This Fiscal Note is not an official copy and should not be quoted or cited.
Fiscal Note - SB 0243 - Establishes the "Missouri Universal Health Assurance Program"
SB 243 - Fiscal Note

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO. 0718-01

BILL NO. SB 243

SUBJECT: Medical Insurance

TYPE: Original

DATE: February 2, 1999

FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS

FUND AFFECTED FY 2000 FY 2001 FY 2002
General Revenue $0 ($191,140,442 to Unknown) ($472,843,569 to Unknown)
Conservation $0 ($1,785,000) ($3,748,500)
Highway $0 ($4,083,044) ($8,093,686)
County Insurance $0 ($11,000,000) ($22,000,000)
Health Professional

Education & Training

 $0 $0 $0
Missouri Health Care Trust $0 (Unknown) (Unknown)
Total Estimated

Net Effect on All

State Funds*

 $0 ($208,008,486 to Unknown) ($506,685,755 to Unknown)

*Does not include possible income and/or costs for Medicaid reimbursements.

ESTIMATED NET EFFECT ON FEDERAL FUNDS

FUND AFFECTED FY 2000 FY 2001 FY 2002
Medicaid $0 Unknown Unknown
Total Estimated

Net Effect on All

Federal Funds

 $0 Unknown Unknown

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 14 pages.

FISCAL SUMMARY (continued)

ESTIMATED NET EFFECT ON LOCAL FUNDS

FUND AFFECTED FY 2000 FY 2001 FY 2002
Local Government (Unknown) (Unknown) (Unknown)





FISCAL ANALYSIS

ASSUMPTION

This proposal would become effective if approved by the voters in the general election to be held on the Tuesday following the first Monday in November, 2000. Sections 1 through 16 of this proposal would become effective April first of the year following notice to the revisor of statutes that a waiver had been obtained from the Secretary of the Department of Health and Human Services. The health premium surcharge and the income tax surcharge would apply to all tax years beginning on or after January first of the year following receipt of notice that appropriate waivers had been obtained. The small employer tax credits would apply to five consecutive tax years beginning on or after January first of the first year following notice by the revisor of statutes that appropriate waivers had been obtained.

The Office of State Courts Administrator, Department of Corrections, Department of Health, Department of Economic Development, Harris-Stowe State College, and the Department of Public Safety, Division of Fire Safety and Missouri State Water Patrol assume this proposal would not fiscally impact their agencies.

The Department of Public Safety and the Office of the Lieutenant Governor assume this proposal would result in an unknown fiscal impact to their agencies.

The Coordinating Board for Higher Education (CBH) assume this proposal would affect the way fringe benefits are calculated for state employees. Since fringes are calculated by the Office of Administration, CBH assumes this proposal would have a minimal impact on their agency.

The State Auditor's Office (SAU) did not respond to our fiscal impact request. In a response to a similar proposal from last session, SAU assumed the Board of Governors would contract with an auditing firm for any audits of the program. The SAU further assumed that their office would be involved, at a minimum, in reviewing the audit firm's working papers. Oversight assumes

ASSUMPTION (continued)

the SAU could perform this work with existing resources.

The Department of Insurance (INS) estimates that over $44 million in total accident and health insurance premium tax was collected in 1997. The premium tax revenue is split evenly between general revenue and the County Foreign Insurance Fund. This proposal would eliminate this revenue. In addition, INS states they are an agency of the state and would be required to pay the health premium surcharge of 12% beginning January 1st, 2001, if approved by voters in November, 2000. INS estimates personal service appropriations to be $4,855,440 in FY2001. The estimated surcharge amount would be $582,652 annually. Currently INS costs for insurance through the Missouri Consolidated Health Care Plan is approximately 5.6% of gross wages. This would result in costs of $271,904 in FY01. Therefore, this proposal would result in annual additional costs to the Insurance Dedicated Fund of $310,748.

The Department of Conservation (MDC) states the proposal would have a significant impact on MDC funds. MDC estimates that 12% of payroll would equate to an increase of $3,400,000 to MDC's current insurance plan.

The Department of Mental Health (DMH) assumes that Title XVIII and Title XIX money will now be deposited into the Missouri Health Care Trust Fund rather than general revenue or the general revenue reimbursement fund (GRRF). For fiscal note purposes, DMH assumes that all money they currently deposit into the GRRF will be deposited into general revenue beginning FY2000. In FY98, DMH recovered $216,375,051. DMH assumes all of this money would now be deposited into the trust fund. DMH states that this proposal does not represent a loss of funds to the state. Instead, these funds would be used to provide medical services to persons through the Missouri Health Care Trust Fund. If the program chooses DMH as a provider of services, the fiscal impact to DMH would depend on the payments made to them under the new plan in relation to current general revenue funding. If the program chooses not to utilize DMH as a provider, there could be a loss of funding to the department. DMH assumes that COA will include the employer surcharge in their fiscal note impact for all state employees.

Southwest Missouri State University (SMSU) officials estimate they would expect to incur a cost of $9,906,918 for the health care surcharge described in this proposal. SMSU currently pays $3,371,099 to cover its employees' health care insurance. Therefore, SMSU assumes this proposal would result in additional annual costs of approximately $6,535,819.

The Department of Transportation (DHT) assumes this proposal, if approved, would become effective January 1, 2000. DHT employees are paid from general revenue, federal, and Highway and Road funds. Assuming a 12% surcharge to these various funds, the net fiscal impact of this legislation would be $10,988 to general revenue, $5,558 to federal, and $4,085,531 to Highway

ASSUMPTION (continued)

and Road funds in FY01. The fiscal impact indicated is based on the assumption that the Highway and Patrol's medical plan would no longer be needed, resulting in savings equal to the appropriation request in FY01. (The appropriation request was increased 4% each year for inflation for fiscal note purposes.) Oversight has presented fiscal impact for the Highway and Transportation Fund only as the impact on the General Revenue, Federal, and Road funds were minimal.

The Department of Labor (DOL) assumes that salaries which would be paid in FY 99 would be $52,469,646 resulting in an employer surcharge of $6,296,358 to DOL. The FY 99 employee benefit rate of $150 per month for each full-time employee would total $3,223,800 for the DOL. This results in a net increase in costs totaling $3,072,558. Oversight assumes the Office of Administration will calculate the increased benefit costs for all state employees.

Central Missouri State University officials assume this proposal would result in increased costs of $3,800,000

The Department of Elementary and Secondary Education (DES) assume that salaries which would be paid in FY00 would be $68,617,783, resulting in an employer surcharge of $8,234,134. DES states the rate of reduction of the workers' compensation insurance is not stated; therefore, the net fiscal impact cannot be estimated. However, DES estimates that costs will exceed $100,000. Oversight assumes the Office of Administration will calculate the increased benefit costs for all state employees.

The Office of Secretary of State (SOS) states that the statewide public notice of the ballot issue will be published in selected newspapers throughout the state. Based on the actual publication costs of the November, 1998 election, SOS estimates the publication costs for this thirty page proposal to be approximately $678,300. These costs would be paid from general revenue. SOS also notes that if the governor calls a special election, the fiscal impact could exceed $1,000,000, depending on the date of the special election.

Missouri Western State College officials estimate that the surcharge would result in costs of $1,742,186, $2,153,332, and $2,217,942 in FY00, FY01, and FY02, respectively.

Truman State University officials report that the 12% surcharge would result in costs of $3,592,955 annually. The cost of its current plan is $1,706,155 for an increased cost of $1,886,800.

The Department of Social Services, Division of Medical Services (DMS) assumes that the population (Medicaid) would be the same whether they were served by the new entity or

ASSUMPTION (continued)

contracted to DMS to administer. DMS assumes that institutional care would remain constant regardless of the administering agency. To the contrary, independent providers shall be reimbursed on a fee-for-service schedule that is anticipated to represent usual and customary charges (UCR). As current Medicaid reimbursement for non-institutional providers, in many cases, represent less than UCR, costs are expected to increase. If the negotiated reimbursement were to reflect 100 % of UCR, DMS anticipates that additional costs of $344,000,000 would be realized. (This represents a dental program fee increase of $39,000,000, a physician program fee increase of $299,000,000, and an ambulance fee increase of $6,000,000.)

The loss of the advantage of competitively bidding managed care contracts would result in additional costs of over $19,000,000 or five percent of current Missouri Care Plus (MC+) payments. DMS cannot arrive at an actual dollar increase to Medicaid; however, they estimate an increase exceeding $100,000 annually. No impact for FY 01 is anticipated due to the time frames involved in waiver applications and implementations. No cost to DSS is associated with the DSS director serving on the Board of Governors, as all expenses would be paid from the Health Care Trust Fund.

Oversight notes that based on DOS FY 99 budget for the provision of medical services through the Medicaid program ($2,595,809,000), a base figure of $1,038,323,600 would be used to estimate federal matching funds which would be deposited in the General Revenue Fund annually for appropriation to the plan after the required waiver would be obtained. For fiscal note purposes, Oversight has represented unknown costs associated with personal services and expense and equipment for DMS as being saved by the state because the state's Medicaid program as it now exists would no longer be in place. Depending on the provisions of the waivers, if obtained, some of the functions of the DMS could be required to be performed by the Missouri Universal Health Assurance Program.

Missouri Consolidated Health Care Plan (HCP) officials state the proposal would require employers with more than 499 employees to pay 12% of payroll into the insurance fund. The state's contribution for employee health care would fall into this category. HCP estimates that the first year cost of this program would be $68,059,311 more than the cost of the current medical plan options. HCP assumes a six percent inflation factor in future fiscal years. HCP also estimates the first year cost of this program for public entities would be $79,556,020 more than the cost of the current medical plan options.



The Office of Administration (COA) has projected the income which would result from the imposition of a surcharge on each individual's adjusted gross income using an Individual Tax Simulator. The estimate of the tax base for the health insurance premium surcharge was based

ASSUMPTION (continued)

on wage and salary data provided by the U.S. Department of Commerce, Bureau of Economic Analysis (Annualized 1994 second quarter).

COA estimates the premium tax on employers would generate revenues of $5,685,000,000 for the Health Care Trust Fund. In addition, COA estimates the surcharge tax on individuals would generate $690,000,000 in revenues for the Health Care Trust Fund.

COA states that the gross wages paid to all state employees in FY99 equaled $1,767,502,198. The 12.0% surcharge on that amount would accrue to various funds and would have been $212,100,263 in FY99. This figure includes wages paid to employees of all state agencies and would accrue to various state funds. Oversight, will present the 12% surcharge for Department of Conservation and Department of Transportation employees separately from the rest of the state government employees. Oversight will also inflate the FY 95 amount by 2.5% annually for FY01 and FY 02 amounts of fringe benefit calculation.

COA notes that the employer premium tax on wages would have a direct effect on business and corporate income taxes by increasing operating expenses. COA is not able to determine what the amount of lost business and corporate income taxes would be.

The Department of Natural Resources (DNR) states that they will be required to pay a twelve percent health premium surcharge. Based on a FY99 personal service budget of $60,141,787, a twelve percent surcharge would be $7,217,014. DNR estimates that state funds are charged approximately 5.88% for medical insurance for eligible employees who elect state insurance coverage. Using the same personal service budget of $60,141,787 minus $1.6 million for part-time, seasonal employees ineligible for state medical coverage, approximately $3,442,257 would be transferred from DNR's funds, if all employees eligible for coverage elected coverage.

The Department of Revenue (DOR) did not respond to our fiscal impact request. However, in their response to a similar proposal from last session, DNR assumed they would need additional FTE within the Division of Taxation and Collection, and outside contractors to implement this proposal. DNR assumes the Central Processing Bureau would need fourteen Clerk I's for mail extraction and to pre-sort the 1.3 million employer forms and 2.4 million returns; and two clerk I's to operate two new remittance processors which cost $5,500 each.

DOR assumes the Tax Administration Bureau would require six Tax Processing Technician I's to work with withholding errors and twelve Tax Processing Technicians to work with individual return type errors for the expected 20% error rate.

DOR assumes the Collections Bureau would require eighteen Tax Processing Technician I's to

ASSUMPTION (continued)

be responsible for processing correspondence, bankruptcy claims, and petitions, and handling incoming and outgoing telephone calls associated with billings and non-filer notices. The Collections Bureau would also need four Clerk I's to support the Tax Processing Technicians, eight Tax Service Representative I's to pursue delinquent and non-filer employers, and one Clerk I to support these additional FTE.

DOR assumes the Information Systems Division would need three Programmer Analyst II's to be responsible for new programming and maintenance of programs, and one Senior System Analyst to supervise the Programmer Analysts and contract programmers. Contract programmers would also be needed for 550 hours in FY00 and 22,000 hours in FY 01, at costs of $62,576 and $2,593,250, respectively. State Data Center costs are anticipated at $19,822 in FY 00, $122,223 in FY 01, and $40,578 in FY 02. Oversight has adjusted all costs estimates for inflation.

For purposes of this fiscal note, Oversight assumes:



ASSUMPTION (continued)

agencies from a number of funds which would accrue to the Missouri Health Care Trust Fund and be saved by the current fund. Further, these costs would be included in projections made based on per capita cost of health care. Agencies affected would include the Department of Elementary and Secondary Education, Department of Corrections, Department of Labor, Department of Health, Department of Mental Health, etc. The 12 % employer surcharge tax for health care premiums for the Departments of Conservation and Transportation will be presented separately. The 12% surcharge for the rest of the state employees will be presented under the Office of Administration.



FISCAL IMPACT - State Government FY 2000 FY 2001 FY 2002

(6 Mo.)



GENERAL REVENUE FUND

Income - Department of Social Services

Medicaid reimbursements $0 Unknown Unknown

Savings - Department of Social Services

Possible elimination or cutback in

Division of Medical Services $0 Unknown Unknown

Costs - Department of Revenue

Personal service (69 FTE) $0 ($1,161,407) ($3,944,812)

Fringe benefits $0 ($347,145) ($1,179,104)

Expense and equipment $0 ($874,187) ($427,704)

Total Costs - Department of Revenue $0 ($2,382,739) ($5,551,620)

Loss - Department of Insurance

Insurance premium tax $0 ($11,000,000) ($22,000,000)

Costs - Secretary of State

Election costs $0 ($678,300) $0





FISCAL IMPACT - State Government FY 2000 FY 2001 FY 2002
(6 Mo.)
Costs - Office of Administration
Fringe benefit surcharge for state employees
other than DOC and DHT employees $0 ($122,985,640) ($252,120,561)
Cost - Department of Mental Health
Medicaid reimbursements $0 ($54,093,763) ($216,375,051)

ESTIMATED NET EFFECT ON

($191,140,442($472,843,569
GENERAL REVENUE FUND* $0 to Unknown) to Unknown)
* Does not include possible income and/or cost for Medicaid reimbursements from the Department of Social Services, Division of Medical Services.
COUNTY INSURANCE
TAX FUND
Loss - Department of Insurance
Insurance Premium Tax $0 ($11,000,000) ($22,000,000)

ESTIMATED NET EFFECT ON

COUNTY INSURANCE FUND $0 ($11,000,000) ($22,000,000)
CONSERVATION FUND
Savings - Department of Conservation
Conservation Medical Plan Expenditures $0 $2,047,500 $4,299,750
Costs - Department of Conservation
Fringe Benefit Surcharge for Employees $0 ($3,832,500) ($8,048,250)

ESTIMATED NET EFFECT ON

CONSERVATION FUND $0 ($1,785,000) ($3,748,500)
FISCAL IMPACT - State Government FY 2000 FY 2001 FY 2002
(6 Mo.)
HIGHWAY FUND
Savings - Department of Transportation
Highway and Patrol Medical Plan Expenditures $0 $9,218,437 $19,174,350
Costs - Department of Highways and Transportation
Fringe Benefit Surcharge for Employees $0 ($13,301,481) ($27,268,036)

ESTIMATED NET EFFECT ON
HIGHWAY FUND $0 ($4,083,044) ($8,093,686)
MISSOURI HEALTH CARE TRUST FUND
Income - Office of Administration
Employer premium tax* $0 $2,842,500,000 $5,685,000,000
Individual surcharge tax $0 $ 345,000,000 $ 690,000,000
Total Income - Office of Administration $0 $3,187,500,000 $6,375,000,000
*Includes premium tax paid by the state for all state employees.
Costs - Missouri Health Care Trust Fund
The plan could become effective on April 1, 2001, at which time costs to administer the plan (staff, Board of Governor's expenses, Regional Advisory Council expenses, etc.) and to provide health care benefits at costs, which would be negotiated by the Board of Governors as specified
in the proposal, would be borne by the Fund. Using HCFA per capita data, 1990 census figures for Missouri and 5% annual increases in health care costs, it is projected that expenditures from the Fund for benefits would equal $6,598,759,865 for four months in FY01. Administrative costs would be capped at four percent of the income generated from the various sources. A reserve equal to expenditures in the preceding three months would be required.

ESTIMATED NET EFFECT ON MISSOURI

HEALTH CARE TRUST FUND* $0 (Unknown) (Unknown)
*Does not include possible income and\or costs for Medicaid reimbursements from the Department of Social Services, Division of Medical Services.
FISCAL IMPACT - State Government FY 2000 FY 2001 FY 2002
(6 Mo.)
HEALTH PROFESSIONAL EDUCATION
AND TRAINING FUND
Income
Federal Government and Other $0 Unknown Unknown
Costs
Personal Service, Expense and Equipment $0 (Unknown) (Unknown)

ESTIMATED NET EFFECT ON HEALTH

PROFESSIONAL EDUCATION
AND TRAINING FUND $0 $0 $0
FEDERAL FUNDS
Savings - Department of Social Services
Possible elimination or cutback in
Division of Medical Services $0 Unknown Unknown
Loss - Department of Social Services
Medicaid funding $0 (Unknown) (Unknown)

ESTIMATED NET EFFECT ON
FEDERAL FUNDS $0 Unknown Unknown
FISCAL IMPACT - Local Government FY 2000 FY 2001 FY 2002
ALL LOCAL GOVERNMENTS
Savings-All Local Governments
Health insurance programs $0 Unknown Unknown
Costs - All Local Governments
Fringe benefits $0 (Unknown) (Unknown)

ESTIMATED NET EFFECT ON
ALL LOCAL GOVERNMENTS $0 (Unknown) (Unknown)
FISCAL IMPACT - Small Business
Small businesses would expected to be fiscally impacted to the extent that they would incur additional administrative costs and additional payroll tax expense due to the requirements of this proposal.



DESCRIPTION

This proposal establishes the Missouri Universal Health Assurance Program, which is a publicly-financed, statewide insurance program that will provide comprehensive health care coverage for Missouri residents. This proposal has a conditional effective date and will be submitted to the voters of the state for approval or rejection in November, 2000.

This program will be a corporate body. The Director of the Department of Health will divide the population of the state into six regional districts, with an advisory council established for each district. It will be administered by a nineteen member Board of Governors, ten of which will be appointed by the Governor with the advice and consent of the Senate. Members will include the directors of the Departments of Social Services, Health, and Mental Health. Members must include a sufficient representation of minority and disabled individuals. The Board is

responsible for implementing the Program, monitoring expenditures, adopting rules, employing staff, and studying the means of incorporating institutional long-term care benefits into the Program. An annual report will be required after conducting investigations and utilization reviews.

An annual comprehensive state health care plan must be established by the Board, including a budget, an evaluation of district health care needs, and goals for various parts of the program. Prior to establishment, the Board should appoint advisory subcommittees of health care research and ethics experts and public hearings should be held. The resulting comprehensive health care plan should seek to secure the most cost-effective health care.

The Board should establish the "Missouri Health Care Trust Fund" which will be used for all aspects of program operation. Revenues held in the trust fund are not subject to appropriation or allotment by the state or any political subdivision of the state. Various accounts will be created within the Trust fund for specific purposes. Every person who is a resident of Missouri, regardless of preexisting conditions, will be eligible to receive benefits for covered services under the program. Persons who are not residents, but who are employed in Missouri will be eligible for benefits if a health premium surcharge is paid. Certain services, as listed, will not be covered under this program. Other insurers and employers may offer benefits that do not duplicate those offered by the program.



DESCRIPTION (continued)

Every employer or self-employed person within the state will pay a health premium surcharge to the Department of Revenue based on the number of employees it has. A health premium surcharge, in addition to the state income tax, will be imposed on residents' gross income. An employer may agree to pay all or part of an employee's surcharge. For five consecutive tax years

after approval of the program, any employer who has twenty-five or less employees will be allowed a tax credit against the new tax due in incremental amounts.

This legislation is not federally mandated, would not duplicate any other program and would require additional capital improvements or rental space.



SOURCES OF INFORMATION

Office of Administration

Department of Conservation

Department of Corrections

Department of Economic Development

Department of Elementary and Secondary Education

Department of Health

Coordinating Board for Higher Education

Department of Transportation

Department of Insurance

Department of Labor

Department of Natural Resources

Office of Administration

Department of Mental Health

Department of Social Services

Office of State Courts Administrator

Office of Lieutenant Governor

Office of Secretary of State

Department of Public Safety

Missouri Consolidated Health Care Plan

Central Missouri State University

Southwest Missouri State University

Harris-Stowe State College

Missouri Western State College

Truman State University



SOURCES OF INFORMATION (continued)

NOT RESPONDING: Department of Revenue, State Auditor's Office, Attorney General's Office, Governor's Office, State Treasurer's Office, University of Missouri, Missouri Southern State College, Northwest Missouri State University, and Southeast Missouri State







Jeanne Jarrett, CPA

Director

February 2, 1999