BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           1602 (J. Perez)
          
          Hearing Date:  8/12/2010        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.
          _________________________________________________________________ 
          ____
                            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

          *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
          _________________________________________________________________ 
          ____

          STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
          
          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 
          Page 2
          AB 1602 (J. Perez)

          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 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.
          
          Page 3
          AB 1602 (J. Perez)

          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,  
          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 
          Page 4
          AB 1602 (J. Perez)

          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. 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.

          The author's proposed amendments would delete the provisions  
          related to 2010 federal health reform implementation that are  
          contained in other Assembly and Senate bills, including those  
          mentioned above. They would also delete provisions related to  
          governance, staffing, and administration of the Exchange that  
          are provided for in SB 900, would make this bill contingent on  
          then enactment of SB 900, and would clarify insurance market  
          provisions related to carriers not offering products in the  
          Exchange.