SB 0215 - Fiscal Note

Fiscal Note - SB 0215 - Modifies provisions of the health plan for state employees

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 1020-01

BILL NO.: Perfected SB 215

SUBJECT: Health Care Insurance

TYPE: Original

DATE: April 5, 1999

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
All Funds	($22,666,667 to Unknown)	($28,288,000 to Unknown)	($29,419,520 to Unknown)
Total Estimated Net Effect on All State Funds	($22,666,667 to Unknown)	($28,288,000 to Unknown)	($29,419,520 to Unknown)

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
None	$0	$0	$0
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Local Government	($9,750,000 to Unknown)	($12,168,000 to Unknown)	($12,654,720 to Unknown)

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 7 pages.

FISCAL ANALYSIS

ASSUMPTION

The Office of Prosecution Services, Attorney General's Office, Department of Economic Development, Department of Mental Health, Department of Corrections, Department of Social Services, Department of Revenue, Department of Transportation, Secretary of State's Office, Department of Public Safety, Department of Labor, Department of Conservation, Missouri House of Representatives, Lieutenant Governor's Office, Office of State Courts Administrator, Missouri Veteran's Commission, Missouri Senate, Truman State University, Southwest Missouri State University, Central Missouri State University, and University of Missouri assume this proposal would not fiscally impact their agencies.

The Department of Agriculture and the Office of Administration (COA) assume this proposal would have a fiscal impact. However, any potential impact would be determined through the actuarial report from the Missouri Consolidated Health Care Plan in the rate it certifies to COA.

The Department of Insurance assumes that with each member agency being retrospectively experience rated, the potential exists for a significant increase in the cost to the Insurance Dedicated Fund for providing coverage to employees if the agency's experience rating reflects high claim costs.

The Department of Elementary and Secondary Education (DES) states that costs for coverage may increase depending on the findings of the actuarial analysis. Additionally, the Office of Administration may need to request an increase in federal capacity if coverage costs rise for federally funded employees. If it becomes necessary to request an increase in federal capacity to cover additional insurance coverage costs, the capacity request attributable to DES federal employees is estimated to be less than $100,000.

The Department of Natural Resources (DNR) assumes the Office of Administration would provide the information for the actuarial study. DNR does not have the necessary information to determine the impact on the health insurance premiums. Any impacts on insurance premiums subsidized by DNR has a direct impact on DNR's dedicated funding sources.

Missouri Consolidated Health Care Plan (HCP) officials note that all estimates being presented are under HCP's best interpretation of the intent of this proposal. Additionally, new RFPs will be released shortly that administratively and contractually address the issues associated with the provisions of this proposal.

ASSUMPTION (continued)

HCP states this proposal makes several changes that significantly change the operation of the

Missouri Consolidated Health Care Plan. HCP assumes the proposal would severely limit HCP's purchasing power in the marketplace and constrain its ability to obtain affordable health insurance for the more than 150,000 persons currently insured through the purchasing pool. HCP's state appropriation would be adversely impacted and more than 600 participating public employers in Missouri would no longer have the financial benefit of large group purchasing, raising their costs significantly. In addition, the substantial increase in state premiums would directly impact the Children's Insurance program since parents' contributions are tied to the state plan. The provision restricting HCP to maximum 24-month contracts with insurers could greatly disadvantage HCP by not allowing at least the option of the state and competing insurers to voluntarily accept terms for longer contracts. Officials assume that this could add significant costs to the state in future years, possibly as much as several million dollars per year. Current five-year contracts have contributed significant savings to the state.

HCP has determined six main provisions of this proposal, and they are as follows:

Linking Public Entity Loss to State and Other Premiums

HCP states this proposal would base the premium of all groups, state and public entity on the financial loss experience only of the public entity groups. Experience rating methods typically tie the recent costs of a group to its future premium. This proposal would tie all HCP member rates to those of the public entity's cost experience. Based upon projected costs for FY2000, recent health risk studies indicate this would cost the state an estimated $8.4 million.

Retrospective Analysis

HCP states that premiums based solely on claims history make contracts essentially risk-free for insurers, since costs can be passed along to HCP and public entities. This version of the proposal uses the term "retrospective" rather than "retroactive;" however, the costs associated with this provision are not eliminated. Only the possibility that an insurer would have to be reimbursed for losses in a prior year is eliminated. Using retrospective analysis, any prior losses would still be considered, along with trend, inflation, etc., in projecting the required premium for future years. HCP assumes it is impossible to know what costs may be associated with this provision if the new contracts are awarded. However, based on current contracts and assuming a conservative estimate (20%) of what the current contractors say is needed to cover their losses, HCP made some projections of the potential impact for FY98. Total premiums paid by the state, public entities, and state employees during FY98 were $93,847,404, $58,548,960, and $37,947,120, respectively. Assuming a 20% increase, the fiscal impact to the state, public ASSUMPTION (continued)

entities, and state employees would be $18,769,480, $11,709,792, and $7,589,424, respectively.

January 1^st Entry Date for New Public Entities

Currently, HCP permits qualified public entities to initially join the HCP on the first of any month during the year. The following year, HCP aligns the new group's contract year with the calendar year. This proposal would restrict incoming public entity groups to joining HCP only on January 1^st of each year rather than during the calendar year. HCP assumes this provision would create significant hardship for many public entities whose current contract year is different than the calendar year. More than half of the groups entering are in this situation during their

first year with HCP. These groups would have to bargain with the carrier they had chosen to terminate for a partial year contract at a reasonable rate, something small employers have difficulty obtaining. HCP assumes this provision would add a significant, but unknown, cost for as many as 100 public employers annually.

Children's Health Care and the Uninsured

HCP notes that for a specific population (225 to 300% of federal poverty level), the family contributions to the cost of children's health care under the recent expansion of the MC+ program are tied by statute to the premium cost for children in HCP plans. HCP expects this proposal would have major, but undeterminable, cost implications for HCP and subsequently for those children's health care premiums as well.

Actuarially Devised Premium and Loss Experience

HCP states this proposal eliminates the clause "or any other determination that the board deems appropriate", which had given the board flexibility to contract for and offer premiums that are based on a community or modified community rating concept. HCP was originally created as a vehicle to allow public employers in Missouri to use the purchasing power of a large group. An employer with 10 employees would no longer be rated as a member of the larger group (now with over 150,000 persons), but would be rated separately. By removing the board's flexibility for negotiating within the competitive marketplace, the value of the large purchasing pool is severely hampered. HCP assumes the cost of health insurance for these groups would escalate significantly and many could be forced into an uninsured status. More than 200 of HCP's public entities did not offer health insurance prior to joining HCP, mainly because of its high cost. HCP states it is difficult to estimate the eventual cost associated with this loss of the ability to negotiate within the industry; however it could be several million dollars. For every percentage increase in premiums, the impact to the state, public entities, and state employees would be

ASSUMPTION (continued)

$938,000, $585,000, and $379,000, respectively.

Determining Fiscal Impact of HCP Costs on Health Care Plans

HCP states the requirement to determine the financial risk being assumed by a third party through an actuarial analysis is technically very difficult. The old experience may be misleading if services were delivered under a different plan design (indemnity vs. HMO) or if the new plan is more efficient at controlling costs. Also, it is impossible to know which members (and their respective levels of risk) may select any one individual contractor if the public entity offers multiple choices to its employees. This provision appears to essentially put HCP in the position of having some fiduciary responsibility for its individual contractors, when this duty actually is to be for the trust fund on behalf of the membership.

Overall Fiscal Impact

HCP estimates the total fiscal impact of this proposal would be at least $27,200,000 to the state, and $11,700,000 to local government. However, the actual fiscal impact could be greater, as it does not include potential costs for actuarial only requirements or unknown costs for the impact on the MC+ program, the January 1^st effective date requirement, or limiting contracts with insurers to 24 months.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
ALL FUNDS
Costs
Increased premiums/state contributions	($22,666,667	($28,288,000	($29,419,520
	to Unknown)	to Unknown)	to Unknown)
ESTIMATED NET EFFECT	($22,666,667	($28,288,000	($29,419,520
ON ALL FUNDS	to Unknown)	to Unknown)	to Unknown)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
LOCAL GOVERNMENT
Increased costs to local health plans	($9,750,000	($12,168,000	($12,654,720
	to Unknown)	to Unknown)	to Unknown)
ESTIMATED NET EFFECT	($9,750,000	($12,168,000	($12,654,720
ON LOCAL GOVERNMENT	to Unknown)	to Unknown)	to Unknown)
FISCAL IMPACT - Small Business
No direct fiscal impact to small businesses would be expected as a result of this proposal.

DESCRIPTION

This proposal modifies provisions of the Missouri Consolidated Health Care Plan, as it provides for a twenty-four month contract period. Benefit coverage and services are based on an actuarial analysis and loss experience of current agencies enrolled on a retroactive basis and acceptance of an agency into the Plan is based on an actuarial analysis of the agency's experience, and impact to the Plan. This proposal establishes an annual effective date of January 1 as the date in which to begin a newly enrolled Participating Member Agency's coverage. Currently new agencies can begin coverage on the first day of any given month as requested by the agency and approved by the Board.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

SOURCES OF INFORMATION

Department of Agriculture

Office of Administration

Office of State Courts Administrator

Department of Economic Development

Department of Elementary and Secondary Education

Department of Transportation

Department of Mental Health

Department of Natural Resources

SOURCES OF INFORMATION (continued)

Department of Corrections

Department of Health

Department of Labor

Department of Revenue

Department of Social Services

Department of Public Safety

Missouri Consolidated Health Care Plan

Department of Insurance

Department of Conservation

Office of Prosecution Services

Missouri Senate

Missouri House of Representatives

Attorney General's Office

Lieutenant Governor's Office

Secretary of State's Office

Missouri Veteran's Commission

University of Missouri

Southwest Missouri State University

Truman State University

Central Missouri State University

Jeanne Jarrett, CPA

Director

April 5, 1999