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
  
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*  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.                                                             *
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All Funds, Five-Year Impact:
  
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*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