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

SPONSOR Beffort

DATE TYPED 03/02/05 HB

SHORT TITLE Small Employer Health Insurance Coverage

SB 1061

ANALYST Geisler

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

Indeterminate,

see fiscal impact

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to: SB 335/HB 289, SB 496/HB 394, SB 271/HB 523, SB 504

SOURCES OF INFORMATION

LFC Files

Responses Received From

Human Services Department (HSD)

Public Regulation Commission (PRC)

Health Policy Commission (HPC)

SUMMARY

Synopsis of Bill

Senate Bill 1061 amends the Insurance Code to authorize the issuance of “Basic Health Cover-

age” for individuals. Basic health coverage is defined as health insurance coverage containing

some mandated benefits, but excluding others. SB 1061 also contains requirements for an annual

$600 deductible for an individual and a $1200 deductible for families for the individual policy.

SB 1061 also proposes a small group health insurance policy for employers with 2-10 eligible

employees that include some but not all of the state mandated coverages currently required under

Section 59A-Article 22 NMSA. SB 1061 also contains requirements for an annual $600 de-

ductible for an individual and a $1200 deductible for families for the small group health insur-

ance policy. There are specific requirements for ascertaining whether employers and their em-

Senate Bill 1061 -- Page 2

ployees are “eligible” as defined by the bill.

The bill has a provision relating to notice and proof of loss provisions to ensure language in basic

insurance policies as proposed by this bill cannot be less favorable than what is currently re-

quired under Section 59A Article 22 NMSA.

Significant Issues

1)

Role of Mandated Benefits in Cost of Health Insurance

PRC notes that many proponents of this type of legislation believe that state mandated benefits

drive up the cost of health insurance and by implication make the cost of coverage too expensive

to be affordable. Industry trade associations estimate the cost of such mandates to be between

15% and 25%. PRC’s own HMO’s have estimated the cost to be in the 10% - 15% range. These

estimates often include Federal mandates such as maternity coverage in employer sponsored

plans and guaranteed issue in small employer sponsored plan. The PRC Insurance Division is

currently conducting an examination of a number of insurers to determine the cost of state man-

dates. While these exams are not complete, the Insurance Division believes that the mandates

excluded by SB 1061 are less than 3% of the cost. SB 1061 would allow those insurers currently

offering health insurance to offer both 1) health insurance with all mandates and 2) a basic plan

which excludes some of the mandates. Opponents believe that the cost savings don’t justify ig-

noring the public policy behind the mandates. They also point out that offering products with

mandates and without mandates will result in anti-selection.

2)

Relation to Other Health Insurance Products

HSD provides that the mandates to be retained and eliminated are enumerated in the language of

the bill but there is no explanation as to why certain requirements are retained and others are not.

The benefit package offered under SB 1061 might relate to the State Coverage Initiative pro-

posed by HSD which also aims to provide a more affordable insurance package for employers.

The Governor’s Insure New Mexico! Council proposed looking at state mandates and encour-

ages insurance that is more “basic” and lower cost. However, the Council recommended a task

force working with the Department of Insurance before any legislation is proposed or passed. At

this time, the impact of this legislation on the insurance market and health care delivery in New

Mexico is unknown.

FISCAL IMPLICATIONS

No estimated impact in cost to state agencies. However, HSD notes that it is conceivable that the

elimination of certain mandated coverages and the inclusion of deductibles might serve to lower

the premium cost for a “basic” health insurance plan so that the small employer of 2-10 low-

income individuals and individuals with low incomes who wish to purchase “basic” health insur-

ance might be able to buy a more affordable policy. This impact to other state initiatives as well

as Medicaid is unclear.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

SB 1061 relates to: SB 335 and HB 289, Part-Time Employee Health Insurance Coverage; SB

Senate Bill 1061 -- Page 3

496 and HB 394, Health Insurance Rates and Alliance Membership; HB 523 and SB 271, Small

Employer Health Coverage Access; and SB 504, Health Insurance Alliance Rates and Member-

ship.

OTHER SUBSTANTIVE ISSUES

HPC Provided Background on Health Insurance

According to the Census’ 2003 Current Population Survey, New Mexico ranks second in the na-

tion for the rate of uninsurance at 22.1% or an estimated 414,000 individuals.

Additionally 88% of small employers in New Mexico employ less than 20 employees with 41%

not offering health insurance. 81% of the small employers that do not currently provide coverage

cite cost as the primary reason.

The NM Health Policy Commission recently released a new employer survey.

Below are the key findings as they relate to SB 1061:

• “Fifty-nine percent of New Mexico companies offer health insurance to their employees, while

41% do not offer insurance.

• As company size increases, so, too, does the likelihood of offering health insurance. In fact,

less than half (46%) of the companies with 2-5 full or part-time employees offer health insurance

compared to 87% of companies with more than 20 employees. Three-quarters of companies with

11 to 20 employees offer health insurance as do 64% of those with between 6 to 10 employees.

• When asked in an unaided, open-ended manner, four-fifths (81%) of the

companies that do not offer employee health insurance cite cost as the reason for not doing so.

Ten percent of the companies say they do not offer insurance because of a lack of employee in-

terest or participation, while 3% say their premiums rose too much and another 3% claim they do

not need to offer insurance to attract employees.

• Six percent of the companies that do not currently offer insurance say they discontinued their

health plan within the past year. Cost (60%) and a rise in premiums (32%) are cited most fre-

quently as the reasons for discontinuing their health plan.”

SB 1061 is aimed at how the benefit mandates under the control of the legislature have increased

the cost of insurance and consequently reduce access to health coverage. A health insurance

“mandate” is a requirement that an insurance company or health plan cover (or offer coverage

for) common (but sometimes not so common) benefits and patient populations.

While mandates make health insurance more comprehensive, they also make it more expensive

because mandates require insurers to pay for care that consumers previously funded out of their

own pockets. Mandated benefits currently increase the cost of basic health coverage from a little

less than 20% to more than 50%, depending on the state (Source: Health Insurance Association

of America).

New Mexico specific DOI information is that “industry trade associations have estimated the

cost of mandates to be 15% to 25%. New Mexico’s HMO’s have estimated between 10% and

Senate Bill 1061 -- Page 4

15%. DOI estimates it is closer to 3 than 15, but that the information has not been determined”

(Source: Insure New Mexico! Council presentation–Nov. 2004).

According to the 1999 study, “Mandated Benefit Laws and Employer Sponsored Health Insur-

ance” for the Health Insurance Association of America, as many as one in four individuals who

are without coverage are uninsured because of the cost of state health insurance mandates.

Mandate laws range from statutes that require health plans to cover services by particular types

of providers (e.g., chiropractors, optometrists), requirements to cover specific diagnostic or

treatment services (e.g., mammography, inpatient hospital care following delivery) or laws to

extend benefits to certain populations (e.g. continuation coverage of employees or dependents).

While individual mandates are often “popular” since they are intended to provide specific popu-

lations with greater access to particular services, there is a cumulative price effect associated

with ensuring such access. The sheer volume of mandated benefits has likely caused health in-

surance premiums to rise.

By the late 1960s, state legislatures had passed only a handful of mandates benefits; The Council

for Affordable Health Insurance (CAHI) has “identified more than 1,800 mandated benefits and

providers. In January 2004, CAHI followed the introduction of 295 new mandates in states

across the country.”

Mandates apply only to those health insurance policies controlled by state health insurance laws

– mainly policies purchased by small businesses and individuals. The state regulates the provi-

sion and procurement of insurance other than Medicare and Medicaid and ERISA covered plans.

The mandates also do not apply to the plans of larger companies that are self-insured and ERISA

(Employee Retirement Income Security Act of 1974) covered. The mandates do not apply to

Medicare or Medicaid patients. As a result, the full impact of these laws falls on the most vulner-

able part of the market, and in New Mexico this is particularly hard with the number of small

businesses whose capitalization is such that health insurance is not an option.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

There will be no alternative to continuation of mandated benefit polices for much of the small

business market in New Mexico.

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