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.