OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

http: //www. cga. ct. gov/ofa

sHB-6305

AN ACT CONCERNING IMPLEMENTATION OF THE SUSTINET PLAN.

OFA Fiscal Note

State Impact: See Below

Municipal Impact: See Below

Explanation

This bill creates a SustiNet Plan Authority, effective from passage. The Authority is a quasi-public entity charged in part with overseeing and implementing the provisions of the bill, including establishing the SustiNet Plan. The plan combines, between 2011 and 2014, multiple state funded health programs with municipal, non-profit, small employer and individual health insurance programs. It also expands state funded coverage under the Medicaid Low Income Adults (LIA) program and creates a new Basic Health Plan (BHP).

SustiNet Plan Authority: Oversight and Scope

The bill gives the Authority various powers to exercise as needed. The Authority's new administrative costs are estimated to be under $4 million in the first year and under $6 million annually thereafter, as the Authority develops its infrastructure. 1 The bill does not specify how the Authority is funded. These costs are associated with operating expenses, which include employing personnel (including an executive director), reimbursing board members for expenses incurred in performing their duties, obtaining surety bonds for board members (up to $50,000 per person), procuring stop-loss insurance, and hiring consultants. The Authority is also required to offer coverage under SustiNet G, which is discussed further below.

Existing Health Programs

Section 6 specifies that on or after January 1, 2012, the health programs overseen by the Department of Social Services (DSS) and the Office of the State Comptroller shall be known as the SustiNet Plans. The range of existing programs, current number of covered lives and the FY 12 estimated costs of these programs are as follows:

Current Program

Lives Covered

SustiNet Level

FY 12 Estimated Cost

Medicaid

560,977

A, D

$3,376,000,000

HUSKY B

14,840

B

$39,000,000

Charter Oak

8,834

C

$15,500,000

State Employees and Dependents

132,786

E

$644,600,000

State Retirees and Dependents

69,371

E

$597,400,000

TOTALS

786,808

 

$4,672,500,000

Under this provision, DSS and the Comptroller retain certain administrative controls over their respective programs. The bill allows the Authority to make program recommendations including changes to benefit and administrative program design. Any changes resulting from the adoption of the Authority's recommendations may impact the costs of serving these populations. The bill does not create a joint pool for these populations. Given the current size and the diversity of the two populations, it is uncertain whether additional economies of scale would result in savings if the populations were to be considered combined for the purposes of retaining an Administrative Service Organization to manage the benefits. 2

SustiNet G

The bill requires the Authority to offer coverage, at the earliest feasible date on or after January 1, 2012, to a new group known as SustiNet G. SustiNet G would initially be open to employees and retirees: nonstate public employers, municipal-related employers, small employers and nonprofit employers, as defined by the bill. On or after January 1, 2014 SustiNet G would be opened to all individuals and employers in the state, including the uninsured. The bill does not require the state to provide the start-up capitalization funds required for SustiNet G and does not require any other funds from the state to support implementation. The bill specifies that SustiNet G is required to be funded by the premium payments charged to participants. 3 The following table provides information on the potential populations eligible to enroll in SustiNet G:

 

Estimated Population

Non-State Public Employers (1)

577,949

Municipal-Related Employers(2)

Unavailable

Small Employers(3)

690,000

Nonprofit Employers(3)

174,342

Other Employers

Unavailable

Uninsured Individuals

380,500

Source: The Dept. of Labor and the Office of Healthcare Access

(1) Figures include dependents and retirees. (2) Information on this population is unavailable at this time. The bill defines these as employees of food service, property management, and school transportation businesses that contract with non-state public employers. (3) Figures do not include dependents or retirees, for which information is unknown.

The Authority will set the rates, benefits structure, cost-sharing and any other related provisions pertaining to SustiNet G. The table below provides a comparison of current average annual premium rates within various public and private sectors.

   

Average Annual Premium Rates

 

Employer

Single Coverage

Employee Share

Family Coverage

Employee Share

National*

Small Firms

$5,169

15%

$13,735

32%

Large Firms

$5,104

19%

$14,161

25%

Regional*

         

Northeast

$5,252

19%

$14,117

24%

State+

State of Connecticut

$7,009

7%

$18,925

14%

 

CT Cities & Towns

$8,000

10%

$21,300

10%

Local**

CT Boards of Education

$8,000

13%

$21,300

13%

*National and Regional PPO plan data obtained from 2010 Employer Health Benefit Survey. + State POE health plan data obtained from Office of the State Comptroller. ** Local data obtained from CT Public Sector Healthcare Cost & Benefit Survey 2009.

For illustrative purposes, the Municipal Employer Health Insurance Plan (MEHIP) currently provides health insurance for groups that are similar to those served by SustiNet G. Annual premiums range from $3,300 to $10,956 for individual coverage and $23,232 to $45,564 for family coverage. Coverage for an uninsured individual not eligible for a public program or employer sponsored healthcare can range from $864 to $11,532 a year for individual coverage and $2,064 to $20,076 for individual plus one dependent coverage. The cost varies depending on the insurance provider and type of coverage purchased.

Nonstate Public Employers and the State Employee Health Plan

Sections 6 and 13 require the Comptroller on or after July 1, 2011, to offer coverage under the state employee and retiree health plan (hereafter referred to as “the Plan”) to non-state public employers' employees and their retirees, contingent on the approval of the State Employee Bargaining Agent Coalition (SEBAC). Participation would be voluntary, with a two year minimum term. For those who enroll during the initial enrollment, coverage would start January 1, 2012.

Permitting additional participants to join the Plan could result in costs to the state and the Plan as a result of the following factors: 1) the impact to the existing pool, 2) actuarial costs, 3) additional staff, and 4) loss of revenue.

Impact to the Existing Pool

The cost of the Plan is based on the demographics and claims experience of the existing pool. To the extent that additional lives affect the claims loss ratio, the cost of the state employee and retiree health plan would be directly impacted. The bill would allow the Comptroller to deny entry to the Plan for any partial group that was determined to adversely affect the risk of the current pool.

As of July 1, 2010, the Plan converted to a self-insured basis and now pays the total cost of claims on an incurred basis. Therefore, a monthly premium equivalent is estimated based on the anticipated annual claims. The Plan would incur a cost or savings to the extent that actual claims costs are more or less the premium equivalent being charged to employers.

The state spent approximately $1. 1 billion in FY 10 on state employee and retiree health costs. Based on the FY 12 estimated requirements a 1% change in claims cost would equal approximately $12. 4 million dollars; a 5% change in claims costs would equal approximately $62. 1 million dollars. The Plan currently covers 202,157 lives.

It should be noted that the state does not currently have stop loss insurance or a reserve. Any additional costs may be mitigated by the fluctuating reserve fee that the Comptroller has the option to charge employers as explained below.

Actuarial Costs

The bill requires the Comptroller to permit enrollment for those employers who choose to enroll their entire workforce in the state employee plan. In the event the employer chooses to enroll only a portion of its workforce the Comptroller is required to forward the application to a health care actuary. It is assumed that the cost of actuarial services would be passed through to the employers; however to the extent they are not fully charged to municipalities there may be a cost to the state. The Comptroller spent approximately $900,000 in FY 10 on actuarial services.

Additional Staff

The Comptroller may need two additional Retirement and Benefits Officers. The necessity of additional staff would depend on the degree to which non-state public employers chose to enroll their employees and retirees in the Plan. The annual salaries and fringe benefits associated with two additional positions is $185,1174.

Loss of Revenue

Pursuant to CGS Sec. 12-202 municipalities and other non-state public employers currently offering health coverage through private health insurers are required to pay an Insurance Premium Tax to the state of 1. 75% per contract or policy. 5 To the degree that this bill results in non-state public employers shifting their participation in fully-insured health plans to the state employee health plan, the state would experience a revenue loss from the Insurance Premiums Tax (policies written on behalf of the state and MEHIP are not subject to this tax). 6

Impact on Nonstate Public Employers

There may be a cost or a savings to municipalities from joining the plan. Municipalities may incur additional expenses if the cost of joining the Plan is greater than the cost the municipality currently pays for healthcare coverage. Potential costs or savings would be related to: 1) premiums, 2) administrative fees, and 3) fluctuating reserve fees. It is unlikely that any municipalities, whose current premiums and administrative costs are lower than the premiums of the Plan, would choose to join.

Premiums

It is estimated that approximately 578,000 employees, dependents and retirees would be eligible to join the Plan. Employers would be required to pay the same base premium rates as the state. However, it would be up to the employer to determine cost sharing provisions with employees, pursuant to their current practice.

Currently under the Plan, total annual premiums range from $5,320 to $9,928 for individual coverage and $14,364 to $26,807 for family coverage. Municipal employers in the state, on average, cover approximately 90% of the premium for individual coverage and 87% for family coverage. 7 Under the state employee plan this would equate an employer's cost of $4,788 to $8,935 for each employee enrolled in an individual plan, and $12,497 to $23,322 for each employee enrolled in a family plan. The bill does not require the Comptroller to offer all of the plan options to non-state public employers. The premium related costs to municipalities would depend on the plan selected, the percentage of premiums the employer pays on the employee's behalf and the number of individuals enrolled. For employers who choose to enroll in the Plan, there would be a cost to municipalities if the cost of premiums is more than what they are currently paying and a savings if the cost were less.

Fees

The bill allows to Comptroller to charge participating employers a per member per month administrative fee and a fluctuating reserve fee in addition to premiums. The amount of the administrative fee would be determined by the Comptroller. In addition, the Comptroller may charge a fluctuating reserves fee in an amount necessary to ensure adequate claims reserves. It is common practice to establish a reserve consisting of approximately two months' worth of anticipated claims costs. These reserve costs could range from approximately $85-$313 per member per month.

There may be savings to municipalities if the amount they are currently paying per employee for premiums or claims costs and for administrative costs is more than what they would pay under the plan. Fully insured municipalities who currently offer health coverage through a private health insurer will save from not having to pay the Insurance Premiums Tax. The current amount municipalities pay for administrative and other health care costs has not been determined.

Mandates

Section 11(c)(4) requires the SustiNet Plan be subject to the health insurance mandates in chapter 700c of the general statutes. The state employee health plan is self insured and therefore under federal law is exempt from current state health mandates, but may adopt them voluntarily. As of January 1, 2012 the bill includes the state employee and retiree health plan as part of the SustiNet Plan. Therefore to the extent that the state employee health plan adopted all mandates required by the bill there may be a cost to the state for mandates which are not currently covered. The cost would depend on the type of coverage mandated and utilization. 8

The state employee health plan is recognized as a “grandfathered” health plan under the Patient Protection and Affordable Care Act (PPACA). It is unclear what effect the adoption of certain health mandates will have on the grandfathered status of the state employee health plan under PPACA. 9 If the state were to lose its grandfathered status it may be subject to certain coverage requirements without cost-sharing and other patient protections as required by PPACA.

Implications for Collectively Bargained Benefits

Sections 16 & 17 of the bill specify the state employee and retiree health plan shall be administered by the Comptroller. However, the Authority is charged with establishing the rules for the plan, including cost-sharing requirements. No change to cost sharing requirements for state employees or retirees shall be effective without the approval of SEBAC.

The bill effectively replaces the State with the Authority in matters pertaining to state employee and retiree health benefits. In FY 11, state employee and retiree health costs comprise approximately 20% of personnel costs, or approximately $1. 1 billion dollars. The cost or savings to the state would depend on the cost sharing and other plan changes recommended by the Authority, and adopted by SEBAC.

In addition, the State Employee Retirement System (SERS) and all employee and retiree health plans are provided in accordance with the collective bargaining agreement negotiated between the State and SEBAC. CGS Sec. 5-278 (f) recognizes SEBAC to negotiate with the State on retirement and health benefits. In 1997 the State and SEBAC negotiated a long-term health and retirement benefit agreement, which is effective through 2017. This agreement was most recently modified in 2009. Therefore, any additional plan changes suggested by the Authority would not be effective until 2017 or until the contract is amended.

Lastly, as previously stated, the state employee health plan is recognized as a grandfathered health plan under PPACA. It is unclear what effect cost sharing changes will have on the grandfathered status of the plan under PPACA.

SustiNet Account

Section 12 establishes a non-lapsing SustiNet account. The account shall contain all SustiNet Plan premiums, received under sections 13 and 15 of the bill, and all public or private funds provided to the SustiNet Plan Authority. The bill allows the Comptroller to make expenditures from the account at the direction of the SustiNet Plan executive director.

Medicaid for Low Income Adults

Section 7 of the bill expands the Medicaid LIA coverage group, effective January 1, 2014. Currently, childless adults are covered under this group with incomes up to approximately 68% of the federal poverty level (FPL). This bill raises this income limit to 133% FPL, as required by PPACA. PPACA requires states to submit an amendment to the state Medicaid plan to implement this expansion. As the bill is codifying an existing federal mandate, there is no direct fiscal impact from this language. 10

Basic Health Plan

Section 7 of the bill also requires DSS to implement, on or after January 1, 2014, the Basic Health Plan option in accordance with PPACA. This requirement will result in a net additional annual state cost of between $222. 8 million and $478. 6 million, and will cover an estimated 85,250 new individuals. Details on the various parts involved in this estimate appear below.

This proposal would create a new state program, outside the federally mandated insurance exchanges, for adults with incomes between 133% FPL and 200% FPL. This section specifically moves parents within this income band who are current enrollees in the HUSKY A program to the new BHP. The section specifies that all benefits, cost sharing requirements and consumer safeguards in place for the Medicaid program shall apply to the BHP.

The fiscal impact to the state from these provisions would be twofold. First, the state will realize a savings under the HUSKY program as parents with incomes in excess of 133% FPL are disenrolled. It is estimated that there will be 16,000 parents in this category by 2014, with an annual cost per case of $6,000. 11 Therefore, the state would realize net annualized savings of $48 million (after 50% federal reimbursement).

The new BHP program is expected to serve 101,250 clients when fully annualized. 12 Although the costs of the clients transferred from HUSKY are anticipated to be consistent, it is not known what the cost profile of the new, non-HUSKY enrollees will be. As the BHP is required to have the same benefits and cost sharing as the Medicaid program, it may be assumed that the cost per case for this new program will be roughly equivalent to the current HUSKY program costs for adults, or approximately $6,000 by 2014. Therefore, the gross annualized program cost is anticipated to be $607. 5 million. Should the cost profile of the non-HUSKY BHP enrollees be similar to that of the LIA population ($9,000 annually) the gross annualized program cost would be $863. 3 million.

Under PPACA, the state will receive a federal subsidy for those residents enrolled in the BHP. This subsidy is equal to 95% of what the federal government would have spent on premium tax credits and cost sharing reductions that BHP enrolled individuals would have been eligible for had they purchased private insurance through the State Insurance Exchange. The tax credits and cost sharing reductions are based on the “Silver Plan” on the insurance exchange. At this time, the federal government has not stated what the essential benefit package will be, which will dictate both the cost of the Silver Plan and the value of the associated federal subsidy.

For the purposes of this analysis, the cost of the Silver Plan is estimated to be $4,500 annually. 13 Based on maximum client contributions included in PPACA, it is estimated that the federal subsidy available for the BHP will be $3,325 annually. 14 Compared to the $6,000 to $9,000 estimated cost for the BHP, there exists $2,675 to $5,675 annual cost per person that is not covered by the federal subsidy. Given the bill's requirement that the BHP have the same cost sharing as the state Medicaid program (which is currently $0), it is assumed that the state must pay the unsubsidized costs for all BHP enrollees. Based on the enrollment and cost assumptions above, the new BHP benefit for all clients would result in a net state cost of between $270. 8 million and $526. 6 million annually.

Basic Health Plan – HUSKY A Impact

 

Clients

State Cost per year

Impact

Remove clients from HUSKY A

-16,000

$3,000

-$48,000,000

Enroll HUSKY A Clients in BHP

16,000

$2,675

$42,800,000

Net Savings

   

-$5,200,000

Basic Health Plan - Non-HUSKY Impact

 

State Cost – HUSKY Level

State Cost – LIA Level

Plan Cost

$6,000

$9,000

Cost less Federal Subsidy

$2,675

$5,675

Clients

85,250

85,250

Net State Cost

$228,043,750

$483,793,750

Cost Less HUSKY A Savings

$222,843,750

$478,593,750

Basic Health Plan Account

Section 8 creates a non-lapsing basic health program account from which the costs to operate the BHP are to be paid by the SustiNet Plan Authority. It is assumed that the federal BHP subsidy would be deposited in this account. However, it is not clear what the source of funds for the state cost for the unsubsidized portion of the BHP benefit identified above. Presumably, a General Fund appropriation would have to be made.

SustiNet Policies to Slow Growth

Section 11 of the bill requires the SustiNet Plan to be administered to slow the growth of health care costs. Although not mandated, the bill encourages several health delivery and administrative methods intended to reduce costs. It is expected that by 2014, the SustiNet Plan will be administering between $5. 60 billion and $5. 85 billion in health care costs among the mandatory populations (including the LIA and BHP expansions). 15 Therefore, any 1% change in health care costs that result from the Plan's strategies would result in a change in expenditures of between $56 million and $58. 5 million. Given the potential for a much larger pool through the addition of the optional SustiNet G populations, these figures could increase.

Authority to Cover Uninsured

Section 11 of the bill also requires the Authority to develop and implement policies to retain coverage for otherwise uninsured individuals. The bill specifies that this provision is to be implemented within available appropriations.

According to the Office of Health Care Access, in 2009 there were approximately 380,500 uninsured individuals in Connecticut. However, implementation of the insurance Exchange, recent changes in LIA, including the expansion of LIA and the creation of the BHP elsewhere in this bill, are likely to significantly reduce this figure.

The methods, and associated costs, by which the Authority may seek to provide coverage for the uninsured are not known. However, should these methods result in additional clients enrolling in state subsidized health care, including Medicaid, HUSKY, Charter Oak, the Basic Health Plan and the State Employee Plan, additional state costs would result.

Convener Authority

Section 20 gives the Comptroller power to act as a convener authority for health care institutions, facilities and providers in the state.

The Out Years

The relevant out year impacts from this bill are included in the analysis above. Many of the proposals in the bill are closely tied to federal reform efforts, and are likely to be affected by regulations and changes that are still forthcoming from the federal government.

1 Estimates are based on the costs of the Massachusetts Health Connector's first three years of operations and adjusted for the Sustinet Authority's specific scope and requirements. Costs associated with staffing do not include fringe benefits.

2 Congressional Research Service - The Market Structure of the Health Insurance Industry, November, 2009.

3 The bill establishes the Authority as the Insurer for SustiNet G. As such, it bears the risk of losses if the established premiums fail to cover the cost of claims. Should any Authority reserves be unable to pay for such losses, it is unclear who would bear the final loss. As the Authority is established as a quasi-public agency, the state of Connecticut could be liable to bear any loss.

4 The fringe benefit costs for most state employees are budgeted centrally in accounts administered by the Comptroller. The estimated non-pension fringe benefit cost associated with personnel changes is 23. 76% of payroll in FY 12 and FY 13. In addition, there could be an impact to potential liability for the applicable state pension funds.

5 The state currently collects approximately $8 million a year from the premium tax on health insurance policies procured by municipalities.

6 Current law exempts new or renewed contracts or policies written to provide coverage to municipal employees under a plan procured pursuant to CGS 5-259(i) from the premiums tax. Therefore, MEHIP participants are currently exempt from the premiums tax. As a result, there would not be a loss to the premiums tax should MEHIP participating non-state public employers shift coverage to the state employee health plan.

7 CT Public Sector Healthcare Cost & Benefit Survey, 2009.

8 As of January 1, 2009 there were 45 health insurance mandates required by the state. The mandated benefits in effect as of January 1, 2009 accounted for approximately 22% of total premiums for group coverage. (Source: Connecticut Mandated Health Insurance Benefits Review, 2010).

9 According to the PPACA, compared to the plans' policies as of March 23, 2010, grandfathered plans who make any of the following changes within a certain margin may lose their grandfathered status: 1) Significantly cut or reduce benefits, 2) Raise co-insurance charges, 3) Significantly raise co-payment charges, 4) Significantly raise deductibles, 5) Significantly lower employer contributions, and 5) Add or tighten annual limits on what insurer pays. (www. healthcare. gov)

10 It is estimated that by 2014, there will be approximately 81,000 enrollees in the existing LIA coverage group, at a cost of $728 million annually. Based on this enrollment pattern, the expansion to 133% FPL would add an additional 32,000 clients, with annual costs of $288 million.

Under PPACA, the cost of the expansion of coverage to childless adults is fully covered by the federal government until January 1, 2017. Therefore, there is no cost to the state for this expansion until that date. After January 1, 2017, the federal government's share gradually declines from 100% to 90% by 2020. Therefore, the state's cost for this expansion grows from $8. 9 million in FY 17 to $32. 8 million in FY 20.

11 Although the current cost per case for the overall HUSKY A population is $3,333 (including carve outs), the population is two-thirds children. According to the Insurance Department, the cost of covering adults is approximately 2 and 1/2 times the cost of covering a child. Controlling for the HUSKY A child population, and assuming 5% annual inflation until 2014, results in an estimated per person cost for HUSKY A adults of $6,000.

12 This assumes 16,000 former HUSKY A parents and 82,500 non-HUSKY adults. According to Connecticut Department of Revenue Services data, there were 225,000 tax filers with incomes between $14,000 and $22,000 in 2009. The U. S. Census Bureau estimates that 29% of individuals with incomes under $25,000 are uninsured. This would yield approximately 65,250 individuals. It is further assumed that about 7% of those in this income bracket who currently have insurance would drop that to enroll in the BHP, for a total of 82,500 non-HUSKY BHP enrollees.

13 Although the cost of the Silver Plan has not been established, the Congressional Research Service and Congressional Budget Office have used $4,500 as a general estimate. The final average cost of the Silver plan will be dependent upon the benefit plan as well as the age of the individuals enrolled.

14 PPACA includes maximum client premium and cost sharing for Exchange products, which vary by income limit. Based on these requirements, this analysis assumes that a client's share of the premium would average $1,000 (derived from Kaiser Family Foundation estimates). The federal subsidy available for the BHP would be 95% of the federal share of the cost of the Silver Plan. Therefore, the federal subsidy would be $3,325, which equates to ($4,500 - $1,000)*95%. It should be noted that PPACA indexes the federal subsidy to the Consumer Price Index (CPI). If the average cost of the Silver plan increases at a higher rate than the CPI, the real value of the subsidy will decrease over time.

15 Includes current DSS and state employees ($4. 7 billion), LIA expansion ($288 million) and the BHP ($607. 5 million to 863. 8 million)