LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 77th Regular Session March 3, 2001 TO: Honorable Teel Bivins, Chair, Senate Committee on Education FROM: John Keel, Director, Legislative Budget Board IN RE: SB178 by Armbrister (Relating to a statewide group insurance program for employees and retirees of certain public schools.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * SB178, As Introduced: negative impact of $(53,000,000) 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 $(3,000,000) * * 2003 (50,000,000) * * 2004 (2,565,000,000) * * 2005 (2,926,300,000) * * 2006 (3,286,700,000) * **************************************************** 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 $(3,000,000) $(22,000,000) 50.0 * * 2003 (50,000,000) 0 100.0 * * 2004 (2,565,000,000) 0 100.0 * * 2005 (2,926,300,000) 0 100.0 * * 2006 (3,286,700,000) 0 100.0 * ************************************************************************** Fiscal Analysis The bill establishes a statewide group insurance program for employees and retirees of independent school districts. The program would be administered by the Teacher Retirement System (TRS) and would provide the same level of benefits as the Uniform Group Insurance Program provides state employees. The state would be required to pay for 100% of the cost for employee-only coverage, and retiree-only coverage for retirees with 20 or more years of service. The state would contribute 50% of the cost of coverage for retirees with more than 10 years but less than 20 years of service. The state would not be required to pay for dependent coverage. Participation by the districts would be mandatory, and program participation would begin with the 2003-2004 school year. The current TRS-Care health care program for retirees would cease operation at the end of fiscal year 2003. Methodology This analysis assumes that program participation would begin, effective September 1, 2003, with the 2003-2004 school year (state fiscal year 2004), following program start-up in fiscal years 2002-03. TRS estimates that start-up costs would total $76,000,000 during the two year phase-in. Based on a similar program in another state, TRS estimates it would need approximately 100 full-time equivalent employees to administer this statewide program. TRS estimates that the total cost for fiscal year 2004 will be $3.6 billion, with the state funding $2.6 billion. TRS estimates that the average contribution for each employee/retiree would be $3,735 for fiscal year 2004. These projections assume that 715,000 employees/retirees would be covered in 2004. The contributions would increase to an average of $4,468 per employee/retiree by fiscal year 2006, based on projected increases in health care costs ranging from six to seven percent for medical claims, and 12 to 19 percent for prescription drug claims. Program participation is projected to grow to 762,600 by fiscal year 2006. TRS estimates that the number of active employees will increase by three percent annually, and the number of retirees will increase by 4.4 percent annually. Total cost for the program for fiscal years 2002 and 2003 is in addition to the $449 million currently in the General Appropriations Act, as introduced, for TRS-Care, the program for retirees. A portion of the fiscal year 2002 cost can be funded using the balance of the $10 annual fee charged to active employees from 1993-1996, while the remaining costs would be funded with General Revenue. Costs for 2004-06 are offset somewhat by the approximately $113,000,000 that the state will be required to contribute each year for retiree coverage under current law. Local Government Impact Currently, local school districts pay for some of the cost of providing health insurance to their employees. TRS estimates districts spent approximately $850 million on health insurance in fiscal year 2000. Under the provisions of this bill, districts would no longer incur these costs after fiscal year 2003. Source Agencies: 781 Texas Higher Education Coordinating Board, 323 Teacher Retirement System, 304 Comptroller of Public Accounts LBB Staff: JK, CT, SC