The Teachers’ Retirement Board (“board”) considered 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 (hospital insurance) coverage was 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. 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. The CalSTRS Medicare Premium Payment Program (MPPP) is available only to CalSTRS Defined Benefit Program members, not spouses or beneficiaries.

SB 1435 initially limited MPPP eligibility to members who retired prior to January 1, 2001, and also provided the board with authority to extend this benefit to eligible active members who retire under specific circumstances. In May 2001, the board extended the MPPP to Defined Benefit Program members who retired prior to January 1, 2006. For Defined Benefit Program members who retired after December 31, 2000, and prior to January 1, 2006, eligibility was limited to those who retired from a district that had completed a Medicare Division or was in the process of completing or conducting a Medicare Division prior to January 1, 2001, pursuant to Government Code section 22156, Section 218 of the federal Social Security Act (42 U.S.C. Sec. 418), and applicable federal regulations. A Medicare Division is completed once the voting results are delivered to the Commissioner of Social Security and federal approval has been granted.

In December 2004, the board extended the program to members who retired prior to July 1, 2006. In February 2006, the board extended the program to members who retired prior to January 1, 2007. In April 2007, the board extended the program to members who retired prior to July 1, 2012. The board subsequently did not extend the program to members who retired on or after July 1, 2012.

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 MPPP. Instead, such districts sent a letter to CalSTRS with the date of the consolidation and certified that the district and its Defined Benefit Program members were 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 “Medicare Division.” 

During the Medicare Division process, eligible employees hired prior to April 1, 1986, made an irrevocable individual choice as to being covered by Medicare with respect to CalSTRS-covered employment. For those Defined Benefit Program members who elected to be covered by Medicare, they and their employers paid the payroll tax and the employees earned Medicare credits. Medicare Divisions must have been conducted pursuant to Government Code section 22156, Section 218 of the Social Security Act and applicable federal regulations.