BILL NUMBER: SB 436 CHAPTERED 10/10/03 CHAPTER 751 FILED WITH SECRETARY OF STATE OCTOBER 10, 2003 APPROVED BY GOVERNOR OCTOBER 9, 2003 PASSED THE SENATE SEPTEMBER 11, 2003 PASSED THE ASSEMBLY SEPTEMBER 10, 2003 AMENDED IN ASSEMBLY SEPTEMBER 9, 2003 AMENDED IN ASSEMBLY SEPTEMBER 2, 2003 AMENDED IN ASSEMBLY JUNE 12, 2003 INTRODUCED BY Senator Soto FEBRUARY 20, 2003 An act to amend Sections 22790, 22792, 22793, 22794, 22825.1, 22840, and 22850 of the Government Code, relating to the Public Employees' Medical and Hospital Care Act, and making an appropriation therefor. LEGISLATIVE COUNSEL'S DIGEST SB 436, Soto. Public employees' retirement system: health plan contracts. (1) The Public Employees' Medical and Hospital Care Act permits the Board of Administration of the Public Employees' Retirement System to enter into contracts with specified entities offering health benefits plans or related administrative services, not to exceed 3 years. This bill would eliminate the 3-year limitation on these contracts. (2) Existing law permits any contracting agency, as defined, to elect by resolution to participate in the Public Employees' Retirement System, as specified, for health benefits plans. This bill would permit the Board of Administration by regulation to require that these contracting agencies comply with certain board-determined criteria prior to participation in the system. The bill would further permit the Board of Administration to contract for, or approve, health benefits plans for employees and annuitants of contracting agencies that charge rates based on regional variations in the costs of health care services, and to adjust the contract rates of health benefits plans for those employees and annuitants according to the same regional variations in cost, except as specified. The bill would also make related conforming changes and nonsubstantive, technical changes to these provisions. (3) Specified funds received from health benefits plans are deposited in the Public Employees' Contingency Reserve Fund and are continuously appropriated for specified purposes. This bill would allow additional payments to be maintained in the Public Employees' Contingency Reserve Fund, as specified, thereby making an appropriation. Appropriation: yes. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 22790 of the Government Code is amended to read: 22790. (a) The board may contract with carriers for health benefits plans for employees and annuitants and major medical plans or approve health benefits plans offered by employee organizations, provided that the carriers have operated successfully in the prepaid hospital and medical care field prior to the contracting for or approval thereof. The plans may include hospital benefits, surgical benefits, in-hospital medical benefits, outpatient benefits, and obstetrical benefits, and benefits offered by a bona fide church, sect, denomination or organization whose principles include healing entirely by prayer or spiritual means. The board shall contract with a sufficient number of carriers and plans that provide chiropractic services so that every employee and annuitant shall have a reasonable opportunity to enroll in a plan that provides chiropractic services without prior referral by a physician. The board may contract with health maintenance organizations approved under Title XIII of the federal Public Health Services Act (42 U.S.C. Sec. 201 et seq.). (b) Notwithstanding any other provision of this part, the board may contract with health plans offering unique or specialized health services. (c) (1) The board shall approve any employee association health benefits plan that was approved by the board in the 1987-88 contract year or any year prior to that date, provided the plan continues to meet the minimum standards prescribed by the board. (2) The recognized employee organization for State Bargaining Unit 6 may offer different medical plan designs with varying rates in different areas of the state. (d) The board shall provide and administer any health benefits or other coverage extended at county cost under Section 77208, upon receipt of a resolution from a county board of supervisors electing to come under the administrative provisions of this part for the coverage specified in the resolution. (e) Notwithstanding any other provision of this part, the board may do any of the following: (1) Contract for, or approve, health benefits plans that charge a contracting agency and its employees and annuitants rates based on regional variations in the costs of health care services. (2) Contract for, or approve, health benefits plans exclusively for the employees and annuitants of contracting agencies. State employees and annuitants may not enroll in these plans. The board may offer health benefits plans exclusively for employees and annuitants of contracting agencies in addition to or in lieu of other health benefits plans offered under this part. The governing body of a contracting agency may elect, upon filing a resolution with the board, to provide those health benefits plans to its employees and annuitants. The resolution shall be subject to mutual agreement between the contracting agency and the recognized employee organization, if any. SEC. 2. Section 22792 of the Government Code is amended to read: 22792. The board may, without compliance with any provisions of law relating to competitive bidding, enter into contracts with carriers offering health benefits plans or with entities offering services relating to the administration of health benefits plans. Every contract for health benefits plans shall be for a uniform term of at least one year, but may be made automatically renewable from term to term in the absence of notice of termination by either party. Every contract with entities providing administrative services with respect to the operation of the board's self-funded plan shall be on those terms as the board in its discretion deems necessary or desirable. The board may fix the beginning and ending dates of contracts with carriers of health benefits plans and with entities offering services in connection with the administration of health benefits plans in a manner it deems consistent with administration of this part. Irrespective of any agreed-upon termination date, the board may extend a contract for a reasonable period of time, subject to existing terms and conditions or any new terms and conditions which are agreed upon. SEC. 3. Section 22793 of the Government Code is amended to read: 22793. (a) Each contract shall contain a detailed statement of benefits offered and shall include the maximums, limitations, exclusions, and other definitions of benefits as the board may deem necessary or desirable. (b) Except as otherwise provided in this part, no contract may be made or plan approved that excludes any person on account of that person's physical condition, age, race, or other status. Except as otherwise provided in this part, transfer of enrollment in any plan shall be open to all employees and annuitants in accordance with Section 22813. (c) No contract may be made or plan approved that does not offer to each annuitant whose enrollment in the plan is terminated other than by cancellation of enrollment, or each employee whose enrollment in the plan is terminated other than by cancellation of enrollment, voluntary separation from state service, or dismissal from state service for cause, the option to convert, without evidence of good health and within the time limits that are prescribed by the carrier and approved by the board, to a nongroup contract providing health benefits. An employee or annuitant who exercises this option shall pay the full periodic charges of the nongroup contract, on the terms or conditions that are prescribed by the carrier and approved by the board. (d) No contract may be made or plan approved that does not provide for grievance procedures to protect the rights of employees and annuitants. SEC. 4. Section 22794 of the Government Code is amended to read: 22794. (a) Rates charged under any health benefits plan shall reasonably reflect the cost of the benefits provided. (b) This part does not limit the board's authority to do any of the following: (1) Enter into contracts with carriers providing compensation based on carrier performance. (2) Credit premiums to an employer for expenditures that the board determines are likely to improve the health status of employees and annuitants or otherwise reduce health care costs. (3) Adjust the rates charged under any health benefits plan contract to reflect regional variations in the cost of health care services and other relevant factors. Any adjustment of these premiums shall be at the sole discretion of the board and shall only apply to the premiums charged to employees and annuitants of contracting agencies. The board may require a contracting agency and its employees and annuitants to pay the premium rate established pursuant to this paragraph, which may be different than the health benefits plan contract rate that would otherwise be applicable to that agency. SEC. 5. Section 22825.1 of the Government Code is amended to read: 22825.1. (a) (1) Notwithstanding any other provision of this article, the employer's contribution, with respect to each state officer and employee or an annuitant who was in the employment or office including an academic position with a campus of the California State University or is a survivor of that person, shall be adjusted by the Legislature in the annual Budget Act. Annual adjustments of the dollar amounts therein shall be based upon the principle that the employer's contribution for each employee or annuitant shall be an amount equal to 100 percent of the weighted average of the health benefits plan premiums for employees or annuitants enrolled for self alone plus 90 percent of the weighted average of the additional premiums required for enrollment of family members in the four health benefits plans which have the largest number of enrollments during the fiscal year to which the formula applied. Only the enrollment of, and premiums paid by, state employees and annuitants enrolled in basic health benefits plans shall be counted for purposes of calculating the employer contribution under this section. (2) The employer's contribution under this section for each employee shall commence on the effective date of his or her enrollment. (3) The contribution of each employee and annuitant shall be the total cost per month of the benefit coverage afforded him or her under the plan or plans less the portion thereof to be contributed by the employer. (b) If the provisions of this section are in conflict with the provisions of a memorandum of understanding reached pursuant to Section 3517.5 or Chapter 12 (commencing with Section 3560) of Division 4 of Title 1, the memorandum of understanding shall be controlling without further legislative action, except that if those provisions of a memorandum of understanding require the expenditure of funds, the provisions shall not become effective unless approved by the Legislature in the annual Budget Act. SEC. 6. Section 22840 of the Government Code is amended to read: 22840. (a) There shall be maintained in the State Treasury the Public Employees' Contingency Reserve Fund. The board may invest funds in the Public Employees' Contingency Reserve Fund in accordance with the provisions of law governing its investment of the retirement fund. (b) (1) An account shall be maintained within the Public Employees' Contingency Reserve Fund with respect to the health benefits plans the board has approved or that have entered into a contract with the board. The account shall be credited, from time to time and in amounts as determined by the board, with moneys contributed under Section 22826 or 22831 to provide an adequate contingency reserve. The income derived from any dividends, rate adjustments, or other funds received from a health benefits plan shall be credited to the account. The board may deposit, in the same manner as provided in paragraph (3), up to one-half of one percent of premiums in the account for purposes of cost containment programs, subject to approval as provided in paragraph (2) of subdivision (c). The account may be utilized to defray increases in future rates, to reduce the contributions of employees and annuitants and the employers, to implement cost containment programs, or to increase the benefits provided by a health benefits plan, as determined by the board. The board may use penalties and interest deposited pursuant to subdivision (c) of Section 22832 to pay any difference between the adjusted rate set by the board pursuant to Section 22794 and the applicable health benefits plan contract rates. (2) The total credited to the account for health benefits plans at any time shall be limited, in the manner and to the extent the board may find to be most practical, to a maximum of 10 percent of the total of the contributions of the employers and employees and annuitants in any fiscal year. The board may undertake any action to ensure that the maximum amount prescribed for the fund is approximately maintained. (3) Board rules adopted pursuant to Section 22810 to minimize the impact of adverse selection or contracts entered into pursuant to Section 22794 to implement health benefits plan performance incentives may provide for deposit in and disbursement to carriers or to Medicare from the account the portion of the contributions otherwise payable directly to the carriers by the Controller under Section 22841 or 22842 as may be required for that purpose. The deposits may not be included in applying the limitations, prescribed in paragraph (2), on total amounts that may be deposited in or credited to the fund. (4) Notwithstanding Section 13340, all moneys in the account for health benefits plans are continuously appropriated without regard to fiscal year for the purposes provided in this subdivision. (c) (1) An account shall also be maintained in the Public Employees' Contingency Reserve Fund for administrative expenses consisting of funds deposited for this purpose pursuant to Sections 22826 and 22831. (2) The moneys deposited pursuant to Sections 22826 and 22831 in the Public Employees' Contingency Reserve Fund may be expended by the board for administrative purposes, provided that the expenditure is approved by the Department of Finance and the Joint Legislative Budget Committee in the manner provided in the Budget Act for obtaining authorization to expend at rates requiring a deficiency appropriation, regardless of whether the expenses were anticipated. (d) An account shall be maintained in the Public Employees' Contingency Reserve Fund for health plan premiums paid by contracting agencies, including payments made pursuant to subdivision (e) of Section 22790. These funds are continuously appropriated, without regard to fiscal year, for the payment of premiums or other charges to carriers or the Public Employees' Health Care Fund. Penalties and interest paid pursuant to subdivision (c) of Section 22832 shall be deposited in the account pursuant to paragraph (1) of subdivision (b). SEC. 7. Section 22850 of the Government Code is amended to read: 22850. (a) A contracting agency and its employees and annuitants shall be subject to this part upon the filing with the board of a resolution of its governing body electing to be subject. The resolution shall be adopted by a majority vote and shall be effective as is provided in board regulations. (b) Pursuant to Section 22775 and subdivision (g) of Section 22852, the board may by regulation require any contracting agency that elects to become subject to this part to meet certain board-determined criteria, including, but not limited to, additional requirements for any contracting agency that elects to become subject to this part that previously terminated coverage pursuant to Section 22853.