LEGISLATIVE FISCAL ESTIMATE TO


SENATE, No. 1137


STATE OF NEW JERSEY


DATED: May 16, 1996


 

      Senate Bill No. 1137 of 1996 provides that, subject to the receipt of a waiver from the federal Department of Health and Human Services, the State Treasurer shall contract with one or more entities to administer a Statewide program of health care services, on a managed care basis, for all eligible low income residents in the State who are in need of health care services. The bill further provides that nothing in the bill shall be construed to expand covered health care services to include services not covered by the charity care program currently in effect.

      In addition, the bill directs that:

      1.   The implementation of the health care program or other subsidies for charity care that affect the State Medicaid plan shall be contingent upon receipt of federal approvals that assure continuation of an acceptable level of federal Medicaid matching funds, including disproportionate share monies.

      2.   The Commissioner of Health shall establish a technology infrastructure to support the Statewide health care program .

      For the interim period before the new health care program is implemented, the bill continues funding for the Health Care Subsidy Fund at $345 million in 1996 and $371 million in 1997 using a methodology similar to that used in 1995 for the distribution of charity care subsidies. Of the amounts specified, the bill provides that $310 million shall be allocated for charity care subsidies for calendar year 1996 and up to $300 million shall be allocated for 1997. In addition, the bill provides $35 million to the Hospital Health Care Subsidy account for the State match for Medicaid in 1996 and $71 million in 1997. Part of the funding from the 1997 allocation for charity care subsidies may be used for the new health care program, pending the receipt of a federal waiver to implement the program.

      The funding for charity care subsidies and the Hospital Health Care Subsidy account will be provided from a combination of employer and employee contributions and General Fund revenues. In calendar years 1996 and 1997, $330 million each year will be provided from employer and employee contributions and $15 million in 1996 and $41 million in 1997 will be appropriated from the General Fund. Table 1 summarizes the proposed funding by calendar year:

 


TABLE 1

CALENDAR YEAR FUNDING FOR THE

HEALTH CARE SUBSIDY FUND

($ millions)

 

Employer/

GeneralEmployee

CalendarFundPayroll

YearApprop.Contrib.Total

1996 $15 $330$345

1997 41 330 371

 

 

      The bill also makes changes in the funding of the unemployment compensation fund as follows:

      1.   Starting on July 1, 1997, the fund reserve ratios used to determine which tax schedule applied to employers are reduced. The fund reserve ratio that "triggers" the use of tax schedule "A," which provides the lowest tax rates, is reduced from the current rate of 10 percent to 6 percent. The trigger for schedule "B" is reduced from 7 percent to 4 percent, the trigger for schedule "C" is reduced from 4 percent to 3 percent. The triggers for schedule "D," currently 2.5 percent is unchanged. However, the fund reserve ratio which triggers a 10 percent tax surcharge is increased from 0 to 1.0 percent.

      2.   If the fund reserve ratio declines to a level below 3 percent on March 31 of either 1997 or 1998, the Treasurer will transfer the amount necessary to raise the reserve ratio to a level of 3 percent, thereby making impossible the imposition of tax schedule "D" on employers during those years.

      3.   No payroll taxes for the unemployment compensation fund are collected from workers starting April 1, 1996 and ending December 21, 1997. In addition, beginning on January 1, 1998, the worker contribution rate for the unemployment compensation fund is reduced from 0.6 percent to 0.4 percent.

      In addition, the bill also clarifies that the Health Care Subsidy Fund is the payer of last resort, and amends section 13 of P.L. 1992, c. 160 (C.26:2H-18.63) concerning penalties for false statements or misrepresentation of a material fact in the receipt of charity care benefits to clarify that the provisions apply to any person or entity.

      Lastly, the bill provides that beginning in 1998, the new health care program will be supported with revenues derived from efficiencies achieved by State use of an electronic data interchange system for health care claims and related information.

 

IMPACT ON THE UNEMPLOYMENT COMPENSATION FUND

 

      As described above, the bill provides for $330 million in payroll tax contributions to the Health Care Subsidy Fund during each of calendar years 1996 and 1997. These contributions by employees and employers to the Health Care Subsidy Fund are in lieu of contributions to the unemployment compensation fund and are retroactive to April 1, 1996. Any employee contributions from the tax on the unemployment compensation wage base and any employer contributions, as provided in section 15 of the bill, which are in excess of the amounts required to be deposited in the Health Care Subsidy Fund will revert to the unemployment compensation fund.

      In addition, the bill changes the fund reserve ratios used to determine the tax rate schedule applied to employers such that, given the current fund reserve ratio, employer contributions would be reduced by approximately 15 percent beginning July 1, 1997. The bill also eliminates employee contributions to the unemployment compensation fund between April 1, 1996 and December 31, 1997, and beginning January 1, 1998 reduces the payroll tax rate paid by employees by approximately 33 percent, from .6 percent to .4 percent.          The OLS notes, based upon information provided by the Department of Labor, that given projected total taxable wages, employer and employee payroll tax contributions should be more than sufficient for the purposes of funding the Health Care Subsidy Fund. Further, the OLS anticipates that under most foreseeable economic conditions, the bill would leave unemployment compensation fund balances sufficiently high so that the unemployment compensation fund reserve ratio would remain above 4.0 percent. Thus, with respect to the funding of charity care, employers can anticipate a shift from the current tax schedule, schedule "C," to a lower-rated employer tax schedule, schedule "B," by fiscal year 1997.

      The OLS further acknowledges that pending legislation (see the Senate Bill No. 1139 of 1996) would establish an Emergency Unemployment Benefits Program which, under certain circumstances, would provide up to 13 weeks of additional unemployment benefits to claimants who have exhausted their entitlement to regular unemployment benefits. The program would cap total expenditure on emergency unemployment benefits at $350 million. Assuming the enactment of both bills, the State Department of Labor has projected that the lower rated employer tax schedule, schedule "B," can be anticipated in both 1997 and 1998. Nevertheless, the department has further indicated that by 1999, the fund reserve ratio will have decreased such that the higher rates of the employer tax schedule, schedule "C," will be reinstated. In contrast, the OLS anticipates that with respect to the cumulative impact of the two bills, a shift to the lower employer tax rate schedule, schedule "B," may not be achieved until 1998.

      While the unemployment tax rate schedule applied to employers is expected to be reduced in the near term, the OLS notes that individual employers may experience "bracket creep," or a higher individual contribution rate as a result of the bill, even if no benefits are paid from the employers' individual accounts. In particular, small businesses and businesses which have recently established an experience rating could be adversely affected in this regard, since their individual experience ratings will reflect disproportionately the reduction in unemployment compensation contributions. Moreover, the OLS notes that any excess funds which revert from the Health Care Subsidy Fund to the unemployment compensation fund will be credited to the overall fund balance but will not be reflected in the accounts of individual employers.

 

IMPACT ON THE GENERAL FUND:

 

      As outlined in Table 1, the bill authorizes the use of $56 million in General Fund revenues over a two year period, 1996 and 1997. The OLS notes that the General Fund contribution of $15 million indicated for calendar year 1996 is not included in the Governor's FY 1997 Budget Recommendation. Depending on programmatic needs, enactment of this legislation could imply the need for an appropriation of approximately $35.5 million in FY 1997 ($15 million applicable to calendar year 1996 and one-half of the $41 million applicable to calendar year 1997). However, this is not clear at the present time; the second installment may be deferred until FY 1998. Moreover, the OLS notes that funding for the Health Access New Jersey program, as proposed in Senate Bill No. 1138 of 1996, would also authorize the appropriation of General Fund revenues for the Health Care Subsidy Fund over the next two years. Thus, if both funding bills are enacted, the total amount of General Fund dollars authorized for health care subsidies over the two years would be $91 million.

      This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.

 

This fiscal estimate has been prepared pursuant to P.L.1980, c.67.