BILL ANALYSIS AB 1602 Page 1 Date of Hearing: May 12, 2010 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 1602 (John A. Perez) - As Amended: April 15, 2010 Policy Committee: Health Vote:12-5 Urgency: No State Mandated Local Program: Yes Reimbursable: No SUMMARY This bill, the California Patient Protection and Affordable Care Act, implements several provisions of federal health reform (PL-111-148). Specifically, this bill: 1)Establishes the California Health Benefit Exchange (Exchange) and requires the Exchange to facilitate the purchase of qualified health coverage by individuals and small business employees by January 1, 2014. This bill establishes the Executive Board of the Exchange and establishes governance and functions of the Exchange. 2)Establishes the California Health Trust Fund, a continuously appropriated special fund. Requires the governing board of the Exchange to use federal funding to support the planning for and establishment of the Exchange. Authorizes the Board to institute appropriate measures to ensure the fiscal solvency of the Exchange. 3)Enacts private health insurance market reforms to prohibit the limiting age of dependent health coverage to be less than 26 years of age; to prohibit the imposition of health coverage lifetime limits; to prohibit the imposition of annual limits except in specified circumstances; and to prohibit the use of pre-existing conditions for health coverage underwriting for individuals younger than 19 years of age. FISCAL EFFECT 1)This bill establishes the California Health Benefits Exchange Fund (Fund) as a continuously appropriated special fund used to support the administrative workload of the Exchange and to AB 1602 Page 2 facilitate the purchase of health coverage for several million Californians. This bill authorizes unexpended or unencumbered funds at the end of a fiscal year to be carried forward and requires any interest earned to be retained by the Fund. This bill requires the Fund to include a prudent reserve. 2)Federal funding to establish the Exchange will be available from 2011 until January 1, 2015, at which time the Exchange must be self-sustaining, for which this bill provides the funding authority. Detail about the amount of federal funding available to California to support establishing the Exchange over the next few four years is not yet available. 3)According to estimates, by 2016, between three million and eight million individuals and employees of small firms will be purchasing coverage through the Exchange. About three million of these individuals will be eligible for coverage subsidies either because of income (family income of less than 400% of federal poverty level) or because they work for small firms benefiting from a related tax credit. The actual number of people accessing health coverage through the Exchange will depend on a number of factors, including access to subsidies and tax credits, the kind of benefits and prices offered in the Exchange, administrative savings generated by purchasing economies of scale, and other market factors. 4)Unknown, fee-supported special fund costs to the California Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) to implement insurance market reforms contained in this bill. There are several other bills in the current session implementing related market reforms. Actual implementation costs to these two departments for this bill and others in the current session will depend on how well market reforms function for the purposes of regulator workload and oversight. COMMENTS 1)Rationale . This bill enacts several major components of federal health reform, the Patient Protection and Affordable Care Act (PL-111-148), including establishing a California-based health insurance exchange, and establishing several insurance market reforms regarding dependent health coverage and benefit limits. The Exchange addressed in this bill will enable the purchase of coverage for between three AB 1602 Page 3 and eight million individuals. This bill will be a major factor in reducing the number of uninsured in California. Currently, 25% of non-elderly adults statewide are uninsured. 2)The Health Insurance Exchange . The federal health reform law made broad changes to the way health coverage is to be provided and paid for in California. The federal law created a new mechanism for purchasing coverage, called exchanges, which are state-based entities established to create a more organized and competitive market for health insurance. Competition and efficiency is expected to increase by offering a choice of health plans, establishing common rules regarding the offering and pricing of insurance, and providing information to help consumers better understand the options available to them. Initially the California Exchange will serve primarily individuals purchasing insurance on their own and smaller employers. Several years later, California will have the option of opening Exchanges to larger employers. 3)Dependent Health Coverage . Most individual and group health coverage policies set a limiting age for coverage of dependent children. The limiting age determines when children are no longer considered dependents for the purposes of health coverage. The age is often set at 19. However, contracts also often allow a young person who is enrolled full-time in college to remain on the policy as a dependent until age 23. In addition, California statute establishes an exception to the limiting age for those dependents who are incapable of self-sustaining employment by reason of a physically or mentally disabling injury, illness, or condition and who remain chiefly dependent on the subscriber, member, or policyholder for support and maintenance. This bill extends the limiting age for health coverage until a dependent's 26th birthday. 4)Insurance Benefit Limits . Under current law, health plans and insurers may impose health coverage limits. For example, an insurer may pay for a specified amount of care in a given year or over an individual's lifetime. Federal health reform prohibits health plans from placing lifetime limits health coverage, effective in 2010. In addition, prior to 2014, group health plans and health insurers may only impose a restricted annual limit for essential health benefits under the Patient Protection and Affordable Care Act. At this time, only baseline federal guidance for the meaning of essential health AB 1602 Page 4 benefits has been provided. 5)Related Legislation . Several bills in the current session address features and requirements of federal health reform: a) SB 900 (Alquist), pending in the Senate, establishes the California Health Benefits Exchange within the California Health and Human Services Agency. b) SB 1088 (Price), pending in the Senate, increases the limiting age of dependent health coverage until the dependent's 26th birthday. c) AB 1595 (Jones), also being heard in this committee today, requires the California Department of Health Care Services (DHCS) to expand Medi-Cal eligibility to individuals with family income up to 133% of the federal poverty level (FPL) without regard to family status. d) AB 1887 (Villines), pending in this committee, establishes California's temporary high risk pool to expand the number of insured individuals with pre-existing conditions. e) AB 2244 (Feuer), pending in this committee, addresses insurance market writing reforms for children and adults with regard to pre-existing conditions and the renewability of health insurance. f) AB 2477 (Jones), pending on the Suspense File of this committee, eliminates mid-year status reports for children on Medi-Cal. g) SB 1163 (Leno), pending in the Senate, requires detailed health plan and insurer data and actuarial justification for premium increases and non-standard premium charges. Analysis Prepared by : Mary Ader / APPR. / (916) 319-2081