Department of Insurance

The enacted budget makes the following changes to the proposed Executive Budget

 (March 31, 2009):

The All Funds appropriation for the enacted 2009-10 budget is increased by $536,000, or .2 per percent.  Changes to the proposed Executive Budget are as follows:

• Increases the department’s overall General Fund appropriation by $1.8 million partially offset by SRO decrease of (-$1.26 million) in Mental Health Insurance Parity Account.  This reflects the Legislature’s rejection of the Timothy’s Law Assessment and instead funding the implementation of the law through the General Fund.

• Increases the Regulation Program’s appropriation for contractual services by $700,000. The purpose of this new appropriation is not stated but it may be related to the implementation of Timothy’s Law. Shifts $861,000 in personal service funds from Mental Health Insurance Parity Act to Regulation Program for the implementation of Timothy’s Law.

• Rejects the proposed restructuring of the Insurance Franchise Tax.

• Rejects the proposed increase in penalties for violations of Insurance Law.

The 30 day amendments propose no changes (analysis as of January 16, 2009):

The Executive Budget recommends (analysis as of December 22, 2008):

A FY 2009-10 workforce of 925.  This is a decrease of 12 FTEs from the adjusted FTE level for FY 2008-09, which will be achieved through attrition.  The decrease in FTEs is attributed to the statewide hiring freeze and the conclusion of the Commission to Modernize the Regulation of Financial Services and the Universal Health Care Task Forces.  The following chart identifies adjustments in current fiscal years FTEs along with the recommended differences in FY 2009-10 FTEs by program (if the FTE’s are the same the program is not listed):

• The total appropriation for Personal Service is $110.5 million, an increase of $11.2 million (11.3%).

• An All Funds appropriation of $230.6 million, a decrease of $83.97 million, or 26.7%.

• The General Fund appropriation is decreased by $100 million, or 100%.  This decrease is partially offset by a $16 million increase in SRO funds.  The decrease is found in the Regulation Program and is the result of an $800,000 decrease in personal services and a $99.2 million decrease in contractual services.  This reflects proposals to shift funding for Timothy’s Law (added in SFY 2008-09) and certain public health programs from the General fund to the insurance industry assessment.  The Executive Budget Briefing Book refers to the establishment of a Timothy’s Law Insurance Assessment which will produce $179 million in SFY 2009-10 and $91 million in 2010-11, however, there does not appear to be Article VII enabling legislation, nor is there an appropriation for the assessment. This action, and the possible impact on positions which may be associated with this fund, should be clarified at statewide labor-management.

• Significant personal service increases in the following program areas are not associated with increases to the FTE level:

o   Administration Program: $1.7 million or 19.9% increase.
o   Consumer Services Program: $776,000 or 9.7% increase.
o   Regulation Program: Insurance Department Account: $5.3 million or 10.1%; State Fire Reporting Control Program: $2.5 million, or 41.8%
o   A new appropriation of $1.3 million, including $861,000 in personal service funds to support the Mental Health Insurance Parity Act SRO.

• Increases funding for contractual services for the TraCS Project by $900,000, or 900%.

• The Department employed an estimated 35 employees under consultant contracts in SFY 2008-09 at a cost of $6.2 million or an average cost of $177,657 per consultant contract employee.  It is estimated that $7.4 million will be allocated for consultant contracts in SFY 2009-10 for 28 employees, at an average cost of $265,821 per consultant contract employee.

• The Executive Budget recommends Article VII legislation that would:

o   Increase fines and penalties for various violation of the Insurance Law.  Enactment of this bill is necessary to implement the 2009-10 Executive Budget since the State Financial Plan assumes $1 million in additional General Fund receipts as a result of these fines and penalties.
o   Clarify that captive insurance companies receiving 50 percent or less of their gross receipts from insurance premiums would no longer meet the definition of an insurance business, and would file a combined return with their closest affiliated taxpayer. This bill would increase corporate franchise tax receipts reflected in the State Financial Plan by an estimated $33 million in SFY 2009-10 and $29 million in SFY 2010-11
o   Restructure the franchise tax on insurance companies so that all insurance companies are taxed in an identical manner by paying a tax based on premiums. This bill will increase insurance franchise tax receipts reflected in the State Financial Plan by an estimated $62 million in SFY 2009-10 and $50 million in SFY 2010-11.