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