BILL ANALYSIS
AB 1422
Page 1
(Without Reference to File)
CONCURRENCE IN SENATE AMENDMENTS
AB 1422 (Bass)
As Amended August 25, 2009
2/3 vote. Urgency
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|ASSEMBLY: | |(May 28, 2009) |SENATE: |27-8 |(September 2, 2009) |
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(vote not relevant)
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|COMMITTEE VOTE: |12-2 |(September 2, 2009) |RECOMMENDATION: |concur |
| (Health) | | | | |
|-----------------+-----+--------------------+----------------+----------|
|COMMITTEE VOTE: |6-2 |(September 2, 2009) |RECOMMENDATION: |concur |
| (Revenue & | | | | |
|Taxation) | | | | |
|-----------------+-----+--------------------+----------------+----------|
|COMMITTEE VOTE: |10-3 |( September 3, |RECOMMENDATION: |concur |
| | |2009) | | |
|(Appropriations) | | | | |
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Original Committee Reference: H. & C.D.
SUMMARY : Provides, on an urgency basis, funding for, and makes
program changes to, the Healthy Families Program (HFP),
administered by the Managed Risk Medical Insurance Board (MRMIB),
which provides health care coverage for eligible low- and
moderate-income children; extends the gross premium tax of 2.35% to
Medi-Cal managed care (MCMC) plans; and, authorizes the California
Children and Families Commission (CCFC) to make specified transfers
of program revenues.
The Senate amendments delete the Assembly version of this bill, and
instead:
1)Grant CCFC the authority to transfer funds that are allocated to
the CCFC, but are not needed for the purposes specified in
existing law, from specified accounts to the Unallocated Account.
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Specifically, the amendments allow CCFC to transfer funds from
the Mass Media Communications Account, the Education Account,
Child Care Account, and Research and Development Account to the
Unallocated Account. Declare legislative intent that the changes
proposed in this bill are in furtherance of the California
Children and Families Act of 1998, an initiative statute.
2)Increase, effective November 1, 2009, the monthly premiums paid
by certain families for children enrolled in HFP. As an example,
for families enrolled in the community provider plan, the
cheapest plan available for HFP subscribers, premiums will
increase as follows:
a) No changes for families at or below 150% of the federal
poverty level (FPL). (In 2009, the FPL for a family of three
is $18,310 per year);
b) For families whose income is above 150% of the FPL and up
to 200%, from $9 to $13 per child, with the family maximum
increasing from $27 to $39; and,
c) For families whose income is above 200% of the FPL and up
to 250% of the FPL, from $14 to $21 per child, with the family
maximum increasing from $42 to $63.
3)Require MRMIB to notify families of the increase in premiums and
provide them an opportunity to demonstrate that the family's
income has decreased making them eligible for a lower premium.
4)Grant MRMIB the authority to use emergency regulations to modify
health, dental, and vision benefits or other HFP requirements for
fiscal years (FYs) 2009-10 and 2010-11.
5)Extend to MCMC plans the gross premium tax of 2.35% which is
imposed on insurers certificated by the California Department of
Insurance (CDI) pursuant to Section 28 of Article XIII of the
California Constitution, and define as the basis of the tax the
MCMC plans' total operating revenue for the period January 1,
2009, to December 31, 2009, including but not limited to,
Medi-Cal revenues. Extend to MCMC plans existing provisions
related to the gross premiums tax including, among other things,
prepayment requirements, penalties and under- and overpayment
provisions.
6)Appropriate, on a continuous basis, revenues raised by the gross
premiums tax as follows: 38.41% to Department of Health Care
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Services (DHCS) for purposes of the Medi-Cal program and 61.59%
to MRMIB for HFP. Exempt dental MCMC plans from the gross
premiums tax imposed by this bill.
7)Sunset the provisions of this bill related to the gross premium
tax for MCMC plans January 1, 2011.
8)Make inoperable specific provisions of this bill if certain
conditions occur, including lack of federal approval and matching
funds, diversion of the revenues raised by the premiums tax to
purposes not contained in this bill, or a judicial determination
that this tax is found to be in lieu of all other taxes that
insurers must ordinarily pay.
9)Direct DHCS to use the funds attributable to the tax on MCMC
plans established in this bill for the purposes of ensuring that
MCMC plans receive contracted rates of payment for services that
are actuarially sound, and allow MCMC plans to delay in paying
the tax due if DHCS has not met specified statutory obligations
related to calculating rates and making payments. Authorize DHCS
to retroactively increase rates and make payments to plans.
10) Authorize the Director of Finance (DOF) to make necessary
budget adjustments to allow the expenditure of funds allocated by
CCFC and require DOF to notify specified appropriate committees
of the Legislature within 30 days of any budgetary adjustments,
and to include in the notice a description of the revenues and
expenditures.
EXISTING LAW :
1)Establishes HFP, administered by MRMIB, to provide low-cost
insurance, including health, dental, and vision coverage, to
children who do not have health insurance, do not qualify for
free Medi-Cal and are in families at or below 250% of the FPL,
and establishes monthly premium amounts that families must pay
for HFP coverage.
2)Establishes the state's Medicaid program, known as Medi-Cal,
administered by the DHCS, which provides comprehensive health
benefits to low-income children, their parents or caretaker
relatives, pregnant women, seniors, persons with disabilities,
nursing home residents, and refugees who meet specified
eligibility criteria.
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3)Authorizes DHCS to contract, on a bid or nonbid basis, with any
qualified individual, organization, or entity to provide services
to, arrange for, or case manage, the care of Medi-Cal
beneficiaries. Defines a MCMC plan as any entity that enters
into one of several types of contracts with DHCS including county
organized health systems, geographic managed care plans, and
local initiatives. Requires DHCS to use actuarial methods in
calculating rates for MCMC plans.
4)Imposes a Medi-Cal quality improvement fee (QIF) on MCMC plans
and a quality assurance fee on skilled nursing facilities and
intermediate care facilities for the developmentally disabled.
5)Establishes the California Children and Families Program (CCFP),
also known as First Five California, which was created by the
enactment of Proposition 10 in November 1998, and is funded by a
tax on tobacco products equivalent to $.50 per pack of
cigarettes. Creates the California Children and Families Trust
Fund to receive revenue from the tax on tobacco products, and
requires the revenues to be appropriated for the purposes of
promoting, supporting, and improving the development of children
from birth to five years of age and to offset certain revenue
losses to Proposition 99 tobacco-tax programs (the California
Health Protection Act of 1988). Allocates funds for specified
purposes and places those allocated funds in specified accounts.
6)Creates CCFC, with members appointed by the Governor, the Speaker
of the Assembly, and the Senate Rules Committee, to administer
CCFP, formulate statewide program guidelines, distribute
educational materials, provide technical assistance to counties,
and conduct research and evaluation of early childhood
development programs.
7)Requires insurers certificated by CDI (insurers selling property
insurance, life insurance, casualty insurance, and specific types
of disability insurance, including health insurance) to pay a tax
based upon gross premiums received. Establishes in Section 28 of
Article XIII of the California Constitution the gross premiums
tax at 2.35% of annual gross premiums as a tax that is in lieu of
all other taxes and licenses upon insurers and their property,
with certain specified exceptions (including taxes upon real
estate and Department of Motor Vehicles license fees).
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AS PASSED BY THE ASSEMBLY , this bill allowed a redevelopment agency
to use tax increment funds, not held in the Low and Moderate Income
Housing Fund, to acquire, assume or refinance loans to eligible
homeowners with subprime or nontraditional mortgages in default or
at risk of default.
FISCAL EFFECT : According to the Assembly Appropriations Committee,
the table below displays the funding allocations from the gross
premiums tax, Medi-Cal and related federal matching funds. For
2009-10, the 2.35% gross premiums tax on the existing MCMC plan
revenues of $6.7 billion generates $157 million General Fund (GF).
In 2010-11, when the gross premiums tax is in place for only half
the year, the gross premiums tax collected is $79 million GF. The
estimate for 2009-10 assumes implementation of the gross premiums
tax within the current budget year. HFP has a 35%/65%
(state/federal) match and, until January 2011, Medi-Cal has a
38.41%/61.59% (state/federal) match.
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| Fiscal Impact of AB 1422 |
| |
| Healthy Families Funding |
| (dollars in millions) |
| |
------------------------------------
|--------+----------+-------+--------|
|Year |GF |Federal|Total |
| |allocated | Match |Funding |
| |from | | |
| |gross | | |
| |premiums | | |
| |tax | | |
| |(61.59%) | | |
|--------+----------+-------+--------|
|2009-10 | 97| 180| 277|
|--------+----------+-------+--------|
|2010-11 | 49| 91| 140|
| | | | |
------------------------------------
------------------------------------
| Medi-Cal Funding paid to MCMC (in |
| millions) |
------------------------------------
------------------------------------
| |GF |Federal|Total |
|Year |allocated | Match |Funding |
| |from | | |
| |gross | | |
| |premiums | | |
| |tax | | |
| |(38.41%) | | |
| | | | |
------------------------------------
|2009-10 | 60| 97| 157|
|--------+----------+-------+--------|
|2010-11 | 30| 49|79 |
| | | | |
------------------------------------
In addition, this bill results in GF savings associated with
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increased HFP premiums of $5 million to $6 million in 2009-10.
Premium collections in 2010-11 will depend on caseload, subsequent
policy changes, and demand for the program.
COMMENTS : According to the author, this bill establishes a funding
mechanism that will avoid the disenrollment of 670,000 low-income
children from HFP and will remove the current HFP waiting list
through 2010. The author identifies the three part funding in this
bill as a shared solution to the $194 million HFP funding shortfall
resulting from General Fund (GF) cuts made to the program this
year. The three-part funding solution is as follows: $81.4
million in funds pledged by First Five California to support HFP
coverage for children ages 0-5; $157 million in gross premiums
taxes which yield $97 million in additional federal funds for HFP;
and, savings from program changes to HFP, including the increased
family premiums proposed in this bill and other program changes
being adopted by MRMIB. The author points out that this bill is
supported by a broad coalition including the health plans that will
pay the tax, DHCS, and consumer and children's health advocates.
Healthy Families Program.
HFP is California's version of the federal Children's Health
Insurance Program and provides health, dental and vision coverage
to children in families with incomes between 100-250% of the FPL
who are not eligible for Medi-Cal and do not have private
insurance. California receives a 2:1 federal match for every
dollar spent on HFP. As of August 1, 2009, there were
approximately 920,000 children enrolled in HFP.
HFP currently has a $194 million GF shortfall resulting from
budget-related cutbacks and has been closed to all new enrollments
since July of this year. As of August 25, 2009, there were 70,788
children on the HFP waiting list. Without additional funding,
MRMIB had scheduled to begin disenrolling nearly 700,000 children
in October 2009. At an August 27, 2009, emergency meeting, MRMIB
adopted the following changes to HFP:
1)Approved emergency regulations to increase HFP copayments:
a) $10 (increase of $5) for various non-preventative health,
dental, and vision services;
b) $15 ($10 increase) for emergency room visits; and,
c) $10 ($5 increase) for generic drugs and $15 ($10 increase)
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for brand name drugs;
2)Approved emergency regulations to conform HFP dental coverage to
the approach used for state employees.
3)In light of the infusion of funding from First Five California,
delayed any program disenrollments from October 1, 2009 to
November 1, 2009.
Gross Premiums Tax
The gross premiums tax is paid by insurers certificated to sell
insurance under provisions of the Insurance Code and subject to the
jurisdiction of the Commissioner of Insurance (generally defined as
property insurance, life insurance, casualty insurance, and
disability insurance, including health insurance). The gross
premiums tax is established in the California Constitution at 2.35%
of gross revenues and is considered an excise tax on insurers for
the privilege of transacting insurance in the state.
Health plans that operate under the regulation of the Department of
Managed Health Care (DMHC), generally prepaid health plans that are
health maintenance organizations, and some preferred provider
organizations, are legally not considered to be in the business of
insurance and not subject to regulation under the Insurance Code,
pursuant to court rulings dating back to the 1940s and the
provisions of the Knox-Keene Health Care Service Plan Act of 1975
(Knox-Keene). Knox-Keene licensed plans do not pay the gross
premiums tax. Most MCMC plans are Knox-Keene licensed health
plans.
Medi-Cal Provider Fees
Federal law authorizes states to levy fees on health care providers
if the fees meet federal requirements. Many states (including
California) fund a portion of their share of Medicaid Program costs
through a fee on health care providers. Under these funding
methods, states collect funds (through fees, taxes, or other means)
from providers, which can then be matched with federal funds to
increase Medicaid reimbursement to providers. Forty-five states
have Medicaid provider fees, including California. California
currently imposes provider fees for MCMC plans, skilled nursing
facilities, and intermediate care facilities for the
developmentally disabled.
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MCMC plans currently pay a QIF at the rate of 5.5% of revenues.
The net increase in revenue is deposited into the state GF, and is
estimated to be $238.8 million (total funds) in 2008-09 and
projected to raise $89.9 million in FY 2009-10. Half of the fee is
used to draw down federal funds and is returned to the plans
through increased Medi-Cal rates. The QIF is currently assessed on
MCMC revenue. Federal law requires that provider fees be
broad-based and uniformly imposed throughout a jurisdiction, and
not just on Medicaid providers. The current MCMC plan QIF does not
meet that federal requirement and is scheduled under state law to
sunset October 1, 2009.
The gross premiums tax imposed on MCMC plans in this bill is an
existing tax already imposed on the broad group of insurers
certificated in California and will not be considered a Medicaid
provider fee under federal law. This means that California does
not have to meet other requirements of federal law applicable to
provider fees in order to obtain federal matching funds.
Medi-Cal Managed Care
Under the traditional Medi-Cal fee-for-service arrangement,
providers are reimbursed for every service they provide and assume
no financial risk. Under MCMC, DHCS reimburses MCMC plans on a
"capitated" basis, a per-person, per-month payment, regardless of
the number of services, if any, a Medi-Cal beneficiary receives.
The contracting health plans, in return, assume financial risk, in
that it may cost them more or less money than the capitated amount
paid to them to deliver the care. Currently, some form of MCMC
serves approximately 3.2 million Medi-Cal beneficiaries; 2.8
million Medi-Cal beneficiaries in medical managed care and
approximately 400,000 in dental managed care plans.
MCMC plans operate in 22 of the state's 58 counties - generally
those in large, urban counties. There are three major types of
Medi-Cal managed care plans:
1)Geographic Managed Care operates in Placer, Sacramento, and San
Diego Counties and allows Medi-Cal beneficiaries to choose from
among multiple contracting commercial health plans.
2)County Organized Health System (COHS) plans operate in eight
counties, with one health plan run by a public agency and
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governed by an independent board that includes local
representatives. All Medi-Cal enrollees residing in the county
receive care from this system on a mandatory basis. COHS plans
operate in Monterey, Napa, San Luis Obispo, San Mateo, Santa
Barbara, Santa Cruz, Solano, and Yolo Counties.
3)Two-Plan Model programs operate in 12 counties and are based on
DHCS contracts with two managed care plans in each county. There
are some exceptions, but generally two-plan counties have a
publicly organized plan, originally developed by the county with
local stakeholders, known as the Local Initiative, and one
commercial health plan.
DHCS contracts with a total of 20 health plans to provide services
to Medi-Cal members in 22 counties. Some MCMC plans contract under
more than one model and some act as subcontractors for other MCMC
plans. Some are commercial plans and some are health plans whose
primary or sole line of business is Medi-Cal and other
government-funded populations such as HFP enrollees.
Both state and federal law require that MCMC plans be paid rates
that are actuarially sound, so that MCMC plans are paid a rate that
takes into consideration the costs they incur and the populations
that they serve. Medicaid plans have sued in federal court in
other states to force compliance with the federal Medicaid rate
requirements. The federal rules do not require all costs of a MCMC
plan to be covered but the state is required to set rates that
accurately reflect the costs of doing business for MCMC plans as a
whole. In 2006-07, DHCS contracted with Mercer Consulting to
develop a rate-setting methodology for MCMC plans that would meet
these requirements and DHCS is now using this methodology.
MCMC plans that will be subject to the tax under this bill will be
able to avoid having to pay on their revenues from other programs
by shifting the Medi-Cal enrollment to a separate corporate entity,
which many plans already did as a result of the imposition of the
QIF. However, public plans, like the COHS, are less likely to have
separated their lines of business and may pay a slightly higher tax
as a result of other lines of business, with the exception being
any Medicare revenues which, according to DHCS, cannot be taxed by
states.
First Five California
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First Five California was established by the enactment of
Proposition 10 in November 1998 and is funded by a tax on tobacco
products equivalent to $.50 per pack of cigarettes. The revenues
are appropriated at both the state and local levels for the
purposes of promoting, supporting, and improving the development of
children from birth to five years of age and to offset certain
revenue losses to Proposition 99 programs. Proposition 10
allocated a defined proportion of the funds raised to specific
purposes and accounts.
Among other things, by granting the CCFC flexibility to transfer
funds among the specific accounts, this bill will allow CCFC to
increase funding for children's health programs. At the August 13,
2009 meeting, CCFC voted to approve providing up to $81.4 million
to HFP for the period from August 13, 2009, through June 30, 2010,
for children ages 0 through 5 who would otherwise not be enrolled
in HFP due to implementation of a waiting list, or who would be
disenrolled on their annual review date due to insufficient HFP
funding.
Arguments in Support
Health plans, health care consumer groups, children's advocates,
and counties support this bill to ensure that children currently
enrolled in HFP do not lose their health care coverage. Supporters
point to this bill as a shared approach to addressing the funding
shortfall in HFP, including First Five funding, the health plan tax
to secure additional federal funds, and HFP program changes, such
as the increase in the monthly HFP premiums. Supporters point out
that without HFP coverage children will lack access to preventive
services which will likely drive up overall health care costs in
the remainder of the system when children must seek treatment after
health conditions have worsened and become more costly to treat.
Health plans that will pay the tax support this bill and point out
that the tax will provide revenues to draw down critical federal
funding for HFP but will not have any impact on consumers in
commercial coverage products.
Arguments in Opposition
The Howard Jarvis Taxpayers Association opposes this bill stating
that it is a tax and not a fee and should be subject to a 2/3 vote
of the Legislature.
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REGISTERED SUPPORT / OPPOSITION :
Support
100% Campaign
California Association of Health Plans
California State Association of Counties
Center to Promote Health Care Access
Children NOW
Children's Defense Fund, California
City and County of San Francisco
Community Health Councils
County Health Executives Association of California
County Welfare Directors Association
Health Net
Insure the Uninsured Project
Latino Coalition for a Healthy California
Local Health Plans of California
PICO California
The Children's Partnership
United Way
Urban Counties Caucus
Opposition
Howard Jarvis Taxpayers Association
Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097
FN:
0002884