LFC Requester:
AGENCY BILL ANALYSIS
2017 REGULAR SESSION
WITHIN 24 HOURS OF BILL POSTING, EMAIL ANALYSIS TO:
LFC@NMLEGIS.GOV
and
DFA@STATE.NM.US
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SECTION I: GENERAL INFORMATION
{Indicate if analysis is on an original bill, amendment, substitute or a correction of a previous bill}

Date 2/20/17
Prepared:
Bill No: HB 316

Check all that apply:
Original
X Amendment
Correction
Substitute

Agency Code:
440
Person Writing
Vicente Vargas
fsdfs_____Analysis:
Phone:
505.690.1135
Email: Vicente.Vargas@state.nm.us

Sponsor: Rep. Paul Bandy
High Risk Insurance Pool
Short
Assessments
Title:
SECTION II: FISCAL IMPACT

APPROPRIATION (dollars in thousands)
Appropriation
FY17

FY18

Recurring
or Nonrecurring

Fund
Affected

(Parenthesis ( ) Indicate Expenditure Decreases)

REVENUE (dollars in thousands)
Estimated Revenue
FY17

FY18

FY19

Recurring
or
Nonrecurring

Fund
Affected

(Parenthesis ( ) Indicate Expenditure Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

 FY17

FY18

FY19

3 Year
Total Cost

Recurring or
Nonrecurring

Fund
Affected

Total
(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates/Conflicts with/Companion to/Relates to: SB 469
Duplicates/Relates to Appropriation in the General Appropriation Act
SECTION III: NARRATIVE

BILL SUMMARY
Synopsis: This legislation changes the formula by which the New Mexico Medical Insurance
Pool (NMMIP) assesses insurers to fund claims. The new formula removes the NMMIP’s
ability to assess Medicaid Managed Care premiums to help underwrite the costs of claims of
individuals in NMMIP risk pool. The NMMIP board would retain its authority to assess
private health insurers and reinsurance providers for the costs of the pool. This authority
would continue to include the ability to adjust the formula to achieve equity of assessments
among pool members, including assessments based on the number of lives covered through
primary, excess, and stop-loss insurance in the state.
Additionally, the bill amends the amount of tax credits available to insurers participating in
the pool. Currently, insurers paying into the pool receive a tax credit of 50% on the premium
tax return for that member and a 75% credit on the premium tax return for that member for
assessments attributable to pool policyholders that receive eligible premiums. Starting for the
2016 pool assessment plan year, the assessment for any pool member shall be allowed as a
25% credit on the premium tax return for that member and a 37.5% credit on the premium
tax return for that member for the assessment attributable to pool policyholders that receive
eligible premiums. This is a reduction of the tax credit available to carriers participating in
the pool.
For 2017 and thereafter, tax credits for premiums assessed for pool members are eliminated.
The legislation also alters eligibility for coverage through the high risk pool. The legislation
removes outdated language referring to the defunct Health Insurance Alliance and also
prohibits individuals who are eligible for Medicare, Medicaid, or subsidized coverage
through the New Mexico Health Insurance Exchange from enrollment in the pool.
FISCAL IMPLICATIONS
We are currently collecting data required to provide insight about how this shift in the
responsibility for funding the high risk pool will affect ongoing health insurance business. While
the total dollar value of assessments will not change in the short run, several peripheral issues
arise. First, because the federal government matches Medicaid spending with an aggregate of
four federal dollars for every state dollar spent, reduced Medicaid spending on the pool will
reduce federal dollars brought into the state. By OSI’s calculations, eliminating assessments on
Medicaid premiums will currently save the state approximately $11 million in general funds, but
will forgo $48.5M in federal matching dollars. If the state implements the legislation as written,

 decreasing the size of the pool will save the state approximately $6 million in general funds, but
will forgo $24M in matching funds.
The bill adjusts the definition of market share, specifically, the ratio that defines participation in
the assessment process. The new market share definition shifts the assessment of support of the
pool on to smaller carriers and substantially increases the fiscal responsibility of other types of
carriers, including life insurance carriers. In the health insurance marketplace, the ability of
carriers to absorb these additional costs and assessments is restricted state and federal law on
medical loss and risk-based capital. Specifically, medical loss ratio law impedes an insurer’s
ability to generate reserves, which most significantly impacts small insurers. Risk-based capital
laws impact how much capital insurers have on hand to pay claims. In combination, these two
laws currently function to keep health insurers’ profit margins very lean. As a result, the impact
of shifting the fiscal burden for the pool solely to private insurance companies, especially health
insurance companies, will drive up premium costs significantly. OSI projects, very
conservatively, that premium rates will increase, conservatively, by a between $150 to $340
dollars per person per year. These estimates do not include the increases to premiums caused by
the shift of higher risk individuals into the private market.
To the extent that federal tax credits and subsidies are in operation for the individual market,
these costs will be blunted. However, the majority of private, fully-insured enrollees are covered
through in the unsubsidized small group and large group coverage. Costs would then be passed
off to small employers, impacting employer-sponsored insurance rates and, potentially, hiring. As
a result, the state would likely lose revenue from employment taxes and increased
uncompensated care. OSI projects that overall, this legislation would increase the population of
uninsured by between 1,200 lives and 6,000 lives.
OSI projects that the legislation on life insurance premiums will be a minimum of approximately
120% increase. This increase will likely cause a loss of significant business for the life insurance
industry and will decrease taxable premiums for this market.
SIGNIFICANT ISSUES
The Market Share Ratio defined on Page 2, lines 5 – 15, establishes the criteria for
assigning market share to individual companies. HB316 modifies this formula. In so doing,
carrier market share for NMMIP assessments will be unavoidably altered.
The change will be beneficial to companies that have a higher proportion of their premiums
written on Medicaid; their assessed market share will decrease, and, as such, the amount of their
assessments. Conversely, carriers that have limited exposure to Medicaid premiums will be
adversely affected; their assessable market share and thus assessments will increase. The
proposed bill therefore penalizes companies that prefer the private health insurance market to the
public health insurance market and rewards the companies that prefer to do business within the
public insurance sector. This penalty on insurers without a presence in the public market may be
so significant as to cause rate increases effecting market competition.
It is difficult to calculate the exact impact on private health insurance premiums of
changing the assessment and eligibility structures for the pool. At minimum, we are
unequivocally certain that there will be an increase in health insurance premiums for New
Mexico’s consumers. Given current market instability and carrier uncertainty about the cost of

 absorbing the pool’s risk, these rate increases are likely to be ample. Carriers across the board
will raise rates. These rate increases will likely need to overestimate the risk absorbed by the
pool to insure carrier solvency. In light of the impact of increased premium costs and the
potential of unbalancing the risk pools, carriers may decide to leave the fully-insured market. As
a result, decreased competition and expected premium increases will have a substantial impact
on insurance affordability in the state.
OSI also has concerns about the timing of this legislation. Currently, 2016 rates were submitted
and approved and are already being collected from members. Pool members have not had a
chance to re-adjust for their decreased credit when they submitted rates for 2016. Any changes to
pool assessments and eligibility would be better after 2017.