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F I S C A L I M P A C T R E P O R T
SPONSOR Martinez
DATE TYPED 2/9/05
HB
SHORT TITLE Health Insurance Rates Alliance Membership
SB 504
ANALYST Wilson
APPROPRIATION
Appropriation Contained Estimated Additional Impact Recurring
or Non-Rec
Fund
Affected
FY05
FY06
FY05
FY06
See Narrative
REVENUE
Estimated Revenue
Subsequent
Years Impact
Recurring
or Non-Rec
Fund
Affected
FY05
FY06
$196.0 FY06
General Fund
$564.0 FY07
General Fund
($1,748.0) FY08 Recurring
General Fund
Duplicates HB 394
SOURCES OF INFORMATION
LFC Files
Responses Received From
Public School Insurance Authority (PSIA)
Public Regulation Commission (PRC)
Retiree Health Care Authority (RHCA)
SUMMARY
Synopsis of Bill
Senate Bill 504 amends the Alliance Statute as follows:
changes the makeup of the five member plan directors by eliminating the requirement
that one director be from a nonprofit health plan;
pg_0002
Senate Bill 504 -- Page 2
requires that one of the five governor-appointed small employer directors be from a non-
profit corporation;
reduces the premium rates that the member plans are able to charge, and
requires a marketing effort by the Alliance.
Significant Issues
Currently, the member plans are able to charge +/- 15% of their standard rate index. This bill
eliminates the +/- factor, meaning the vendors must charge no more or no less than their standard
rate index. This reduces the premium for the Alliance plans, which should make the Alliance
plans more competitive in the small group marketplace. However, this reduces the member
plans ability to break even on the Alliance business, which means the claim loss ratio will dete-
riorate, causing a higher assessment to be paid by the vendors. (All health plans in the state must
subsidize the Alliance pool losses).
This bill may encourage a greater number of individuals to secure coverage through the Alliance.
This will reduce the number of uninsured New Mexicans.
FISCAL IMPLICATIONS
The health plans approved in New Mexico must subsidize the Alliance in order to do business in
the state. This effect of this bill would appear to increase the subsidy paid by health carriers and
may result in some carriers withdrawing from the state.
The PRC provided the following:
The premiums charged for coverage through the Health Insurance Alliance are not suffi-
cient to cover the claims or administrative costs. These costs are covered directly by as-
sessment to the health insurance industry. These insurers receive a credit against their
premium taxes, which reduces general fund revenues equal to 50% of their assessment.
The revised premium structure along with anticipated growth in coverage will increase
the assessments paid by the health insurance industry and increase the corresponding off-
set to the general fund. The actuary for the Health Insurance Alliance projects that the
assessment could increase as follows:
Increase in Increase In
Calendar Year Assessment Premiums
2005
$ 400.0
$ 500.0
2006
6,400.0
8,800.0
2007
15,500.0
29,400.0
2008
21,400.0
43,200.0
The increase in premiums could result in increased premium tax and premium surtax of $196
thousand in FY 06, $764 thousand in FY 07 and $1,452 thousand in FY 08. The increase in as-
sessments could result in tax revenue loss due to the premium tax offset. Those offsets are pro-
jected to be $200 thousand in FY 07 and $3,200 thousand in FY 08.
pg_0003
Senate Bill 504 -- Page 3
The combined effect on the general fund is to increase FY 06 and FY 07 revenues by $196 thou-
sand and $564 thousand respectively. The combined effect on general fund revenues in FY 08 is
a loss in revenues of $1,748 thousand.
ADMINISTRATIVE IMPLICATIONS
The bill requires a marketing effort by the Alliance without providing any additional staff re-
sources.
DUPLICATION
SB 504 duplicates HB 394.
OTHER SUBSTANTIVE ISSUES
The board of directors has not had non-profit representation since New Mexico Blue Cross Blue
Shield was converted from a non-profit health care plan. This bill requires that one of the Gov-
ernor’s appointed directors represent a non-profit corporation.
DW/lg/njw