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)

SOURCES OF INFORMATION

LFC Files

Retiree Health Care Authority

New Mexico Gaming Control Board

Office of the State Auditor

Department of Game and Fish

New Mexico State Highway and Transportation Department

No Response:

New Mexico Health Policy Commission

Public Employees Retirement Association

Educational Retirement Board

Department of Finance and Administration

State Personnel Office - No Response

Public School Insurance Authority

General Services Department

Administrative Office of the Courts

Taxation and Revenue Department

State Department of Public Education

Commission on Higher Education

SUMMARY

     Synopsis of SFC Amendment

The Senate Finance Committee amendment to Senate Bill 71 does the following:

Adds a new section removing the 9 percent cap on group health care trend increases after FY08. After FY08, the increase shall not exceed the Retiree Health Care Authority's group health care trend.

Deletes the original bill's proposed employer 1.85 percent and employee .925 percent increases beginning in FY08.

The portion of the Fiscal Implications section referring to FY08 and beyond is no longer valid. The remainder of the Fiscal Implications section remains unchanged. The fiscal impact of SB 71/a is:

($6,020.0)/year Recurring General Fund

($ 362.9)/year Recurring Other State Funds

($ 153.2)/year Recurring Internal Services/Interagency Transfers

($ 821.9)/year Recurring Federal Funds

$7,357.8/year Recurring Retiree Health Care Fund

FY02-FY08 ($9,107,391)* Recurring General Fund

FY02-FY08 $9,107,391* Recurring Retiree Health Care Fund

*The detail is presented in the Fiscal Implications Section.

The remainder of the FIR is unchanged.

Synopsis of Original Bill

Senate Bill 71 proposes to increase the Tax Administration Suspense Fund distribution and the employer and employee contribution rates made to the Retiree Health Care Fund. The following illustrates the proposed increases.

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

SB 71 contains no appropriation. However, the following table illustrates the fiscal impact to the various funds. The FY00 actual payroll valuation for PERA and ERA members used for the calculations are from the respective actuarial studies for the period ended June 30, 2000. NOTE: No adjustment has been made for cost-of-living or classification adjustments.

*Other State Funds include: Land Income, Road Fund, Fee Income, Retirement Funds, Alcohol Detox Fund, Investment Income, Interest Income, Canteen Sales.

** The detail is presented in the following chart.

The following shows the negative impact to the Tax Administration Suspense Fund (General Fund) and the positive impact to the Retiree Health Care Fund. The calculation is based on information from the Taxation and Revenue Department and RHCA's actuarial study for the period ended June 30, 2000. The impact is compound annually because the distribution formula is based on the previous years distributed amount.

The employee impact is illustrated below.

According RCHA staff, these proposed changes will extend the solvency period of the fund to 2026.

ADMINISTRATIVE IMPLICATIONS

RHCA staff indicated in the agency bill analysis that without these changes the board "will be forced to strip befits by approximately 23% or again pass significant premium contribution increases of approximately 40% to current participants, or a combination thereof, in order to attain the 25-year solvency period."

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.

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