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

SPONSOR Sanchez, M

ORIGINAL DATE

LAST UPDATED

01/26/08 HB

SHORT TITLE Access to Quality Universal Health Insurance

SB 377

ANALYST Weber, Hanika-Ortiz

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY08 FY09

FY10

3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

$47,000.0 (children

< 300% FPL)

$0.1

Recurring General Fund

Total

$115,000.0

$0.1 Recurring Federal Medicaid

Total

Unknown/Signficant

for TRD

$0.1 Recurring General Fund

Total

Unknown/Minimal

for PRC/HSD

$0.1 Recurring General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to HB 62, HB 147, SB 225, SB 3

SOURCES OF INFORMATION

LFC Files

Responses Received From

Human Services Department (HSD)

Department of Health (DOH)

NM Higher Education Department (NMHED)

Public Regulation Commission (PRC)

No Responses Received Yet From

Department of Finance and Administration (DFA)

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

Senate Bill 377 adds new sections of the insurance code and amends others to enact the Access

to Quality Healthcare Act.

Senate Bill 377 – Page

2

Section 2 is a new section that provides definitions of terms used throughout the act; such as

“creditable coverage" to mean coverage of an individual pursuant to a group health plan, health

insurance coverage, Medicare, the Medicaid Federal Tricare program, the Medical Insurance

Pool Act, any Federal employees health benefits program, any Federal public health plan, any

health benefit plan offered by a particular organization or group, automobile medical payment

insurance or pursuant to benefits contained in any liability insurance policy; and, “preexisting

condition" which excludes pregnancy within the definition.

Section 3 is new material that sets terms and conditions for guaranteed issue and renewability of

coverage. Effective January 1, 2010 a health insurer shall issue health insurance coverage to any

person who requests and offers to purchase the coverage without exclusion of preexisting condi-

tions. The provisions of this section shall not apply to the following types of policies: (1) dis-

ability income; (2) long-term care; (3) Medicare supplement; (4) credit health; (5) short term; (6)

accident-only; (7) fixed indemnity; (8) limited benefit; or (9) specified disease.

Section 4 relates to adjusted community rating. Every health insurer shall, in determining the

initial year’s premium charged, use only the rating factors of age, gender, geographic area of the

placement of employment and smoking practices, except that for individual policies the rating

factor of the individual's place of residence may be used instead of the geographic area of the

individual’s place of employment. In addition premium rate variations from index rates are ad-

dressed and limited. Certain policy types are excluded from the provisions.

Section 5 mandates reimbursement for direct services at not less than 90 percent of premiums

collected across all health product lines in the preceding three years.

Section 6 outlines requirements of health care coverage.

•

By January 1, 2010, every person having an income above four hundred percent of the

federal poverty level and living in New Mexico for more than six months shall provide

proof of creditable coverage or provide proof of financial responsibility for health care

services.

•

By July 1, 2009, the TRD shall identify individuals in the state who do not have credit-

able coverage. The agency may identify these individuals through coordination with ap-

propriate governing bodies and state agencies, including licensure and renewal processes,

public school and post-secondary institution enrollment processes, state income tax filing,

employment and open enrollment periods. The agency shall provide assistance, educa-

tion and outreach to individuals who do not have creditable coverage and promulgate

guidelines defining affordability of health care coverage.

•

By July 1, 2010, the secretary shall develop procedures to verify that the following indi-

viduals have creditable coverage: (1) individuals living in households with income

greater than four hundred percent of the federal poverty level; and (2) children in house-

holds with income less than four hundred percent of the federal poverty level who are

eligible for public programs pursuant to Medicaid or SCHIP programs.

•

Individuals in households with incomes less than four hundred percent of the federal

poverty level shall not be required to purchase or enroll in creditable coverage unless af-

fordable coverage, pursuant to the established guidelines defining affordability, is offered

through the individual's employer, available through a public program or otherwise.

•

By October 1, 2010, the agency shall provide recommendations to the governor and the

legislature on compliance and enforcement mechanisms that require all persons living in

Senate Bill 377 – Page

3

New Mexico to obtain or enroll in a public or private health care coverage plan or pro-

gram or provide proof of financial responsibility for health care services.

•

As of July 1, 2010, the following individuals age eighteen and over shall obtain and

maintain creditable coverage provided that the guidelines set by the secretary deem that

the coverage available to the individual is affordable:(1) state residents meeting the in-

come criteria set forth by the secretary; or (2) individuals who become residents of the

state within sixty-three days in the aggregate. Residents who, within sixty-three days,

have terminated any prior creditable coverage shall obtain and maintain creditable cover-

age within sixty-three days of termination.

Section 7 mandates HSD to recommend a sliding scale of subsidies for persons under 400 per-

cent fpl for both individual policies and group sponsored policies.

Section 8 provides amendments to 59A-22-5 for time limits related to defenses of misrepresenta-

tion of policy provision.

Section 9 amends 59A-23B-3, the Minimum Healthcare Protection Act, regarding preexisting

conditions and adds a new section community rating.

Section 10 amends 59A-23B-6 regarding forms and rates. Items C, D and E are eliminated that

were inconsistent with the new preexisting condition and community rating changes.

Section 11 is new material that deals with the rate index for premiums.

Premium rates for health benefit plans subject to the Minimum Healthcare Protection Act shall

be subject to the following provisions:

•

the index rate for a rating period for an individual shall not exceed the index rate for any

other individual by more than the following percentages for policies issued or delivered

in the respective year: (a) twenty percent through December 31, 2008; (b) eighteen per-

cent for calendar year 2009; (c) sixteen percent for calendar year 2010; (d) fourteen per-

cent for calendar year 2011; (e) twelve percent for calendar year 2012; and (f) ten percent

for every year thereafter;

•

the premium rates charged during a rating period for an individual shall not vary from the

index rate by more than the following percentages of the index rate for policies issued or

delivered in the respective year: (a) twenty percent through December 31, 2008; (b)

eighteen percent for calendar year 2009; (c) sixteen percent for calendar year 2010; (d)

fourteen percent for calendar year 2011; (e) twelve percent for calendar year 2012; and

(f) ten percent for every year thereafter; and

Section 12 makes premium rates for health benefit plans subject to the Small Group Rate and

Renewability Act the same as in the previous section. Also, certain types of insurance are ex-

cluded from the provisions.

Section 13 amends 59A-23C-5.1 regarding adjusted community rating. Provisions inconsistent

with community rating are eliminated.

Section 14 amends 59A-23C-7.1 regarding preexisting conditions. The amendment provides that

a health benefit plan that is offered by a carrier to a small employer shall not

include a preexist-

ing clause.

Senate Bill 377 – Page

4

Section 15 extends the elimination of preexisting clauses to any group health plan and a health

insurance issuer offering group health insurance coverage.

Section 16 extends the preexisting condition ban to Medicare supplement policies.

Section 17 further extends the preexisting condition ban to 59A-56-14.

Section 18 is a temporary provision providing for a risk equalization study that will provide rec-

ommendation to the Legislative Health and Human Services Committee regarding the negative

effects of adverse selection on an individual carrier that can result from guaranteed issue.

FISCAL IMPLICATIONS

Direct costs for enrolling children in house holds with income less than 400 percent fpl would

have a fiscal impact. Recent HSD estimates approximate 48,000 children in households under

300 percent FPL (currently $61,956 annually for a family of 4). At an estimated managed care

organization annual premium of $3,370 for this group a total $162 million requiring $47 million

from the general fund is required. It is difficult to determine the pace at which this eligible popu-

lation may enroll but as each year goes by the total cost will probably increase due to inflationary

factors.

The bill has fiscal implications for TRD, PRC, & HSD in that several sections require them to

perform work. In particular, section 6 places a substantial tracking and reporting mechanism on

TRD as well as requirements to issue rules establishing “affordability" and making recommenda-

tions for enforcement. No appropriation is included to cover the cost of these efforts.

Section 7 has HSD recommend subsidies for person in house holds under 400 percent fpl (cur-

rently $82,608 annually for a family of 4). This adult population is considerably more expensive

individually than the children with the annual premium for the State Coverage Insurance pro-

gram currently at over $9,000. Also, continued federal participation in the coverage of adults is

uncertain. However, this bill does not mandate coverage but only asks for subsidy recommenda-

tions making determination of a fiscal impact impossible.

HSD reports that 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 bil-

lion). Of the $6 billion that comes from public sources, the federal government pays for 64 per-

cent ($5 billion) compared to 10 percent contributed by state government ($820 million). Coun-

ties 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, other medical and 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.

SIGNIFICANT ISSUES

SB 377 proposes to reform the underwriting of individual and group health insurance substan-

tially.

Senate Bill 377 – Page

5

PRC/INS has provided the following background:

•

Currently these markets have the following characteristics. In the individual health insur-

ance markets, insurers take applications which describe the applicants health status and

then underwrite the policies to determine whether or not to: 1) issue the policy at standard

rates, 2) issue the policy at substandard rates, 3) decline to issue coverage or 4) issue cov-

erage with exceptions for certain health conditions (either temporarily or permanently). If

the insurer chooses 3) or 4), the applicant is eligible for coverage in the Medical Insur-

ance Pool. If the insurer chooses 2) and the substandard rate exceeds the medical insur-

ance pool premiums by 25%, the applicant is eligible for coverage in the pool. Guaran-

teed issue in this market is accomplished in a two-tier system. Healthy individuals are

underwritten and received coverage from insurers at low standard rates. Individuals with

health problems or chronic conditions, who cannot qualify for these standard rates can

apply to the Medical Insurance Pool, whose rates are set at approximately 135% of the

commercial rates. Standard rates in the individual market are subject to adjusted commu-

nity rating. Adjusted community rating permits insurers to vary rates by: 1) age, 2) gen-

der, 3) geographical area and 4) whether or not an individual smokes. The variation is

limited to 20% by gender (within age brackets) and to 250% by all combination of fac-

tors.

•

In the small employer group market, we have guaranteed issue with premium rates that

can vary based upon health status and claims history. In this market we define index rates

and require those rates to meet adjusted community rating limits similar to adjusted

community rating in the individual market (i.e., rates may vary by 1) age, 2) gender, 3)

geographical area and 4) whether or not an individual smokes- with a 20% limit for vari-

ance by gender and a 250% limit for all factors). The resulting rate can be increased or

decreased by 20% based on industry classification, health status or claims history. Again

it is a two tiered system essentially based on health status. Healthy groups get the lowest

rates and unhealthy groups pay higher rates (with limits).

PRC further notes that the bill proposes to eliminate this two-tier system by prohibiting the use

of rates that vary by health status. Rate variation will be based on the adjusted community rating

factors of age, gender, geographical are and smoking habits; however, the maximum variation in

premium rates based on these factors will be limited to 20% beginning 12/31/2008 and ulti-

mately will be limited to 10% beginning 12/31/2012. Health status will also be eliminated from

coverage determination by prohibiting the use of preexisting condition exclusions. With the indi-

vidual mandate contained in section 6, there will be no need for these exclusions or the use of

waiting periods.

It is significant that this approach to access to quality universal health insurance does not create a

new commission or collapse existing agencies into an “authority" but rather builds on current

statute to achieve the goal. More study should be required to fully understand the implications

from such insurance changes. Unfortunately, the response from TRD was not received prior to

the first hearing on the bill but hopefully will be available soon for an amended FIR before the

next hearing. Further response from the PRC regarding their technical analysis of the drafting of

the bill should also help with a better understanding of the insurance changes.

Section 3 requires that beginning in January 1, 2010 health insurers are required to guarantee is-

sue individual health insurance policies without preexisting condition exclusions and without

Senate Bill 377 – Page

6

waiting periods. The provisions of the section do not apply to: 1) disability income, 2) long-term

care, 3) medicare supplement, 4) credit health, 5) short term, 6) accident-only, 7) fixed indem-

nity, 8) limited benefit, or 9) specified disease policies.

Section 5 requires a health insurer to make reimbursement for direct services at a rate not less

than ninety percent of premiums minus any activity designed to manage utilization or services.

The 90 percent of premiums target for direct medical services may be considered appropriate for

large groups or block purchases like Salud! However, it creates problems for insurers who only

write individual or small employer groups. Economies of scale work against individual and small

group coverage. Several insurers who currently offer only individual and small group coverage

could be forced to leave the market. A more appropriate target could be developed for individual

and small employer groups.

Section 6 imposes a personal responsibility mandate for persons with incomes over 400% of fpl

to provide proof of creditable coverage as defined in the bill.

PERFORMANCE IMPLICATIONS

The TRD has a significant role in Sections 6 and 7 in that the Department must identify all indi-

viduals who do not have creditable coverage through licensure and renewal processes, public

school and post-secondary institution enrollment processes, state income tax filing and employ-

ment open enrollment periods. In addition, the Department will be required to provide assistance,

education and outreach to individuals who do not have creditable coverage and promulgate

guidelines defining affordability of health care coverage. Again, there is no appropriation to help

defer costs for this significant administrative impact.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

This bill attempts to create universal coverage with an individual mandate and insurance reforms.

Other bills with individual mandates and insurance reforms include HB 62, HB 205 and SB 228.

Additionally, other bills that address universal coverage include HB 147, HB 214, SB 3 and SB

225.

SUBSTANTIVE ISSUES

New Mexico has a high rate of uninsured at 21.1% or an estimated 401,000 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 and 67% of uninsured individuals say it is affordability.

TECHNICAL ISSUES

Page 4, line 4, benefits could be further clarified by the addition of the word “health".

AHO/sb