While Gov. Dannel P. Malloy is proposing in this year's budget that retired teachers pay less state income tax on their pensions, he is also seeking to reduce the state's funding for their health insurance.

The reduction would affect both those covered by local school boards' plans and participants in the Teachers' Retirement Board Medicare supplement program. Some fear it could start depleting the health insurance fund by fiscal year 2017.

The Teachers' Retirement Board administrator, Darlene Perez, said last week that if the state continues to contribute less than is legally required, teachers could have to put more toward their benefits, the state could have to fill a funding gap or the insurance plans might have to be changed.

Malloy's biennial budget proposal in 2013 included zero funding for the teachers' Health Insurance Premium Account this year and next, but the legislature raised it to 25 percent of the retiree health insurance costs, still less than the statutory requirement of 33 percent.

Now the governor is proposing the state keep the 25 percent rate but reduce its contribution in fiscal year 2015 by $6.5 million because monthly premiums have gone down.

"Instead of reducing the money, or taking out money because premiums went down, why not leave the money in and make it closer to the 33 percent?" said Mark Waxenberg, executive director of the 43,000-member Connecticut Education Association. "The issue of robbing Peter to pay Paul is pervasive."

The state is required by law to cover any shortfall caused by insufficient contributions. The retirement board expects $133.6 million in revenue and $135 million in expenditures in fiscal year 2017. If the health insurance fund were to run out, the state and Teachers' Retirement Board would have to determine a different cost-share plan, Perez said.

"If they continue underfunding the system, it could put it in jeopardy," Waxenberg said.

"There is always concern," Perez said. "But I feel like we are in a more secure environment today than when we adopted the (current) two-year budget."

Teachers have increased contributions to the fund in the past, Waxenberg said, but "there has to be good faith on everyone's part." In 2004, active teachers' contributions were increased to 1.25 percent of their salary from 1 percent. Retirees also pay a portion of their premiums.

The state, the active teachers and the retirees are supposed to each contribute one-third of the total toward retired teachers' health insurance. If the teachers have to pay more than their share, that is not a good-faith negotiation, Waxenberg said.

Matt O'Connor, spokesman for the American Federation of Teachers Connecticut, said a solvent health care fund would allow teachers to retire with dignity.

"Going forward, we'll continue to support efforts to shore up the fund because it is consistent with our commitment to health care for all," O'Connor said.

The state contributed nothing to the retired teachers' health insurance fund in fiscal years 2010 and 2011, before Malloy was elected.

"We will lobby this year to restore the one-third funding," said Robyn Kaplan-Cho, retirement specialist for CEA. "They should pay the full one-third just like teachers have always been required to pay their full share.

"We still have major concerns about the solvency of the retiree health fund moving forward," she said.

Perez said, "What I am hearing from the teachers is that they are not happy that he has cut it back, but they are thankful that he didn't take it away altogether."

Both of the state's teachers unions, CEA and AFT Connecticut, support Malloy's tax cut proposal to reduce income taxes on retired teachers' pensions by half. This cut would decrease retired teachers' pension taxes by $23.1 million in fiscal year 2015. The governor has said this is fair because teachers don't receive Social Security. Connecticut would join several other states in reducing the income tax on teachers' pensions for that reason, Waxenberg said.

"But one shouldn't be played against the other. That is a separate issue," he said. Teachers have been working for at least 15 years to reduce the income tax on their pensions and will continue to lobby for restored state contributions to the teachers' retiree health fund, he said.

Teachers' health benefits are more vulnerable than those of state employees because they are not the result of collective bargaining. The general statutes uphold teachers' retiree health benefits, but the General Assembly could amend or override that legislation.

CEA initially advocated for a state constitutional amendment that would have prevented underfunding the pension or reducing the benefits promised to teachers. "We were not able to get any traction on that," Kaplan-Cho said.

The compromise was to make teachers' pensions a "contractual right" by law in 2003. That change specifically left out retiree health benefits, which suggests that health insurance could be changed by future legislatures for vested employees and retirees, according to a 2010 report by the state's Office of Legislative Research.

The state "didn't want to be locked into the inability to change retired health benefits," Kaplan-Cho said.

j.somers@theday.com