Under the proposal, active teachers would contribute more of their pay to shore up the system.
Retired teachers under age 65 who currently pay nothing for basic health coverage, would begin contributing.
School districts would start picking up a share of retired teachers' health coverage.
The measure cleared the Senate State and Local Government Committee on Wednesday.
The cost of retired teachers' health care has risen sharply in recent years.
Since 2004, the state has redirected about $562-million from the teachers' pension fund to help cover health costs.
The legislation is House Bill 540.