OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 ¯ (860) 240-0200

http: //www. cga. ct. gov/ofa

sHB-6652

AN ACT ESTABLISHING THE CONNECTICUT HEALTHY STEPS PROGRAM.

OFA Fiscal Note

State Impact:

Municipal Impact: None

Explanation

This bill makes various changes to the health care system in Connecticut, as detailed below.

Sections 1 and 2 establish a twelve member Health Care Reform Commission, and places it within the Office of Health Care Access (OHCA) for administrative purposes only. As members are entitled to reimbursement for expenses, associated minimal costs will be incurred by the Office.

Costs of consultant services needed to assist the Commission cannot be determined in advance. However, they would be anticipated to be significant in magnitude. For comparison purposes, the Governor has recommended $500,000 in FY 08 under OHCA's budget to support research and planning efforts to be undertaken by a proposed Electronic Health Information Technology Task Force. It is assumed that a comparable expense would be incurred by the Commission to comply with subdivision 5 of Section 2(c). Additional indeterminate costs would be associated with accomplishing other mandates within this subsection.

Should no appropriation be included within the enacted FY 08-09 Biennial Budget for consultant services, the requirement that associated costs be accommodated within available appropriations will likely result in one of four outcomes: (1) The Commission will proceed, and OHCA will require a deficiency appropriation; (2) the Commission will delay implementation pending the approval of additional appropriations in future fiscal years to OHCA; (3) OHCA will shift resources from other departmental priorities, thereby impacting existing departmental programs; or (4) the Commission will be unable to proceed.

It should be noted that administrative services are currently provided to OHCA by the Department of Administrative Services (DAS). Therefore, a workload increase will be experienced by DAS to the extent that additional services are required.

It is anticipated that the Commissioners of Social Services, Health Care Access, and Insurance, or their designees, will participate in the activities of the Commission within each agency's normally budgeted resources.

Sections 3 of the bill requires the Insurance Department to develop, issue a request for proposals (RFP) and award a five-year contract to administer the Connecticut Connector. Section 41 of the bill appropriates $1,000,000 to the department for the process.

The Connector will serve as a health insurance purchasing pool, through which previously uninsured individuals and employers who previously did not offer health insurance may purchase health plans. The administrator of the Connector must solicit insurers to sell product through the Connector, review and publicize plan benefits and costs, screen applicants, among other duties. The administrator must collect premium contributions from employers and individuals, as well as any subsidies from the state. The bill allows the administrator to collect fees from each insurer selling products through the Connector in order to support administrative costs. It thus appears that beyond the $1,000,000 provided to develop and issue the RFP, the state does not incur any direct costs from the operation of the Connector.

Sections 4 and 5 of the bill specify what types of health plans will be provided under the Connector as well as what individuals and employers will be eligible to purchase insurance through the Connector. There is no fiscal impact to the state from these provisions.

Section 6 of the bill establishes a health savings account program for families with incomes under 400% of the Federal Poverty Level (FPL) and who are enrolled in a high deductible insurance plan. The Connector must make payments to these accounts annually on a sliding fee scale specified in the bill. These payments range from $300 to $1,500. It is not known how many eligible health savings accounts may be established. However, given the subsidy levels specified in the bill, the Connector will incur a significant annual cost. The bill specifies that the administrator of the Connector will receive funds from the Comptroller to make these payments. Therefore, the General Fund would bear these costs.

Section 7 establishes a premium subsidy program for families with incomes under 400% FPL and who currently have private insurance. The Connector must eligible families quarterly on a sliding fee scale specified in the bill. These payments range from $300 to $1,500 annually depending in income and family size.

The Office of Fiscal Analysis (OFA) estimates that there are approximately 950,000 individuals (365,000 households) under 400% FPL who are covered by private insurance. The family size and income distribution is not known. It is also not known how many of these households have private insurance that meets the terms specified in the bill. However, assuming that half of the households are enrolled in the required insurance, and receive an average premium subsidy ($900), the Connector would incur an annual cost of approximately $164,300,000. The bill specifies that the administrator of the Connector will receive funds from the Comptroller to make these payments. Therefore, the General Fund would bear these costs.

Section 8 requires the Department of Social Services (DSS) to seek a federal waiver to receive reimbursement for costs incurred under sections 6 and 7 and to establish a Medicaid funded excess cost reinsurance program. Should the waiver be granted, the state would receive 50% reimbursement for the costs incurred by the Connector under sections 6 and 7. The state cost for the excess cost reinsurance program will be dependent upon the structure of the waiver submitted to the federal government, which is not now known.

Section 9 specifies that no employer may offer health benefits of a lesser value to lower-paid employees than higher-paid employee.

Section 10 requires DSS to develop a plan to implement a system of primary care case management (PCCM) for some or all of the aged blind or disabled Medicaid beneficiaries. These individuals currently receive unmanaged, fee-for-service benefits, with an estimated FY08 cost of $1,300,000,000 (for approximately 74,000 clients). A PCCM system may be able to provide more coordinated care as well as reduce the annual $17,500 cost per client. The potential savings will be dependent upon the system developed. For purposes of illustration, each 5% savings achieved would result in annual savings of approximately $65,000,000.

Section 11 requires DSS to allow Medicaid fee-for-service beneficiaries to enroll in the managed care plans available under the HUSKY plans. The impact of this provision is uncertain. Integrating these higher cost individuals ($17,500 per client annually as compared to $2,600 annually for HUSKY A enrollees) will likely drive up the capitated rate paid by DSS to the managed care organizations (MCO's). However, as noted in the previous section, more coordinated care may reduce the annual medical costs for these clients.

Section 12 limits the administrative costs of HUSKY MCO's to 10%. DSS may exclude from this cap disease management or value added clinical programs, but specifically may not exclude utilization management, claims, member services or other non-clinical functions. The impact of this change is uncertain. Although the cap may reduce what the state reimburses the MCO's for administrative costs, limiting the MCO's ability to conduct utilization review may increase the medical service costs. The administrative cap may also reduce the MCO's ability to meet state and federally required reporting mandates.

Section 13 requires DSS to increase certain hospital, dental and physician rates under the Medicaid fee for service program. OFA estimates that these changes will cost $127,100,000 in FY08 and $133,500,000 in FY09. This section also requires that DSS amend the contracts with the HUSKY MCO's in order to implement similar rate increases under the HUSKY program. OFA estimates that this will cost $126,400,000 in FY08 and $132,800,000 in FY09. The increased costs in this section would be eligible for reimbursement under the federal Medicaid and SCHIP programs.

Section 14 requires DSS to award 50 grants of up to $10,000 to community based organizations for public education, outreach and recruitment of HUSKY eligible children. Section 40 appropriates $500,000 in FY08 for this purpose.

Section 15 expands eligibility for parents of children enrolled in the HUSKY A program from 150% of the federal poverty level (FPL) to 185% FPL. OFA estimates that this will add an additional 9,700 clients to the program when fully annualized, at a cost of $21,200,000 in FY08 and $28,200,000 in FY09. This estimate includes the rate increases implemented in section 13 of the bill. These costs would be reimbursed 50% by the federal government under the Medicaid program.

Section 16 requires DSS to increase the Medicaid medically needy income limit to 150% FPL. This change is expected increase Medicaid eligibility by 31,080 individuals, at a cost of $111,900,000 in FY08 and $117,500,000 in FY09. These costs would be reimbursed 50% by the federal government under the Medicaid program.

Section 17 re-establishes the continuous eligibility policy for children in the HUSKY plan. Assuming the rate increases included in section 13, this change is estimated to cost $2,500,000 annually. These costs would be reimbursed 50% by the federal government under the Medicaid program.

Section 17 also requires expedited HUSKY B enrollment of uninsured newborns and requires DSS to pay any premium costs for the first two months of coverage. There are approximately 90 uninsured births monthly in Connecticut. Enrolling these children in HUSKY B and paying full premiums for the first two months is expected to cost $2,400,000 in FY08 and $5,100,000 in FY09 (assuming the rate increases in section 17 of the bill). These costs would be 65% reimbursable under the federal SCHIP program.

Section 18 makes changes to the small employer group community rating system. These changes are not anticipated to have a direct fiscal impact on the state.

Section 19 requires the Department of Public Health to establish a Quit for Good program. It is assumed for purposes of this fiscal note that the Quit for Good program is the same as the Smoke Free Connecticut Program referenced in Section 27. If these programs are not one and the same, significant costs would be added to those discussed below.

Of the $20,000,000 transferred to the DPH by Section 27, approximately $164,000 would be needed in FY 08 ($160,500 commencing in FY 09, after adjusting for one-time costs) to support the salaries of 2. 5 positions and related ancillary costs needed to implement this program.

Additional fringe benefits costs of $51,230 in FY 08 and $89,650 in FY 09 would also be incurred. ¹

To the extent that effective smoking cessation programming reduces the incidence of tobacco related adverse medical consequences, future reductions in expenditures under public health care programs may ensue.

Section 20, by requiring insurance policies that cover dependent children to provide coverage until the age of 26 (regardless of educational status), will result in increased health service costs to the state as an employer beginning in FY 09. Under the bill, certain employees will maintain the more costly family coverage for longer than currently permitted. Data related to coverage of adult children to age 26 is not readily available from the Office of the State Comptroller (OSC), so a cost estimate cannot be determined at this time. To the extent that the dependent coverage required under the bill is not currently provided under a municipality's employee health insurance policy, there would be increased costs to provide it that cannot be determined.

Sections 21 and 22 concern requirements of insurers who offer limited benefit coverage. These changes are not anticipated to have a direct fiscal impact on the state.

Section 23 establishes a fourteen member Commission on Healthy Lifestyles, and places it within OHCA for administrative purposes only. As members are eligible for expense reimbursements, associated minimal costs will be incurred by the Office. Should the Commission decide to retain consultant services to assist it in the development of a marketing campaign and formulation of recommended incentives encouraging personal responsibility, additional indeterminate costs will be incurred.

A cost, which may be significant in magnitude, will be incurred by OHCA to contract for the marketing campaign recommended by the Commission. Actual costs would depend upon the scope of the campaign, which cannot be determined in advance. For comparison purposes, a 2003 counter marketing campaign was implemented at a cost of $350,000, pursuant to a recommendation of the Tobacco and Health Trust Fund Board of Trustees. ²

It should be noted that administrative services are currently provided to OHCA by the Department of Administrative Services (DAS). Therefore, a workload increase will be experienced by DAS to the extent that additional services are required.

Should no appropriation be included within the enacted FY 08-09 Biennial Budget for the marketing campaign, the requirement that associated costs be accommodated within available appropriations will likely result in one of four outcomes detailed in section 2 above.

It is anticipated that the Commissioners of Public Health, Education, Social Services, Health Care Access, and Insurance, or their designees, will participate in the activities of the Commission within each agency's normally budgeted resources.

Section 24 requires the Health Care Reform Commission to establish a nonprofit organization, the Connecticut Health Quality Partnership (CHQP), by 7/1/09.

While the CHQP would be required to seek funding from private and federal sources, presumably to support its mandated activities, no funding sources are identified at this time. It is unclear whether the absence of such financial support would result in an obligation on the state to pay costs associated with the creation or operation of the organization. Associated potential costs, which would be anticipated to be significant in magnitude, cannot be quantified at this time.

It is anticipated that the Commissioners of Public Health and Social Services, or their designees, will participate in the activities of the Commission within each agency's normally budgeted resources.

Section 25 requires DSS to increase the rates paid to federally required health center under the State Administered General Assistance (SAGA) program by 5% in FY08 and by the consumer price index increase is subsequent years. OFA estimates that this change will cost $4,800,000 in FY08 and $7,300,000 in FY09. This section further eliminates the provision that DSS make payments to SAGA providers within available appropriations. OFA estimates that this would increase SAGA payments by approximately $16,000,000 annually.

Section 26 requires the Office of Health Care Access to determine the number of uninsured Connecticut residents, by 10/1/07 and every five years thereafter. It also requires the Office to conduct a survey to determine the number of Connecticut employers providing health care benefits, by 12/31/07 and annually thereafter.

A cost, which may be significant in magnitude, will be incurred by the Office to comply with these requirements. Actual costs would depend upon the scope of the surveys conducted in any given year, but would be expected to exceed $150,000 in years when both household and employer data is collected. (For comparison purposes, in 2006 the Office paid $175,600 for consultant services to conduct surveys of 4,200 households and 800 employers. )

Should no appropriation be included within the enacted FY 08-09 Biennial Budget for the purposes of Section 26 the requirement that associated costs be accommodated within available appropriations will likely result in one of four outcomes detailed in section 2 above.

Section 27 transfers the sum remaining in the Tobacco and Health Trust Fund on 7/1/07 to the General Fund, of which $20,000,000 must be used by the Department of Public Health for a Smoke Free Connecticut Program. This will reduce the principal in the THTF by an estimated $20,800,000, and correspondingly increase the resources of the General Fund.

Section 28 appropriates $1,600,000 to the DPH in FY 08 to allow the agency to provide eight $200,000 grants to train employers to educate employees about the financial and health benefits of making lifestyle choices that promote good health.

Approximately $158,200 would be needed in FY 08 ($154,300 commencing in FY 09, after adjusting for one-time costs) to support the salaries of 2. 5 positions and related ancillary costs needed to implement this program.

Additional fringe benefits costs of $51,540 in FY 08 and $90,190 in FY 09 would also be incurred.

To the extent that promotion of healthy lifestyle choices reduces the incidence of obesity and related adverse medical consequences, future reductions in expenditures under public health care programs may ensue.

Section 29 makes an unspecified appropriation to DSS. As no funds are actually appropriated, these sections have no fiscal impact.

Sections 30 and 31 make appropriations as noted in the above narrative.

Section 32 repeals the section of statute that prohibits guaranteed eligibility in the Medicaid program. It is not clear that by repealing the prohibition the bill restores the guaranteed eligibility policy. Should this policy be restored, it is estimated that the Medicaid program will incur additional expenses of approximately $2,000,000 annually.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.