NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

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(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates/Conflicts with/Companion to/Relates to

SOURCES OF INFORMATION

New Mexico Health Policy Commission

No analysis available from Attorney General's Office or Department of Health

SUMMARY

Synopsis of Bill

House Bill 689 proposes to regulate the conversion of nonprofit health plans to a for-profit status. The bill sets out extensive procedures to be followed and requires the insurance division of the Public Regulation Commission and the Attorney General's Office to follow an extensive protocol when considering the information the nonprofit health plan submits in it's request. There is concern expressed in the bill about the need to insure that the charitable assets are not lost to the people of New Mexico through transactions involving New Mexico nonprofit heal care plans and entities outside New Mexico.

Significant Issues

In the recent past many nonprofit entities have converted to a for-profit organization. In the early 1980's 82% of Health Maintenance Organizations, (HMOs) were nonprofit. By 1995 only about 29% of the HMOs remained in nonprofit status. Concerns about the preservation of charitable assets have led many states to pass legislation aimed at the protection of those charitable assets. Some states have passed legislation that covers only hospitals while seven states have passed more comprehensive legislation

Many HMOs are currently experiencing financial difficulties. Nationally, about 30% of the population is currently enrolled in HMOs. While nearly 90% of all HMOs were profitable in 1994, by the third quarter of 1997, only 49% of the plans were profitable. Advantages exist for the health plans that convert to for-profit status including the ability to sell stock and the existence of fewer regulatory constraints which may serve to lessen their vulnerability to the financial problems they fact today. Operating profit margins have slipped from an average 2.4% in 1994 to a negative profit margin of -1.2% in the third quarter of 1997. In New Mexico, three of the five major managed care organizations reported an average profit margin of minus(-3.16%) in 1997.

FISCAL IMPLICATIONS

The conversion to a managed care methodology has been traumatic for the providers of the plans as well as the clients who are enrolled in the plans and are trying to adapt to the new systems of care. The financial viability of the plans is necessary for their survival and for the provision of health services in our largely rural state.

ADMINISTRATIVE IMPLICATIONS

Information has not been received from the Public Regulation Commission or the Attorney General's Office to determine the administrative impact of this legislation. There is reason to believe that significant work would be necessary to properly administer the provisions of this act. Costs of providing this necessary work can be charged to the applying nonprofit plan seeking to change it's status into a for-profit entity.

OTHER SUBSTANTIVE ISSUES

The New Mexico Health Policy Commission staff has done an excellent analysis of this bill. Please call the Commission for copies if needed.

MB/njw