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.

AMENDMENT

LCO No.: 7576

File Copy No.: 483

House Calendar No.: 282

OFA Fiscal Note

State Impact: See Below

Municipal Impact: See Below

Explanation

The amendment strikes the underlying bill in its entirety and results in the fiscal impact explained herein.

Sections 1 through 8 of the amendment require the Comptroller, beginning January 1, 2012, to establish the “partnership plan”. The Comptroller is required to offer coverage under the partnership plan to 1) non-profit employers, their employees and retirees1 and 2) nonstate public employers, their employees and retirees2. The Comptroller may establish the partnership plan on a fully insured or risk-pooled basis, which may include pooling the partnership plan with the state employee and retiree health plan. The State Employee Bargaining Agent Coalition (SEBAC) , the Health Care Cost Containment Committee, and the Secretary of the Office of Policy and Management would need to approve pooling the partnership plan with the state employee plan and any changes made to the state employee and retiree health plan as a result of the amendment's provisions.

Participation would be voluntary, with a two year minimum term. The plan would open enrollment to nonstate public employers beginning July 1, 2012 and to nonprofit employers on January 1, 2013.

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

 

Estimated Population3

Non-State Public Employer Pool (1)

577, 949

Nonprofit Employer Pool(2)

174, 342

Source: The Dept. of Labor4

The partnership plan may result in a fiscal impact to the state and the state employee health 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

If the partnership plan is pooled with the state employee and retiree health plan there may be a cost to the state employee and retiree health plan. The current cost of the state employee and retiree health 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 amendment 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 provisions seek 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. If the partnership plan were established as a separate, fully-insured plan, there would be no impact on the existing pool.

As of July 1, 2010, the state employee health 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 state employee 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

The Comptroller may incur actuarial costs irrespective of whether the partnership plan is established on a fully-insured or risk-pooled basis. As previously discussed, the amendment requires the Comptroller to permit enrollment for those employers who choose to enroll their entire workforce in the partnership 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. In addition, the Comptroller must work with a healthcare actuary to:

1) establish actuarial standards to assess:

a) the shift in medical risk

b) administrative fees

c) fluctuating reserve fees, and

2) establish premiums or premium equivalents

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 participating employers 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 eligible employers chose to enroll their employees and retirees in the partnership plan. The annual salaries and fringe benefits associated with two additional positions is $185, 117. P.A. 11-6 (the biennial budget) included $185, 117 and two positions in FY 12 and FY 13 for this provision.

Loss of Revenue

Pursuant to CGS Sec. 12-202 nonstate 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 amendment 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 nonstate public employers from joining the partnership 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 employers whose current premiums and administrative costs are lower than the premiums of the partnership plan would choose to join.

Premiums

Employers would be required to pay monthly premiums to the Comptroller. The Comptroller will establish premiums with the assistance of an actuary. The amendment maintains, it would be up to the employer to determine cost sharing provisions with employees, pursuant to their current practice.

As a point of reference, the state employee and retiree health 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.

As previously stated, the premium related costs to municipalities under the partnership plan will be established by the Comptroller. For employers who choose to enroll in the partnership 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 partnership plan. 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 amendment 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 in consultation with the actuary. There may be a savings to nonstate public employers if the administrative fees under the plan are less than what they are currently paying. Employers may be able to achieve administrative economies of scale from joining the partnership 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.

Section 9 requires, as of July 1, 2011, all fully insured municipalities, school districts, and special taxing districts with fifty or more employees to report annually to the Comptroller information on their health insurance plans. The information is limited to the percentage increase or decrease in the policy or plan costs for the two preceding policy years. This is not anticipated to result in a fiscal impact to the state or municipalities.

Section 10 requires an insurer to provide the health plan information to insured municipalities, school districts, special taxing districts free of charge. Municipalities may provide this information to the Comptroller. This may result in a savings to municipalities who currently pay a fee for this information.

Section 11 convenes a working group and does not result in a fiscal impact

Section 12 does not result in a fiscal impact to the state in FY 12 and FY 13. Nonetheless, it will result in a potential cost to the Office of Health Care Access (OHCA, a division of the Department of Public Health) of approximately $100, 000 in subsequent years, as it requires outpatient surgical centers to submit patient data to OCHA, as it deems necessary, by 7/1/15. The bill specifies that the Department of Public Health (DPH) implement the provisions of this section within available appropriations. If the bill were to be implemented, however, costs of $100, 000 may be incurred related to the purchase of a server, software, and one database administrator (with fringe benefits) to oversee the collection, analysis, and electronic housing of patient data for approximately 200, 000 outpatient surgeries annually8. Currently, OCHA collects and processes data from acute care and children's hospitals. Patient records from outpatient surgical facilities are not collected and processed.

There is no cost to DPH to convene a working group by 2/1/12 to address obstacles to patient-identifiable data reporting in the outpatient setting.

Section 13 establishes the Office of Healthcare Reform and Innovation within the Office of the Lieutenant Governor. PA 11-6 provides funding of $250, 000 in both FY 12 and FY 13 for three positions to staff this new office.

Section 14 establishes the SustiNet Health Care Cabinet for the purpose of advising the Governor and the Office of Health Reform and Innovation. There is no fiscal impact associated with this provision.

Sections 15 through 19 require the Department of Insurance (DOI) to develop procedures by which an insurer develops and maintains provider networks. This provision is not anticipated to result in a fiscal impact.

However, should the establishment of such procedures be interpreted to require DOI to oversee and regulate the implementation of such procedures, a cost may result as this function is outside the current responsibilities of the department. The scope of this potential oversight is not known. For purposes of example, should DOI have to hire one additional principal examiner, the cost and fringe benefits would be approximately $125, 000 annually.

Sections 20 through 36 require third-party administrators (TPA) to be licensed by the Insurance Department, file audited financial statements, submit to examination by the department, and pay application and annual fees. These changes result in a General Fund revenue gain of $60, 000 in FY 12 and $66, 000 in FY 13 through the Department of Insurance's (DOI's) collection of fees related to the licensing of third-party administrators (TPAs) .

Under the amendment, the initial license fee for TPAs would be $500, the renewal fee would be $350, and there would be an annual report filing fee of $100. It is estimated that 100 TPAs would seek initial licenses and file annual reports in FY 12. In FY 13, it is estimated that 35 TPAs would seek initial licensing ($17, 500) , along with 100 renewals ($35, 000) , for a total of 135 TPAs licensed in the state and filing annual reports ($13, 500) .

There is no fiscal impact to DOI for the licensing of TPAs as this task will be undertaken by DOI's Consumer Services Division. Likewise, it is anticipated that there would be no fiscal impact to that division for the handling of complaints related to TPAs, nor to the Market Conduct Division.

The amendment's provisions will increase costs to municipalities who participate in the Municipal Employee Health Insurance Program (MEHIP) . The bill's provisions increase administrative requirements and associated costs, of the Third Party Administrator (TPA) who currently provides support for the MEHIP, which are outside of the current contract. All MEHIP operating costs are the responsibility of the participants, and are recovered through MEHIP premium rates. Participating municipalities will see a rate increase when a new contract is entered into after October 1, 2011. The magnitude of the rate increase would be contingent on the increased cost of the TPA contract.

Sections 37 through 53 make numerous changes which conform statute to federal requirements necessary for federal health care reform.

Sections 54 through 88 alter the utilization review, grievances and external appeals processes for health carriers. These changes will result in a revenue loss of $81, 500 annually to the Utilization Review Fund, a separate, non-lapsing account. This revenue loss is attributable to a reduction in licensing fees (27 licenses at $2, 500 annually) as the Insurance Department would no longer be responsible for the licensing of certain entities. This loss is partially offset by a fee increase to $3, 000 for certain remaining licensed entities.

The amendment will also result in a savings to the Utilization Review Fund of approximately $150, 000 annually related to payments for reviews by independent review entities (200 reviews annually at an average cost of $750) . Under the amendment, insurers would pay the cost of these reviews directly. However, these savings are partially offset by anticipated costs of $50, 000 for medical consultants necessary to assist the consumer affairs and market unit of the Department of Insurance.

Sections 89 and 90 repeal sections of the general statute to conform to the changes noted above.

The preceding Fiscal Impact statement is prepared for the benefit of the members of the General Assembly, solely for the purposes of information, summarization and explanation and does not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.

1 In order to be eligible, non-profit employers must have a purchase of service contract with a state agency or receives 50% or more of its gross annual revenue from grants or funding from the state, federal government, municipality or a combination thereof.

2 Nonstate public employers include a municipality, boards of education, quasi-public agencies or public libraries.

3 (1) Figures include dependents and retirees. (2) Figures do not include dependents or retirees, for which information is unavailable.

4

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

There are approximately 181, 000 hospital outpatient surgeries each year. It is unknown how many non-hospital surgeries occur annually. An additional 19, 000 are assumed.