[1] NOTE: As provided in LFC policy, this report is intended only for use by the standing finance committees of the legislature. The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

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F I S C A L I M P A C T R E P O R T

SPONSOR:	Lundstrorm		DATE TYPED:	02/11/02		HB	262/aHGUAC
SHORT TITLE:		Dental & Eye Care Coverage Exemption				SB
					ANALYST:		Carrillo

APPROPRIATION

Appropriation Contained

Estimated Additional Impact

Recurring

or Non-Rec

Fund

Affected

FY02

FY03

FY02

FY03

$0.1

See Narrative

Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates/Relates to Appropriation in The General Appropriation Act Public School Insurance Authority, Retiree Health Care Authority, General Services Department, and Public School Support

Relates to SB219 and HJM 65

SOURCES OF INFORMATION

Public School Insurance Authority

Retiree Health Care Authority (RHCA)

General Services Department (GSD)

State Department of Public Education

SUMMARY

Synopsis of HGUAC Amendment

The House Government and Urban Affairs Committee amendment to House Bill 262 incorporates the provisions of Senate Bill 219. SB219 amends the statute pertaining to the Health Care Purchasing Act of 1997. The original FIR remains valid.

Synopsis of Original Bill

House Bill 262, Dental & Eye Care Coverage Exemption, provides a participation waiver for school districts and charter schools from certain health insurance coverages offered by the Public School Insurance Authority (PSIA). The waiver would be granted if a particular school district or charter school offers dental and vision coverage. The bill’s effective date is July 1, 2002.

Significant Issues

The PSIA staff notes the authority was created in 1986 to (1) enhance the negotiating position in the insurance marketplace through the law of large numbers achieved through a mandatory pool, and (2) attempt to equalize the benefits offered to public school district employees statewide.

The General Services Department (GSD) staff explains the PSIA is part of the Interagency Benefits Advisory Committee (IBAC) created to consolidate purchase of insurance and thereby leverage better premiums and administrative fees. Allowing individual schools to withdraw from the pool would alter the risk-pool dynamics under which the consolidated plans have been purchased, and individual schools would probably pay significantly higher rates than is available through PSIA.

FISCAL IMPLICATIONS

According to PSIA, the dental and eye care package through the Authority is the result of consolidated purchasing. It is doubtful a more cost effective package could be achieved by a solo school district bid or by a bid of two, three or four districts as provided by the bill. Premium increases for these ancillary lines should be expected. The state currently funds an approximately two-thirds of the premium for these coverages.

The Retiree Health Care Authority (RHCA) staff notes smaller pools of participants could increase overall costs to plan participants and sponsors. It is unlikely that a smaller entity would be more successful in negotiating premium costs and quality.

ADMINISTRATIVE IMPLICATIONS

PSIA staff explains allowing carve out of dental and eye care coverage from the Authority pool, while keeping the medical plans with the Authority, may cause members confusion. Currently, employees transferring from one district to another are assured the benefit offerings for dental and vision are uniform, if the school has elected to participate. Customer service calls would increase.

In addition, PSIA staff notes the budget process through the State Department of Public Education would be affected as insurance line items for public schools assume the Authority’s benefits and rate projections. Districts offering independent dental or vision coverage would have to be accounted for separately.

Finally, PSIA staff noted the school districts would have to absorb the administrative work associated with the request for proposal (RFP) process, ongoing customer service and renewal negotiations. Currently, these functions are performed by PSIA staff. The PSIA premiums do not include a commission. It is unknown if insured premiums on an independent basis would include commission to agents/brokers for assistance in performing these functions.

RELATIONSHIP

HB262 is related to Senate Bill 219, Consolidate Purchasing of Health Care.

WJC/ar:prr:njw