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SPONSOR: |
Leavell |
DATE TYPED: |
02/11/02 |
HB |
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SHORT TITLE: |
Group Insurance Contributions |
SB |
236/aSPAC |
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ANALYST: |
Carrillo |
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APPROPRIATION
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Appropriation
Contained |
Estimated
Additional Impact |
Recurring or Non-Rec |
Fund Affected |
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FY02 |
FY03 |
FY02 |
FY03 |
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Unknown |
Recurring |
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(Parenthesis
( ) Indicate Expenditure Decreases)
General Services Department
Public Schools Insurance Authority
Administrative Office o f the Courts
State Department of Education
Department of Public Safety
Corrections Department
Health Policy Commission
Department of Health
Public Regulation Commission
State Personnel Office
SUMMARY
Synopsis
of SPAC Amendment
The Senate Public Affairs Committee amendment to
SB236 changes the salary cut off to $25,000 from $20,000. The amendment also clarifies the annual
inflation adjustments. The remainder of
the analysis remains valid.
Synopsis
of Original Bill
Senate Bill 236, Group
Insurance Contributions, proposes to amend Section 10-7-4 NMSA 1978 (Group
Insurance–Cafeteria Plan--Contributions from Public Funds.) The table below shows the current contribution structure and the proposed contribution structure.
|
Employer |
Current Employer Contribution Structure |
Proposed Employer Contribution
Structure |
|
State
Departments Less than $15,000 Less than $20,000 Less than $25,000 $25,000 or More |
75%
of the total premium 70%
of the total premium 65%
of the total premium 60%
of the total premium |
(1)
A fixed
dollar amount for employees whose annual salary is $20,000 or more (2)
A higher
fixed dollar amount for employees whose annual salary is less than $20,000 The
annual inflation adjustment shall not be les than the increase in the
Consumer Price Index (CPI) for the employer contribution. |
|
Higher
Education Institutions Less than $15,000 Less than $20,000 Less than $25,000 $25,000 or More |
75%
of the total premium 70%
of the total premium 65%
of the total premium 60%
of the total premium |
No
Change. |
|
Public
School Less than $15,000 Less than $20,000 Less than $25,000 $25,000 or More |
75%
of the total premium 70%
of the total premium 65%
of the total premium 60%
of the total premium |
No
Change. |
The bill employer
contributions for state department or agencies, in the executive, legislative
or judicial branches shall be as determined initially by legislative
appropriation.
The bill’s effective
date is July 1, 2002, and the provisions of the act apply to pay periods
beginning on or after July 1, 2002.
Significant
Issues
The General Services Department (GSD) states,
with health insurance costs at double-digit inflation for several years, the
state must do something to restructure health insurance coverage or risk having
health insurance priced out of reach for an increasing number of
employees. This proposal would move to
stabilize costs by having one amount for each of the three tiers of coverage,
single, two-party, and family, in two salary brackets instead of four. The new approach would:
GSD comments that for each state dollar spent on
benefits, the employee gets a dollar value.
For each state dollar spent on salaries, the employee takes home 70
cents and the state contributes an additional 25 cents. (Note:
GSD did not submit any data to support this statement.)
The Administrative Office of the Courts (AOC)
staff notes this bill reduces the State’s (employers) contribution to the
employees’ current benefit plans (health, dental, vision, life, and disability)
by providing a flat contribution rate.
The bill fails to define “fixed dollar amount” and does not address
quality care. SB 236 provides that
increased costs of health care carried by the state will be limited to the
consumer price index (single digit) as opposed to the actual cost of health
care, leaving each employee with the responsibility for rising (double digit)
annual health care costs and 100 percent of the costs of vision and dental care.
AOC further explains the State of New Mexico Group Benefits Committee (GBC) has expressed concerns that one in three employees would be adversely impacted. The greatest impact would be on employees with annual salaries under $20,000. An example of the worst case scenario would be an employee earning under $20,000 with the following family coverages: triple-option-point-of-service plan (medical), vision and comprehensive dental. Under the proposed legislation, the employee’s portion of the premium contribution would increase by more than $100 per month.
Finally, AOC comments the proposed changes could
negatively impact over 40 percent of the state employees. The continued solvency of the self-insurance
reserves for the state benefit plans is of utmost importance. Further investigation, research and analysis
of the implications of implementing a defined contribution plan for state
employees is required. The GBC should
take the lead in this effort.
The Department of Health (DOH) notes it is
unclear what this proposal will mean to employee benefits. The current group insurance contributions
are clearly defined and articulated.
SB236 would change an employee benefits package and it is unknown
exactly what the benefits or consequences of the proposed change would be.
DOH staff suggests leaving the current
contribution structure in place until an in-depth analysis can be done on the
benefits and consequences of the proposed changes.
Staff from the Health Policy Commission (HPC)
comments it is difficult to assess the impact both to the State and to its
employees without knowing the proposed fixed rate. However, it would seem logical to suggest that the rate could
vary from year to year. Also, it would
suggest that some individuals would forego carrying insurance, if the State’s
fixed rate amount was too low for individuals to pay for insurance and also
meet their day-to-day living expenses.
Further HPC notes that while the State has made
some effort to increase its employees’ salary schedule, it is still lower than
many other states. One of the
attractive features for recruiting and retaining employees has been the benefit
package, including the State’s contribution available to staff. If the fixed rate of contribution did not
meet the current level of contribution, then there would be less incentive to
work in the public sector.
HPC staff explains that while the intent of the
proposed legislation may be to help set a limit to the State’s financial
obligation, it may have an adverse effect.
More persons may decide to go without insurance, thus cost shifting the
expense to uncompensated care, including having employees seeking care at a
higher cost facility (i.e., emergency rooms).
The bill establishes different parameters for
non-educational employees. According to
the State Department of Public Education (SDE) it is unclear whether the
defined contribution approach proposed would result in a higher or lower
payroll deduction for state employees.
The proposed defined contribution inflation adjustment, based on CPI,
presumably would not keep pace with medical inflation, resulting in a greater
shift in cost to employees. Insurance
costs are unpredictable and often experience double digit increases annually;
this bill holds increases for the state employer to the CPI but does not do the
same for the employee. Employees likely
would see lower take-home pay as a result.
According to State Personnel, the current
statutory four-tier salary brackets have not been adjusted for many years. As employee salaries increased over the
years, the employees have moved up in the salary brackets and consequently pay
a higher percentage of the total premium while the employer percentage share
has decreased. There are few employees
left in the lowest salary bracket where the employer pays the highest
percentage of the premium.
FISCAL IMPLICATIONS
According to GSD, the
proposal requires the same cost to the state for FY 2003 as the appropriation
in the General Appropriation Act of 2002 for the insurance coverage by the current
salary brackets contribution.
Identifying “best value” plan should increase competition among insurance
providers to provide high quality service at a reasonable cost. (Note:
GSD did not include any fiscal data to support their bill analysis.)
The Public School
Insurance Authority (PSIA) explains 32 percent of the PSIA population (7,600
employees) enrolled in a medical plan earn less than $20,000. The majority (70 percent) of PSIA enrollment
is in the triple option point-of-service medical plan. Depending on the basis of the defined
contribution, including the actual dollar allocation and which plan is
established as the “benchmark” or the “most valued plan”, the majority of PSIA
employees would be expected to pay more, be forced to reduce their plan
selection, or drop medical insurance.
In contracts, the state (non educational employees) has only 11 percent
of enrolled employees earning less than $20,000 and 52 percent enrollment in
health maintenance organization (HMO) medical plans. The state agency’s demographics are more favorable to a defined
contribution plan than PSIA’s demographics.
PSIA also notes the
non-core coverage under this approach would require 100 percent employee
contribution. These non-core coverage
(additional dental and standard vision benefits) were purchased through the
consolidated purchasing effort.
Changing the contribution strategy for vision impacts the premium rates
for the consolidated purchasing pool.
PSIA is aware the vision premium may increase for PSIA if this defined
contribution approach is adopted for state agency employees.
AOC notes the
potential fiscal impact to the solvency of the state employees’ benefit plan if
funds from the self-insurance reserve fund are used to increase the proposed 70
percent fixed dollar amount of the “best value medical plan” for employees
whose annual salary is less than $20,000.
Costs associated with communicating the changes are incalculable and
include: man hours, print
ing, training,
information systems programming, and software.
The software, Benefit Management System (BMS) was implemented November
2001 for $200.0.
State Personnel
explains the fiscal implications of this bill depend entirely on two issues (1)
percentage of employee contribution established in the initial year, and (2)
the inflation rate of medical insurance (medical trend). An even larger percentage of the cost could
be shifted to employees or to the employer depending on the initial legislated
split in the shared premium cost. The
bill will do nothing to stop inflation in the total cost of the insurance
premium.
ADMINISTRATIVE IMPLICATIONS
GSD states there would
be administrative impact to implement the system proposed in this bill.
DOH explains the
administrative impact cannot be assessed until clear data can be generated to determine
what the exact benefits or consequences of the proposed change would be.
SDE states the
enactment of the bill would require additional programming costs to incorporate
the defined contribution approach to the current graded percent contribution
based on salary approach. The effect
date appears to be difficult to meet, considering the need to communicate the
changes to participants, the need to make changes to payroll deduction system,
etc.
State Personnel believe
a two-tier salary/premium system would be easier to administer than a four-tier
system.
TECHNICAL ISSUES
According to State Personnel, by placing an
actual salary bracket dollar amount in the bill, the same bracket creep will
occur as it did with the current brackets.
As employee salaries increase over the years, fewer and fewer will fall
in the lower salary bracket and cost shifting to employees will occur
again. Perhaps the percentage of
employees that currently fall into the two suggested brackets should be
determined and place into law rather than the salary amounts (i.e., bottom 35
percent and top 65 percent). Also, the
bill allows for annual inflation adjustments to be made in the employer
contribution level but is silent on the issue of inflation adjustments for
employee contributions. If the goal is
to keep the percentage split constant, the bill will have to allow for
inflation adjustments to the employee contribution as well.
State Personnel suggest amending the bill to
include the percentage of employees below and above a current salary value and
then construct the working to maintain that percentage in future years. Another solution would be to index the
proposed salary brackets so they will also increase with inflation.
Corrections Department explains the language on
page 3, line 10, regarding annual inflation adjustment appears to be limited to
those employees whose annual salary is less than $20,000. Presumably, the language regarding annual
inflation adjustments is also intended to apply to those employees whose annual
salary is $20,000 or more. If so, maybe
the language should be a separate paragraph.
GSD is requesting the sponsor amend the salary
cutoff from $20,000 to $25,000.
WJC/njw
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