LEGISLATIVE BUDGET BOARD
Austin, Texas
 
FISCAL NOTE, 79TH LEGISLATIVE REGULAR SESSION
 
May 2, 2005

TO:
Honorable Craig Eiland, Chair, House Committee on Pensions & Investments
 
FROM:
John S. O'Brien, Deputy Director, Legislative Budget Board
 
IN RE:
HB1795 by Crownover (Relating to the creation of health savings accounts for certain individuals eligible to participate in the insurance coverage provided under the Texas Employees Group Benefits Act and their dependents.), Committee Report 1st House, Substituted



Estimated Two-year Net Impact to General Revenue Related Funds for HB1795, Committee Report 1st House, Substituted: a negative impact of ($2,450,000) through the biennium ending August 31, 2007.

The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.



Fiscal Year Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2006 $0
2007 ($2,450,000)
2008 ($2,975,000)
2009 ($3,010,000)
2010 ($2,520,000)




Fiscal Year Probable Savings/(Cost) from
GENERAL REVENUE FUND
1 		Probable Savings/(Cost) from
GR DEDICATED ACCOUNTS
994 		Probable Savings/(Cost) from
OTHER FUNDS
997
2006 $0 $0 $0
2007 ($2,450,000) ($175,000) ($875,000)
2008 ($2,975,000) ($212,500) ($1,062,500)
2009 ($3,010,000) ($215,000) ($1,075,000)
2010 ($2,520,000) ($180,000) ($900,000)

Fiscal Analysis

The bill would require the Employees Retirement System (ERS) to offer an optional Health Savings Account (HSA) along with a high deductible health plan (HDHP) as part of the health insurance offered under the Group Benefits Plan for state and higher education employees. The HDHP would have a higher deductible than the basic coverage plan, and would cost ERS less to offer. The bill would require ERS to deposit between 50 percent and 100 percent of the difference in costs between

the HDHP and the basic plan into an individual HSA account for each member who chose the HSA/HDHP option. ERS would be required to develop the plan in as cost neutral a way as possible and to offer it beginning in fiscal year 2007.


Methodology

Having a choice of an HSA/HDHP is expected to create adverse selection, by attracting a relatively small portion of ERS membership which is healthier than average and therefore less costly to insure. For many, the contribution to the HSA on their behalf would be greater than the amount of claims they would have incurred had they remained in the current plan. The combination of the cost of providing coverage under the HDHP together with the HSA contribution for this population would be greater than the cost of providing coverage under the current plan. The ERS actuary assumed that 50 percent of the cost difference between the HDHP and basic coverage would be placed into the HSA because of the cost neutral provision. While this would mitigate the effects of adverse selection, the ERS actuary has estimated there would still be an increase in overall health plan costs of $3.3 million in FY 2007, $3.8 million in FY 2008, $3.6 million in FY 2009, and $2.7 million in FY 2010. The decrease is not due to declining participation, but due to assumed decreases in utilization over time.

The state would also face a liability for Social Security for both unauthorized distributions from individual HSA accounts for active employees and for the amounts retained in HSA accounts for departing employees. This cost is estimated to range from $200,000 in 2007 to $900,000 in 2010.

ERS would have increased administrative costs since in addition to contracts for the current plan vendors, contracts would need to be established for the HSA and HDHP vendors. Any additional administrative costs are not reflected in this fiscal note.


Local Government Impact

No fiscal implication to units of local government is anticipated.


Source Agencies:
327 Employees Retirement System
LBB Staff:
JOB, SR, WP, WM