LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session April 17, 1997 TO: Honorable David Sibley, Chair IN RE: Senate Bill No. 1565, Committee Report 1st House, Substituted 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-Committee Report 1st House, Substituted 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. Current law requires insurers to directly pay TDI-hired consultants for examination services. Therefore, TDI would not experience a decrease in consultant costs due to hiring the 12 FTEs, or an increase in consultant costs due to the bill's requirement that contract examiners be paid 120% of state classification plan pay group 21, step 4. The net cost to TDI General Revenue Dedicated Fund 036 to hire twelve additional FTEs with associated travel and overhead costs would be $879,521 in FY 1998 and $829,061 per year thereafter. These costs 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 recoverable 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 assumption that the bill's expanded qualifications for TDI contract examiners would reduce the number of consultants that would be qualified to contract with TDI to perform examinations. Accordingly, TDI would be required to hire 12 FTEs to handle the examination workload currently being conducted by consultants who would no longer be eligible to perform examinations for TDI under the provisions of the bill. 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 ($879,521) $879,521 12.0 1998 (829,061) 829,061 12.0 2000 (829,061) 829,061 12.0 2001 (829,061) 829,061 12.0 2002 (829,061) 829,061 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