BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1422|
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THIRD READING
Bill No: AB 1422
Author: Bass (D)
Amended: 8/25/09 in Senate
Vote: 27 - Urgency
SENATE REVENUE & TAXATION COMMITTEE : 6-1, 8/26/09
AYES: Wolk, Alquist, Ashburn, Florez, Padilla, Wiggins
NOES: Walters
NO VOTE RECORDED: Runner
SENATE APPROPRIATIONS COMMITTEE : 11-1, 8/27/09
AYES: Kehoe, Cox, Corbett, Denham, Hancock, Leno, Oropeza,
Price, Wolk, Wyland, Yee
NOES: Walters
NO VOTE RECORDED: Runner
ASSEMBLY FLOOR : Not relevant
SUBJECT : Health Care Programs: California Children and
Families Actof 1998
SOURCE : Author
DIGEST : This bill provides that Medi-Cal managed care
plans would be subject to the gross premium taxes, which
are levied pursuant to section 28 of article XIII of the
California Constitution. This bill increases, in specific
circumstances, the premiums paid by families for children
enrolled in the Healthy Families Program. This bill also
provides administrative rules for distributing the
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additional revenue.
ANALYSIS :
I. Gross Premiums Tax on Medi-Cal Managed Care Plans
This bill subjects Medi-Cal managed care plans to the gross
premiums tax assessed on insurers pursuant to section 28 of
article VIII of the California Constitution. Existing law
provides that insurers, generally defined as property
insurance, life insurance, casualty insurance and some
preferred provider organizations and point of service
plans, are assessed a 2.35 percent tax on their annual
gross premiums. The tax is collected by the Department of
Insurance and deposited into the state General Fund. It is
assessed in lieu of all other taxes with only specific
exemptions such as for taxes upon real estate and vehicle
license fees, among others. Generally, these insurers are
regulated by the Department of Insurance.
Health care service plans that are regulated by the
Department of Managed Health Care, including Medi-Cal
managed care plans, are generally not subject to the gross
premiums tax.
This bill requires Medi-Cal managed care plans to make
prepayments four times each year of 25 percent of the
annual amount of the tax for the current calendar year, but
would provide that no prepayments would be required to be
paid prior to the effective date of these provisions.
Currently, Medi-Cal managed care plans, which operate in 23
of California's 58 counties, are subject to a quality
improvement fee (QIF) of 5.5 percent of their annual
revenues. In fiscal year 2008-2009, it is estimated that
the QIF revenues netted $238.8 million General Fund.
Existing state and federal law require that Medi-Cal
managed care plans be paid actuarially sound rates. This
type of calculation takes into consideration the costs the
plans incur and the populations that they serve. Changes
in federal law have resulted in the discontinuation of the
QIF on October 1, 2009.
Existing federal Medicaid law permits states to assess
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provider taxes to be used as non-federal funds to draw down
federal Medicaid matching funds. However, there are
specific requirements to a provider tax, including that the
tax be "broad-based" and uniformly imposed throughout a
jurisdiction and that payers of the tax may not be "held
harmless" for their portion of the tax. The current QIF on
Medi-Cal managed care plans would have violated those
provisions.
Because the gross premiums tax is an existing tax and on a
broad group of insurers, it can be extended to Medi-Cal
managed care plans without the necessity of meeting federal
provider tax requirements. Dental managed care plans would
be exempt from the gross premiums tax. They are also
currently exempt from paying the QIF.
This bill provides that the total revenues derived from
this tax on Medi-Cal managed care plans be continuously
appropriated as follows: 38.41 percent to the Department of
Health Care Services (DHCS) for Medi-Cal and 61.59 percent
to the Managed Risk Medical Insurance Board (MRMIB) for the
Healthy Families Program. The total revenues are expected
to total $157 million on an annual basis. $60 million
General Fund, the 38.41 percent of the total revenues, and
its federal match would be paid to DHCS, and the remaining
$97 million, the 61.59 percent of the total revenues, would
go to MRMIB annually. The MRMIB portion would then serve
as the 35 percent non-federal match to draw down 65 percent
in Children's Health Insurance Program funds. This tax
would be imposed on Medi-Cal managed care plans' annual
revenues beginning January 1, 2009. The tax provisions of
this bill sunsets January 1, 2011.
State Medi-Cal monies are generally matched dollar for
dollar by the federal government. However, as a result of
the passage of the American Reinvestment and Recovery Act
in February of 2009, the Federal Medical Assistance
Percentage (FMAP) increased from 50 percent to 61.59
percent. Thus, retroactively from October 1, 2008 through
December 31, 2010, the federal government would pay for
approximately 61.59 percent and the state General Fund
would pay for 38.41 percent of benefit-related Medi-Cal
expenditures. After December 31, 2010, the FMAP reduces to
50 percent federal funds, 50 percent General Fund.
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The provisions related to assessing the gross premiums tax
on Medi-Cal managed care plans would have no force or
effect if specified conditions occur, including the lack of
federal approval and federal matching funds, the revenues
raised by this tax were used for purposes other than those
identified in this bill, and if a judicial determination
that this methodology is invalid, unlawful, or in violation
of federal regulations or that this tax is required to be
in lieu of all other taxes that insurers must ordinarily
pay.
This bill provides that is there is a delay in the
calculation of rates by DHCS, a Medi-Cal managed care plan
would be assessed the amount it would be required to pay,
but would not be required to actually pay the tax until the
rates are paid. DHCS would have the authority to
retroactively increase rates and make payments to plans.
II. California Children and Families Commission Funds
Flexibility
This bill permits the California Children and Families
Commission, which was created by Proposition 10 of 1998 and
is funded by a tax equivalent to $0.50 on a pack of
cigarettes, to transfer any unneeded funds to its
Unallocated Account from the Mass Media Communications, the
Education, the Child Care and the Research and Development
Accounts upon approval by the commission.
This bill declares legislative intent that these changes
further the purpose of the California Children and Families
Act of 1998.
On August 13, 2009, the commission approved the transfer of
$81.4 million from the commission to the Healthy Families
Program to provide health care coverage for children 0-5
years of age until June 2010.
This bill states legislative intent that the Director of
Finance would be required to make the necessary budgetary
adjustments to allow the expenditure of funds allocated by
the commission and would require that, within 30 days of
making any budgetary adjustments, the Director of Finance
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notify the Joint Legislative Budget Committee and the
fiscal and appropriate policy committees of the Legislature
of those actions.
III. Healthy Families Program Premiums Increase
In the fiscal year 2009-2010 budget, the Healthy Families
Program was cut $194 million in General Funds. The program
provides comprehensive health care coverage to children who
are ineligible for free Medi-Cal and whose family income is
equal to or less than 250 percent of the federal poverty
level (FPL) and is administered by the MRMIB. There are
approximately 950,000 children enrolled in the program and
MRMIB estimated that the budget cuts would necessitate a
freeze in enrollment and the disenrollment of approximately
650,000 enrollees, beginning in October 1, 2009. In
addition to this measure and the award of $81.4 million
from the California Children and Families Commission, MRMIB
plans to make programmatic changes to produce savings that
would eliminate the remaining budget shortfall of
approximately $15.6 million. During fiscal years 2009-2010
and 2010-2011, this bill allows MRMIB to adopt emergency
regulations to modify health, dental, and vision benefits
or program requirements and operations. Healthy Families
Program premiums may only be increased through statute;
they cannot be changed by an action of the board nor
through regulations.
Commencing November 1, 2009, this bill increases premiums
paid by families of enrollees in the Healthy Families
Program, as specified, with family incomes between 150
percent and 250 percent of the FPL and would require the
program to notify families whose premiums would increase.
The premium changes would be as follows:
For the lower cost Family Value Package:
1.150-200 percent FPL: change from $9 to $13 per child per
month with a family maximum per month change of $27 to
$39 per month;
2.200-250 percent FPL: change from $14 to $21 per child
per month with a family maximum change of $42 to $63 per
month.
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For the higher cost Family Value Package:
1.150-200 percent FPL: change from $12 to $16 per child
per month with a family maximum per month change of $36
to $48 per month;
2.200-250 percent FPL: change from $17 to $24 per child
per month with a family maximum per month change of $51
to $71 per month.
Premiums for enrollees with family incomes below 150
percent of the FPL would remain unchanged.
MRMIB estimates a savings of at least $5.5 million in
fiscal year 2009-2010 assuming a November 1, 2009,
effective date for the higher cost package based on MRMIB
data presented at its August 20, 2009, board meeting.
Savings associated with premium increases associated with
the lower cost package are unknown. Ongoing savings would
be of a similar magnitude.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11
2011-12 Fund
Gross premiums ($157,000) ($78,500)$0General
tax revenue
Payment to Medi-Cal $60,000 $30,000$0General
Payment to Healthy $97,000 $48,500$0General
Families Program
Healthy Families Program (at least $5,500) (at least
$5,500) (at least $5,500) General
Premium increases
(revenue)
SUPPORT : (Verified 9/2/09)
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100% Campaign
Blue Cross
California Assoc. of Health Plans
California Medical Association
California Primary Care Association
California State Assoc of Counties
City and County of San Francisco
County Health Executive
Department of Health Care Services
Health Access
Health Net
Insure the Uninsured Project
Kaiser
Local Health Plans of CA
Western Center on Law and Poverty
ARGUMENTS IN SUPPORT : The California Association of
Health Plans (CAHP) states that, "The current fiscal crisis
in California has led to substantial budget cuts that have
made it difficult to ensure health coverage for children.
Unless action is taken, thousands of children will stand in
line for health insurance or lose their health benefits
entirely. CAHP and its member plans have made coverage for
children a top priority, which is why we are a part of a
solution that can help prevent disenrollment in Healthy
Families.
"AB 1422 is part of an overall approach involving
contributions from various sources, including the
involvement of health plans. The revenues collected by
this measure will allow for California to take advantage of
both the enhanced FMAP available from the federal
government as well as the existing 2-1 match in the Healthy
Families Program. Importantly, consumers in our commercial
markets will not see or be impacted by the tax proposed in
this bill."
Kaiser Permanente writes that "?we support your AB 1422,
which contains various provisions to continue the Healthy
Families program at current eligibility levels for the
2009-10 fiscal year, including application of the current
gross premiums tax to Medi-Cal managed care plans for the
purpose of supporting state health programs.
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"We are pleased to support AB 1422 because it provides
critically needed resources to continue existing health
programs for California children. The bill is also
straightforward in an important respect: it includes a tax
under California's Constitution. We applaud your
willingness to be candid about this reality. Importantly,
the measure represents a consensus among the
Administration, the industry subject to the tax, and other
stakeholders.
"AB 1422 requires a two-thirds vote of the California
legislature. Because it is narrowly crafted, serves a
compelling need, and has the unanimous support of the
industry that would pay the tax, we believe it deserves
such support."
DLW:nl 9/2/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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