BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 1602| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 AB 1602 Page 2 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 AB 1602 Page 3 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 AB 1602 Page 4 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) AB 1602 Page 5 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 AB 1602 Page 6 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 AB 1602 Page 7 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. AB 1602 Page 8 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. AB 1602 Page 9 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 AB 1602 Page 10 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. AB 1602 Page 11 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. AB 1602 Page 12 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 AB 1602 Page 13 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, AB 1602 Page 14 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 ****