NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

Only the most recent FIR version, excluding attachments, is available on the Intranet. Previously issued FIRs and attachments may be obtained from the LFC office in Suite 101 of the State Capitol Building North.

(Parenthesis ( ) Indicate Expenditure Decreases)

(Parenthesis ( ) Indicate Revenue Decreases)

Relates to SB 71, Retiree Health Care Contribution Levels

SOURCES OF INFORMATION

Retiree Health Care Authority

Health Policy Commission

SUMMARY

Synopsis of Bill

House Bill 755 proposes to distribute 10 percent of the money in the Tobacco Settlement Program Fund to the Retiree Health Care Fund.

Significant Issues

Revenue sources to the Retiree Health Care Fund include payroll assessments on employers and employees, retiree premiums, income taxes paid on state pension income (Tax Administration Suspense Fund), interest income and charges for optional coverage. The first chart shows the percentage derived from each source of revenue. The second chart illustrates the annual revenue trends. The percentage contribution from the retirees has steadily increased, while the remaining revenue sources have decreased.

* Rebates and refunds.

During the 2000 legislative session, the Retiree Health Care Act was amended to include provisions for service-to-benefit credit. This amendment authorized the board to establish a subsidy scale for retirees and their eligible dependents commensurate with the retiree's years of credited service with a participating employer. This affects members retiring as of July 1, 2001. This change added one year of solvency to the reserve fund. With this change, the actuarial consultant projects the Retiree Health Care Fund solvent to 2012. The RHCA board adopted a policy for a rolling 25-year solvency period. This projection is 13 years short of complying with the Board's solvency policy. The Legislative Finance Committee continues to encourage the Retiree Health Care Authority Board to reconsider its policy and target a more realistic rolling solvency period. The Board could amend the policy to a rolling 15-year solvency period and, when that target is met, amend the policy.

For FY00, 53.2 percent ($19.1 million) of the employer and employee contributions were used to pay costs of current retirees, and the remaining 46.8 percent ($16.8 million) was credited to the reserve fund. The revenue credit is used to pre-fund benefits for future retirees. The chart below illustrates that the revenue credit to the reserve fund will be exhausted by FY04.

Section 10-7C-13 NMSA 1978 was amended to limit the premium increase on retiree contributions to 9 percent per year. The projected costs of the current retirees for FY02 will be subsidized by 49.7 percent. If current healthcare trends continue, RHCA will begin to use the reserve to subsidize retiree costs in FY05.

The following chart shows the projected reserve fund balances.

The LFC continues to encourage the Board to seek options that are beneficial to the Fund, employers, employees and retirees. These options may include:

• Restructuring the current subsidy levels for retirees residing instate;

• Restructuring the current subsidy levels for retirees residing out-of-state;

• Alternative premium schedules for retirees that work full- and part-time;

• Amending Section 10-7C-13 NMSA, the 9-percent limitation;

• Rethinking the length of the rolling solvency period; and
• Redefining benefit packages.

FISCAL IMPLICATIONS

House Bill 755 appropriates 10 percent of the annual distributions from the Tobacco Settlement Permanent Fund to the Retiree Health Care Fund. The estimated distribution for FY02 is $20,250.0.

RELATIONSHIP

House Bill 755 is related to SB71, Retiree Health Care Contribution Levels

OTHER SUBSTANTIVE ISSUES

The following shows benefits-related trends. The percentage indicates the change from one fiscal year to the previous fiscal year. The largest increases occur in the medical and prescription drug areas. These increases are in line with nationally projected increases. The non-Medicare participants are responsible for 65 percent of the medical utilization and 30 percent of prescription drug costs.

 * Basic Life and Accidental Death & Dismemberment.

** Voluntary Life and Long-term Care.

The chart shows a breakdown of non-medicare-and medicare-eligible members including growth rate in percent.

The Medicare-eligible participants are increasing at a faster rate than the non-Medicare eligible participants. The Medicare-eligible participants are responsible for approximately 70 percent of the prescription drug costs and 35 percent of the medical utilization. As noted on the utilization chart, medical and prescription drug trends are projected to increase 16.6 percent and 26.8 percent respectively for FY02.

WJC/prr