LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session February 6, 2001 TO: Honorable Paul Sadler, Chair, House Committee on Teacher Health Insurance, Select FROM: John Keel, Director, Legislative Budget Board IN RE: HB523 by Tillery (Relating to a statewide group insurance program for school district employees and retirees.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB523, As Introduced: negative impact of $(1,086,050,254) through * * the biennium ending August 31, 2003. * * * * The bill would make no appropriation but could provide the legal * * basis for an appropriation of funds to implement the provisions of * * the bill. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2002 $(75,730,254) * * 2003 (1,010,320,000) * * 2004 (1,363,040,000) * * 2005 (1,567,060,000) * * 2006 (1,771,040,000) * **************************************************** All Funds, Five-Year Impact: *************************************************************************** *Fiscal Probable Savings/(Cost) from Change in Number of State * * Year General Revenue Fund Employees from FY 2001 * * 0001 * * 2002 $(75,730,254) (100.0) * * 2003 (1,010,320,000) (100.0) * * 2004 (1,363,040,000) (100.0) * * 2005 (1,567,060,000) (100.0) * * 2006 (1,771,040,000) (100.0) * *************************************************************************** Fiscal Analysis The bill amends current statutes regarding a statewide group insurance program for employees and retirees of the independent school districts. The program would be administered by the Teacher Retirement System (TRS). The bill allows the TRS Board of Trustees to determine the level of coverage offered, but requires that coverage be comparable to the coverage offered by the Employees Retirement System through the Uniform Group Insurance Program. The state would pay for 50% of the cost of employee-only coverage and the local school districts would pay the remaining 50% for employee-only coverage. Funding for retirees would continue the current 0.5% state contribution and 0.25% active employee contribution. The state would be required to pay for 100% of the cost for retirees with 30 or more years length of service, 75% of the costs for retirees with between 20 years and 30 years of service, and 50% of the costs for retirees with between 10 years and 20 years of service. Neither the state nor the school districts would be required to pay for dependent coverage. Methodology The bill assumes that program participation begins, effective September 1, 2002, with the 2002-2003 school year (state fiscal year 2003), following program start-up in fiscal year 2002. For fiscal year 2002, TRS estimates that the start-up costs will be $75,730,254. Based on a similar program in another state, TRS estimates that it would need approximately 100 full-time equivalent employees. Total costs for fiscal year 2002 are in addition to the $181,035,657 currently in the General Appropriations Act, as introduced, for TRS-Care, the existing program for retirees. TRS estimates that the total cost for fiscal year 2003 will be $3.064 billion, with the state funding $1.278 billion from general revenue funds. These projections assume that 685,563 employees/retirees would be covered in fiscal year 2003. TRS estimates that the average per person cost to the state for fiscal year 2003 would be $1,864. The $1.278 billion cost is partially offset by the $267,912,922 already in the General Appropriations Act, as introduced, for TRS-Care. The per person cost to the state is projected to increase to $2,510 by fiscal year 2006. Costs increases for health care costs are estimated to range from 6%-8% for medical claims, and 12%-20% for prescription drug claims. Program participation is projected to grow to 754,324 by fiscal year 2006. TRS estimates that the number of active employees will increase by 3% percent annually, and the number of retirees will increase by 4.4% percent annually. Local Government Impact The bill requires school districts to pay for 50% of the costs of active employee coverage. The estimated cost to the districts under this bill is projected to be $922 million in fiscal year 2003, increasing to $1.326 billion in fiscal year 2006. TRS estimates that school districts are currently paying $850 million a year for health insurance coverage. Source Agencies: 454 Texas Department of Insurance, 701 Texas Education Agency, 304 Comptroller of Public Accounts, 323 Teacher Retirement System LBB Staff: JK, CT, SC