LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session May 11, 2001 TO: Honorable David Sibley, Chair, Senate Committee on Business & Commerce FROM: John Keel, Director, Legislative Budget Board IN RE: HB1709 by Averitt (Relating to assessments used to fund the Health Insurance Risk Pool; authorizing a premium tax credit.), As Engrossed ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB1709, As Engrossed: negative impact of $(30,000,000) 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 $(8,000,000) * * 2003 (22,000,000) * * 2004 (40,000,000) * * 2005 (58,000,000) * * 2006 (76,000,000) * **************************************************** All Funds, Five-Year Impact: ***************************************************** * Fiscal Year Probable Revenue Gain/(Loss) from * * General Revenue Fund * * 0001 * * 2002 $(8,000,000) * * 2003 (22,000,000) * * 2004 (40,000,000) * * 2005 (58,000,000) * * 2006 (76,000,000) * ***************************************************** Fiscal Analysis The bill would amend the Insurance Code to create a tax credit for assessments paid by an insurer to the Health Insurance Risk Pool. The bill would allow an insurer a credit equal to 100 percent of any assessment paid by that insurer to the Health Insurance Risk Pool in any calendar year against the insurer's insurance premium tax liability for any year. The credit would be allowed at a rate of 10 percent per year for ten years following the date of assessment, or for a longer period, at the option of the insurer. Unused credits could be claimed as admitted assets, and they could be assigned or transferred upon the approval of the Commissioner of Insurance or in the event of a merger, acquisition, or total assumption of reinsurance between or among insurers. The bill also would require the Commissioner of Insurance to appoint an advisory committee to study the funding for the risk pool's operational losses. The advisory committee's report would be due to the Commissioner of Insurance, the Speaker of the House of Representatives, and the Lieutenant Governor by December 1 , 2002. The bill would take effect September 1, 2001. Methodology According to the Comptroller's Office, application of assessment credits would reduce insurers' insurance premium tax liabilities and thereby cause a loss to the General Revenue. The estimated losses were based on historical and projected assessment data provided by the risk pool. In 1999, the risk pool assessed $14 million, and in 2000, the assessment jumped to $68 million. Projections for future assessments are uncertain and subject to changes in several variables, particularly enrollment, premiums, and changes in the legislative cap on premiums. As reported by the pool, its enrollment is continuing to increase at a rapid rate. Premiums, which are also rising, are subject to a legislative cap that could be met within the next two years. The fiscal impact assumes that the calendar 2002 assessment would be $80 million, growing to $140 million in 2003. By 2004, it was assumed that the assessment would reach $180 million and remain at that level for the next several years. The losses increase each year because the number of annual assessments for which a credit could be taken would increase each year over the projection period. The actual fiscal impact could be smaller or greater, depending on future assessment levels. Local Government Impact No fiscal implication to units of local government is anticipated. Source Agencies: 454 Texas Department of Insurance, 304 Comptroller of Public Accounts LBB Staff: JK, JO, RT, DE