COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. No.:         1261-22

Bill No.:          Truly Agreed To and Finally Passed SS No. 2 for SCS for HCS for HB 818

Subject:           Insurance - Medical; Insurance Dept.; Employees - Employers; Revenue Dept.; Taxation and Revenue - General; Hospitals; Health Care Professionals

Type:              Original

Date:               May 25, 2007

Bill Summary:            Establishes the MO Health Insurance Portability and Accountability Act and changes the laws regarding the MO Health Insurance Pool and small employer insurance availability.

FISCAL SUMMARY

* Excludes potential unknown administrative fee revenue to the Department of Health and Senior Services.

Numbers within parentheses: ( ) indicate costs or losses.

This fiscal note contains 17 pages.

☐ Estimated Total Net Effect on All funds expected to exceed $100,000 savings or (cost).

☒ Estimated Net Effect on General Revenue Fund expected to exceed $100,000 (cost).

FISCAL ANALYSIS

ASSUMPTION

Officials from the Office of Administration (COA) - Administrative Hearing Commission, Office of State Courts Administrator, Missouri Department of Transportation,

Officials from the Department of Public Safety (DPS) - Director's Office defer to the Missouri Consolidated Health Care Plan for response regarding the potential fiscal impact of this proposal on their organization.

Officials from the DPS - Missouri State Highway Patrol defer to the Missouri Department of Transportation for response regarding the fiscal impact of this proposal on their organization.

Officials from the COA - Division of Budget and Planning (BAP) state the proposal will decrease total state revenues through tax deductions for health insurance premiums and payments under healthcare sharing ministries. The proposal also creates registration fees for discount medical plan providers. These fees would increase total state revenues. The Department of Insurance, Financial and Professional Regulation should provide the estimate of possible revenue impacts to the state as a result of this proposal. The proposal will have no impact on the COA or BAP.

Officials from the Missouri Department of Conservation (MDC) assume since the MDC does not participate in the Missouri Consolidated Health Care Plan and the Conservation Commission has not elected to participate in the Missouri Consolidated Health Care Plan per RSMo 103.079, the proposed legislation would not appear to have a fiscal impact on MDC employees, retirees, or MDC funds.

Officials from the Department of Social Services (DOS) state the proposal contains a provision (Section 143.790) which allows debts owed to healthcare providers to be converted to state debt, which is owed to the Department of Health and Senior Services (DOH). The Department of Revenue can intercept state income tax refunds and lottery winnings to pay the debt to DOH, who, in turn, funnels the money back to the hospitals or healthcare provider who is owed the money. Since DOH is the middleman, it does not directly affect the DOS. Child support debts supersede DOH debt. Also, it does not apply to Medicaid payments. Individuals who have insurance or who are eligible to receive benefits under the state's medical assistance program are specifically excluded. For these reasons, there is no fiscal impact to DOS. The Division of Medical Services reviewed this provision in an earlier version of this proposal and concurs that it is unlikely there would ever be savings to the uncompensated care fund.

ASSUMPTION (continued)

Officials from the DPS - Missouri Lottery Commission assume, if the requesting agency (Department of Health and Senior Services) provides the Missouri Lottery with automated, easily accessible information, costs to perform debt offsets to the Lottery would be minimal and therefore, absorbable with current resources.

Officials from the Office of Secretary of State (SOS) state the proposal requires the Department of Insurance, Financial and Professional Regulation and Department of Revenue to promulgate rules. These rules would be published in both the Missouri Register and Code of State Regulations. Based on experience with other divisions, the rules, regulations and forms issued by the various agencies could require as many as 50 pages in the Code of State Regulations and 75 pages in the Missouri Register because of cost statements and fiscal notes, etc. that are not repeated in the Code. The estimated cost of a page in the Missouri Register is $23. The estimated cost of a page in the Code of State Regulations is $27. The SOS estimates a total cost of $3,075 [(72 pgs. X $23) + (48 pgs. X $27)]. These costs are estimates and depend on the number of rules printed, rescinded, and amended.

Oversight assumes the SOS could absorb the costs of printing and distributing regulations related to this proposal. If multiple bills pass which require the printing and distribution of regulations at substantial costs, the SOS could request funding through the appropriation process. Any decisions to raise fees to defray costs would likely be made in subsequent fiscal years.

Officials from the Missouri Consolidated Health Care Plan (HCP) state last February, HCP, with the assistance of PwC who conducted the actuarial work, studied the central region impact associated with a High Deductible Health Plan (HDHP) and Health Savings Account (HSA) using the following plan design:

10% co-insurance after $1500 individual deductible

Plan pays first $1000 of deductible

$2500 out of pocket maximum

The HCP had 42,686 members with allowed claims of less than $1,000. This group’s average allowed claim cost was $356. Even if the HDHP premium saved the entire $33 employee contribution, which is unlikely, the state would have to pay an additional $611per member per year for each member of this group enrolled in the HDHP, or roughly $1 million for every 1,637 enrollees. Under an HSA (health savings account), this portion must be funded by the employer and the employee may take any balance upon leaving employment.

An individual member cannot save enough in their premium ($33) to offset their portion of the deductible ($500), plus the 10% coinsurance charges. Thus enrollment could be very limited. Utah implemented a similar plan and five (5) employees selected the option. Kansas had an enrollment of 120.

ASSUMPTION (continued)

Another important factor is state employee salaries. Over 80% of state employees make less than $40,000 per year. With no employee premium decrease, coupled with a medical and prescription deductible of $500 and 10% co-insurance for additional claim amounts, this plan design may be a burden for many employees. In the study, over 40% of HCP membership incurred costs that would exceed the full $1,500 deductible.

The language of the proposal does not apply to employees of the Highway Patrol, Transportation, or Conservation since they are covered by health plans separate from the HCP.

Oversight obtained additional information from the HCP relating to the set up and cost of a high deductible health plan with health savings account. Based on that information, it is assumed the proposal would cost more than $100,000 to set up and implement, regardless of the number of people that signed up for the plan. The HCP also anticipates that it would cost more than $100,000 to educate state employees on the HDHP.

The HCP only estimated costs for "state employees". Public entity costs are unknown as it depends on each public entity employer health benefit plan. How much the employer pays into its plan each month would determine the cost of a high deductible health plan.

Therefore, Oversight assumes the cost of this proposal to be unknown exceeding $200,000, split between General Revenue, Other State Funds, and Federal funds for FY 08 and unknown exceeding $100,000 for FY 09 and FY 10. Oversight notes the new health plan option would be effective January 1, 2009.

Officials from the Department of Revenue (DOR) provide the following assumptions related to this proposal:

Section 143.118:

Personal Tax - This deduction will require Taxation to add a line to the return. Personal Tax will require 2 Temporary Tax Employee for key-entry, 1 Tax Processing Tech I for every 19,000 returns to be verified by Quality Review, and 1 Tax Processing Tech I for every 2,400 pieces of

correspondence. They will also require 2 Temporary Tax Employees for key-entry of 1040P and PTC forms, and 1 Tax Processing Tech I for every additional 5,000 verified returns plus correspondence on the 1040P/PTC forms.

Customer Services - will require 1 Tax Collection Technician I for every 15,000 calls a year on the income tax hot line due to lack of documentation; 1 Tax Collection Technician I for every 24,000 calls a year to the delinquency/collections lined on billings and denied deductions due to

ASSUMPTION (continued)

lack of documentation; and 1 Tax Processing Technician I for every additional 4,800 contacts in the field offices. The DOR anticipates most customers will contact the department via phone and, therefore, will only request 1 FTE for each of the larger field offices, including Kansas City, St. Louis, and Springfield.

Section 143.119:

The self-employed taxpayer is allowed a refundable tax credit claimed on MO-TC supported by a schedule to calculate the credit, equal to portion of federal tax liability incurred as a result of payment of health insurance that were not subtracted from FAGI (Federal Adjusted Gross Income). This is a new refundable tax credit authorized by the DOR. Personal Tax would require 1 Tax Processing Technician I for every 4,000 credits claimed.

Section 143.121:

Personal Tax - This deduction will require Taxation to add a line to the Form MO-A. PT will require 2 Temporary Tax Employee for key-entry, 1 Tax Processing Tech I for every 19,000 returns to be verified by Quality Review, and 1 Tax Processing Tech I for every 2,400 pieces of correspondence. They will also require 2 Temporary Tax Employees for key-entry of 1040P & PTC forms, and 1 Tax Processing Tech I for every additional 5,000 verified returns plus correspondence on the 1040P/PTC forms.

Customer Services - will require 1 Tax Collection Technician I for every 15,000 calls a year on the income tax hot line due to lack of documentation; 1 Tax Collection Technician I for every 24,000 calls a year to the delinquency/collections lined on billings and denied deductions due to lack of documentation; and 1 Tax Processing Technician I for every additional 4,800 contacts in the field offices. The DOR anticipates most customers will contact the department via phone and, therefore, will only request 1 FTE for each of the larger field offices, including Kansas City, St. Louis, and Springfield.

Due to the Statewide Information Technology Consolidation, the department's response to a proposal will now also reflect the cost estimates prepared by OA-IT for impact to the various

systems. As a result, the impact shown may not be the same as previous fiscal notes submitted. In addition, if the legislation is Truly Agreed to and Finally Passed the OA-IT costs shown will be requested through appropriations by OA-IT.

Office of Administration Information Technology (ITSD DOR) estimates the IT portion of this request can be accomplished within existing resources, however; if priorities shift, additional FTE/overtime would be needed to implement. Office of Administration Information Technology (ITSD DOR) estimates that this legislation could be implemented utilizing 6 existing CIT III for 2 months and an additional 1 CIT III for 1 month at a rate of $54,418.

ASSUMPTION (continued)

Officials from the Department of Insurance, Financial and Professional Regulation (DIFP) state the department estimates at least 25 discount medical plans will register with the DIFP (based upon other states currently regulating discount medical plans) and pay the $250 registration/renewal fee annually. It is estimated that $6,250 (25 plans X $250) will be deposited annually into the Insurance Dedicated Fund.

Discount medical plans are required to file forms with the DIFP. Each form shall be accompanied by a $25 fee. The DIFP estimates that it will receive approximately $5,000 from form filings in the first year and $1,000 in subsequent years, deposited into the Insurance Dedicated Fund.

Implementation of the registration and form review, examination, investigation and enforcement provisions of this proposal can be handled with existing staff and resources. The department will require minimal contract computer programming to add discount medical plans to department databases and can do so under existing appropriations.

The DIFP estimates the proposal will result in additional FY 08 costs of $4,469,561 (legislation effective January 1, 2008); FY 09 additional costs of $22,408,682; and FY 10 additional costs of $25,186,156. These costs will be assessed to members of the pool, who then could take a credit against premium tax for the assessed amount (per section 376.975). This credit is taken from the General Revenue (GR) portion of premium tax only. The impact to GR is unknown as the credit would be limited to members' premium tax liability each year. Any excess credit not used can be carried forward against premium tax due in succeeding years until the excess is exhausted.

Officials from the Department of Health and Senior Services (DOH) provide the following assumptions:

Program Administration Costs:

The DOH Missouri Information for Community Assessment (MICA) system indicates there were an average of 32,261 hospital discharges coded as self-pay/no charge during the 5 calendar years from 2001 through 2005. For fiscal note purposes half of these, 16,131 (32,261/2) are assumed to be self-pay. The DOH further assume that half of these, 8,066, (16,131/2) were not paid within 90 days. Assuming one (1) hour is needed for processing each of the 8,066 claims, 3.88 FTE, (rounded to 4 FTE) would be required to process unpaid hospital admission claims (8,066 claims X 1hr. processing/2,080 hrs./yr. = 3.88 FTE).

The DOH MICA system also indicates there were an average of 273,840 emergency room visits coded as self-pay/no charge during the 5 calendar years from 2001 through 2005. For fiscal note purposes half of these, 136,920 (273,840/2) are assumed to be self-pay. The DOH further

ASSUMPTION (continued)

assumes that half of these, 68,460 (136,920/2) were not paid within 90 days. Assuming one (1) hour is needed for processing of each of the 68,460 claims, 32.91 FTE (rounded to 33 FTE) would be required for processing unpaid emergency room visit claims (68,460 claims X 1 hr. processing/2,080 hrs./yr. = 32.91 FTE).

The DOH is unable to determine the potential number of claims that might result from other types of healthcare providers. Therefore, at least the following 39 staff would be needed for the processing of unpaid hospital admission and emergency room claims: Health and Senior Services Manager – Broad Band 2 Manger (1 FTE) to oversee operations of the claims processing/offset activities. This person would also coordinate activities with hospitals/health care providers and the Department of Revenue (DOR).

Health Program Representative II (37 FTE) to process claims as they come in. They would review each claim to determine if it is "meritorious", input tracking information and prepare documents necessary for transmission to the DOR. For claims sent to the DOR for which refund offset funds are received, staff will track and record the payment of monies to hospital/health care providers.

Accounting Analyst III (1 FTE) to perform analysis and tracking of claims as well as SAM II related receipt and payment activities.

Standard costs are included for each of the above staff.

ITSD Costs

Significant Information Technology Support Division (ITSD) support will be needed to develop the online application for submission of claims from Health Care Providers. The application will also need to electronically interact with the Missouri Department of Revenue and the Missouri Lottery.

It is assumed that the application will reside on servers at DOH ITSD. Due to the large amount of data that will be collected and stored, a Storage Area Network (SAN) will need to be leased ($120,000 annually). The hardware costs included in this response assume the leasing of all hardware ($38,000 - first year; $11,000 annually subsequent years). The DOH assumes first year consultant costs of $430,560 to develop applications to collect and store data and develop electronic data exchanges between state agencies will be needed. Second year consultant costs are estimated to be $287,040. In addition, the DOH anticipates that 1.0 FTE Computer Information Technology Specialist II ($52,356 annually) will be needed to provide project management, development support and maintenance of application; and 2.0 FTE Computer Information Technologists ($44,472 each annually to provide development support, on-going

ASSUMPTION (continued)

maintenance of application and hardware server support installation and maintenance. Salaries for the above personnel are provided only for estimating purposes and do not include fringe, indirect, network fees, office supplies, or any other expenses. These costs have been added to the fiscal note at the same rates as other FTEs.

Increased General Revenue:

Section 143.790.5 would allow the DOH to charge each hospital or health care provider up to twenty percent (20%) of any amounts collected through the income tax/lottery winnings off-set process to cover administration expenses. It is not possible to determine how much would be collected through the off-set process and therefore, the 20% figure cannot be computed.

Given the uncertainty of the actual number of claims that will be submitted for processing and the uncertainty of the amount of funds that will be collected from hospitals to help cover administration expenses, a range of Unknown to exceeding $2.8 million is provided for year one if this proposal passes.

Oversight notes the DOH included information technology (IT) related costs in its fiscal note assumptions. For fiscal note purposes, Oversight separated the IT costs from DOH costs as IT costs would be budgeted to the Office of Administration - Information Technology Services Division (COA-ITSD).

Section 191.912

This section requires the DOH to establish a clearinghouse of information concerning supportive services providers, information hotlines specific to Down Syndrome or other prenatally diagnosed conditions, resource centers, education, other support programs for parents and families, and other alternatives to abortion services program. The DOH believes this function can be implemented with existing resources. If a fiscal impact were to result, funds to support the program would be sought through the appropriations process.

This proposal will impact total state revenue.