The Teachers’ Retirement Board has investigated alternatives to relieve the financial burden associated with health care coverage for many retired educators. Paying Medicare Part A premiums for those without premium-free Medicare Part A coverage is an important step toward that goal.

Senate Bill 1435 (Chapter 1032, Statutes of 2000) established the California State Teachers’ Retirement System Medicare Benefits Program. Since July 1, 2001, CalSTRS has paid the Medicare Part A premiums for retired members of the Defined Benefit Program who are not eligible for premium-free Part A (hospitalization).

All premiums and any applicable surcharges (penalties for late enrollment into Medicare after age 65) are paid directly to the Centers for Medicare and Medicaid Services, which administers the Medicare program for the federal government.

SB 1435 also provides the Teachers’ Retirement Board with authority to extend this benefit to eligible active members who retire in the future under specific circumstances. Currently, the program is extended to members whose most recent retirement date is prior to July 1, 2012.

Therefore, unless school districts conducted a Division prior to the members’ retirement, members retiring from those districts will not be eligible for benefits under the CalSTRS MPP Program.

The CalSTRS Medicare Premium Payment Program is available only to CalSTRS Defined Benefit Program members, not family members, and eligibility is limited to members who retired on or after January 1, 2001, from a school district that completed or was in the process of conducting a Medicare Division prior to the members’ retirement date. CalSTRS will also pay applicable surcharges (penalties for late enrollment in Medicare) assessed by Medicare that apply to Parts A and B if the retired member is over age 65, enrolled in Medicare Part A and B on July 1, 2001, and CalSTRS pays his or her Medicare Part A premium. CalSTRS will not pay Medicare Part B surcharges if the member is receiving premium-free Medicare Part A. Participation in the CalSTRS MPPP is voluntary. Members must decide whether to enroll based on their individual situation.

The MPP Program initially covered any Defined Benefit Program members who retired prior to January 1, 2001. In May 2002, the Teachers’ Retirement Board extended the MPP Program to Defined Benefit Program members who retired prior to January 1, 2006. For CalSTRS Defined Benefit Program members who retire after December 31, 2000, and prior to January 1, 2006, eligibility is limited to those who retire from a district that has completed or is in the process of conducting a Medicare Division prior to the Defined Benefit Program members’ retirement date.

Consolidated or reorganized districts 

Some districts consolidated or reorganized on or after April 1, 1986, and are paying the Medicare tax for all employees. These districts did not have to conduct a Medicare Division for their Defined Benefit Program members to be eligible for the MPP Program. Instead, such districts sent a letter to CalSTRS with the date of the consolidation and certify that the district and its CalSTRS Defined Benefit Program members are paying the Medicare tax. 

What is a Medicare Division?

Eligibility for premium-free Medicare Part A is provided to people (and their spouses) who earned at least 40 credits by paying the 1.45% Medicare payroll tax (with an equal amount paid by the employer) generally for at least 10 years. CalSTRS Defined Benefit Program members who were hired by their current school district before April 1, 1986, were not required to pay Medicare payroll tax. In contrast, those hired on or after April 1, 1986, were required to pay Medicare payroll tax. Federal law, subsequently incorporated in the California Government Code, permitted a school employer to request that employees hired before April 1, 1986, be divided into two groups—members who desired to be covered by Medicare and those who do not desire such coverage. That is why the action was called a Division. 

During the Medicare Division process, eligible employees hired prior to April 1, 1986, made an irrevocable individual choice whether or not to be covered by Medicare. For those Defined Benefit Program members who elected to be covered by Medicare, they and their employer paid the payroll tax and the employees earned Medicare credits.