Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

F I S C A L I M P A C T R E P O R T

SPONSOR Sanchez, M.

ORIGINAL DATE

LAST UPDATED

2/25/07

HB

SHORT TITLE Health Insurance Regardless of Age

SB 1116

ANALYST Earnest

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Regulation Commission (PRC)

Human Services Department (HSD)

SUMMARY

Synopsis of Bill

Senate Bill 1116 enacts a new section of the Insurance Code to limit insurance purchase eligibly

rules of health insurers in the individual market. It also amends the Insurance Code to prohibit

fraternal benefit societies from denying any contractual benefits, including health insurance

benefits, solely on the basis of potential or probable risk.

Section 1 adds a guarantee that coverage must be offered in the individual market by prohibiting

the establishment of eligibility rules based on age, gender, geographic area of the place of

employment, smoking practices, individual's residence, health status, or occupational or industry

classification.

Section 2 amends current law which allows fraternal benefits societies to impose rules regarding

persons eligible for, or covered by, contractual benefits, including health insurance. The

amendment would allow fraternal benefit societies to continue imposing these rules, as long as

the benefit denial is not based solely upon potential or probable risk.

Senate Bill 1116 – Page

2

SIGNIFICANT ISSUES

PRC indicates that insurers denying coverage are required to direct applicants to the state’s high

risk pool, the NM Medical Insurance Pool. Under provisions of this bill, insurers could not deny

coverage but would still set rates that may be prohibitively expensive. According to PRC:

Under current New Mexico law, individuals who seek health insurance coverage in the

individual market may be denied coverage on the basis of their age, health status and

other factors. Also under current law, if denied coverage, the insurer must inform the

individual that they may be eligible to purchase coverage through the state's high risk

pool, the New Mexico Medical Insurance Pool.

While this measure would require that all individuals seeking insurance be offered

coverage, insurers would still be free to price the coverage according to sound

underwriting principles. While no individual would be denied an offer of coverage based

on their age, health status, or other factors, the insurer could still consider all factors

currently allowed under New Mexico law to determine the price of the coverage to be

offered to the individual. As a result, it is unlikely that individuals who had previously

been denied coverage and were directed to the high-risk pool will be able to find less

costly coverage in the individual market.

Currently fraternal benefit societies may create rules regarding those persons who may be

issued, or be covered by, contractual benefits, including health insurance. It is not clear

whether the measure will change this practice significantly, since the societies will still be

able to use factors such as age or health in determining eligibility for health coverage, as

long as a denial of eligibility is not based solely upon potential or probably risk.

For those societies that already offer coverage to members and their dependents

regardless of factors such as age and health status, this proposal should have little impact.

To the extent that a society has restrictions on who may be covered, then the cost of

coverage could be expected to increase according to the difference between present

practice and the way in which the society interprets and implements the new legislative

requirement. If such a revision results in a pool of members eligible for coverage that

include older, less healthy persons than previously, the society may find that their

younger and healthier members will begin to seek coverage elsewhere, including in the

individual market. This would likely lead to further price increases in the following year

and more member defections, resulting in a "death spiral" of increasingly higher prices

and a population of only higher-risk members interested in the offered coverage.

ADMINISTRATIVE IMPLICATIONS

None identified.

OTHER SUBSTANTIVE ISSUES

According to PRC, New Mexico has a stable high risk pool for eligible individuals, including

those who have been denied coverage in the individual market. Guaranteed issue in the

individual market, as would be required in this bill, is generally found as a substitute measure in

states without a stable high risk pool. It is also generally acknowledged that to provide not just

Senate Bill 1116 – Page

3

access but possibly a more affordable product for older, less healthy persons in the individual

market requires that health insurance issuers be subject to community rating of premiums. The

New Mexico legislature had previously considered and passed a community rating law, but the

measure was repealed before it was enacted.

BE/nt