BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  AB 1602|
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                                 THIRD READING


          Bill No:  AB 1602
          Author:   John A. Perez (D), et al
          Amended:  8/20/10 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.
                                                           CONTINUED





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           Senate Floor Amendments  of 8/20/10 authorize the California  
          Health Facilities Financing Authority to provide start-up  
          loans to the Exchange, require an annual audit and contains  
          other fiscal accountability provisions, require the  
          Exchange Board to hire specified positions exempt from  
          civil service, and make specified changes to the health  
          insurance provisions of this bill.

           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  







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            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  
            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  







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          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 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)  







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          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 also does the following:

          1. Requires, beginning January 1, 2016, the Exchange board  
             to conduct an annual audit.  

          2. Requires the Exchange board to annually prepare a  
             written report on the implementation and performance of  
             the Exchange functions during the preceding fiscal year,  
             including, at a minimum, the manner in which funds were  
             expended and the progress toward, and the achievement  
             of, the requirements of this bill.  Requires this report  
             to be transmitted to the Legislature and the Governor,  
             and to be made available to the public on the website of  
             the Exchange.

          3. Requires the Exchange to be responsive to requests for  
             additional information by the Legislature, including  
             testifying and commenting on proposed state legislation  
             or policy issues.  Makes legislative findings and  
             declarations that these activities, including but not  
             limited to, responding to Legislative or Executive  
             inquiries, tracking and commenting on legislation and  
             regulatory activities, preparing reports on the  
             implementation of this bill and the performance of the  
             Exchange, are necessary state requirements and distinct  
             from the promotion of legislative or regulatory  
             modifications referred to in this bill.

          4. Requires the Exchange Board, if at the end of any fiscal  
             year, the California Health Trust Fund has unencumbered  
             funds in an amount that equals, or is more than, the  
             operating budget of the Exchange for the next fiscal  
             year, to reduce the assessments authorized by this bill  
             during the following fiscal year in an amount that will  
             reduce any surplus funds of the Exchange to an amount  







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             less than the Exchange's operating budget for the next  
             fiscal year.  This requirement takes effect January 1,  
             2016.

          5. Modifies the selective contracting standards and  
             criteria in this bill, including requiring the Exchange  
             Board to consistently and uniformly apply those  
             requirements, standards, and criteria to all carriers.

          6. Narrows and clarifies the requirement that health plans  
             and insurers not participating in the Exchange offer the  
             standardized products that are offered in the Exchange  
             to specify that plans and insurers offer at least one  
             standardized product designed by the Exchange, and  
             applies this requirement only if the Exchange  
             standardizes products.  Prohibits the standardization  
             requirement from requiring health plans and health  
             insurers that do not participate in the individual or  
             small employer market from being required to sell  
             standardized products in those markets.

          7. Permits the California Health Facilities Financing  
             Authority (CHFFA) to provide a working capital loan of  
             up to $5 million to assist in the establishment and  
             operations of the Exchange.  Permits CHFFA to require  
             any information it deems necessary and prudent prior to  
             consideration of a loan to the Exchange, and to require  
             any term, condition, security or repayment provision it  
             deems necessary in the event CHFFA chooses to make a  
             loan.  Prohibits CHFFA from being required to authorize  
             a loan to the Exchange.

          8. Requires any supplemental coverage offered in the  
             Exchange to be subject to the charge imposed under the  
             provisions of this bill requiring the Exchange to assess  
             a charge on qualified health plans offered by carriers  
             that is reasonable and necessary to support the  
             development, operations and prudent cash management of  
             the Exchange.

          9. Requires the Exchange to only collect information from  
             individuals necessary to administer the Exchange and  
             consistent with the federal health care reform bill,  
             rather than being consistent with a specific section of  







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             that bill. 

          10.Clarifies the requirement that the Exchange has the  
             authority to standardize products to be offered through  
             the Exchange.

          11.Conditions the authority under this bill for the  
             Exchange Board to have additional appeals by requiring  
             the Board to determine that any additional appeals  
             requirement results in no cost to the General Fund and  
             no increase in the charge imposed under this bill.

          12.Requires a majority of the Exchange Board to be  
             constituted prior to consideration of the loan by CHFFA,  
             and requires the Exchange Board to demonstrate to the  
             satisfaction of CHFFA, that the federal planning and  
             establishment grants to the Exchange made available by  
             the federal Secretary of Health and Human Services, are  
             insufficient or will not be released in a timely manner  
             to allow the Exchange to meet the necessary requirements  
             of PPACA.  Requires the Exchange to repay the loan no  
             later than June 30, 2016, and to pay interest at the  
             rate paid by moneys in the Pooled Money Investment  
             Account.

          13.Requires the Exchange Board to hire a chief fiscal  
             officer, a chief operations officer, a director for the  
             SHOP (small business) Exchange, a director of health  
             plan contracting, a chief technology and information  
             officer, a general counsel, and other key executive  
             positions, as determined by the Board, and exempts these  
             positions from civil service.  Exempts these positions  
             from otherwise applicable provisions of the Government  
             Code or the Public Contract Code and, for those  
             purposes, prohibits the Exchange from being considered a  
             state agency or public entity.  Requires the Board to  
             set the salaries for these exempt positions and for the  
             Exchange executive director in amounts that are  
             reasonably necessary to attract and retain individuals  
             of superior qualifications.  Requires the salaries to be  
             published by the Board in the Board's annual budget, and  
             requires the Board's annual budget to be posted on the  
             Internet Website of the Exchange. 








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          14.Requires the Exchange Board, to determine the  
             compensation for these positions, to use independent  
             outside advisors and salary surveys of both of the  
             following: 

               ?      Other state and federal health insurance  
                 exchanges which are most comparable to the Exchange.  


               ?      Other relevant labor pools. 

          1. Prohibits the salaries established by the Exchange Board  
             from exceeding the highest comparable salary for a  
             position of that type, as determined by the surveys.   
             Requires the Department of Personnel Administration to  
             review the methodology used in the surveys conducted.

          2. Exempts from disclosure under the Public Records Act  
             records of the Exchange that reveal any of the  
             following: 

               ?      The deliberative processes, discussions,  
                 communications, or any other portion of the  
                 negotiations with entities contracting or seeking to  
                 contract with the Exchange, entities with which the  
                 Exchange is considering a contract, or entities with  
                 which the Exchange is considering or enters into any  
                 other arrangement under which the Exchange provides,  
                 receives, or arranges services or reimbursement. 

               ?      The impressions, opinions, recommendations,  
                 meeting minutes, research, work product, theories,  
                 or strategy of the Board or its staff, or records  
                 that provide instructions, advice, or training to  
                 employees. 

          1. Requires, except for the portion of a contract that  
             contains the rates of payment, contracts entered into by  
             the Exchange under this bill to be open to inspection  
             one year after their effective dates. 

          2. Requires, if a contract entered into under this bill is  
             amended, the amendment to be open to inspection one year  
             after the effective date of the amendment. 







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          3. Requires the Exchange Board to ensure that the  
             establishment, operation, and administrative functions  
             of the Exchange do not exceed the combination of federal  
             funds, private donations, and other non-General Fund  
             moneys available for this purpose.  Prohibits state  
             General Fund (GF) money from being used for any purpose  
             under this bill without a subsequent appropriation.   
             Prohibits any liability incurred by the Exchange or any  
             of its officers or employees from being satisfied using  
             moneys from the GF. 

          4. Makes the implementation of the provisions of this bill  
             contingent on a determination by the Exchange Board that  
             sufficient financial resources exist or will exist in  
             the fund, except for specified provisions.  Requires the  
             Exchange Board determination to be based on at least the  
             following: 

               ?      Financial projections identifying that  
                 sufficient resources exist or will exist in the fund  
                 to implement the Exchange. 

               ?      A comparison of the projected resources  
                 available to support the Exchange and the projected  
                 costs of activities required by this bill.

               ?      The financial projections demonstrate the  
                 sufficiency of resources for at least the first two  
                 years of operation under this bill

          1. Requires the Exchange Board to provide notice to the  
             Joint Legislative Budget Committee and the Director of  
             Finance that sufficient financial resources exist in the  
             fund to implement this bill.

          2. Requires the Exchange Board, if it determines that the  
             level of resources in the fund cannot support the  
             actions and responsibilities, to provide the Department  
             of Finance and the Joint Legislative Budget Committee a  
             detailed report on the changes to the functions,  
             contracts, or staffing necessary to address the fiscal  
             deficiency along with any contingency plan should it be  
             impossible to operate the Exchange without the use of GF  







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             moneys.

          3. Requires the Exchange Board to assess the impact of the  
             Exchange's operations and policies on other publicly  
             funded health programs administered by the state and the  
             impact of publicly funded health programs administered  
             by the state on the Exchange's operations and policies.   
             Requires this assessment to include, at a minimum, an  
             analysis of potential cost shifts or cost increases in  
             other programs that may be due to Exchange policies or  
             operations.  Requires the assessment to be completed on  
             at least an annual basis and submitted to the Secretary  
             of Health and Human Services and the Director of  
             Finance. 

          4. Exempts products offered in Medi-Cal and Healthy  
             Families from the requirement that health plans and  
             insurers meet specified offer and marketing requirements  
             established by this bill. 

          5. Makes the Exchange Board's authority to accept gifts,  
             grants and donations subject to compliance with conflict  
             of interest provisions to be adopted by the Board at a  
             public meeting.

          6. Add definitions for purposes of the Exchange-related  
             provisions of this bill.

          7. Add Senators Alquist and Steinberg as principal  
             co-authors.

           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.  







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          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  
          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.   







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          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

          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                 







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          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  8/23/10)

          American Federation of State, County and Municipal  
          Employees
          California Chiropractic Association
          California Retired Teachers Association
          California Welfare Director's Association
          Children Now
          Consumer's Union
          Health Access
          Local Health Plans of California
          Pico CA
          Service Employees International Union
          The Children's Partnership
          United Way
          Western Center for Law and Poverty

           OPPOSITION  :    (Verified  8/23/10)

          Anthem Wellpoint
          Association of California Life & Health Insurance Co.


           ASSEMBLY FLOOR  :  
          AYES:  Ammiano, Arambula, Bass, Beall, Block, Blumenfield,  
            Bradford, Brownley, Buchanan, Caballero, Charles  
            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,  







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            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  8/23/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****