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

SPONSOR Beffort

ORIGINAL DATE

LAST UPDATED

2/23/07

HB

SHORT TITLE Minimum Health Care Options for Public Employees SB 1005

ANALYST Propst

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

Unknown

Recurring Various

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Albuquerque Public Schools (APS)

Retiree Health Care Authority (RHCA)

General Services Department (GSD)

Public School Insurance Authority (PSIA)

SUMMARY

Synopsis of Bill

Senate Bill 1005 would amend the Healthcare Purchasing Act to mandate agencies of the Inter-

Agency Benefits Advisory Committee (IBAC), New Mexico Public Schools Insurance Authority

(PSIA), Albuquerque Public Schools (APS), New Mexico Retiree Health Care Authority

(RHCA), and Risk Management Division, State of New Mexico (RMD) to provide minimum

health care benefit options for public employees in the State. The proposed lower-cost health

care plan options must provide coverage comparable to the existing State Coverage Insurance

Plan design or the plan design required by the Minimum HealthCare Protection Act (MHCPA).

FISCAL IMPLICATIONS

GSD reports that there may be significant fiscal implications to the Risk Management Division.

It is difficult to ascertain the financial impact of SB 1005 because the bill does not define lower-

cost nor does the Minimum Healthcare Protection Act define deductible, coinsurance, and co-

payment amounts. However, based on the following assumptions GSD predicts lower-cost

benefit plans for employees and agencies: GSD/RMD is required to remain actuarially sound;

the definition of lower-cost is lower-cost premiums than are currently being charged to

Senate Bill 1005 – Page

2

employees and agencies; deductibles, coinsurance and co-payments are designed to achieve a

15% reduction in premium costs; plan designs of the lower-cost plans meet with or are

comparable to the Minimum Healthcare Protection Act; and the offering of such a lower-cost

plan achieves a 10% employee migration to the low-cost plan. Approximately 80% of state

employees contribute 20% towards the payment of their biweekly premium. State employees

electing single coverage with Presbyterian would pay approximately $9.00 less per pay period

than current premiums or $234.00 per year. The total estimated cost savings for this population

for the State is approximately $800.0 per year. However, this number should be tempered with

the knowledge that the vast majority of the employees electing to enroll in the low-cost plan are

historically a younger and healthier population. Removing these employees from the high-cost

plan may create adverse implications to the costs for the high-cost plan members. Premiums for

high-cost plan members electing single coverage would need to be increased by approximately

$3.00 per pay period.

The second component of SB 1005 allows or would require GSD/RMD to provide low-cost

benefit plan options that provide coverage comparable with an existing state-sponsored health

coverage plan under a federal health insurance Medicaid waiver that includes federal, state,

employer and employee or individual premium contributions. Such existing state sponsored

plans are referred to as SCI and Medicaid Salud. In these plan designs employees and

dependents would have $3.00 co-payments for pharmacy benefits and $5.00 co-payments, which

are significantly less than the co-payment structure in GSD/RMD’s current plan designs. Based

on the following assumptions GSD predicts that costs will increase in premiums for employees

and state agencies: Low-cost is defined as low-cost to the consumer of the plan. Plan designs

would mirror or be similar to the plan designs currently offered to SCI participants; eligibility

for these plans would be based on Medicare Federal Poverty Level requirements; enrollment

would result in approximately 2000 employees being made eligible for participation; premium

for the benefit plan would be 15% less expensive than current premiums; GSD/RMD is required

to remain actuarially sound; and the loss ratio experienced with the implementation of this plan

and premium would be redistributed to or subsidized by the agencies and noneligible members of

the low-cost plan. Employees eligible for the plan would pay approximately $9.00 per pay

period in premium. The reduced premium and enriched benefit design of the low-cost plan

would cost the state (employer) approximately $6,013.0 per year. The remaining 32,203 non

eligible employees would absorb premium increases

SIGNIFICANT ISSUES

APS reports that effective December 1, 2005, APS implemented two plan options for medical

coverage offering members a choice between a Low Option Plan and High Option Plan. The

Low Option Plan has lower premiums, and includes a deductible and coinsurance for most In-

Network and Out-of-Network benefits. APS pays 70% of the cost for Employee Only coverage

under their Low Option Plans. The APS Low Option Plan rate is currently receiving a higher

APS Employer subsidy than the High Option Plan.

APS participation in the Low Option Plans currently offered is only 1.09% of the more than

7,900 covered under the medical plans.

Effective December 1, 2006, APS increased the Employer Matching Contribution to 80% for

Employees earning less than $20,000 per year for medical, dental, vision and voluntary life

insurance coverage A comparison of the Minimum Health Care Protection Act (MHCPA) and

Senate Bill 1005 – Page

3

the APS Low Option Plan Design is illustrated below:

Benefits

MHCPA Plan

APS Low Option Plan

Lifetime Maximum

$50,000 annual maximum

benefit

Unlimited (certain services subject to

Calendar Year and/or lifetime

maximums or are limited per condition)

In-Patient Hospitalization 25-Day Limit

20% Coinsurance In-network, 40% Out-

of-Network

Office Visit

Limited to 7 Office Visits

Per Calendar Year

20% Coinsurance In-Network, 40%

Out-of-Network, No limit for number of

visits

Prescription

Drug

Coverage

Not covered

Generic – 20% Min. $8, Max. $20,

Preferred Drug – 30%, Min. $20, Max.

$50, Non-Preferred Drug – 40%, Min.

$40, Max. $100

Applying current APS Low Option Plan features to the MHCPA plan design, the estimated value

of the MHCPA plan design is approximately 40% less than the current APS High Option Plan on

a purely plan to plan basis. Based on 2006-2007 Plan Funding, the difference in monthly

deductions ranges from:

•

$36 to $74 for Single Coverage

•

$77 to $163 for Double Coverage

•

$106 to $225 for Family Coverage

If participation in the plan is made available to those eligible employees currently waiving

coverage, the estimated annual cost to APS is $367,000 to $392,000 for every 100 new

participants in the plan in 2006-2007 dollars in addition to performance and administrative

implications outlined below.

ADMINISTRATIVE IMPLICATIONS

APS would incur additional administrative expense in providing communications and enrollment

documents to add additional plan options. Consulting and actuarial fees would increase to

include additional plan analysis and cost projections each year.

GSD/RMD would be required to change and distribute enrollment materials for approximately

35,000 employees with an additional 5,000 units for new hires and loss. The cost for these

materials is approximately $100.0.

OTHER SUBSTANTIVE ISSUES

PSIA reports that in 2005, PSIA began offering two plan options: a Low Option plan and a High

Option Plan. The Low Option has a high deductible with in and out of network coverage with an

unlimited lifetime maximum and a premium differential of approximately 16% less than the

PSIA comprehensive High Option plan. Enrollment in the Low Option plan is less than 1% of

the 25,000+ employees in PSIA medical plans.

Senate Bill 1005 – Page

4

MHCPA is a general frame work but not detailed plan design so PSIA in its modeling assumed

the current Low Option Plan features with:

- $50,000 annual maximum benefit

- 25 day limit on IP Hospitalization

- 7 Office Visit max

- No Rx coverage

This value of this plan design compared to PSIA’s comprehensive High Option would be

approximately 70% less. Expressed as a monthly deduction, this means a range of $30 - $50 for

single coverage (depending on salary bracket) and a range of $77- $123 for family coverage.

The SCI plan design, due to the low co pays, is a premium differential of approximately 5%,

even taking into account the $100,000 cap. This plan design would not accomplish the bill’s

intent of a “lower cost" option.

Any plan offered by PSIA provides comprehensive coverage. Offering a plan along the lines of

the Minimum Health Care Protection Act or the SCI with a limited lifetime maximum of $50.0

or $100.0 does not provide protection against major catastrophic losses.

RHCA notes that the cost to the agency of providing health care benefits as set forth in the

Minimum Healthcare Protection Act to a population that would be paying reduced premium and

co-pays may be detrimental RHCA. RHCA does not receive General Fund monies to provide

health care benefits to eligible retirees and their dependents. Therefore, to provide reduced cost

healthcare coverage at even more deeply discounted rates could have an overall negative fiscal

impact on NMRHCA.

WEP/nt