LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 77th Regular Session
Revision 1
March 5, 2001
TO: Honorable Teel Bivins, Chair, Senate Committee on
Education
FROM: John Keel, Director, Legislative Budget Board
IN RE: SB928 by Shapleigh (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 *
* SB928, As Introduced: negative impact of $(1,610,400,000) 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. *
**************************************************************************
This fiscal analysis assumes full participation by all the school
districts. At lower participation rates, the assumptions for health
care costs, tax rates, and other variables could vary significantly.
General Revenue-Related Funds, Five-Year Net Impact:
****************************************************
* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2002 $(53,700,000) *
* 2003 (1,556,700,000) *
* 2004 (2,153,200,000) *
* 2005 (2,624,000,000) *
* 2006 (3,093,000,000) *
****************************************************
All Funds, Five-Year Impact:
***********************************************************************
*Fiscal Probable Probable Probable Probable Change in *
* Year Savings/ Savings/ Savings/ Revenue Number of *
* (Cost) from (Cost) from (Cost) from Gain/(Loss) State *
* General Other Funds General from School Employees *
* Revenue 0997 Revenue Districts from FY 2001 *
* Fund Fund *
* 0001 0001 *
* 2002 $0 $0 100.0 *
* $(53,700, $(22,000, *
* 000) 000) *
* 2003 0 576,000,000 604,000,000 100.0 *
* (2,132,700, *
* 000) *
* 2004 0 576,000,000 604,000,000 100.0 *
* (2,729,200, *
* 000) *
* 2005 0 576,000,000 604,000,000 100.0 *
* (3,200,000, *
* 000) *
* 2006 0 576,000,000 604,000,000 100.0 *
* (3,669,000, *
* 000) *
***********************************************************************
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 at
least two levels of coverage: a catastrophic plan and a primary plan that
is comparable to the benefits offered through the Uniform Group
Insurance Program (UGIP) for state employees. The full cost of coverage
for employees and retirees with ten or more years of service would be
covered by the plan. The cost of dependent coverage would be shared
equally between the plan and the employee/retiree. District
participation would be optional, but once a district joined, the district
would have to participate for at least two years, and demonstrate upon
withdrawal that the district would provide a UGIP-comparable plan at no
cost to its employees. The bill continues the current state contribution
of 0.5 percent of salary and active employee contribution of 0.25
percent of salary that is currently used to finance the TRS-Care health
care program for retirees. Revenues and expenditures for the program
would pass through the newly created School Employees Primary Health
Coverage Fund.
The bill would amend the Education Code to allow, with local district or
county voter approval, a new ad valorem tax to be levied for district or
county participation in the new Texas school employees group health
program. The tax rate would not count towards the current $1.50
maintenance and operations tax rate cap. The General Appropriations Act
would have to specify, for each year, the effective tax rate that school
districts could levy to participate in the new insurance program. Each
year, the Comptroller would certify to each school district the tax
required and the amount of ad valorem revenue necessary to participate
in the program.
Methodology
For determining the costs of the health coverage, this analysis assumes
that program participation would begin, effective September 1, 2002, with
the 2002-2003 school year (state fiscal year 2003), following program
start-up in fiscal year 2002. For fiscal year 2002, TRS estimates that
start-up costs would total $75,700,000. Based on a similar program in
another state, TRS estimates it would need approximately 100 full-time
equivalent employees to administer this statewide program.
If the districts all opted into the primary level of coverage, TRS
estimates that the total plan cost for fiscal year 2003 would be $3.6
billion, with the state and districts funding $3.055 billion. TRS
estimates that the state/district contribution per employee/retiree would
be $4,290 for fiscal year 2003. These projections assume that 712,410
employees/retirees would be covered in 2003. This contribution would
increase to $5,676 by fiscal year 2006, based on projected increases in
health care costs ranging from six to eight percent for medical claims,
and 13 to 20 percent for prescription drug claims. Program participation
is projected to grow to 784,870 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 fiscal year 2002 is in addition to the $181,035,657
currently in the General Appropriations Act, as introduced, for TRS-Care,
the existing program for retirees. Part of the start-up costs could be
funded with the remaining balances from the $10 annual fee paid by active
employees during 1993-1996. For fiscal year 2003, the total projected
cost of $3.055 billion is partially offset by the $268 million currently
in the General Appropriations Act, as introduced, for TRS-Care since that
program would cease operation in fiscal year 2003 under the provisions
of this bill. Costs for fiscal years 2003-2006 are also partly offset by
the continuation of the 0.25 percent contribution from active members of
approximately $55 million annually.
If it is assumed that all school districts participate and contribute to
the school district employee insurance program required under this bill,
at a tax rate of 6.7 cents the School Employees Primary Health Coverage
Fund would receive an estimated $604 million beginning in fiscal year
2003. This revenue offsets the amount the state would otherwise
contribute.
For the tax rate established by the General Appropriations Act to be one
that would adequately fund the proposed insurance program for school
district employees, it would have to be based on projections involving
future group insurance program costs, district property values, and
district participation in the proposed program.
The bill would reduce a school district's tax rate by an amount equal to
the portion of the tax rate associated with the district's group
insurance expenditures in the final year of the preceding biennium for
the first school year the proposed group insurance program is in effect.
This would result in savings to Tier 2 state aid, but these savings will
depend on the extent to which school districts participate in the new
program. Based on an 18 percent total group insurance expenditure growth
assumption (three percent employee growth and 15 percent insurance cost
per employee growth), the state would experience an annual savings,
associated with Tier 2 state aid, beginning in fiscal year 2003 of $576
million if all school districts participate and contribute to the
proposed insurance program.
The bill would amend Section 43.001 of the Education Code to allow
Section 5, Article VII of the State Constitution to determine
distributions from the Permanent School Fund to the Available School
Fund and the School Employees Primary Health Coverage Fund. The
fiscal note for SJR 28 identifies the fiscal impact related to the new
distributions from the Permanent School Fund to the Available School
Fund and the School Employees Primary Health Coverage Fund.
Local Government Impact
Implementation of a health insurance program to be funded under the
provisions of this bill would have cost implications for local school
districts. School districts will be required to use existing resources or
levy additional taxes to fund the program. In 1999-2000, school
districts contributed more than $900 million to employee health insurance
benefits. To the extent that a district is already contributing to a
health insurance program, there may be little or no additional cost, or
even a savings. For the districts who are not paying as much for health
insurance the additional taxes levied will represent an additional
burden.
School districts, in some cases, may experience tax rate increases or
decreases as a result of their participation in the health insurance
program. Because the bill does not define the tax rate needed to
participate, no specific revenue projection for the local tax can be
made. Revenues would also vary by the degree to which districts choose
to participate.
Source Agencies: 701 Texas Education Agency, 454 Texas Department
of Insurance, 304 Comptroller of Public Accounts,
323 Teacher Retirement System
LBB Staff: JK, CT, SC