BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 23
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          Date of Hearing:   March 24, 2009

                            ASSEMBLY COMMITTEE ON HEALTH
                                  Dave Jones, Chair
               AB 23 (Jones and Fletcher) - As Amended:  March 19, 2009
           
          SUBJECT  :   Cal-COBRA: premium assistance.

           SUMMARY  :   Requires health plans and health insurers (health  
          plans) to provide notice to qualified beneficiaries eligible for  
          premium assistance for Cal-COBRA coverage pursuant to the  
          federal American Recovery and Reinvestment Act of 2009 (ARRA) of  
          the availability of that assistance.  Authorizes individuals who  
          were involuntarily terminated dating back to September 1, 2008  
          and are therefore eligible for premium assistance under ARRA, an  
          additional opportunity to enroll in Cal-COBRA coverage.   
          Specifically,  this bill  :

          1)Requires health plans, or employers or administrators that  
            contract to perform the notice and administrative functions,  
            to provide notice to every qualified beneficiary (QB) eligible  
            for premium assistance of the QB's ability to elect Cal-COBRA  
            continuation coverage and receive premium assistance no later  
            than 60 days after receipt of that notice.  (A QB is a person  
            enrolled in a health plan who has had a qualifying event [such  
            as the loss of a job] that would cause them to lose coverage  
            under their small employer group health plan and would be  
            eligible for continuation coverage under Cal-COBRA.)

          2)Requires the notice in #1 above to be provided within 14 days  
            of the effective date of this bill, and to inform the QB  
            regarding:  a) the availability of premium assistance in the  
            amount of 65% of the Cal-COBRA premium; and, b) the duration  
            of the premium assistance under ARRA.

          3)Requires the notice to use language that adequately informs a  
            reasonable person that changes in federal law permit employees  
            involuntarily terminated between September 1, 2008, and  
            December 31, 2009 to qualify for a 65% subsidy of Cal-COBRA  
            premiums for up to nine months, and that any eligible employee  
            who had previously rejected Cal-COBRA has the right under  
            California law to withdraw that rejection and accept the  
            coverage with the new subsidy.  Requires the notice to also  
            provide the QB with all necessary premium information,  
            enrollment forms, and disclosures to allow the QB to formally  








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            elect continuation coverage.

          4)Establishes in law an opportunity for a QB notified pursuant  
            to this bill to notify the health plan, or the employer if the  
            plan has contracted with the employer for administrative  
            services, of the QB's election to continue Cal-COBRA coverage  
            within 60 days after receipt of the notice required under this  
            bill, if the QB meets all of the following requirements:

             a)   The QB receives a notice under this bill; 
             b)   The QB became eligible for Cal-COBRA continuation  
               coverage  prior  to the effective date of this bill;
             c)   The QB is eligible for COBRA premium assistance under  
               ARRA; and,
             d)   The QB failed to provide notification within the 60-day  
               period following the later of the following:
               i)     The date that the enrollee's coverage under the  
                 group benefit plan terminated or will terminate by reason  
                 of a qualifying event; and,
               ii)    The date the enrollee was sent notice of the ability  
                 to continue coverage under the group benefit plan.

          5)Adds to the categories of QBs eligible for Cal-COBRA coverage,  
            a person who meets the following:

             a)   Is eligible for premium assistance under the federal  
               ARRA;
             b)   Is eligible for Cal-COBRA coverage as result of the  
               involuntary termination of the covered employee's  
               employment from September 1, 2008 through December 31,  
               2009;
             c)   Elects Cal-COBRA coverage; and,
             d)   Meets the definition of a QB under the federal Employee  
               Retirement Income Security Act of 1974.

          6)Prohibits health plans from using the time period between the  
            qualifying event and the effective date of Cal-COBRA  
            continuation coverage as a break in coverage in determining  
            whether to apply a pre-existing condition exclusion.

          7)Permits the director of the Department of Managed Health Care  
            (DMHC) and the commissioner of the California Department of  
            Insurance (CDI) to adopt emergency regulations to implement  
            Cal-COBRA, and requires the adoption of these regulations to  
            be considered by the Office of Administrative Law to be  








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            necessary to avoid serious harm to the public peace, health,  
            safety, or general welfare.

          8)Defines health plans as a person entitled to reimbursement for  
            the amount of the premium subsidy when the plan receives an  
            election notice from a QB who is eligible for premium  
            assistance under ARRA.

          9)States legislative intent that any federal assistance that is  
            or may become available to QBs under Cal-COBRA be effectively  
            and promptly implemented by DMHC and CDI.

           EXISTING LAW  :

          1)Requires health plans and insurers that provide coverage under  
            a group benefit plan to an employer with 2-19 eligible  
            employees to offer continuation coverage to a QB (a person  
            enrolled in the health plan), upon a qualifying event, without  
            evidence of insurability.  This body of law is known as  
            Cal-COBRA.

          2)Defines, for purposes of eligibility for Cal-COBRA, a  
            "qualifying event" as any of the following events that would  
            result in a loss of group coverage by a QB if the person did  
            not elect Cal-COBRA coverage:

             a)   The death of the covered employee;
             b)   The termination of employment or reduction in hours of  
               the covered employee's employment, except that termination  
               for gross misconduct does not constitute a qualifying  
               event;
             c)   The divorce or legal separation of the covered employee  
               from the covered employee's spouse;
             d)   The loss of dependent status by a dependent enrolled in  
               the group benefit plan; and,
             e)   With respect to a covered dependent only, the covered  
               employee's entitlement to benefits under Medicare.

          3)Requires health plans to provide a disclosure that informs  
            individuals eligible for Cal-COBRA that failure to make the  
            notification to the insurer, or to the employer when under  
            contract to provide the administrative services, within the 60  
            days, will disqualify the QB from receiving Cal-COBRA  
            continuation coverage.









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          4)Requires a QB electing Cal-COBRA continuation coverage to pay  
            to the health plan not more than 110% of the applicable rate  
            charged for a covered employee or, in the case of dependent  
            coverage, not more than 110% of the applicable rate charged to  
            a similarly situated individual under the group benefit plan  
            being continued under the group contract.

          5)Requires every group contract between a health plan and an  
            employer with 2-19 eligible employees to require the employer  
            to notify the plan, in writing, of any employee who has had a  
            qualifying event related to termination of employment or a  
            reduction in hours of the covered employee within 30 days of  
            the qualifying event.

          6)Requires health plans, or employers or administrators that  
            contract to perform the notice and administrative services, to  
            provide to the QB in #5 above the necessary benefits  
            information, premium information, enrollment forms, and  
            disclosures to allow the QB to formally elect Cal-COBRA  
            coverage within 14 days of receiving a notice of a qualifying  
            event.

           FISCAL EFFECT  :   This bill has not been analyzed by a fiscal  
          committee.

           COMMENTS  :

           1)PURPOSE  .  According to the author, this bill would ensure that  
            Californians who lose their job while working for a small  
            employer through a layoff or other involuntarily termination  
            are notified that they may be eligible for premium assistance  
            through the federal stimulus bill to help them pay for and  
            keep their health coverage through Cal-COBRA.  Additionally,  
            for those individuals who lost their jobs going back to  
            September 2008, AB 23 would give them a second chance to elect  
            coverage under Cal-COBRA now that premium assistance is  
            available.  The author points out that California has one of  
            the highest uninsured rates in the country (a 3-year average  
            of 20.5%, compared to 17.4% nationally), and one of the  
            highest unemployment rates (currently 10.5%) in the country.   
            Job loss is the primary reason people lose health coverage  
            because most insured Californians receive coverage through  
            their employment.  The author argues this bill would ensure  
            that Californians who were laid off as a result of the current  
            economic downturn are aware of their eligibility for premium  








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            assistance and have a second chance to enroll in Cal-COBRA  
            coverage.  The author states this bill is urgently needed to  
            avoid increasing the number of Californians without health  
            insurance.
           
          2)BACKGROUND  .  The federal Consolidated Omnibus Budget  
            Reconciliation Act of 1985, commonly called COBRA, gives  
            workers and their dependents who have a qualifying event (such  
            as the loss of a job or a reduction in hours, death of the  
            covered employee, divorce of the covered employee from the  
            covered employee's spouse, or the loss of dependent status by  
            a dependent enrolled in the health plan) the right to continue  
            their group health coverage through the employer's health  
            plan.  If the employer continues to offer a group health plan,  
            the employee and his/her family can retain their group health  
            coverage by paying the full premium at group rates which are  
            capped at 102% for COBRA and 110% for Cal-COBRA.  COBRA  
            applies to employers providing group health coverage who have  
            at least 20 employees.  California's "mini-COBRA" law,  
            Cal-COBRA, applies to health plans and insurers offering small  
            group health coverage to employers with 2-19 employees who are  
            not eligible for continuation coverage under federal COBRA.   
            Prior to ARRA, premium assistance was not available to  
            individuals electing COBRA or Cal-COBRA coverage.

          Few workers currently elect COBRA coverage now, in large part  
            because they must pay the entire cost of the premium at a time  
            when they are facing a reduction of hours, divorce, or loss of  
            employment.  California workers contribute, on average, $582  
            or 12% of the cost of the $4,906 total annual average cost of  
            employer-based single coverage and $3,194 or 24% of the total  
            annual average cost of $13,427 for employer-based family  
            coverage in 2008, but must bear the entire cost plus an  
            additional 10% when paying for Cal-COBRA coverage.  A  
            Commonwealth Fund issue brief released in 2009 found that only  
            9% of unemployed adults bought health insurance under COBRA in  
            2006.

           3)COBRA PREMIUM ASSISTANCE UNDER ARRA  .  ARRA (Public Law 111-5)  
            provides for premium assistance for health benefits under  
            COBRA, and state mini-COBRA laws such as Cal-COBRA, for  
            individuals and their dependents that were involuntarily  
            terminated between September 1, 2008 and December 31, 2009.   
            Instead of paying the entire COBRA premium amount, eligible  
            individuals would pay 35% of premium, and the remaining 65%  








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            would be reimbursable to the employer or health plan as a  
            credit against certain employment taxes.  The premium  
            assistance applies to periods of health coverage beginning on  
            or after February 17, 2009 and lasts for up to nine months.

          Eligibility for the ARRA premium assistance is narrower than  
            eligibility for Cal-COBRA.  Under Cal-COBRA, an individual can  
            become eligible for Cal-COBRA because of a loss of employment,  
            a reduction in hours, the death of the covered employee, the  
            divorce of the covered employee from the covered employee's  
            spouse, or the loss of dependent status.  By contrast,  
            eligibility for ARRA premium assistance is limited to  
            individuals and their dependents who meet the following  
            criteria:

             a)   Are eligible for COBRA continuation coverage at any time  
               between September 1, 2008 and December 31, 2009;
             b)   Elect COBRA coverage; and,
             c)   Are eligible for COBRA as a result of the employee's  
                involuntary termination  between September 1, 2008 and  
               December 31, 2009.

            Eligibility for the full amount of premium assistance is  
            limited to individuals with a modified adjusted gross income  
            of $125,000 or less ($250,000 for joint filers).  For  
            taxpayers with modified adjusted gross income between $125,000  
            and $145,000 (or $250,000 and $290,000 for joint filers), the  
            amount of the premium reduction that must be repaid is reduced  
            proportionately, and taxpayers with modified adjusted gross  
            incomes above those amounts must repay the amount of premium  
            reduction received.

            Individuals who are eligible for other group health coverage  
            (such as a spouse's plan), or eligible for Medicare are not  
            eligible for the premium reduction, and there is no premium  
            reduction for premiums paid for periods of coverage prior to  
            February 17, 2009.

            Under federal law, the premium reduction (65% of the full  
            premium) is reimbursable to the employer, insurer, or health  
            plan as a credit against certain employment taxes.  Federal  
            guidance for state mini-COBRA laws indicates the health  
            insurance issuer providing the coverage to the group health  
            plan would receive the payroll tax credit once the individual  
            beneficiary pays the 35% of premium.  If the credit amount is  








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            greater than the taxes due, the Secretary of the Treasury will  
            directly reimburse the employer, insurer, or plan for the  
            excess.  The premium assistance for an individual on COBRA or  
            Cal-COBRA ends upon eligibility for other group coverage (or  
            Medicare), after 9 months, or when the maximum period of COBRA  
            coverage ends, whichever occurs first.  Individuals paying  
            reduced COBRA/Cal-COBRA premiums must inform their plans if  
            they become eligible for coverage under another group health  
            plan or Medicare.

            Individuals involuntarily terminated from September 1, 2008  
            through February 16, 2009, who did not elect COBRA when it was  
            first offered, or who did elect COBRA but who are no longer  
            enrolled (for example, because they were unable to continue  
            paying the premium) have a new opportunity to elect COBRA  
            coverage under ARRA.  This special election period begins on  
            February 17, 2009 and ends 60 days after the required notice.   
            However, the federal Department of Labor has advised that this  
            special election period opportunity does  not  apply to coverage  
            sponsored by employers with less than 20 employees subject to  
            state law (such as California's Cal-COBRA law).

            For state mini-COBRA laws, federal guidance indicates the  
            issuer of the group health plan must provide QBs an election  
            notice that contains information on how to request treatment  
            as a person eligible for premium assistance, and the notice  
            must be provided within timeframes specified under state law.

           4)SUPPORT  .  The California Medical Association (CMA) writes in  
            support that this is an important bill for ensuring that  
            Californians get full advantage of the COBRA provisions of the  
            federal economic stimulus package.  CMA indicates the  
            conforming changes in this bill will go a long way towards  
            keeping recently unemployed Californians enrolled in private  
            insurance and will reduce demand for already-overburdened  
            state and local health programs.

           5)RELATED LEGISLATION  .  SB 796 (Alquist), pending in the Senate,  
            would delete the requirement that a person must elect and  
            exhaust COBRA or Cal-COBRA coverage in order to qualify for  
            access to guaranteed issue individual health care coverage  
            under the Health Insurance Portability and Accountability Act.

           6)URGENCY CLAUSE  .  The author intends to add an urgency clause  
            to this measure so its provisions take effect immediately upon  








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            enactment.

           7)POLICY QUESTIONS  .

              a)   Who should receive the required notice under this bill  ?   
               Under this bill, health plans must provide every QB  
               eligible for premium assistance under ARRA notice of the  
               QB's ability to elect continuation coverage no later than  
               60 days after receipt of that notice.  However, since  
               individuals may be qualified for Cal-COBRA because of many  
               events (such as loss of employment, divorce, death of a  
               spouse, etc.) health plans may not have the information as  
               to which qualified beneficiaries are eligible for the  
               federal premium assistance because they were involuntarily  
               terminated, as required by federal law.  Would it be more  
               workable to require the health plans to provide notice to  
               the known list of persons who had any Cal-COBRA qualifying  
               event and require health plans to simply let recipients of  
               the notice know of the changes in federal law, and the  
               opportunity for federal premium assistance for eligible  
               persons?

              b)   Should emergency regulations adopted by DMHC and CDI be  
               done in consultation with the other respective regulator  ?   
               This bill permits DMHC and CDI to each adopt emergency  
               regulations.  To ensure the regulations are done uniformly,  
               should the regulations be required to be done in  
               consultation with the other regulatory department?

              c)   Federal COBRA option to switch plans  .  ARRA gives COBRA  
               beneficiaries eligible for premium assistance the ability  
               to enroll in a different health plan than the plan the  
               individual was enrolled in at the time of the qualifying  
               event, subject to certain requirements.  Under this option,  
               the employer has to allow such individuals to enroll in  
               different coverage, the premium for the different coverage  
               cannot exceed the premium for the coverage in which the  
               person was enrolled at the time of the qualifying event,  
               the coverage the person elects to enroll in must be offered  
               to active employees at the time of the election, and the  
               different coverage cannot be limited coverage, such as  
               dental, vision, counseling, a flexible spending arrangement  
               or coverage that provides services furnished at a on-site  
               medical facility maintained by the employer.  Should  
               California adopt in its Cal-COBRA law a state option that  








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               would allow premium assistance-eligible individuals to  
               switch plans, similar to the federal option for COBRA  
               beneficiaries?
           
          REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          California Medical Association

           Opposition 
           
          None on file.
           
          Analysis Prepared by  :    Scott Bain / HEALTH / (916) 319-2097