BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1602 (J. Perez)
Hearing Date: 8/2/2010 Amended: 8/2/2010
Consultant: Katie Johnson Policy Vote: Health 6-2
_________________________________________________________________
____
BILL SUMMARY: AB 1602 would implement several provisions of the
federal health care reform act, known as the Affordable Care Act
(ACA). The bill would:
1) Establish the California Health Benefits Exchange
(Exchange);
2) Enact federal requirements that would allow individuals
to remain on their parents' health care coverage until age
26;
3) Prohibit health care service plans and insurers from
excluding children from health care coverage due to a
pre-existing condition; and,
4) Prohibit annual and lifetime benefit limits.
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____
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Exchange initial start-up costs likely in the millions of
dollars General/*
annually through January 1, 2014Federal
Ongoing Exchange likely to start January 1, 2014,
in the Special**
administration tens of millions of dollars annually
CDI oversight, filing review approximately $185
ongoingSpecial***
likely to start January 1, 2014
DMHC oversight, filing review $1,100 in first year; $1,700 in
second Special****
year; ongoing unknown. Likely to start January 1,
2014
CalPERS premium increases approximately $85 million
annually General/*****
Special/
CDI filings due to $365 $0
$0Special***
guaranteed issue for children
DMHC filings due to guaranteed likely hundreds of thousands of
dollars Special****
issue for children in FY 2010-2011; ongoing minor
Healthy Families increased $425 $850$850
General/******
premiums preventive services Federal
CalPERS increased premiums $390 $780
$780General/*****
preventive services Special
*Unspecified amount of federal funds available likely in 2011;
General Fund pressure if total expenses not met by federal funds
grant
**California Health Trust Fund-fully supported with consumer
premiums
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AB 1602 (J. Perez)
***Insurance Fund
****Managed Care Fund
*****55 percent General Fund, 45 percent special funds and other
funds
******50 percent General Fund, 50 percent federal funds
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
California Health Benefits Exchange
This bill would establish the California Health Benefits
Exchange (Exchange) as an independent public entity with an
appointed executive board of 5 members and an executive director
to purchase health insurance on behalf of Californians above 100
and up to 400 percent of the federal poverty level and employees
of small businesses. Individuals and small businesses would be
eligible for a tax credit that would offset premium costs. The
tax credit would only be available to those individuals and
small businesses purchasing insurance through the Exchange.
Estimates place Exchange enrollment up to 9 million individuals.
The ACA, requires states that elect to establish exchanges
either through a governmental entity or a non-profit
organization, in lieu of the federal government establishing it
for a state, to have the Exchange be operational by January 1,
2014.
This bill would require the board to apply for federal funds
that are provided for in federal health reform. Section 1311 of
the ACA states that the federal government will award grants to
states beginning in 2011, not later than one year after PPACA's
enactment, in annual, unspecified amounts to assist states in
establishing state Health Benefits Exchanges. If the federal
funds do not cover the costs of implementation prior to the
collection of fees on premiums, there could be General Fund cost
pressure to make up the difference. By January 1, 2015, the
federal government expects exchanges to be fully self-funded.
Additionally, if a state chooses not to establish its own
exchange, the federal government would run the state's exchange
either directly or through a non-profit.
Initial start-up costs would likely be in the millions of
dollars for staff and, in addition to the ongoing duties of the
Exchange, could include information technology (IT) investments
that could be in the millions of dollars in procurement. Federal
law requires exchanges to, among other duties, 1) certify
qualified health plans, 2) provide for a toll-free consumer
hotline, 3) maintain a website with standardized comparative
information on such plans, 4) assign a rating to each qualified
health plan, 5) present health plan information in a
standardized format, 6) establish a calculator to determine the
actual cost of coverage, and, 7) grant a certification attesting
that an individual is exempt
from the individual responsibility requirement. Several of these
requirements would likely be instituted and met during the
Exchange start-up and some would be maintained as part of the
exchange's ongoing operations.
This bill would further require the Exchange to 1) determine
eligibility, enrollment, and disenrollment criteria and
processes for enrollees, 2) determine the minimum requirements a
health plan must meet to be considered for participation in the
exchange, 3) determine when an enrollee's coverage commences,
the extent and
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AB 1602 (J. Perez)
scope of coverage, and determine and approve cost-sharing
provisions for qualified health plans, 4) employ necessary
staff, 5) authorize expenditures, as necessary, from the
California Health Trust Fund (Fund) to pay program expenses to
administer the Exchange, 6) establish the Small Business health
Options Program, 7) report to the Legislature no later than
December 1, 2018, on whether to merge or keep separate the
individual and small group markets, 8) maintain enrollment,
collect premiums, and submit expenditures to ensure that
expenditures do not exceed the amount of revenue in the Fund,
and if sufficient revenue is not available to pay estimated
expenditures, institute appropriate measures to ensure fiscal
solvency, among other duties. This bill would permit that any
regulations adopted by the board until January 1, 2014, to be
adopted as emergency regulations.
This bill would create the California Health Trust Fund in the
State Treasury. It would be continuously appropriated. It would
prohibit any moneys deposited in the Fund from being loaned to,
or borrowed by, any other special fund or the General Fund, or a
county fund.
Effective January 1, 2015, DMHC and CDI would be required to
develop and maintain an electronic clearinghouse of information
regarding health benefits products offered by carriers in the
individual and small employer markets.
SB 900 (Alquist/Steinberg) similarly establishes an Exchange. It
is currently pending hearing the Assembly Appropriations
Committee.
Insurance up to Age 26 and Annual and Lifetime Limits
The ACA requires, as these provisions would, that health plans
and insurance issuers that offer dependent coverage to make that
coverage available until the adult child reaches the age of 26
beginning in the policy or plan year after September 23, 2010.
Employers that provide group health care coverage for employees,
including the State of California, would not be required to pay
the dependent's premium. However, interim federal rules provide
that an employer may not treat these dependents differently than
those currently covered.
If the State of California, as an employer, were to pay the
employer's share of premiums for about 40,000 23 - 26 year olds,
it could cost the state up to approximately $85 million in total
funds that would be shared 55 percent General Fund, 45 percent
special funds and other funds to pay premiums. The California
Public Employees Retirement System (CalPERS), the entity that
purchases health care coverage on behalf of the state employees,
could also see unknown costs to update its computer systems to
comply with this bill and federal law. These costs would be
factored into CalPERS' proposed 2011 rate in the annual Budget
Act.
SB 1088 (Price) similarly enacts this coverage expansion. It is
currently pending hearing the Assembly Appropriations Committee.
The ACA also would prohibit health plans and insurers from 1)
establishing any lifetime limits on the dollar value of
essential health benefits for any participant or beneficiary,
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AB 1602 (J. Perez)
effective September 23, 2010, and 2) establishing annual limits
on the dollar value of essential heath benefits for any
participant or beneficiary, except that until January 1, 2014,
there could be established a "restricted annual limit" on
essential health benefits.
Since costs related to this provision would happen in the
absence of this bill, associated costs would be due to federal
law and not to this bill. However, if federal law were to be
amended or repealed and these provisions were to remain in state
law, there would be state costs as described above.
Pre-Existing Conditions Prohibition
The ACA requires each health insurance issuer in the individual
or group market to accept every employer and individual that
applies for coverage. For children, this would commence in the
plan year following September 23, 2010. For adults, guarantee
issue would begin on January 1, 2014. The Secretary of the
federal Health and Human Services Department (HHS) must
promulgate regulations regarding enrollment periods and
qualifying events related to guarantee issue; as of the writing
of this analysis, they have yet to be released.
This bill would prohibit a health plan contract or insurance
policy issued, amended, renewed, or delivered on or after
September 23, 2010, from excluding coverage due to any
preexisting condition, also known as guarantee issue, for
children commencing January 1, 2011, and would include adults
January 1, 2014, for those same populations on those same dates.
In order to review new or amended contracts and policies, DMHC
and CDI would need resources as follows: CDI would need $365,000
in FY 2010-2011 and DMHC would probably need similar resources.
Ongoing costs would be minor.
There could be potential cost avoidance and savings to the
extent this bill were to increase enrollment in private health
plans and insurers and to correspondingly reduce enrollment in
publicly funded health care coverage programs such as Medi-Cal,
Healthy Families, and the California Children's Services (CCS)
programs. Some of these costs could shift to the private health
insurance market.
AB 2244 (Feuer) similarly implements this provision and is
pending hearing on August 2 in this committee.
Preventive Services Cost-Sharing Prohibition
Subject to the minimum interval established by the federal
Department of Health and Human Services (HHS), this bill would
prohibit health care service plans and health insurers from
imposing cost-sharing requirements, such as copayments and
coinsurance, on specified preventive services as stated in the
Patient Protection and Affordable Care Act (ACA) for group and
individual contracts and policies issued, amended, renewed, or
delivered on or after September 23, 2010.
Those preventive services include, at a minimum, immunizations,
preventive care and screenings, and breast cancer screening,
mammography, and prevention.
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AB 1602 (J. Perez)
To the extent that health plans and insurers that contract with
the Managed Risk Medical Insurance Board (MRMIB) and the
California Public Employees Retirement System (CalPERS) do not
currently fully comply with these requirements, there could be
cost pressure to increase rates.
If MRMIB and CalPERS had to pay $1 annually more in premiums for
each of their respective 800,000 to 900,000 subscribers and
778,934 state employees and their dependents, costs would be
approximately $800,000 - $900,000 total funds for the Healthy
Families Program, Major Risk Medical Insurance Program (MRMIP),
and the Access for Infants and Mothers Program (AIM), and
$778,934 total funds annually for CalPERS.
Healthy Families costs are shared approximately 65 percent
federal funds and 35 percent General Fund as well as subscriber
premiums; MRMIP's costs are about 40 percent state tobacco tax
revenue and 60 percent subscriber premiums; AIM costs are shared
approximately 65 percent federal funds and 35 percent state
tobacco tax revenue. CalPERS costs are shared approximately 55
percent General Fund and 45 percent special and other funds as
well as some subscriber premiums.
While the provisions of this bill are required by the federal
ACA, by placing these requirements in state statute, there would
be costs to these programs to maintain these provisions if
federal law were to be amended or repealed.
AB 2345 (De La Torre) similarly implements this provision and is
pending hearing on August 2 in this committee.