BILL ANALYSIS
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THIRD READING
Bill No: AB 1602
Author: John A. Perez (D), et al
Amended: 8/17/10 in Senate
Vote: 21
SENATE HEALTH COMMITTEE : 6-2, 6/30/10
AYES: Alquist, Cedillo, Leno, Negrete McLeod, Pavley,
Romero
NOES: Strickland, Aanestad
NO VOTE RECORDED: Cox
SENATE APPROPRIATIONS COMMITTEE : 7-4, 8/12/10
AYES: Kehoe, Alquist, Corbett, Leno, Price, Wolk, Yee
NOES: Ashburn, Emmerson, Walters, Wyland
ASSEMBLY FLOOR : 49-26, 6/1/10 - See last page for vote
SUBJECT : Health care coverage
SOURCE : Author
DIGEST : This bill implements Section 1311 of the
Affordable Care Act related to the establishment of an
American Health Benefit Exchange in California and its
administrative authority. The bill specifies that the
activities related to the provision of health coverage
within the Exchange. It would also be contingent on the
enactment of SB 900 (Alquist), which would create the
California Health Benefit Exchange and establish details
related to its governance.
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ANALYSIS : Existing state law establishes the Managed
Risk Medical Insurance Board (MRMIB), which administers the
Healthy Families program, the Major Risk Medical Insurance
Program, and the Access for Infants and Mothers Program.
MRMIB is a seven-member board in the Agency with three
gubernatorial appointments, two legislative appointments
and two ex officio non-voting members. MRMIB administers
three programs (the Healthy Families program, the Access
for Infants and Mothers Program and the Major Risk Medical
Insurance program), under which it has authority to
contract with health plans.
Existing federal law:
Exchange Provisions
1.Requires, under the federal Patient Protection and
Affordable Care Act (PPACA), (Public Law 111-148), each
state, by January 1, 2014, to establish an American
Health Benefit Exchange that makes qualified health plans
available to qualified individuals and qualified
employers. Federal law establishes requirements for the
Exchange, for health plans participating in the Exchange,
and defines who is eligible to receive coverage in the
Exchange.
(Effective January 1, 2014, the federal Act allows
individual taxpayers whose household income equals or
exceeds 100 percent, but does not exceed 400 percent of
the federal poverty level, a refundable tax credit for a
percentage of the cost of premiums for coverage under a
qualified health plan offering in the Exchange. The
federal Act also requires reductions in the maximum
limits for out-of-pocket expenses for individuals
enrolled in qualified health plans whose incomes are
between 100 percent and 400 percent of the federal
poverty level.)
2.Allows "qualified small employers" to elect, beginning in
2010, a tax credit worth up to 35 percent of a small
business' health insurance premium costs in 2010. On
January 1, 2014, this rate increases to 50 percent (35
percent for tax-exempt employers). A qualifying employer
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must cover at least 50 percent of the cost of health care
coverage for some of its workers based on the single
rate. A qualifying employer must have less than the
equivalent of 25 full-time workers (for example, an
employer with fewer than 50 half-time workers may be
eligible) and must pay average annual wages below
$50,000. Both taxable (for-profit) and tax-exempt firms
qualify. The credit phases out gradually for firms with
average wages between $25,000 and $50,000 and for firms
with the equivalent of between 10 and 25 full-time
workers. After January 1, 2014, the tax credit is only
available for coverage purchased through the Exchange,
and only for two consecutive years.
California Health Benefits Exchange
This bill establishes 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 requires 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.
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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 further requires 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.
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Background
The federal Act requires each state, by no later than
January 1, 2014, to establish an American Health Benefit
Exchange that:
1. Facilitates the purchase of qualified health plans, and,
2. Provides for the establishment of a Small Business
Health Options Program or "SHOP Exchange" that is
designed to assist small employers in facilitating the
enrollment of their employees in qualified health plans
offered in the small group market in the state.
The Secretary of DHHS is required (through regulation) to
establish criteria for the certification of health plans
qualified to participate in the Exchange. Those
requirements include meeting marketing requirements;
ensuring a sufficient choice of providers; and requiring
plans to consider all enrollees in the individual market
(except for grandfathered in plans), both in and outside
the Exchange, to be considered members of a single risk
pool, and all enrollees in the small group market (except
for grandfathered in plans), both in and outside the
Exchange to be members of a single risk pool.
The Act also sets forth the requirements for an Exchange,
including that an Exchange must be a governmental agency or
nonprofit entity that is established by a state. The
Exchange is also charged with several duties, including
screening and enrolling individuals in other public
programs, establishing a toll-free hotline and website,
assigning a quality and price rating to each health plan,
granting exemptions from the federal requirement to have
health insurance, providing an online calculator to
determine the actual cost of coverage after federal tax
subsidies are considered, and awarding grants to
"navigators" to conduct public education and facilitate in
qualified health plans.
Enrollment in the Exchange is open to any "qualified
individual" who seeks to enroll in a qualified health plan
in the individual market offered through the Exchange and
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who resides in the state that established the Exchange.
Individuals who are incarcerated (except for incarceration
pending the disposition of charges) are ineligible for the
Exchange, as are undocumented immigrants.
The Exchange is also open to a "qualified employer," which
is defined as a small employer that elects to make all
full-time employees of such an employer eligible for one or
more qualified health plans offered in the small group
market through an Exchange.
Federal health care reform establishes, for qualified small
employers, a tax credit for up to 50 percent of their
employee health care coverage expenses beginning in 2010.
In 2014, federal health care reform allows individual
taxpayers whose household income equals or exceeds 100
percent but does not exceed 400 percent, of the federal
poverty level (FPL) a refundable tax credit for a
percentage of the cost of premiums for coverage under a
qualified health plan. The Act also requires reductions in
the maximum limits for out-of-pocket expenses for
individuals enrolled in qualified health plans whose
incomes are between 100 percent and 400 percent of FPL.
The Exchange is the only place where tax credits for health
coverage are available to individuals. Beginning in 2014,
the tax credits for small employers are also only available
through the Exchange, and small employers can claim the
credit only for two consecutive taxable years.
Because the tax credits are only being made available
through the Exchange, the Exchange is projected to have a
sizable number of individuals, and a significant impact on
the health insurance marketplace. A UC Berkeley estimate,
following the enactment of federal health care reform,
estimates 8.4 million Californians will be eligible for the
Exchange, with 2.9 million (35 percent) of those
individuals eligible for the Exchange with a subsidy. Of
the 2.9 million individuals eligible for a subsidy in the
Exchange, the UC Berkeley estimate is that 2,450,000 (84
percent) are individuals and 545,000 are employees of small
employers.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: Yes
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According to the Senate Appropriations Committee:
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
SUPPORT : (Verified 8/19/10)
Local Health Plans of CASEIU
American Federation of State, County and Municipal
Employees
California Welfare Director's Association
Health Access
Consumer's Union
California Chiropractic Association
California Retired Teachers Association
OPPOSITION : (Verified 8/19/10)
Anthem Wellpoint
Association of California Life & Health Insurance Co.
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Bass, Beall, Block, Blumenfield,
Bradford, Brownley, Buchanan, Caballero, Charles
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Calderon, Carter, Chesbro, Coto, Davis, De La Torre, De
Leon, Eng, Evans, Feuer, Fong, Fuentes, Furutani,
Galgiani, Hall, Hayashi, Hernandez, Hill, Huffman, Jones,
Lieu, Bonnie Lowenthal, Ma, Mendoza, Monning, Nava, V.
Manuel Perez, Portantino, Ruskin, Salas, Saldana,
Skinner, Solorio, Swanson, Torlakson, Torres, Torrico,
Yamada, John A. Perez
NOES: Adams, Anderson, Bill Berryhill, Blakeslee, Conway,
Cook, DeVore, Emmerson, Fuller, Gaines, Garrick, Gilmore,
Hagman, Harkey, Huber, Jeffries, Knight, Logue, Miller,
Nestande, Niello, Nielsen, Norby, Silva, Smyth, Tran
NO VOTE RECORDED: Tom Berryhill, Fletcher, Audra
Strickland, Villines
CTW:nl 8/19/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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