How Health Care Expenditures Are Squeezing Texas' Budget

As state budget writers prioritize key investments in areas like education, energy, water?and property tax relief, a less-discussed cost driver has emerged in recent years as a strain on the state budget: skyrocketing health insurance costs for teachers and state employees.

Health care in the state retirement systems: A quick primer

• Teachers: Health benefits for most current and retired Texas teachers are managed by the Teachers Retirement System (TRS). Retired teachers are served by TRS-Care?and many active teachers are served by TRS-ActiveCare.
• State Employees:?Health care for current and retired state employees is managed by the Employees Retirement System (ERS).

? FACT: ERS and TRS combine to cover around 1 million?Texans. Not all school districts participate in TRS-ActiveCare.

ERS and TRS Health Care Expenses?Continue to Rise

This budget cycle, TRS and ERS requested nearly $1 billion above baseline spending to keep up with rising health care expenses.

• For those enrolled in TRS-Active Care, health insurance costs are rising so quickly that the state must allocate?$450 million next biennium just to limit?premium increases to 10% per year.
• Without additional state funding, the average TRS ActiveCare annual premium could climb?by nearly $2,200 per year by 2027.

Annual ERS Health Care Expenditures

ERS Health Care expenditures are growing by about $500 million annually.

Source: FY 20-24 GBP Annual Reports

How serious are state health insurance cost increases?

ERS recently reported that expenditures are increasing so quickly that, absent legislative action, they expect the health plan to lose more than $1.5 billion over the next biennium, putting them on a pathway to depleting their health plan's reserves in the next five years.?

If unaddressed,?ERS has warned?that their health plan's reserves "could be fully depleted prior to the end of FY29. At that time, the [ERS health insurance plan] would be?unable to pay expenses and would cease to operate."

To address this, legislative budget writers have included an 8% increase in funding above baseline in their first draft of the budget, which would add an additional $521 million to the plan this biennium. According to ERS, "This premium increase will smooth the impact of increased costs, maintain current benefit levels, and extend the ability for the contingency reserve to meet the statutory 60-day claims reserve until 2031."

Texas businesses are struggling with rising costs, too.

A?recent Texas Association of Business survey?highlights the growing burden on employers:

• 85% of respondents say health care costs are rising at an unsustainable rate.
• 51% report?the cost of health benefits has interfered with their ability to increase salaries or add new employees.

About a third, or 34%, of Texas employers?identified health care costs as their fastest growing expense,?with 30% citing?rising wages.

A Data-Driven Tool?to Strengthen Texas’ Budget and Rein in Rising Health Care Prices

As Texas lawmakers — just like all Texas employers —?grapple with the growing budget strain of rising health care costs, a powerful tool remains underfunded: the Texas All-Payor Claims Database.

For just $4.5 million per year —?far less than the $1 billion in exceptional item requests from ERS and TRS for their health care benefits above baseline spending —?the APCD could provide budget writers with real data to assess cost-saving reforms for state employee (ERS) and teacher (TRS) health plans.

With the threat of persistent cost growth and program shortfalls, leveraging the APCD to evaluate potential solutions could generate significant savings and ease the pressure on?the state budget.

APCD'S Impact: What You Need to Know

Established in 2021 and housed at the University of Texas Health Science Center at Houston, the APCD?allows researchers, policymakers and budget writers to:

• control rising health care expenses?by improving price transparency
• identify market inefficiencies
• identify and incentivize the use of high-value care

This session, the UT?Health Science Center at Houston is requesting?$4.5 million per fiscal year?to provide additional staff and salary support and related expenses needed to continue the ACPD.

?? Director of?Health & Economic Mobility Charles Miller urged legislators in testimony to fully fund UT Health Houston's All-Payor Claims Database. Watch here.

?? Read more:?Investing in Texas’ All-Payor Claims Database?

The Need for Healthy Competition

One of the biggest drivers of high health care prices is market consolidation.?This has big implications for Texas, where over 60% of the population lives in highly-concentrated hospital markets.

In November's?Texas Voter Poll, a large, bipartisan majority?of voters told us that they were concerned about consolidation in the health care sector and that they wanted the state government to do something about it.

87% expressed concern?

about investment groups and financial entities influencing medical decision-making in the doctor’s offices and hospitals in which they have an ownership stake.

Broken down by partisan affiliation, 87% who identified as Republican, 88% who identified as Democratic and 86% who identified as Independent expressed concern.

75% agreed

that the state government should more actively regulate health care mergers to ensure the market remains sufficiently competitive.?

Broken down by partisan affiliation, 74% who identified as Republican, 77% who identified as Democratic and 73% who identified as Independent agreed on a more active role for state government.

???Did you know? The Aspen Institute has published a new report tracking the consolidation in the health care sector, leading to increased health care prices.

What Else to Watch This Session: Facility Fees and Tracking Quality

Surprise facility fees are burdening Texas families with unexpected out-of-pocket expenses at annual checkups and preventive care visits. This situation is becoming more common as hospitals buy up doctor’s offices with patients left in the dark as to why these fees were added and how to fight the fees.? This session, lawmakers can:

• require more transparency on facility fees?for health care services done outside of a hospital or ER.
• join the five?states that have some form of a ban on facility fees for?telehealth visits.

What do the voters say about facility fees?

65% said that facilities should not be allowed to charge facility fees for telehealth visits.

Under current law, health benefit plans are restricted from publishing information about how doctors stack up against performance standards. So even if you know what you’re paying, you could be in the dark about whether you’re getting your money’s worth.

State Rep. James Frank, R-Wichita Falls, and state Sen.?Kelly Hancock, R-North Richland Hills, have both introduced legislation to remove barriers to information about health care quality, building on previous hospital price transparency legislation.

Let us know what you think!

Have you received a medical bill and seen a fee that surprised you? Tell us about it.