OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

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

sHB-6308

AN ACT ESTABLISHING THE CONNECTICUT HEALTHCARE PARTNERSHIP.

OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 12 $

FY 13 $

Comptroller

GF - Cost

$115,698

$115,698

Comptroller Misc. Accounts (Fringe Benefits)1

GF - Cost

$69,419

$69,419

Comptroller Misc. Accounts (Fringe Benefits: State Employee and Retiree Health)

GF & TF – See Below

See Below

See Below

Department of Revenue Services

GF – Revenue Loss

Potential

Potential

Note: GF=General Fund and TF = Transportation Fund

Municipal Impact: See Below

Explanation

The bill requires 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 employees and retirees of non-state public employers, municipal-related employers, small employers and nonprofit employers, contingent on the approval of the State Employee Bargaining Agent Coalition (SEBAC). Participation would be voluntary, with a two year minimum term. The plan would open enrollment to nonstate public employers beginning July 1, 2011, municipal related and nonprofit employers on January 1, 2012 and for small employers beginning July 1, 2012.

The following table provides information on the potential populations eligible to enroll in the plan:

 

Estimated Population2

Non-State Public Employers (1)

577,949

Municipal-Related Employers(2)

Unavailable

Small Employers(3)

690,000

Nonprofit Employers(3)

174,342

Source: The Dept. of Labor

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 proposes immediate acceptance of any employer group that applies in its entirety for coverage. Partial groups applying for coverage are to be reviewed by a health care actuary. If it is determined that the partial group would adversely affect the state pool, the group shall be denied coverage. In so doing, the bill seeks to address a potentially negative impact to the state employee pool by preventing an employer from shifting a significantly disproportionate share of its medical risk to the state employee plan.

As of July 1, 2010, the Plan converted from fully insured to self-insured 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 than 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

As previously discussed, 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 $185,117.

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. 3 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). 4

Impact on Nonstate Public Employers

There may be a cost or a savings to municipalities from joining the plan. Potential costs or savings would be related to: 1) premiums, 2) administrative and fluctuating reserve fees and 4) the Insurance Premiums Tax. 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

Employers would be required to pay the same base premium rates as the state. However, the bill permits the Comptroller to adjust rates for small employers, as defined by the bill, based on various group characteristics as defined by CGS section 38a-567. The bill maintains, 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. 5 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.

For illustrative purposes, 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.

In addition, the Municipal Employer Health Insurance Plan (MEHIP) currently provides health insurance for groups that are similar to those served by the bill. Annual premiums range from $3,300 to $10,956 for individual coverage and $23,232 to $45,564 for family coverage.

Fees and the Insurance Premium Tax

The bill allows the 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. There may be a savings to municipalities if the administrative fees under the plan are less than what they are currently paying as municipalities may be able to achieve administrative economies of scale from joining the state employee plan.

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.

Fully insured municipalities who currently offer health coverage through a private health insurer will save from not having to pay the Insurance Premiums Tax.

Lastly, municipalities are already permitted to join the state prescription drug plan, there are no additional bulk purchasing savings associated with the bill that cannot already be achieved.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation. Pension-related costs for the identified potential additional personnel at the Office of the State Comptroller, will be recognized in the state's annual required pension contribution as of FY 14. "

1 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.

2 (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 unavailable. .

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

4 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.

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