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

SPONSOR Lujan, B

ORIGINAL DATE

LAST UPDATED

02/14/06

HB 867/aHEC

SHORT TITLE Public Employee Health Benefit Changes

SB

ANALYST Geisler

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

$6,400.0 Non-Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY06

FY07

FY08 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

See fiscal

impact

Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to SB 92

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public School Insurance Authority (PSIA)

Retiree Health Care Authority (RHCA)

Albuquerque Public Schools (APS)

General Services Department (GSD)

SUMMARY

Synopsis of HEC Amendments

The House Education Committee amendments to House Bill 867:

1.

Ensure that the premiums for group health insurance assessed by PSIA to APS upon consoli-

dation do not increase for a period of one year;

House Bill 867/aHEC – Page

2

2.

Add a second APS member to the PSIA board (upon consolidation) and clarify that those two

members shall be selected by employees of the APS who are enrolled in the group health in-

surance program.

Synopsis of Original Bill

House Bill 867 for the Public Employees Benefit Oversight Committee (PEBO) has the follow-

ing major provisions:

1.

Section 1 adjusts the employer share of benefits costs and related brackets to provide for a

higher employer share of benefits costs for the lower paid employees. It sets minimum and

maximum employer contributions. It eliminates the current provision which allows PSIA

employer groups and APS to pay “up to 80% within available revenue”. Effective October 1,

2006.

2.

Sections 2 through 4 provide for the consolidation of the APS health benefits program into

PSIA. Section 2 states that any school district with student enrollment in excess of 60,000

students (APS) are excluded from PSIA’s risk-related coverage. Effective December 1,

2006.

Section 3 amends the PSIA Board composition to allow Albuquerque Public School Board to

appoint a member to serve on the PSIA Board, when APS is participating in PSIA. Section 4

amends the definition of school district to remove the exemption for APS (60,000 or more

students). Effective December 1, 2006.

3.

Section 5 amends the Retiree Health Care Authority (RHCA) Act to update the definition of

child to include unmarried children up to age 25 and grandfathers the dependent status of ac-

tive members who retire and join the RHCA. Also amended is the definition of “participat-

ing employer”. Effective July 1, 2006.

4.

Section 6 requires the Group Benefits Committee of the Risk Management Division to meet

at least quarterly. Effective immediately.

5.

Section 7 retains the 80% maximum contribution language for PSIA groups and institutions

of higher education subject to the limitations in Section 1. Effective October 1, 2006.

6.

Section 8 appropriates $6.4 million to the Public Education Department to fund the increases

in employer contributions. Any unexpended or unencumbered balance remaining as of June

30, 2007 will revert to the general fund. Effective October 1, 2006.

7.

Section 9 assigns effective dates by section. (Effective dates are noted above).

FISCAL IMPLICATIONS

As RHCA estimates a minimal fiscal impact for any additional dependents that would qualify

under section 5 of the bill, the major fiscal impacts to be examined are the cost impact of the

change in employer & employee share of benefits costs and the costs and savings related to con-

solidation of APS benefit programs at PSIA. In the context of a combined benefits budget of

close to $300 million for APS and PSIA, it appears the net fiscal impact from the bracket

changes and consolidation is minimal. Additional details follow:

House Bill 867/aHEC – Page

3

1.

Change in benefit brackets: the bill provides an appropriation of $6.4 million to cover the

cost of the bracket changes in FY07. A key change in the brackets is the higher employer

share of benefits costs for employees that earn less than $30,000 annually. For example, em-

ployees that earn under $20,000 would have 80% to 90% of their premium covered by the

employer, compared to the current brackets, which only covers 70% to 75% of costs. APS

and PSIA provided the following charts to illustrate the impact on employees from these

changes:

Impact on PSIA covered employees:

No. of

Medical

Employees

In Salary

Bracket

Description of Brackets

Monthly Pay-

roll Deduc-

tion for em-

ployee earn-

ing $12K

Monthly Payroll

Deduction for

employee earn-

ing $38K

Monthly Payroll

Deduction for

employee earn-

ing $100K

3,476

2,231

1,488

17,282

Current Minimums

Under $15K – state pays 75%

$15K-$20K – state pays 70%

$20K-$25K – state pays 65%

$25K + over – state pays 60%

$93 Single

$236 Family

(based on

minimum

state share)

$149 Single

$378 Family

$149 Single

$378 Family

5,707

1,488

1,046

16,195

41

HB 867

Under $20K – state pays 80%-90%

$20K-$25K – state pays 75%-85%

$25K-$30K – state pays 70%-80%

$30K-$100K – state pays 60%-70%

$100K + over – state pays 50%-60%

$74 Single

$189 Family

(based on

minimum state

share)

$149 Single

$378 Family

$186 Single

$472 Family

Impact on APS Covered employees

:

Total Number

of APS Em-

ployees Medi-

cal Plans

By Salary Tier

Description of Salary Tier Monthly Payroll

Deduction for

employee earn-

ing $12K

Monthly Payroll

Deduction for

employee earn-

ing $38K

Monthly Payroll

Deduction for

employee earn-

ing $100K

970

338

593

5,811

Current Minimums

Under $15K – state pays 75%

$15K-$20K – state pays 70%

$20K-$25K – state pays 65%

$25K + over – state pays 60%

$87.03 Single

$235.02 Family

(based on mini-

mum state

share)

$139.25 Single

$376.04 Family

$139.25 Single

$376.04 Family

1,308

593

204

5,601

6

HB 867

Under $20K – state pays 80%-90%

$20K-$25K – state pays 75%-85%

$25K-$30K – state pays 70%-80%

$30K-$100K – state pays 60%-70%

$100K + over – state pays 50%-60%

$69.62 Single

$188.02 Family

(based on mini-

mum state

share)

$139.29 Single

$376.04 Family

$174.06 Single

$470.05 Family

As the chart shows, an APS or PSIA employee earning $12,000 purchasing family coverage

would save a minimum of $565 annually under this bill. The impact on an employees earning

greater than $30,000 depends on the employer choice of the percentage of costs they will pick

up—the bill allows ranges of 60% to 70% for those earning more than $30,000 and 50% to 60%

for employees earning $100,000 or over. The charts above assume no change for a sample em-

ployee earning $38,000 and an increase in premium costs for an employee earning $100,000 be-

House Bill 867/aHEC – Page

4

cause of the employer choosing to only cover 50% of the premium costs.

Because of the larger employer share being paid for lower paid employees, APS and PSIA will

have increased costs. If all employers choose to pay the lowest share of costs allowed under the

bill, APS and PSIA estimate an impact of approximately $2.6 million in FY07. Assuming that

employers will likely pay more than the minimum share allowed in the bill it appears that the

appropriation of $6.4 million contained in the bill should be adequate to cover the changes in

brackets in FY07. Note that since bill provisions are implemented on October 1, 2006 the cost

estimate are pro-rated for the remainder of FY07. Annualizing the full year cost in FY08 would

cost an additional $1.5 million minimum, with costs being higher if more employers chose to pay

the highest share allowable in the bill. These costs would have to be included in the FY08 ap-

propriation for public school support.

2.

Costs and Savings Related to Consolidation of APS Benefits Programs at PSIA: both APS

and PSIA have addressed five categories of possible cost savings due to consolidation: office

personnel costs, consulting costs, administrative services only (ASO) fees, premium/claims

costs, and provider reimbursements. PSIA estimates approximately $2.5 million in total sav-

ings, with about $2.3 million of this amount being from premium savings and about $150

thousand from other costs savings. APS disputes specific aspects of PSIA’s cost saving es-

timates and questions whether or not the savings are worth the disruption and transition costs

to APS employees. Please see additional discussion of costs and savings under “significant

issues.”

SIGNIFICANT ISSUES

There are a number of differences between the benefit plans offered by APS and PSIA that com-

plicate analysis of the financial impact of HB 867. For example, while both entities utilize Pres-

byterian for medical administration services, they differ in their second medical plan—APS of-

fers Cigna and PSIA offers Blue Cross Blue Shield (BCBS). In addition, APS co-pays for ser-

vice are typically lower, but PSIA has lower premiums for its Presbyterian plan. As noted

above, PSIA estimates approximately $2.5 million in net savings from consolidation which APS

disputes. Additional detail follows:

1.

Administrative related cost savings. PSIA estimates about $150 thousand net savings ($429

thousand of savings offset by $281 thousand of additional expenses). Savings would occur

from elimination of 4 of 8 APS benefits positions, elimination of medical consulting fees,

and elimination of separate medical carrier administrative service (ASO) fees. Additional

costs would be incurred for 1 more staff member at PSIA as well as higher fees to PSIA’s

third party eligibility administrator. APS questions if PSIA has included enough funding to

provide customer service to over 8,000 APS employees enrolled in benefit plans. In addi-

tion, APS notes that additional spending on consultants may be necessary, and operating

costs relating to the transition (such as employee education and communications) have not

been taken into account.

2.

Medical Premium savings. PSIA estimated approximately $3.6 million net in annual pre-

mium savings, of which $2.3 million or 65% would be the employer (or state) share. The

majority of these savings come from moving APS employees into the lower cost PSIA Pres-

byterian medical plan and into the PSIA United Concordia dental plan. Total savings are off-

set by the increased costs of moving APS Cigna plan members into the higher premium PSIA

House Bill 867/aHEC – Page

5

BCBS medical plan.

APS believes that PSIA has overstated the cost savings from moving APS Presbyterian plan

members and dental plan members to PSIA. In addition, APS believes that PSIA’s analysis

understates the financial value of the medical provider discounts APS receives from Cigna.

This would increase the transition costs of APS Cigna members to BCBS. Also, APS notes

that since their plan year starts two months later than PSIA, PSIA’s cost estimates should be

trended upward to reflect medical inflation.

ADMINISTRATIVE IMPLICATIONS

PSIA notes that because APS and PSIA are separate it complicates the state budget process and

has led to inequities in benefits dollars available between APS and other school districts. Bring-

ing APS into PSIA eliminates this problem of separate insurance estimates and separate plans, at

least for the benefits program, and will eliminate concerns resulting in divisions between APS

and other districts.

APS expresses concerns that the high level of customer service they provide to their employees

could be at risk in a consolidation. In addition, APS expresses concern that APS employees

would receive reduced benefits (due to higher PSIA co-pays and deductibles). APS also is con-

cerned that 3,170 APS Cigna members would face higher premiums if moved to BCBS.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

SB 92 adjusts the employer benefit contribution percentage for APS and PSIA members to a uni-

form 80%, regardless of salary level

TECHNICAL ISSUES

Requests to waiver out of PSIA are allowed only during the bid cycle. The effective date of De-

cember 1, 2006 would mean APS would not be permitted to explore a waiver out of PSIA until

the July 1, 2008 bid for medical, dental, and vision. The life and disability coverages will be bid

for a July 1, 2007 effective date, which means the next opportunity to waive the life and disabil-

ity coverages would be July 1, 2011.

APS states that if they are mandated to join PSIA effective December 1, 2006, a provision to al-

low current APS CIGNA members to be grandfathered in until such time as APS is allowed the

opportunity to secure an independent study and request a waiver for participation is strongly rec-

ommended.

APS and PSIA agree that reversion of any unencumbered or unused appropriation would be dif-

ficult to determine if the $6.4 million appropriation is distributed to the districts via the funding

formula. See suggested amendment to strike the reversion.

RHCA believes that since the dependent limiting age was increased from 19 to 25 in the Health

Care Purchasing Act, then Section 10-7C-4((F)(3) (in HB867 on page 12, lines 13-22) is moot.

Students up to age 25 are a subset of dependents up to age 25. Section 10-7C-4(F)(3) originally

existed to allow coverage of dependents over the old limiting age of 19 if they are students—now

all dependents are covered to age 25, regardless of student status.

House Bill 867/aHEC – Page

6

ALTERNATIVES

APS suggests that delaying the proposed mandate to have APS join with NMPSIA until such

time as APS has the opportunity to complete a comprehensive study and analysis to support the

projected net savings against the disruption and transition costs to its employees and taxpayers.

The timeframe for this request is the next scheduled bid process for IBAC scheduled for July 1,

2008.

AMENDMENTS

PSIA and APS suggest on page 26, line 2 & 3, delete “Any unexpended or unencumbered bal-

ance remaining at the end of fiscal year 2007 shall revert to the general fund.

RHCA suggests striking page 12, lines 13-22 as noted under technical Issues above.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The employer share of benefit costs will remain unchanged. APS and PSIA will operate inde-

pendent benefit programs, although they will continue to bid through joint purchasing with RMD

and RHCA under the Health Care Purchasing Act. The Retiree Health Care Act will not match

the Health Care Purchasing Act regarding dependent age limit for eligibility. Certain dependents

carried on an employer’s plan will continue to be ineligible for RHCA coverage, forcing the re-

tiree to drop those dependents from coverage upon enrollment in RHCA.

GG/nt:mt