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 7 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--- STAFF ANALYSIS OF ASSEMBLY BILL 1887 (Villines) Page 2 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. STAFF ANALYSIS OF ASSEMBLY BILL 1887 (Villines) Page 3 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. STAFF ANALYSIS OF ASSEMBLY BILL 1887 (Villines) Page 4 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 STAFF ANALYSIS OF ASSEMBLY BILL 1887 (Villines) Page 5 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 STAFF ANALYSIS OF ASSEMBLY BILL 1887 (Villines) Page 6 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 STAFF ANALYSIS OF ASSEMBLY BILL 1887 (Villines) Page 7 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 STAFF ANALYSIS OF ASSEMBLY BILL 1887 (Villines) Page 8 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. STAFF ANALYSIS OF ASSEMBLY BILL 1887 (Villines) Page 9 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 | STAFF ANALYSIS OF ASSEMBLY BILL 1887 (Villines) Page 10 | 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 STAFF ANALYSIS OF ASSEMBLY BILL 1887 (Villines) Page 11 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 STAFF ANALYSIS OF ASSEMBLY BILL 1887 (Villines) Page 12 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 --