LEGISLATIVE BUDGET BOARD
                                   Austin, Texas
         
                                   FISCAL NOTE
                               75th Regular Session
         
                                  April 15, 1997
         
         
      TO: Honorable David Sibley, Chair            IN RE:  Senate Bill No. 1565
          Committee on Economic Development                              By: Cain
          Senate
          Austin, Texas
         
         
         
         
         FROM:  John Keel, Director    
         
In response to your request for a Fiscal Note on SB1565 ( Relating 
to the qualifications and compensation of persons performing 
examinations of insurance organizations.) this office has detemined 
the following:
         
         Biennial Net Impact to General Revenue Funds by SB1565-As Introduced
         
Implementing the provisions of the bill would result in a net 
impact of $0 to General Revenue Related Funds through the biennium 
ending August 31, 1999.
         
The bill would make no appropriation but could provide the legal 
basis for an appropriation of funds to implement the provisions 
of the bill.
         
 
Fiscal Analysis
 
This bill would amend the Insurance Code to require the Texas 
Department of Insurance (TDI) to use only TDI salaried examiners 
or the services of examiners that possess expanded qualifications 
as outlined in the bill.   According to TDI, these expanded 
qualifications would reduce the number of consultants that would 
be qualified to contract with TDI to perform examinations and 
TDI would be required to hire 12 FTEs to handle the examination 
workload currently being conducted by consultants: two exempt 
Actuaries, and ten classified Financial Examiners.  Since current 
law requires insurers, not TDI, to pay TDI-hired consultants 
directly for examination services, there would not be a related 
savings to TDI from reduced consultant fees to offset the cost 
of the 12 FTEs.

This bill would also require TDI to compensate 
examiners at 120% of the step 4, group 21 annual salary rate 
under the State Classification plan, or $54,504 per year.  According 
to TDI, if the agency were required to pay all examiners $54,504 
per year, there would be both increases and decreases in the 
salaries of existing examinations staff, which would net a total 
cost to TDI of $2,200,171 per year.   The bill also states that 
examiners would not be paid for days away from work, which could 
possibly impact leave benefits.

The net cost to TDI General 
Revenue Dedicated Fund 036 to hire twelve additional FTEs with 
associated travel and overhead costs and to pay the existing 
135 classified examiners $54,505 per year would be $3,248,486 
in FY 1998 and $3,196,544 per year thereafter.  Of these amounts, 
$2,070,552 in FY 1998 and $2,018,610 per year thereafter would 
be recovered through Overhead Assessment and Examinations charges 
paid to TDI by insurers for direct examination costs.  Currently, 
Overhead, Assessment and Examinations billings paid by insurers 
to consultants are deducted from premium taxes due; the provisions 
of the bill would not alter these premium tax deductions.

In 
addition, through an interagency contract with the Department 
of Health, TDI is currently conducting HMO Quality of Care examinations 
via contracts with medical professionals.  If this arrangement 
continues, due to the provisions of the bill there may be additional 
costs to TDI to hire medical professionals to conduct HMO Quality 
of Care inspections and consultations.  This analysis does not 
include additional costs for this contingency.
 
Methodolgy
 
Costs to TDI to implement the provisions of the bill were based 
on the following assumptions:

(1) All examiners would be 
paid 20% of the step 4, group 21 annual salary rate under the 
State Classification plan, or $54,504 per year.

(2) Since 
current law requires insurers, not TDI, to pay TDI-hired consultants 
directly for examination services, there would not be a related 
savings to TDI from reduced consultant fees.

(3) Currently, 
Overhead, Assessment and Examinations billings paid by insurers 
to consultants are deducted from premium taxes due; the provisions 
of the bill would not alter these premium tax deductions.
The probable fiscal implications of implementing the provisions 
of the bill during each of the first five years following passage 
is estimated as follows:
 
Five Year Impact:
 
Fiscal Year Probable           Probable Revenue   Change in Number   
            Savings/(Cost)     Gain/(Loss) from   of State                                                
            from Texas         Texas Department   Employees from                                          
            Department of      of Insurance       FY 1997                                                 
            Insurance          Operating                                                                  
            Operating          Account/                                                                   
            Account/           GR-Dedicated                                                               
            GR-Dedicated                                                                                  
            0036               0036                                                                        
       1998      ($3,248,486)        $2,070,552              12.0                                    
       1998       (3,196,544)         2,018,610              12.0                                    
       2000       (3,196,544)         2,018,610              12.0                                    
       2001       (3,196,544)         2,018,610              12.0                                    
       2002       (3,196,544)         2,018,610              12.0                                    
 
 
         Net Impact on General Revenue Related Funds:
 
The probable fiscal implication to General Revenue related funds 
during each of the first five years is estimated as follows:
 
              Fiscal Year      Probable Net Postive/(Negative)
                               General Revenue Related Funds
                                             Funds
               1998                   $0
               1999                    0
               2000                    0
               2001                    0
               2002                    0
 
Similar annual fiscal implications would continue as long as 
the provisions of the bill are in effect.
          
No fiscal implication to units of local government is anticipated.
          
   Source:            Agencies:   454   Department of Insurance
                                         
                      LBB Staff:   JK ,TH ,BK