LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session March 5, 2001 TO: Honorable Paul Sadler, Chair, House Committee on Teacher Health Insurance, Select FROM: John Keel, Director, Legislative Budget Board IN RE: HB1513 by Delisi (Relating to the establishment of a defined contribution health care benefits program for employees of public school districts.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB1513, As Introduced: negative impact of $(455,300,000) 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 $0 * * 2003 (455,300,000) * * 2004 (482,300,000) * * 2005 (496,800,000) * * 2006 (511,700,000) * **************************************************** All Funds, Five-Year Impact: ************************************************************************** *Fiscal Probable Probable Change in Number of * * Year Savings/(Cost) from Savings/(Cost) from State Employees from * * General Revenue Fund Other Funds FY 2001 * * 0001 0997 * * 2002 $0 $(9,000,000) 12.0 * * 2003 (455,300,000) (13,000,000) 12.0 * * 2004 (482,300,000) 0 12.0 * * 2005 (496,800,000) 0 12.0 * * 2006 (511,700,000) 0 12.0 * ************************************************************************** Fiscal Analysis The bill creates a defined contribution program to provide health coverage and a menu of benefit options to eligible active school district employees and their dependents. Retired employees could also elect to join the plan instead of the existing Teachers Retirement System (TRS) care plan. The bill creates ten regional risk pools, each with a regional risk pool trust fund held with the Comptroller. The bill would establish three health coverage plans ("Texas Red I," "Texas White," and "Texas Blue"), each with different levels of benefits, and a medical savings account ("Texas Red II"), with catastrophic care provisions. In addition, participants would be allowed to select qualified coverage outside the program and receive a defined contribution for such coverage. The state would contribute $325 annually for each active employee and $1,300 annually for each eligible dependent. The bill would require a participant enrolled in the program to pay that portion of the health coverage plan's cost that exceeded the amount of the state and district contributions. An eligible retiree could elect to retain or to obtain health coverage under the proposed plans. However, the retiree would have to pay for the coverage; the bill would not require the state to contribute for eligible retirees. Except as otherwise provided, the bill takes effect September 1, 2001. Coverage under the plans authorized by the bill would have to begin with the 2002-2003 school year, but no later than September 1, 2002. Methodology TRS projects there will be 570,628 employees and 217,554 dependents in fiscal year 2003. Based on the contributions required by the legislation, the cost to the state in fiscal year 2003 will be $468,300,000. By fiscal year 2006, based on a projected 623,540 employees and 237,727 dependents, the state's cost will increase to $511,700,000. Since the bill does not require any state or district contribution for retirees, it is assumed that retirees will continue to participate in the TRS-Care health care program for retirees. Additionally, the Employees Retirement System (ERS) will incur costs in fiscal year 2002 for the planning and implementation of the program. ERS assumes that these costs will be similar to the administrative costs for the Uniform Group Insurance Program they administer for state employees. Based on this assumption, ERS estimates it will need $9,000,000 in fiscal year 2002 for program implementation. It is also projected that 12 additional full-time-equivalent employees will be needed. Part of the initial start-up and program costs could be paid for using the remaining balances from the $10 annual fee paid by active employees from 1993 to 1996, estimated to be $22,000,000. The rest of the state funding would come from the General Revenue Fund. Local Government Impact The bill requires Texas public school districts to participate in the program, and establishes defined school district contributions to defray the costs of health benefits coverage. Texas school districts would contribute for each employee covered by the programs an amount equal to 70 percent of employee-only coverage under the Texas Red I Plan or 100 percent of the coverage of the cost of employee-only coverage under the Texas Blue Plan, a plan that would provide less comprehensive coverage and that would cost less than the Texas Red Plan. It cannot be projected which plans the employees would choose, and therefore what the cost to the districts would be. However, if everyone chose the Texas Red I plan, the costs to the districts would be an estimated $1.3 billion in fiscal year 2003, increasing to $1.8 billion in fiscal year 2006. TRS estimates that the school districts spent approximately $850 million on health insurance in fiscal year 2000. Any costs not covered by the state and district contributions would be paid for by the employees. Source Agencies: 454 Texas Department of Insurance, 701 Texas Education Agency, 323 Teacher Retirement System, 304 Comptroller of Public Accounts, 327 Employees Retirement System LBB Staff: JK, CT, SC