Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

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

SPONSOR Komadina

ORIGINAL DATE

LAST UPDATED

1/25/08

2/1/08 HB

SHORT TITLE Health Insurance Exchange Act

SB 228/aSPAC

ANALYST Earnest

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

NFI

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

NFI

NFI

$7,000* Recurring General Fund

(Parenthesis ( ) Indicate Revenue Decreases)

*See revised fiscal implications section

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY08

FY09

FY10 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

PRC

$1,700

$1,700 Recurring Insurance

Operations

Fund

HSD

$0.1

$0.1 Recurring General

Fund

DFA

$0.1

$0.1 Recurring General

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Human Services Department (HSD)

Department of Finance and Administration (DFA)

Public Regulation Commission (PRC)

Senate Bill 228/aSPAC – Page

2

Public Education Department (PED)

Higher Education Department (HED)

Health Policy Commission

SUMMARY

Synopsis of Senate Public Affairs Committee Amendment

The SPAC amendment adds a new item to the definition of “creditable coverage" to include “a

plan designated by the superintendent as creditable coverage that includes spiritual care benefits

for individuals that use prayer of spiritual means of healing."

Synopsis of Original Bill

Senate Bill 228 would create a non-profit public corporation, separate from the state, to provide

increased access, choice and portability of health insurance for New Mexicans. All eligible

individuals would be permitted to obtain health insurance benefits through the exchange in

accordance with provisions of this act, the New Mexico Insurance Code and other applicable

state and federal laws; The exchange would be governed by a board of directors, who would be

considered a governmental entity for purposes of the Tort Claims Act, but neither the board nor

the exchange would be considered a governmental entity for any other purpose.

This bill eliminates the existing Health Insurance Alliance (HIA); replaces some of its functions

by ensuring guaranteed coverage based on certain requirements; and expands HIA functions to

include consolidation of the individual and small group health insurance market through creation

of an entity called the exchange which certifies and allows the purchase of health insurance

benefit plans.

The bill includes a provision requiring individuals to carry health insurance or prove other means

of financial responsibility and establishes a mechanism for the state to retain money due to the

individual from the state for compliance.

Below is a section-by-section summary of the major provisions of the bill, adapted from a

summary provided by HSD:

Section 4

Governance: Board governed by 13 directors consisting of 2 elected by participating

carriers, 4 appointed by the governor; 1 director who is a licensed physician and is

elected by the NM Medical Society; 1 director that is elected by and represents the NM

Hospital Association; 1 director that is elected by the NM Association of Health

Underwriters; 1 director that represents the Indian nations, tribes and pueblos; and the

superintendent of insurance or designee, who is a non-voting member.

A director of the Exchange will be appointed by the board.

Section 5

Duties: Publicize existence of the Exchange and disseminate information on eligibility

and enrollment. Establish and administer operation functions: enrollment procedures;

election of coverage procedures including distribution of benefit information; and billing

Senate Bill 228/aSPAC – Page

3

and collection of premiums. Issue certification of creditable coverage as requested.

Establish all financial accounting processes and procedures involved in billing and

collection of premiums including distribution to carriers and other accompanying

operational and accounting functions. Submit annual financial audit. Submit by July

2010 to governor, legislature and superintendent of insurance a report on feasibility of

expanding Exchange to employers with greater than 50 employees.

Section 6

Powers: Contract with vendors to achieve functions specified in act; contract with

private or public entities to administer enrollment, eligibility and premium billing and

collections functions; contract with employers to act as plan administrator for

participating employer plans subject to ERISA. Assess each participating insurance plan

for administrative and operating expenses and collect fees to cover cost of administration.

Seek and receive grant funding. Establish operating procedures and service centers.

Assume legal responsibility for its actions. Enroll all eligible individuals through the

Exchange.

Section 7

Enrollment and Coverage: Any individual may apply to participate. Any public or

private employer may apply on behalf of those persons who may be eligible. Participation

is subject to open enrollment season with certain conditions for guaranteed coverage and

specific qualifying events. The Exchange shall verify eligibility for all applicants for

private coverage. The state shall verify eligibility for all applicants for state sponsored or

state-subsidized coverage unless the state enters into an agreement with the Exchange.

The Exchange shall not decline, refuse to offer or restrict an offering to any participating

individual of a participating plan that has been obtained in a timely fashion.

Eligibility: Resident of state and continued domicile; or employed at least 20 hours per

week in state and employer does not offer health insurance coverage or individual is not

eligible to participate; individual is not a resident but is eligible to participate in an

employer plan; self employed individual who resides in another state but has principal

place of business in state; full time student in state; dependant of state resident. Open

enrollment period and qualifying events are defined.

Section 8

Health benefit plans: Health benefit plans offered through the Exchange must be

certified for up to a year by the superintendent of insurance as to good standing and

licensure by offering plan and compliance with applicable state health insurance laws

including this act. No competitive bidding process will be required except as pursuant to

the Health Care Purchasing Act. Superintendent shall establish and administer

regulations and procedures for certification.

Plan Design: Health benefit plans which are eligible for certification must include:

Inpatient hospital and medical benefits, surgical benefits, ambulatory patient benefits,

prescription drug benefits and mental health benefits.

Rates: Carriers shall offer participating insurance plans at rates developed pursuant to

59A.18.13.1 NMSA 1978 and include provision for adjustment in subsequent years based

on experience and modification to benefit design as long as the subsequent adjustments

are consistent with general practice in the determination of the superintendent.

Senate Bill 228/aSPAC – Page

4

Section 9

Underwriting: During designated open season: a participating individual who switches

plans shall not be subject to any pre-existing condition provision and shall be charged the

standard rate; a new participating individual with creditable coverage of eighteen months

or more may enroll and shall not be subject to any pre-existing condition period and shall

be charged the standard rates; a new participating individual with less than eighteen

months of creditable coverage may enroll but may be subject to pre-existing condition

periods not to exceed twelve months or charged a premium not to exceed an amount

pursuant to Section 59A-18-13.1 NMSA 1978. New enrollees without creditable

coverage are subject to carrier election to impose waivers or impose pre-existing

condition periods or extend the surcharge for beyond the first year of coverage.

Section 10

Continuation of Coverage: Any individual may continue to participate as long as they

remain eligible subject to specific provisions regarding premium payment and shall not

be canceled or non-renewed based on employer or employment status or other conditions

as defined.

Section 11

Dispute Resolution: Superintendent of Insurance shall establish procedures for

resolving disputes with respect to eligibility, coverage surcharge, imposition of pre-

existing conditions and other issues as defined.

Section 12

Participating Employer Plans: Any employer may apply to participate and if

participating must enter into a binding agreement with the Exchange which designates

certain specific requirements for coverage, benefits, administration and other

circumstances as defined including provisions regarding record keeping, compliance and

sponsorship of a “cafeteria plan".

Employer Responsibility: Employers (and self employed individuals) must annually

file a form for each employee (including dependants) employed within the state which

indicates health insurance coverage status and other specific information. HSD must file

on behalf of all individuals receiving benefits under Medicaid or State Children’s Health

Insurance program or any other state coverage program. This reporting will be used in

conjunction with individual reporting to establish compliance with personal responsibility

requirements (see below).

Section 13

Brokers: Commissions may be paid to licensed producers for individual or group

enrollments as set by board. Provisions for membership organizations to obtain

commission as specified. Brokers are not liable for actions associated with offerings for

state funded programs which they receive training for through the Exchange as long as

they are acting in good faith.

Section 14

Market Consolidation: Carrier may not issue or renew individual health benefit plan

other than through the Exchange after first regular open season conducted by the

Exchange. Carrier may not issue or renew small group (50 or fewer employees) other

than through the Exchange after first regular open season conducted by the Exchange.

Senate Bill 228/aSPAC – Page

5

Section 15

Personal Responsibility: State residents over 18 and under 65 must offer proof of

ability to pay for medical care for themselves and dependents by indicating coverage

under any Exchange health benefit, their election to be considered under a state subsidy

program or by demonstrating proof of financial security by posting a $10,000 bond as

prescribed. Penalties for failure to comply include establishing an escrow account for

that individual which will accrue all funds owed to that individual by the state including

tax overpayment to be disbursed in the event of medical claims.

Sections 16 and 17

Mandatory Consolidated Purchasing: The publicly funded health care agencies will

enter into a cooperative consolidated purchasing effort to provide health benefit plans for

the benefit of agency eligible participants though an RFP process through participating

insurance plans in the Exchange.

Section 18

Collection and Use of Enrollment Data: Superintendent of Insurance shall compile

quarterly enrollment information as follows: all individuals currently enrolled though the

Exchange; list from human services department of all individuals currently enrolled in

health coverage programs though the department; individuals enrolled in each benefit

plan they provide though insurance or administrative services. The information shall be

used in order to ensure compliance with provisions of the act.

Section 19

Premium Rate Restrictions: Certain restrictions are enacted regarding premium rates

for health benefit plans.

FISCAL IMPLICATIONS

The bill allows the exchange to receive grants and establish fees sufficient to cover operating

expenses. While the bill contains no appropriation to establish the exchange, there may

significant administrative impact on several state agencies.

Additionally, in a revised report on January 30, PRC estimated because the Health Insurance

Alliance would be moved into the exchange, premium tax offsets could be reduced beginning in

FY10. Assessments paid under the Alliance reduce general fund revenues by the amount of the

offsets. These offsets are estimated to be $7 million for FY10.

The bill requires the Human Services (HSD) to report status of recipients of Medicaid, State

Children’s Health Insurance Program and other state coverage programs to the superintendent of

insurance. HSD does not provide an estimate of costs. According to HSD, HSD would have to

develop the functionality to generate reports for the status of recipients of State Children’s

Health Insurance Program and other state coverage programs and this could have a moderate

fiscal impact.

The secretary of finance and administration is charged with collecting proof of financial security

by individuals who elect to do so through a $10,000 bond and establishing an escrow account in

the name of the individual and/or retaining and depositing all funds owed to the individual by the

state in that account. Money for health claims will also be disbursed through that account. This

may have a significant impact on the Department of Finance and Administration.

Senate Bill 228/aSPAC – Page

6

SB 228 requires under section 18 that the superintendent prepare and distribute forms for

individual coverage for each of the state’s residents and each non-resident employed in New

Mexico. Employers and other individuals would be required to complete these forms and return

them to the Superintendent. The cost of this process is not currently included in PRC Insurance

Division budget requests. The cost would be a recurring cost and would come from the Insurance

Operating Fund. PRC estimates the cost for postage and preparation of these forms could

approach $1.7 million annually.

SIGNIFICANT ISSUES

This bill proposes significant changes to the health insurance market and consolidates the

individual and small group markets under the exchange. It imposes a personal responsibility

mandate and an employer reporting function to ensure that requirement is fulfilled.

According to HSD

The Legislative Health and Human Services Committee (LHHS) was charged with

completing a health care costs study to determine the amount of public and private money

expended on health care in the state, as well as the economic impact and the effect of

health care reform efforts. The study was mandated by House Bill 955 (HB 955) during

the 2003 regular legislative session (Laws 2003, Chapter 380).

In 2002, the estimated cost of providing health care to New Mexicans was $7.9 billion.

Approximately 75 percent of health care expenditures were publicly financed ($5.9

billion). Of the $6 billion that comes from public sources, the federal government pays

for 64 percent ($5 billion) compared to 10 percent contributed by state government ($820

million). Counties cover about one percent of health care costs ($94 million) and only

$3.4 million comes from out-of-state sources. Spending for hospital services, for medical

and other professional services and supplies account for 28 percent of health care dollars,

and spending on long-term care services accounts for another 12 percent. While

categories were created based on comparable types of services utilized by the National

Health Accounts (CMS, 1960-2002), some sources do not tend to collect or report data by

types of services.

It is difficult to analyze how the implementation of the Health Insurance Exchange Act

would change this picture of the health care marketplace performed by the LHHS or

contribute to getting more New Mexicans insured.

Significant federal issues arise from a section of the SB 228 proposal that a new section

of the Public Assistance Act is enacted to read: “The department shall contract with

participating insurance plans through the health insurance Exchange created pursuant to

the Health Insurance Exchange Act to purchase health coverage for individuals eligible

for programs that are funded in whole or in part by the state…." Health benefit

programs under Title 19 and 21 of the Social Security Act are tightly regulated especially

in regard to contracting insurance plans. These plans receive significant federal matching

dollars which may be jeopardized if federal regulatory process is not followed.

There are significant privacy and confidentiality issues involved in requiring that the

human services department provide enrollment information to a non-state agency or any

other entity for purposes of enforcing the personal responsibility aspect of the Health

Exchange Act. Again federal regulation for programs funded with federal dollars has

authority over this type of information.

Senate Bill 228/aSPAC – Page

7

The personal responsibly mandate section of SB 228 has language regarding failure to

comply and penalty with the requirements of that section but contains no grievance or

appeal process affording an individual the right to due process.

ADMINISTRATIVE IMPLICATIONS

As noted in the Fiscal Implications section above, the bill would require several administrative

changes at the Department of Finance and Administration, Human Services Department and the

Insurance Division of the Public Regulation Commission.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Senate bill 228 duplicates House Bill 205; relates to House Bill 62.

BE/mt:bb