LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session February 12, 2001 TO: Honorable Paul Sadler, Chair, House Committee on Teacher Health Insurance, Select FROM: John Keel, Director, Legislative Budget Board IN RE: HB1189 by Telford (Relating to group benefits for active employees and retirees of school districts.), As Introduced ************************************************************************** * The cost to the state for the 2002-2003 biennium would range from * * ($1,158,900,000) to ($1,755,200,000), depending upon whether the * * state would provide insurance coverage comparable to the Uniform * * Group Insurance Program or a lesser level of coverage. * * * * The bill would make no appropriation but could provide the legal * * basis for an appropriation of funds to implement the provisions of * * the bill. * ************************************************************************** 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 $0 100.0 * * 2003 (1,158,900,000) 100.0 * * 2004 (1,318,900,000) 100.0 * * 2005 (1,493,500,000) 100.0 * * 2006 (1,666,100,000) 100.0 * *************************************************************************** *************************************************************************** *Fiscal Probable Savings/(Cost) from Change in Number of State * * Year General Revenue Fund Employees from FY 2001 * * 0001 * * 2002 $0 100.0 * * 2003 (1,755,200,000) 100.0 * * 2004 (1,997,200,000) 100.0 * * 2005 (2,261,700,000) 100.0 * * 2006 (2,523,500,000) 100.0 * *************************************************************************** Fiscal Analysis The bill creates a new state board, the Texas School Employees Group Benefits Board, to administer a statewide health insurance program for active school employees and their dependents. The Board would offer several group benefit plans to active employees, with at least one of the plans being comparable in coverage to the Uniform Group Insurance Program (UGIP). The state would pay for 100% of the cost of employee-only coverage for the least expensive plan, except for administrative costs, which would be paid by local school districts. The districts would pay for the additional cost of any of the other plans offered. No state contribution would be required for dependent coverage. Participation in the plan would begin no later than September 1 ,2002. Methodology This analysis provides cost estimates for two scenarios -- one where the least expensive plan provides a catastrophic benefit, and one where the least expensive plan provides coverage comparable to UGIP benefits. Under both scenarios, first year start-up costs are estimated to be $75.7 million, to be paid for by the participating districts. Teachers Retirement System (TRS) staff estimates 100 full-time equivalent employees would be necessary for administration. The number of covered employees is estimated to be 570,630 in fiscal year 2003, increasing to 623,500 in fiscal year 2006. Cost increases for medical claims are projected to range from 6-8% each year, while prescription drug claims are projected to increase from 12-20% each year. Though district participation is optional, TRS assumes that all the districts will participate, because the state would be paying for all the costs of the lowest cost option. Under the first scenario, the state is responsible for 100% of the cost of a catastrophic level of coverage, with a $1,000 annual deductible and 80% coinsurance rate. The cost to the state would be an estimated $2,031 per employee in fiscal year 2003, increasing to $2,672 in fiscal year 2006. The cost to the state for this scenario is $1.2 billion in fiscal year 2003, increasing to $1.7 billion in fiscal year 2006. Under the second scenario, the state is responsible for 100% of the cost of a plan providing benefits comparable to UGIP benefits. The cost to the state would be an estimated $3,076 per employee in fiscal year 2003, increasing to $4,047 in fiscal year 2006. The cost to the state for this scenario is $1.8 billion in fiscal year 2003, increasing to $2.5 billion in fiscal year 2006. Local Government Impact Under the provisions of the bill, the state would pay 100% of employee-only cost of the least expensive plan option. Districts would be required to pay additional amounts for more expensive employee-only coverage plans. The districts would also be charged a uniform fee to cover the costs of administering the program. Total administrative costs are estimated to be $75.7 million in fiscal year 2002, increasing to $90.4 million in fiscal year 2006 for the first scenario, and $127.3 million in fiscal year 2006 for the second scenario. Administrative fees per employee are estimated to range from $137 per employee in fiscal year 2002, to $145 per employee in fiscal year 2006 for the first scenario, and $204 per employee for the second scenario. According to TRS, school districts are currently spending an estimated $850 million on employee health insurance. Participating districts that opt for the basic level of coverage would no longer incur costs for health insurance, other than the administrative fees charged by the Board. Participating districts that choose higher levels of coverage would be responsible for the incremental cost of that coverage. Source Agencies: 701 Texas Education Agency, 304 Comptroller of Public Accounts, 327 Employees Retirement System, 323 Teacher Retirement System LBB Staff: JK, CT, SC