BILL ANALYSIS                                                                                                                                                                                                    






                                 SENATE HEALTH
                               COMMITTEE ANALYSIS
                        Senator Elaine K. Alquist, Chair


          BILL NO:       AB 1887                                      
          A
          AUTHOR:        Villines                                     
          B
          AMENDED:       June 10, 2010                               
          HEARING DATE:  June 16, 2010                                
          1
          CONSULTANT:                                                 
          8
          Bain                                                         
              8
                                                                       
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                                     SUBJECT
                                         
                            Temporary high-risk pool

                                     SUMMARY  

          Establishes the Federal Temporary High Risk Health  
          Insurance Fund (Fund).  Requires money in the Fund to be  
          continuously appropriated to the Managed Risk Medical  
          Insurance Board (MRMIB) for the purpose of establishing a  
          federal temporary high-risk pool (federal pool) established  
          under SB 227 (Alquist) for individuals with a pre-existing  
          medical condition.  Takes effect immediately as an urgency  
          statute, contingent upon the enactment of SB 227.

                             CHANGES TO EXISTING LAW  

          Existing state law:
          Establishes the Major Risk Medical Insurance Program  
          (MRMIP), which is administered by the Managed Risk Medical  
          Insurance Board (MRMIB), to provide major risk medical  
          coverage to California residents who have been rejected for  
          coverage by at least one private health plan, or if the  
          only private health coverage that the applicant can secure  
          would:

                                                         Continued---



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           Impose substantial waivers or provide limited coverage  
            that the MRMIB determines would leave a subscriber  
            without adequate coverage for medically necessary  
            services; or,
           Afford coverage only at an excessive price, which MRMIB  
            determines is significantly above standard average  
            individual coverage rates.

          Caps the premium subscribers in MRMIP pay at 125 to 137.5  
          percent of the standard average individual rate the  
          enrollee would pay for comparable coverage.  

          Establishes the Major Risk Medical Insurance Fund, and,  
          except for the 2009-10 fiscal year, continuously  
          appropriates $30 million in Proposition 99 tobacco tax  
          funds from the Cigarette and Tobacco Products Surtax Fund  
          to this Fund.

          Existing law exempts from the Public Records Act (PRA)  
          records of MRMIB related to contract negotiations and  
          deliberations, and exempts from the Bagley-Keene Open  
          Meeting Act matters related to the development of rates and  
          contracting strategy for entities contracting or seeking to  
          contract with MRMIB.

          Existing federal law:
          The federal health care reform bill, known as the Patient  
          Protection and Affordable Care Act (PPACA), requires the  
          federal Secretary of the Department of Health and Human  
          Services (DHHS) to establish a temporary high-risk health  
          insurance pool program to provide health insurance coverage  
          for eligible individuals until January 1, 2014.  PPACA  
          authorizes the Secretary to carry out the program directly  
          or through contracts with a state or nonprofit entity.  To  
          be eligible for the federal pool, an individual must meet  
          the following:

           Be a citizen or national of the United States (U.S.) or  
            lawfully present in the U.S.; 
           Have not been covered under "creditable coverage" (as  
            defined in federal law) during the six-month period prior  
            to the date on which such individual is applying for  
            coverage through the high-risk pool; and,
           Have a pre-existing condition, as determined in a manner  
            consistent with guidance issued by the Secretary of DHHS.




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          Under PPACA, in order for a high-risk pool to be eligible  
          for federal funding, the pool must meet the following  
          criteria:

           Provide health insurance coverage to all eligible  
            individuals that does not impose any pre-existing  
            condition exclusion; 
           Provide health insurance coverage:

                  o         In which the health insurer's share of  
                    the total allowed costs of benefits provided  
                    under the coverage is not less than 65 percent of  
                    such costs; and, 
                  o         That has an out-of-pocket limit not  
                    greater than the amount in federal law for a high  
                    deductible health plan offered in conjunction  
                    with a health savings account (except that the  
                    Secretary may modify such limit if necessary to  
                    ensure the pool meets the actuarial value limit).

           Require, with respect to the premium rate charged for  
            health insurance coverage offered to eligible individuals  
            through the high-risk pool, rates to:

                  o         Vary only for family size (individual or  
                    family), geographic rating area, and tobacco use;
                  o         Vary on the basis of age by a factor of  
                    not greater than 4 to 1; 
                  o         Be established at a standard rate for a  
                    standard population; and,
                  o         Meet any other requirements determined  
                    appropriate by the Secretary of DHHS.

          PPACA requires the Secretary of DHHS to develop procedures  
          to provide for the transition of eligible individuals  
          enrolled in health insurance coverage offered through a  
          high-risk pool into qualified health plans offered through  
          an Exchange.

          PPACA appropriates to the Secretary of DHHS $5 billion to  
          pay claims against (and the administrative costs of) the  
          high-risk pool that are in excess of the amount of premiums  
          collected from eligible individuals enrolled in the  
          high-risk pool.




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          This bill:
          Establishes a special fund in the State Treasury known as  
          the Federal Temporary High Risk Health Insurance Fund  
          (Fund).  Requires money in the Fund to be continuously  
          appropriated to MRMIB for the purpose of establishing a  
          federal temporary high-risk pool (federal pool) established  
          under SB 227 (Alquist).

          Requires MRMIB to authorize the expenditure of money in the  
          Fund to cover program expenses of the federal pool,  
          including program expenses that exceed subscriber  
          contributions.  Requires MRMIB to determine the amount of  
          funds expended for each of these purposes, taking into  
          consideration the requirements of the federal pool  
          established under SB 227.

          Permits MRMIB, from amounts transferred to the Fund, to  
          expend sufficient funds to carry out the purposes of the  
          federal pool established by SB 227.  Prohibits the state  
          from being liable beyond the assets of the Fund for any  
          obligations incurred, or liabilities sustained, in the  
          operation of the program. 

          Permits any moneys remaining in the Fund at the end of any  
          fiscal year to be carried forward to the next succeeding  
          fiscal year. 

          Requires MRMIB to establish a reserve that is sufficient to  
          prudently operate the program, unless DHHS establishes  
          other procedures to maintain a prudent reserve.

          Applies the definitions in SB 227 to the provisions of this  
          bill.

          Sunsets the above provisions in this bill on January 1,  
          2020.

          Exempts from public disclosure under PRA records of MRMIB  
          related to activities governed by the federal high-risk  
          pool established by SB 227 (Alquist) that reveal  
          negotiations with entities seeking to contract with MRMIB.   
          The contract between MRMIB and other entities for the  
          federal high-risk pool established by SB 227 would be open  
          to inspection one year after their effective date, except  




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          the payment rates, which would be open to inspection three  
          years after the contract is open to inspection.

          Exempts from public disclosure under the PRA records that  
          reveal negotiations with entities with whom MRMIB is  
          considering a contract, or entities with whom MRMIB is  
          considering or enters into any other arrangement under  
          which MRMIB provides, receives or arranges services or  
          reimbursement for MRMIB's existing programs and the federal  
          high-risk pool established by SB 227.  Broadens the scope  
          of the current exemption from public disclosure for MRMIB  
          contracts to include all contracts entered into by MRMIB,  
          and not just contracts for health coverage.

          Permits MRMIB to hold closed sessions when considering  
          matters related to the development of rates and contracting  
          strategy for entities contracting, or seeking to contract,  
          with MRMIB under the federal high-risk pool established by  
          SB 227.

          Permits MRMIB to hold closed sessions when considering  
          entities with which MRMIB is considering a contract and  
          entities with which MRMIB is considering or enters into any  
          other arrangement under which MRMIB provides, receives, or  
          arranges services or reimbursement under its existing  
          programs and the federal high-risk pool established  
          pursuant to SB 227.

          Provides that its provisions become operative only if SB  
          227 is also enacted and becomes operative.
          
                                  FISCAL IMPACT  

          According to the Assembly Appropriations Committee:

          1)According to preliminary information provided by the  
            federal government, California will receive $761 million  
            (100 percent federal) to administer a state-run high-risk  
            pool until January 1, 2014, when broader insurance market  
            reforms and coverage expansions occur.

          2)Funding will be used to support MRMIB workload as the  
            pool administrator and to provide premium support to  
            enrollees whose premium costs exceed a specified level.   
            The eligibility for the risk pool as well as the product  




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            design of the coverage offered will determine how quickly  
            the fixed allocation of federal funding is spent. 

          3)The federal government proposes to allocate state funds  
            based on a formula used for the Children's Health  
            Insurance Program, which relies on a combination of  
            factors including non-elderly population, proportion of  
            uninsured, and geographic cost variation. 

          4)Under current law, California's high risk pool has only  
            7,000 enrollees, due to funding limitations. According to  
            estimates, several hundred thousand Californians may lack  
            access to health coverage due to pre-existing conditions.  
             The risk pool established pursuant to this bill may be  
            able to support an additional 20,000 to 25,000 enrollees.  
             

          5)Per federal requirements, premium pricing in the  
            high-risk pool must be similar to the rates found in the  
            individual insurance market and cannot vary by a person's  
            age by more than a four to one ratio. 

                            BACKGROUND AND DISCUSSION  

          According to the author, California needs to establish a  
          high-risk pool that meets federal requirements in order to  
          receive and use federal funds to provide health insurance  
          for additional medically uninsurable individuals.   
          Legislation is needed in order to implement a new, federal  
          program that MRMIB does not currently have statutory  
          authority to implement.  This bill would amend the state's  
          Public Records Act and open meetings law to permit MRMIB to  
          have discussions with health plans about contracting with  
          MRMIB for this new federal program.  Additionally, this  
          bill would establish a Fund for the $761 million California  
          is estimated to receive in federal funds, and would provide  
          ongoing funding for the federal pool by continuously  
          appropriating these funds to MRMIB to provide coverage to  
          Californians with a pre-existing medical condition.   
          According to the author, this bill and SB 227 (Alquist) are  
          companion bills sponsored by the Schwarzenegger  
          Administration.

          Background
          Although most Californians obtain health insurance through  




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          their employer, many Californians do not have access to  
          employer-sponsored health coverage and cannot buy private  
          health insurance because they have a pre-existing medical  
          condition.  Since 1991, California has operated a high-risk  
          pool known as MRMIP to provide the medically uninsurable  
          with health coverage.  Premiums paid by individuals  
          receiving coverage are supplemented with state tobacco tax  
          revenues to fund coverage through the program.  MRMIP  
          currently has approximately 6,800 individuals receiving  
          coverage in the program, and approximately 4,700  
          individuals who were previously enrolled in MRMIP under a  
          pilot program and whose costs above the amounts they pay in  
          premiums are split by health plans in MRMIP and the state.   
          However, MRMIP currently has a small waiting list, and the  
          program's current enrollment is much lower than the MRMIP's  
          maximum enrollment of 21,900 in June 1998.  The 2010-11  
          proposed budget for MRMIP is $37 million.

          In March 2010, President Obama signed into law PPACA  
          (Public Law 111-148) as amended by the Health Care and  
          Education Reconciliation Act of 2010 (Public Law 111-152)  
          to provide coverage for over 90 percent of the presently  
          uninsured population.  Until the implementation of the  
          health insurance exchanges in 2014, individuals with  
          pre-existing conditions, who have not had coverage for the  
          prior six months and who meet certain citizen or residency  
          requirements will be eligible for the temporary high-risk  
          pool program created by PPACA.  

          PPACA appropriated $5 billion in federal funds to support  
          the high-risk pool program, of which California is  
          estimated to receive $761 million.  According to an April  
          2, 2010 letter from the federal DHHS Secretary, states can  
          choose whether and how they participate in the program.  To  
          be eligible to enter into a contract with the Secretary, a  
          state must agree to not reduce the annual amount the state  
          expended for the operation of its high-risk pool.  

          To date, twenty-nine states plus the District of Columbia  
          have elected to operate their own pool, eighteen states  
          have elected to have HHS run the pool, two have deferred  
          the decision and one has not indicated.  In April 2010,  
          Governor Schwarzenegger indicated in a letter to the  
          federal DHHS Secretary his intention to contract with the  
          federal government to operate a temporary health insurance  




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          program for currently uninsured individuals with  
          preexisting medical conditions.   The Governor's decision  
          indicated his decision was based on the Secretary's  
          assurances that 100 percent of the costs will be provided  
          by the federal government for the duration of the program.   
          The Governor announced the state will apply to operate the  
          federal high-risk pool alongside the current state  
          high-risk pool under the same governance and operational  
          framework.








































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          The federal high-risk pool and the current MRMIP have  
          different eligibility, benefit and premium requirements, as  
          illustrated in the chart below, that make a separate  
          statute necessary for MRMIB to administer the federal high  
          risk pool program:

           ------------------------------------------------------------ 
          |                        Eligibility                         |
           ------------------------------------------------------------ 
          |------------------------------+----------------------------|
          |    Federal High-Risk Pool    |        State MRMIP         |
          |------------------------------+----------------------------|
          |                              |                            |
          |------------------------------+----------------------------|
          | Citizen or national of the  |  California resident.     |
          |  US or lawfully present in   |                            |
          |  the US.                     |                            |
          |------------------------------+----------------------------|
          | Have no creditable coverage |  Unable to secure adequate |
          |  for the previous 6 months   |  coverage in the           |
          |  before applying for         |  individual market within  |
          |  coverage.                   |  the last 12 months, and   |
          |                              |  ineligible for Medicare,  |
          |                              |  COBRA or Cal-COBRA.       |
          |------------------------------+----------------------------|
          | Have a pre-existing         | No pre-existing condition |
          |  condition, as determined in |  requirement, but denial   |
          |  a manner consistent with    |  or termination of         |
          |  guidance issued by the      |  insurance for other than  |
          |  Secretary of DHHS.          |  nonpayment is one pathway |
          |                              |  to eligibility.           |
          |                              |                            |
           ----------------------------------------------------------- 
           ------------------------------------------------------------ 
          |                      Benefits/Coverage                     |
           ------------------------------------------------------------ 
           ----------------------------------------------------------- 
          | High-risk pool average      | Comprehensive benefits    |
          |  share of total costs of     |  with annual $500          |
          |  required benefits must be   |  household deductible.     |
          |  at least 65 percent of      |  Preventive services      |
          |  costs.                      |  excluded from the         |
          |                              |  deductible.               |
           ----------------------------------------------------------- 
          | No pre-existing condition   |  MRMIP plans have a three |




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          |  exclusion allowed.          |  month waiting period      |
          |                              |  (HMO) or pre-existing     |
          |                              |  condition exclusion       |
          |                              |  (PPO).                    |
           ----------------------------------------------------------- 
          | Limits out-of-pocket to     |  Limits out-of-pocket     |
          |  equivalent in               |  maximum per year to       |
          |  high-deductible plans       |  $2,500 for individuals    |
          |  linked to health savings    |  and $4,000 for an entire  |
          |  accounts ($5,950 for an     |  household covered by the  |
          |  individual/$11,900 for a    |  MRMIP (must be in network |
          |  family in 2010).            |  provider, out-of-plan     |
          |                              |charges allowed).           |
          |------------------------------+----------------------------|
          | No specification on caps,   | Annual benefit limits of  |
          |  but lifetime and            |  $75,000 and lifetime      |
          |  unreasonable annual caps    |  benefit limit of          |
          |  prohibited under federal    |  $750,000.                 |
          |  health care reform.         |                            |
           ----------------------------------------------------------- 
           ------------------------------------------------------------ 
          |                           Premiums                         |
           ------------------------------------------------------------ 
           ----------------------------------------------------------- 
          | Rates must be at a standard |  Capped at 25 percent to  |
          |  rate for a standard         |  37.5 percent higher than  |
          |  population.                 |  the standard average      |
          |                              |  individual rate that a    |
          |                              |  plan would charge for     |
          |                              |  MRMIP benefits in the     |
          |                              |  commercial market.        |
          |------------------------------+----------------------------|
          | Limits rate variation by    | Twelve age variations     |
          |  age to a maximum ratio of 4 |  with no limit on          |
          |  to 1.                       |  permissible variation due |
          | Rate variations allowed for |  to age.                   |
          |  whether the plan covers an  | Three possible family     |
          |  individual or family,       |  sizes.                    |
          |  geographic regions, and for |  Six geographic           |
          |  tobacco use (but limited to |regions.                    |
          |  1.5 to 1).                  |                            |
           ----------------------------------------------------------- 
          
          Arguments in support
          AARP writes in support of both this bill and SB 227 that  




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          this issue is very important to AARP members as the  
          individuals over age 50 are most likely to be denied  
          coverage on the basis of pre-existing health conditions.   
          AARP states that, while the federal government will  
          administer the program in California if the state does not,  
          this is not a good option for consumers.  AARP argues the  
          state currently administers a high-risk pool for consumers  
          and will be able to coordinate outreach and enrollment for  
          the two programs so that it is seamless, much less  
          confusing for consumers, and much less likely to result in  
          consumers being dropped between the cracks of the two  
          programs.  The danger of consumers getting lost in the  
          shuffle between two similar programs with distinct  
          eligibility requirements is magnified tremendously by  
          having them administered by two different entities and  
          levels of government, one of which have never before  
          administered such a program.  AARP writes it is much more  
          comfortable that consumers will have meaningful access to  
          state program administrators to deal with the inevitable  
          glitches in any new program.  AARP concludes that this is  
          such an important benefit for AARP members who have been  
          denied coverage based on pre-existing conditions that it  
          does not want to take any chances on a federal system that  
          has been designed in just a few months.

          The California Medical Association (CMA) writes in support  
          that this bill and its companion measure, SB 227 (Alquist)  
          will provide the statutory authority necessary for  
          California to access $761 million in federal funds and  
          provide a vital coverage option to individuals with a  
          pre-existing medical condition.  CMA states it supports  
          high risk pools, as they provide a critical health  
                                                   insurance coverage option to those who do not have  
          employer-sponsored coverage and are otherwise medically  
          uninsurable in the individual market. 
          
          Related bills
          SB 227 (Alquist), requires MRMIB to enter into an agreement  
          with the federal DHHS to administer a qualified high-risk  
          pool to provide health coverage, until January 1, 2014, to  
          individuals who have pre-existing conditions, consistent  
          with PPACA.  SB 227 establishes the authority and  
          requirements for MRMIB in administering the federal pool,  
          consistent with federal law.  SB 227 is operative  
          contingent upon enactment of AB 1887 (Villines), and both  




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          bills would sunset on January 1, 2020.

                                  PRIOR ACTIONS

           Assembly Health          17-0
          Assembly Appropriations: 17-0
          Assembly Floor:          71-0

                                    POSITIONS  
                                        
          Support:  AARP
                    Asthma and Allergy Foundation of America,  
          California Chapter
                    California Chronic Care Coalition
                    California Hepatitis C Task Force
                    California Hospital Association
                    California Medical Association
                    Consumers Union
                    Health Access California

          Oppose:  None received


                                   -- END --