCMH arrangements;

• MedQuery, Health Connections, Care Advocate Teams, Personal Health Records, Beginning Right Maternity, and Concierge Services implemented;

• Teledoc implemented;

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Compound Drug Analysis In early FY2014, compound drug spend began increasing significantly. Following an investigation into these scripts, TRS implemented new criteria under which these scripts would be paid.

Medical Management Program As part of its services provided to TRS, Aetna conducts pre-certifications, concurrent review and discharge planning, clinical services review and case management. As of May 31, 2015, Aetna projects a savings of $100.8 million attributable to these programs.

Teledoc The first year savings attributable to the utilization of Teledoc physician’s is estimated to be $1.7 million.

ACO and PCMH Provider Reimbursement Model Beginning September 1, 2014, TRS implemented the TRS-ActiveCare Select plan, which utilizes both ACO and PCMH provider networks in four areas of the state. While savings are expected for members enrolled in this plan, the data are incomplete at this time.

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Glossary

Glossary

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Accountable Care Organization – a network of doctors and hospitals that share responsibility for providing care to patients. Provider reimbursements are a function of both quality, appropriateness and efficiency of care.

Ambulatory Surgical Center – an outpatient surgical center that has the professional staff to perform minor operations that do not require prolonged confinement in a hospital.

Brand Drug – a medication sold by a single pharmaceutical company under a trademark protected name.

Broad Network - a large group of facilities and physicians from which plan participants may obtain in-network health care services.

Coinsurance - the percentage of costs paid by the member for covered expenses and services.

Compound Drug - a medication made by combining, mixing or altering ingredients of drugs to create a medication tailored to meet the needs of a patient.

Copayment - the fixed dollar costs paid by the member for covered expenses and services.

Covered Expense - An event or procedure that will be paid for either in full or in part by the health plan.

Deductible - The dollar amount required to be paid by the member before health plan begins to pay for covered expenses and services.

Dependent - A spouse or eligible child who meets the eligibility requirements set forth by the health plan.

Emergency Room – a facility that provides immediate, emergent care in a setting usually physically attached to a hospital.

Employee/Retiree Contribution - the amount paid to the health plan by an employee/retiree on a monthly basis in order to be covered under the health plan.

Employer Contribution - the amount paid to the health plan by the employer(s) on a monthly basis to fund the health plan.

Employer Group Waiver Plan (EGWP) - an employment based group plan which provides prescription drug benefits to Medicare eligible individuals. An EGWP plan replaces a Part D plan sponsored by Medicare.

Exclusive Provider Organization Plan (EPO) - A managed care health plan in which all covered services are rendered by in-network providers. A PCP is not required and referrals are not needed to see other providers for covered services.

Formulary - the list of brand and generic drugs covered by the prescription drug or health plan.

Fully Insured Plan - a health care plan in which the plan sponsor pays a per employee/retiree premium to an insurance company and the insurance company assumes all risk of providing the coverage for insured events

Glossary

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Generic Drug - a medication that is comparable to a brand drug in dosage form, strength, route of administration, quality, performance characteristics and intended use but is not protected by a trademark name.

Grandfathered Plan - a health care plan that was created before March 23, 2010; has not undergone such changes that reduce benefits to plan participants; and has not undergone such changes that significantly increase costs to plan participants.

Health Maintenance Organization Plan (HMO) - A managed care health plan in which all covered expenses are rendered by in-network providers, except in an emergency situation. A PCP is required under an HMO plan.

Health Savings Account (HSA) – a savings account used by individuals covered by a High Deductible Health plan to pay for current and future eligible medical expenses on a tax free basis.

High Deductible Health Plan (HDHP) - A health plan with an annual deductible of at least $1,300 for individuals and $2,600 for family coverage, and annual out-of-pocket expenses do not exceed $6,600 for individuals and $13,200 for family coverage.

Hospital – facilities that provide diagnosis, treatment and/or care for patients suffering from acute illness or injury.

Imaging Center – a freestanding facility with the equipment to produce various types of radiologic and electromagnetic images and the professional staff to interpret those images.

In-Network Benefit – a benefit for services performed by physicians, hospitals and other medical service providers who contract with the health plan to provide healthcare services at a discounted rate.

Inpatient – a patient who is admitted to a hospital for medical treatment that requires at least one overnight stay.

Limited Network - a small group of facilities and physicians from which plan participants may obtain in-network health care services.

Maximum Out-of-Pocket (MOOP) - the total dollar amount of paid by the member for covered expenses and services, including amounts paid toward a deductible, coinsurance and copayments.

Member - The individuals who are enrolled in the health plan (e.g. employees, retirees and eligible dependents).

Medicare Eligible - An individual who is eligible to participate in the Medicare program based upon either attainment of age 65 or disability status.

Medicare Advantage Plan - A private health plan that is approved by Medicare to provide medical benefits in place of Medicare Part A and Part B to Medicare eligible individuals who are enrolled in both Medicare Part A and Part B. (Also called Part C.)

Glossary

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Medicare Part A - the national health plan administered by the United States government covering inpatient hospital stays.

Medicare Part B - the national health plan administered by the United States government covering outpatient hospital services.

Medicare Part D - the national health plan administered by the United States government covering prescription drug benefits.

Non-grandfathered plan - a health care plan that does not qualify as a grandfathered plan, including any health care plan that was created on or after March 23, 2010.

Non-Preferred Brand -

Out-of-Network Benefit – a benefit for services not performed by a network provider.

Outpatient – a patient who is receiving medical treatment without being admitted to the hospital.

Patient Centered Medical Home (PCMH) –a system of comprehensive coordinated healthcare for individuals facilitated by a PCP who is responsible for leading a team of professionals in providing both preventive and chronic care management.

Patient Protection and Affordable Care Act (PPACA or ACA) -

Pharmaceutical Rebates - the amount reimbursed to PBM by pharmaceutical manufacturers based on member utilization of certain brand drugs

Pharmacy Benefits Manager (PBM) - a company that administers drug benefit programs for individuals and/or groups.

Point of Service Plan (POS) - a managed care health plan that provides both in-network and out-of-network benefits. A PCP is required; however, the member may choose an out-of-network provider for an additional out-of-pocket cost.

Preferred Brand -

Preferred Provider Organization (PPO) - a managed care health plan provides both in-network and out-of-network benefits. A PCP is not required and referrals are not needed to see other providers for covered services.

Primary Care Physician (PCP) – a physician who is a patient’s first point of contact for an undiagnosed condition. This physician is usually a Pediatrician, General Practitioner, Family Practitioner, OB/GYN, or Internist.

Retiree Drug Subsidy (RDS) - a federally sponsored program which reimburses plan sponsors for a portion of paid prescription drug expenses for Medicare eligible individuals.

Self-insured Plan - a health care plan in which the plan sponsor pays a per employee/retiree administration fee to an insurance company to provide claims administration services; the plan sponsor assumes all risk of providing the coverage for insured events.

Glossary

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Specialist – a doctor who specializes in a certain type of medical care (e.g. cardiologist, podiatrist, eye doctor).

Specialty Drug - Generally, a high cost drug that is used to treat complex chronic or life-threatening conditions; require special storage, handling and administration; and require patient monitoring and management.

Submitted Charge - the dollar amount submitted to an insurance company or TPA by a provider for covered and uncovered services rendered.

Subscriber - the employee/retiree who is eligible to receive benefits through the health plan.

Third Party Administrator (TPA) - an organization that processes claims, maintains a provider network, utilization review and/or membership functions on behalf of the health plan.

Tier - the method by which drugs are grouped within the formulary to indicate the applicable copay (e.g. Tier 1 = generic – lowest cost alternative; Tier 2 = brand – higher cost alternative; Tier 3 = brand – highest cost alternative; etc.).

Urgent Care Facility – a facility that provides immediate, non-emergent primary health care.

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