BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: SB 92
S
AUTHOR: Aanestad
B
AMENDED: March 11, 2009
HEARING DATE: April 29, 2009
9
REFFERAL: Rules
2
CONSULTANT:
Green, Dunstan, Park/
SUBJECT
Health care reform
SUMMARY
Allows out-of-state carriers to offer plans in California
without being licensed in California. Allows health plans
and insurers to offer individual plans and policies that do
not include all state mandated benefits. Encourages the
offering of high deductible health plans, as specified.
Allows health plans and insurers to offer healthy action
incentives and rewards programs. Modifies provisions
pertaining to guaranteed association plans, and small
employers, as specified. Allows health plans and insurers
to offer a single policy that provides health care coverage
and workers' compensation benefits. Establishes Health
Opportunity Accounts (HOA), for specified Medi-Cal
enrollees. Contains several provisions to encourage or
require the use of electronic health records and personal
health records. Requires the Department of Health Care
Services (DHCS) to develop a plan using funds currently
paid to public hospitals for the creation and expansion of
primary care clinics. Provides specified tax credits for
health care providers, including those who provide services
in rural areas, and for employers who offer health
insurance to their employees. Also allows various income
tax deductions related to the costs of health insurance and
health savings accounts, as specified. Modifies existing
Continued---
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 2
law pertaining to the supervision of medical assistants.
Imposes a fee on money transmissions involving undocumented
residents, to be used to pay for emergency medical care to
undocumented residents.
CHANGES TO EXISTING LAW
I. Health insurance market and regulatory reform
Existing law provides for licensing and regulation of
health care service plans by the Department of Managed
Health Care (DMHC), and provides for regulation of health
insurers by the California Department of Insurance (CDI).
A. Out of state carriers
Existing law requires, subject to specified exceptions,
that a health care service plan be licensed by the DMHC and
that it provide basic health care services, as defined,
unless exempted from that requirement by the director of
the department. Existing law also requires, subject to
specified exceptions, that an insurer obtain a certificate
of authority from the Insurance Commissioner (Commissioner)
in order to transact business in this state, and that the
insurer operate in accordance with specified requirements.
Existing law requires health care service plans and health
insurers to comply with certain administrative
requirements, premium requirements, patient protection
requirements, fiduciary and financial requirements, and
provider access requirements, and to provide certain
mandated benefits to enrollees.
This bill would allow a carrier domiciled in another state
to offer, sell, or renew a health care service plan or a
health insurance policy in this state without holding a
license issued by the department, or a certificate of
authority issued by the commissioner. The bill would exempt
the carrier's plan or policy from requirements otherwise
applicable to plans and insurers providing health care
coverage in this state if the plan or policy complies with
the domiciliary state's requirements, and the carrier is
lawfully authorized to issue the plan or policy in that
state and to transact business there.
B. Mandate waivers
Existing law requires health care service plans and health
insurers to provide or offer certain benefits in their
contracts and policies as a condition of its licensure or
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 3
certificate to conduct business. Existing law provides that
mandated benefits and mandated offerings may apply to
individual coverage, group coverage, or both. Under
existing law, there are over 40 different benefits mandated
to be provided in health coverage or to be offered as
benefits including breast cancer screening, diagnosis, and
treatment; cancer screening tests; comprehensive preventive
care for children 16 years or younger; diabetes management
and treatment; hospice care; pain management for terminally
ill patients; HIV vaccines; and parity in coverage for
severe mental illness.
The bill would authorize, on or after January 1, 2011,
health care service plans and health insurers to offer,
market, and sell individual health care service plan
contracts and individual health insurance policies that do
not include all of the benefits mandated under state law to
individuals with incomes below 350 percent of the federal
poverty level if the individual waives those benefits, as
specified, and the plan contract or insurance policy is
approved by the Director of DMHC or the Insurance
Commissioner. The bill would require the Director and
Insurance Commissioner, in consultation with each other to,
prior to July 1, 2010, prepare a disclosure form that is
easily understood and that summarizes the benefits that a
health plan or insurer, as applicable, is required to
include in its health plan or health policy, and that would
be waived. The bill would require that the individual must
sign the disclosure form prior to the issuance of coverage
that does not include all of the benefits mandated under
state law.
C. Requirements for medical professionals and physicians
in health plan and insurer utilization review, specified
mandates, and independent medical review
Utilization
Existing law requires health care service plans and
specified disability insurers to have written policies and
procedures establishing the process by which the plans or
insurers prospectively, retrospectively, or concurrently
review and approve, modify, delay, or deny, based in whole
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 4
or in part on medical necessity, requests by providers of
health care services for enrollees or insureds. Existing
law imposes specified requirements on that process and
specifies that only a licensed physician or licensed health
care professional with specified competency may deny or
modify requests for authorization of health care services.
Existing law authorizes licensed health care service plans
to employ or contract with health care professionals,
including physicians, to deliver professional services, and
requires health plans to demonstrate that medical decisions
are rendered by qualified medical providers unhindered by
fiscal and administrative management. Existing law
provides, in state regulations, that the organization of a
health plan must include separation of medical services
from fiscal and administrative management.
This bill would specify that only a California licensed
health care professional may deny, delay, or modify
requests for authorization of health care services. The
bill would limit that licensee's review to services that
fall within his or her scope of practice and would make
that review subject to standardized protocol limitations or
supervision requirements applicable under his or her
license. The bill would also require the licensee to have
at least the same scope of practice as the provider
submitting the request for authorization. The bill would
prohibit a licensee from denying, delaying, or modifying a
request without first conducting a good faith examination
of the enrollee or insured, unless the enrollee's contract
explicitly excludes coverage of the health care service in
question. The bill would make a violation of that
requirement unprofessional conduct and grounds for
disciplinary action. The bill would specify that the
primary obligation of that licensee is to the enrollee or
insured.
Specified mandates
Existing law provides, with respect to the requirements for
health plans and health insurers to cover reconstructive
surgery, as specified, and with respect to the coverage for
surgical procedures known as mastectomies and lymph node
dissections, if health plans and health insurers provide
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 5
this coverage, as specified, that only a licensed physician
competent to evaluate the specific clinical issues involved
in the care requested, may deny initial requests for
authorization of health care services or treatment.
This bill would require those licensed physicians
evaluating clinical issues involved in the care requested,
pertaining to reconstructive surgery, and mastectomies and
lymph node dissections, to be licensed in California,
conduct a good faith examination prior to denying
authorization, and have a primary obligation to the
enrollee or insured.
Independent medical review
Existing law establishes an independent medical review
system in which an independent medical review organization
reviews grievances involving a disputed health care service
under a health care service plan contract or disability
insurance policy. Existing law requires the medical
professionals selected by that organization to conduct
reviews to be either physicians holding a specified
certification in areas appropriate to the condition or
treatment under review, or other appropriate providers
holding a nonrestricted license in any state, and to be
knowledgeable in the treatment of the enrollee's medical
condition, knowledgeable about the proposed treatment, and
familiar with guidelines and protocols in the area of
treatment under review. Existing law requires the
organization to give preference to the use of a physician
licensed in California as the reviewer, except when
training and experience with the issue under review
reasonably requires the use of an out-of-state reviewer.
Existing law requires the medical reviewers, who are
selected to conduct a review, to review specified
information, including, but not limited to, provider
reports and all pertinent medical records of the enrollee
or insured.
The bill would revise the requirements of medical
professionals and require them to be licensed in
California. The bill would limit reviews to services that
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 6
fall within that medical professional's scope of practice,
and have at least the same scope of practice as the health
care professional that denied, delayed, or modified the
health care service in question. This bill would also
require that at least one of the medical professional
reviewers selected conduct a good faith examination of the
enrollee, except if the enrollee's contract explicitly
excludes coverage of the disputed health care service. The
bill would make a failure to conduct that examination
unprofessional conduct and grounds for disciplinary action
and would specify that the primary obligation of these
reviewers is to the enrollee or insured.
D. Medical necessity
Existing law under the Knox-Keene Act, which governs health
care service plans, and the Insurance Code, which governs
disability insurers covering health, or health insurers,
does not define "medically necessary" or "medical
necessity" and allows each health plan or insurer to use
its own specific guidelines for medical necessity. Existing
law establishes an independent medical review (IMR) system
in which an independent medical review organization reviews
grievances involving a disputed health care service under a
health care service plan contract or disability insurance
policy. Existing law requires the IMR system's reviewer or
reviewers to determine whether the disputed health care
service was medically necessary based on the specific
medical needs of the enrollee and any of the following: (1)
peer-reviewed scientific and medical evidence regarding the
effectiveness of the disputed service; (2) nationally
recognized professional standards; (3) expert opinion; (4)
generally accepted standards of medical practice; or (5)
treatments that are likely to provide a benefit to a
patient for conditions for which other treatments are not
clinically efficacious.
This bill would define a health care service as "medically
necessary" or a "medical necessity" when it is reasonable
and necessary to protect life, to prevent significant
illness or significant disability, or to alleviate severe
pain.
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 7
E. Small employer, eligible associations, guaranteed
associations
Existing law defines a small employer generally as an
employer with between 2 and 50 eligible employees. Existing
law imposes certain requirements on health plans and health
insurers to enable small employers to access health care
coverage, and requires health plans and insurers to provide
certain coverage rights and to limit rating restrictions
with regard to individuals covered under small employers.
Existing law requires health care service plans and health
insurers to sell to any small employer any of the benefit
plan designs it offers to small employers and prohibits
plans and insurers, among others, from encouraging or
directing small employers to refrain from filing an
application for coverage with the plan or insurer, and from
encouraging or directing small employers to seek coverage
from another carrier, because of the health status, claims
experience, industry, occupation, or geographic location
within the carrier's approved service area of the small
employer or the small employer's employees.
Existing law requires participation requirements to be
uniformly applied among all small employer groups, but
allows plans and insurers to vary minimum employee
participation requirements by size of the employer and
other factors. Existing law requires all health care
service plan contracts and health insurance plans offered
to a small employer to be renewable by all eligible
employees or dependents except for specified reasons.
Existing law restricts permissible risk categories for
small employer plans to age, geographic region and family
size, as specified. Existing law requires an eligible
employee's premium to be determined based on the rate
applicable to the employee's risk category, plus an
adjustment factor of not more than, and not less than, 10
percent. Existing law prohibits exclusion of eligible
employees from the plans offered to small employers, but
allows, for certain individuals, preexisting conditions, as
defined, to be excluded for six months, or, in lieu of a
preexisting condition provision exclusion, allows plans to
impose a waiting period of up to 60 days.
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 8
Existing law includes guaranteed association in the
definition of small employer and defines guaranteed
association as a nonprofit organization comprised of a
group of individuals or employers who associate based
solely on participation in a specified profession or
industry, that include one or more small employers, as
defined, does not condition membership on health or claims
history, has been in active existence for at least five
years prior to January 1, 1992, and covers at least 1,000
persons with the health plan or insurer with which it
contracts, among other requirements.
This bill would expand eligibility for those who may be
considered a guaranteed association, by eliminating certain
requirements necessary to be defined as a guaranteed
association, including the requirement to have been in
active existence for at least five years prior to January
1, 1992, and the requirement to cover at least 1,000
persons with the health plan or insurer with which it
contracts. This requirement would be revised from 1,000
persons to 100 persons.
This bill would add "eligible associations," defined as a
community or civic group or charitable or religious
organization, to the definition of small employer, and
would include in the definition any small employer that
purchases coverage through an eligible association, which
would extend the coverage rights and rating restrictions in
current law to these groups.
The bill would, with respect to requirements for the sale
of contracts to small employers, prohibit a health plan or
health insurer from considering the employer's
implementation of, or intent to implement, any form of
claim support through a health reimbursement arrangement, a
medical expense reimbursement plan, a limited purpose
flexible spending account, or any other form of wraparound
plan or payment for any portion of claims that apply to the
health plan deductible or other benefits, for covered
employees in meeting those requirements.
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 9
Existing law requires group health care service plans and
group health insurance policies to provide equal coverage
to employers and guaranteed associations, as defined, for
the registered domestic partner of an employee, subscriber,
or policyholder to the same extent, under the same terms
and conditions, as provided to the spouse of an employee,
subscriber, or policy holder.
This bill would require group health plans and group
insurance policies to provide equal coverage for domestic
partners who are part of eligible associations to the same
extent and under the same terms and conditions as provided
to the spouse of an employee, subscriber, or policy holder.
II. Medi-Cal program changes
Existing federal law establishes the Medicaid program,
which provides comprehensive health care coverage to
low-income eligible individuals and families, including
children, the aged, the blind, the disabled, and pregnant
women, through a program that reimburses states for
Medicaid programs in the individual states. Existing law
establishes the federal Medicaid Disproportionate Share
Hospital (DSH) program to provide financial assistance to
hospitals that serve large numbers of Medicaid and
uninsured patients.
Existing state law establishes California's Medicaid
program, the Medi-Cal program, that provides comprehensive
health coverage to low-income eligible individuals and
families, including children, the aged, the blind, the
disabled, and pregnant women, through a program of shared
costs with the federal government. Existing state law
requires the DHCS to administer the Medi-Cal program.
Existing state law creates a hospital demonstration project
to implement a five-year federal Medicaid waiver for
support of public hospitals that serve uninsured patients
and patients whose health care services are covered by
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 10
Medi-Cal. Existing state law also creates the Safety Net
Care Pool (SNCP) as the federal funds available under the
demonstration project, to ensure continued government
support for the provision of health care services to
uninsured populations. Existing state law also defines a
designated public hospital as one of 22 hospitals
specifically named in the law that implements the hospital
waiver.
Existing state law also establishes methods for
administering the federal DSH program payments and a
mechanism that DHCS must use to allocate the entirety of
payments to designated public hospitals. Existing state
law also directs that the matching funds for DSH come from
the certified public expenditures (CPE) and
intergovernmental transfers (IGT) from designated public
hospitals, and/or the administering entities.
A. Health Opportunity Accounts
This bill would establish the Medi-Cal Empowerment Act,
which would, among its provisions, require DHCS to prepare
a demonstration project waiver request to be proposed to
the federal government by July 31, 2010, that would
implement Health Opportunity Accounts (HOA), for specified
Medi-Cal enrollees, that would be designed similar to HSA
accounts except they would be funded by the state, with the
intent to provide incentives for beneficiaries to obtain
preventive services in order to reduce inappropriate use of
health care services, and enable patients to take
responsibility for health outcomes. The bill would require
DHCS to select up to 10 counties to participate in the
waiver program, and that eligible individuals would enroll
voluntarily. The bill would require the insurance plans
issued to those who have enrolled voluntarily, to encompass
all standard Medi-Cal benefits, and would provide for an
annual deductible that would be at least 100 percent, but
no more than 110 percent, of the amount of the contribution
into the HOA account.
The bill would provide rules pertaining to the number of
individuals enrolled in a managed care organization,
require DHCS to adjust the managed care capitation to
account for participation in the HOA, and allow DHCS to
consider the health of the enrollee in determining the
state's contribution to an HOA. The bill would require
that funds in an individual HOA may be used for the
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 11
purchase of medical services and private health care
coverage authorized by DHCS, or offered by the individual's
employer. The bill would authorize charitable
organizations to contribute to an individual's HOA, and
allow individuals to use the funds in their HOA for job
training or tuition expenses after one year. Under the
bill, the HOA fund would carry over into subsequent years,
and individuals would be authorized to disenroll, and the
bill specifies the disposition of the remaining funds.
The bill would prohibit specified individuals from
enrolling in an HOA, including seniors and persons with
disabilities, pregnant women, new Medi-Cal enrollees, and
beneficiaries who are enrolled in both Medi-Cal and
Medicare.
The bill would require DHCS to coordinate the use of an HOA
with a third party administrator, and authorize DHCS to
develop policies and procedures for implementing the
demonstration project. DHCS would be required to report
annually to the Governor and Legislature on the
demonstration project.
B. Medi-Cal providers
Existing law requires a provider to be enrolled in Medi-Cal
in order to receive reimbursement for the provision of
services, goods, supplies, or merchandise to a Medi-Cal
beneficiary.
Existing law allows certain qualified applicants to request
to enroll in the Medi-Cal program as a preferred provider
and receive an expedited review of their enrollment
application within 90 days instead of 180 days. Existing
law requires an applicant be granted provisional preferred
provider status for no longer than 18 months if the
applicant meets specified criteria.
This bill would provide that dentists, physicians,
osteopaths, nurse anesthetists, nurse practitioners, and
physician's assistants would be eligible for preferred
provisional provider status when enrolling as a Medi-Cal
provider. The bill would require DHCS to grant preferred
provisional provider status if an applicant is a provider
in good standing in Medicare and the applicant is in good
standing with his or her state licensing board.
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 12
Existing state law provides a variety of methods and
formulas for reimbursing providers of Medi-Cal services.
This bill would provide that Medi-Cal fee-for-service rates
shall be at least 80 percent of Medicare, and that these
rates increase annually in accordance with the California
Consumer Price Index. The bill would require DHCS to
consider specific information regarding access to physician
services before making any adjustment to Medi-Cal rates.
C. Other provisions
Existing law authorizes utilization controls that may be
applied to health care service requests in the Medi-Cal
program. Existing law limits utilization controls to prior
authorization, which is approval by the department of a
specified service based upon a determination of medical
necessity, and a post-service prepayment audit, which is
reviewed for medical necessity and coverage after the
service is rendered, and which allows payment to be
withheld or reduced if the service rendered was not a
covered benefit or deemed medically necessary.
This bill would eliminate medical necessity as a criteria
in Medi-Cal utilization control of DHCS and would instead
shift the criteria for decision to whether the services are
a covered benefit. This bill would also require DHCS to
establish a computer modeling program to prevent and
identify Medi-Cal fraud.
This bill would state legislative intent to realign
Medi-Cal benefits so as to more closely resemble benefits
offered through private health care coverage, establish a
pilot project in which Medi-Cal managed care is used to
transition from a defined benefit system to a defined
contribution system where Medi-Cal beneficiaries would be
assigned a risk adjusted amount to purchase private health
care coverage, and to enact legislation to establish a
Medi-Cal cash and counseling pilot project for disabled
enrollees, where the enrollees would be given a budget and
case manager assistance to pay for their personal care
services.
This bill would also state legislative findings regarding
primary care clinics, intent to use DSH funds and SNCP
funds for primary care clinics, and a request that the
federal government provide full reimbursement for federally
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 13
mandated health care services to anyone, regardless of
immigration status.
III. High deductible health plans and health savings
accounts
Existing law, the federal Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 established HSAs
beginning in tax year 2004 and provided that HSAs are
tax-exempt trusts to which individuals may contribute to
pay for current and future out-of-pocket medical expenses.
Existing federal law provides that individuals are eligible
only if they choose to be insured through a high deductible
health plan (HDHP) which is defined in federal law.
Existing California law does not conform to any of the
federal HSA provisions. However, existing California law
conforms to the federal rules for Archer Medical Savings
Accounts (MSAs), and allows a deduction equal to the amount
deducted on the federal return. California imposes a 10
percent additional tax (rather than the federal 15 percent
additional tax) on distributions from an MSA not used for
qualified medical expenses. Existing California law does
not allow a rollover from an MSA to an HSA.
Existing federal law authorizes an individual who has an
HDHP to make tax deductible contributions to an HSA that
may be used to pay medical expenses.
This bill would, beginning January 1, 2009, allow a
personal income tax deduction in connection with an HSA, in
conformity with federal law. The bill would establish that
the deduction would be an amount equal to the aggregate
amount paid in cash during the taxable year by, or on
behalf of, an eligible individual, as defined, to an HSA of
that individual, as provided. This bill would provide
conformity to federal law with respect to treatment of the
account as a tax-exempt trust, the allowance of rollovers
from an MSA to an HSA, and penalties in connection
therewith.
This bill would require CalPERS to offer HSAs to all
employees and annuitants, and to approve at least one HDHP.
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 14
An employee who participates in the HSA option would be
required to enroll in the approved HDHP, contribute the
total cost of the benefit coverage afforded him or her
under the HDHP plan, less employer contributions, and
designate an additional amount to be deducted from his or
her salary or retirement allowance for qualified medical
expenses. Employers of employees who participate in the
HSA option, would be required to contribute a portion of
the cost of providing coverage under the HDHP, and also
contribute an amount equal to the difference between the
amount the employer contributes, and what the average
premium costs would be if the employee had enrolled in a
plan other than the HDHP.
Employer and employee contributions would be deposited into
a newly established fund, administered by CalPERS, to be
used to pay qualified medical expenses of HSA holders. The
bill would specify that the deposited funds would earn
interest income, and that CalPERS would be authorized to
invest the funds, with any income generated from the
investments to be deposited back into the fund.
This bill would require the Director of DMHC and the
Insurance Commissioner to encourage the design of health
care service plan contracts and health insurance policies
that conform to current federal requirements for HDHPs used
in conjunction with HSAs and to standardize the process
used to review and approve new health care service plan
contracts and health insurance policies. The Director and
Insurance Commissioner would, by December 31, 2009, be
required to report to specified legislative committees on
the status of the implementation of these provisions, and,
by December 31, 2011, report on the number of persons
enrolled in a health care service plan contract as a result
of these provisions.
IV. Proposed tax credits and deductions
A. Personal and employer tax credits and deductions
Existing state law, the Personal Income Tax Law, and the
Corporation Tax Law, authorize various credits against the
taxes imposed by those laws. The Personal Income Tax Law
authorizes various deductions in computing income subject
to taxation.
This bill would establish, for each taxable year beginning
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 15
January 1, 2009 and before January 1, 2015, a personal
income tax credit, as specified, against the net tax of the
amount paid or incurred by a qualified taxpayer, for
qualified health expenses, defined as expenses for health
insurance or health plan coverage.
The bill would also establish, for the same taxable years,
a personal income tax credit, for small and medium
employers, that have not previously provided health
insurance to employees, in an amount equal to 15 percent of
the amount paid or incurred by the employer for qualified
health insurance for employees. The bill would provide
that any unused credit may be carried forward until
exhausted and would require the Franchise Tax Board (FTB)
to report to the Legislature, by September 1, 2013, on the
usage of the credit.
This bill would establish, for each taxable year beginning
January 1, 2009 and before January 1, 2015, a corporate
income tax credit, as specified, against the net tax of the
amount paid or incurred by a qualified taxpayer, for
qualified health expenses, as defined.
The bill would also establish, for the same taxable years,
a corporate tax credit, for small and medium employers,
that have not previously provided health insurance to
employees, in an amount equal to 15 percent of the amount
paid or incurred by the employer for qualified health
insurance for employees. The bill would provide that any
unused credit may be carried forward until exhausted
The bill would also establish a tax deduction, as
specified, for qualified taxpayers for costs incurred for
medical care not compensated by insurance for the taxpayer,
and his or her spouse or dependents.
B. Health care provider tax credits
Existing state law allows businesses (including physicians
who own their own practice) to deduct their ordinary and
necessary business expenses, but does not provide any
special tax preferences to health care providers.
This bill would authorize a 25 percent credit against the
net personal income tax of a medical care professional that
provides medical services in a rural area for each taxable
year beginning January 1, 2009.
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 16
The bill would permit qualified medical care professionals
to carry forward any excess credit to reduce the net tax in
the succeeding years if necessary to exhaust the credit.
This bill would also authorize a credit against personal
income taxes for primary care providers, who commenced
providing primary care on or after January 1, 2007. The
bill would make the credit applicable for the first 10
taxable years for which the provider provided primary care,
and would provide a mechanism for recapture of the credit
if the physician changes his or her practice to specialty
care. The bill would permit a primary care physician to
carry forward any excess credit to reduce the net tax in
the succeeding years if necessary to exhaust the credit.
The bill would authorize a personal income tax credit for
physicians of an amount equal to 50 percent of the value
uncompensated care that they provide to eligible
individuals, as defined. The bill would permit qualified
medical care professionals to carry forward any excess
credit to reduce the net tax in the succeeding years if
necessary to exhaust the credit.
V. Other provisions
A. Healthy Action Incentives and Rewards Program
The bill would authorize group health care service plan
contracts, group health insurance policies, except Medicare
supplement plans, to offer to include a Healthy Action
Incentives and Rewards Program (Healthy Action program),
under the terms and conditions agreed upon by the group and
the plan or insurer. The bill would require every plan or
insurer offering this program to communicate the
availability of the program to all prospective group
subscribers or policyholders with whom it is negotiating
and to existing group subscribers upon renewal.
The bill would allow the Healthy Action program to provide,
where appropriate: health risk appraisals to be used to
assess an individual's overall health status and to
identify risk factors, including, but not limited to,
smoking and smokeless tobacco use, alcohol abuse, drug use,
and nutrition and physical activity practices; enrollee
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 17
access to an appropriate health care provider, as medically
necessary, to review and address the results of the health
risk appraisal; follow-up through a web-based tool or a
nurse hotline either in combination with a referral to a
provider or separate; and incentives or rewards for
enrollees to become more engaged in their health care, as
recommended.
This bill would also provide that benefits offered pursuant
to a Healthy Action program shall not be considered
discounts, premiums, gifts, or bait of similar nature, in
relation to rules governing solicitation and advertisement
of health plans. The bill would provide that this program
shall only be implemented if, and to the extent allowed,
under federal law, and if any portion of this section is
held to be invalid, as determined by a final judgment of a
court of competent jurisdiction, this section shall become
inoperative.
The bill would authorize employers to offer coverage to
employees that includes a Healthy Action program, as
specified. The bill would also authorize CalPERS to
provide a Healthy Action program to its enrollees.
The bill also would authorize DHCS to establish a Healthy
Action program as a covered benefit under Medi-Cal. The
bill would require DHCS to secure federal financial
participation and all federal approvals necessary to
implement and fund Medi-Cal Healthy Action program services
and would allow implementation only to the extent that
federal financial participation is obtained.
B. Electronic health records
Existing law, under the federal Health Insurance
Portability and Accountability Act (HIPAA), sets forth
national standards and requirements for the transmission,
storage, and handling of certain electronic health care
data.
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 18
This bill would require the California Public Employees'
Retirement System (CalPERS) and the Medi-Cal program to, by
January 1, 2011, provide or arrange for the provision of an
electronic personal health record (PHR) and an electronic
personal benefits record (PBR), for enrollees receiving
health care benefits in order to assist them in
understanding their coverage benefits, and to manage their
health care.
The bill would require that, at the option of the enrollee,
the PHR incorporate personal health information, including
an enrollee's medical history, laboratory results, and
prescription history, and that the PBR provide access to
real-time, patient-specific information regarding
eligibility for covered benefits, cost-sharing, and claims
history. The bill would require any systems, software, or
devices pertaining to the PBR and PHRs to adhere to
national standards for interoperability, privacy, and data
exchange, and to comply with applicable state and federal
confidentiality and data security requirements.
C. Supervision of medical assistants
Existing law authorizes medical assistants (MAs) to
administer medication by intradermal, subcutaneous, or
intramuscular methods, and to perform injections and
perform skin tests and additional technical supportive
services, upon the specific authorization and under the
supervision of a licensed physician and surgeon or a
licensed podiatrist. In the case of primary care clinics
and specialty clinics, MAs may perform these duties upon
the specific authorization of a physician assistant (PA), a
nurse practitioner (NP), or a nurse-midwife. Existing law
authorizes a supervising physician and surgeon at a primary
care clinic to directly provide written instructions to be
followed by an MA in the performance of such tasks or
supportive services. Existing law also permits the written
instructions from the supervising physician and surgeon, to
allow supervision of an MA to be delegated to an NP,
nurse-midwife, or PA, and allows the tasks to be performed
by the MA when the supervising physician and surgeon is not
at the primary care clinic or specialty clinic, under
specified circumstances.
This bill would authorize an MA to perform these treatment
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 19
activities under the authorization of an NP, a
nurse-midwife, or a PA in any setting.
D. 24-hour care policies
Existing law requires each employer to carry workers'
compensation insurance, or qualify as self-insured to cover
any medical treatment and benefits for employees with
work-related injuries or illnesses. Existing law provides
for the regulation of workers' compensation policies by
CDI. Under existing law, workers' compensation insurance
is provided completely separate from traditional health
care and disability insurance policies and plans.
This bill would authorize health plans, health insurers,
and workers' compensation insurers, to apply to the
Commissioner for a license to offer a single policy that
provides both health and workers' compensation benefits,
commonly referred to as "24-hour care policies."
E. Collection of uncompensated care costs
This bill would establish a process by which hospitals and
health care providers could collect payments from patients
for uncompensated care provided. The bill would authorize
a hospital or health care provider to file a claim with
DHCS to be reimbursed for uncompensated health care
services provided to uninsured individuals who are not
eligible for public coverage. Hospitals and providers
would have to file the claim at least 90 days after the
health care services were provided to the patient, and
include in the claim the identity of the patient, and the
amount owed.
Upon determination by the DHCS director that the claim is
meritorious, the bill would require the director to certify
the debt, thereby making it a debt owed to DHCS, and to
send a certification of the debt to the Franchise Tax Board
(FTB) and the California Lottery Commission (CLC) to have
the debt satisfied with any tax refund or lottery prize
money owed to the director.
The bill would require the FTB and the CLC to notify any
debtor that is owed a tax refund or lottery prize the
amount of money owed to the department for health care
services, that the tax refund or lottery prize would be
reduced by that amount, and that the debtor has a right to
a fair hearing. Any money deducted from the debtor's tax
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 20
refund or lottery winnings would be transferred by the FTB
or CLC to DHCS. The bill would then require DHCS to settle
the debt with the hospital or provider, and charge the
hospital or provider up to 20 percent of the debt to cover
administrative expenses associated with the proposed
collection effort.
The bill would specify that if the tax refund or lottery
winnings exceed the amount owed for health care services,
the FTB and the CLC would be required to give the
difference to the debtor within a reasonable period of
time. The bill would prohibit the FTB and CLC from
deducting any money exceeding the amount owed or to recoup
any administrative costs incurred. The bill would provide
that delinquent taxes owed by the debtor would be paid off
using the tax refund or lottery winnings prior to any
deductions for health care services.
The bill would state legislative intent to enact
legislation that would relieve the overutilization of
hospital emergency rooms by allowing hospitals to offer
coverage for preventative medical services delivered
through the hospital's primary care or community-based
clinic.
The bill would state legislative intent to enact
legislation that would impose consequences on attorneys and
litigants who file at least two lawsuits within a five-year
period against one or more health care providers if the
providers are found to have given appropriate care that did
not contribute to a patient's complications, or who file a
lawsuit against a health care provider that is dismissed
with prejudice.
E. Alternative work week schedules
Under existing law, eight hours of labor constitutes a
day's work. Existing law requires that any work in excess
of eight hours in one workday, and 40 hours in any one
workweek, as well as the first eight hours worked on the
seventh day of work in any one workweek, to be compensated
at no less than one-half times the regular rate of pay.
Existing law also requires any work in excess of 12 hours
in one day, and in excess of 8 hours on any seventh day of
a workweek, to be compensated at the rate of no less than
twice the regular rate of pay.
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 21
Notwithstanding these requirements, existing law authorizes
an employer to propose a regularly scheduled alternative
workweek of no more than 10 hours per day within a 40-hour
workweek, without having to pay an overtime rate. Existing
law requires at least two-thirds of the employees approve
the proposal, per a secret ballot voting process, to be
deemed adopted. Existing law also authorizes an employer
to provide an alternative workweek schedule pursuant to a
collective bargaining agreement.
This bill would authorize an employer with 50 or fewer
employees, who offers health care coverage, to approve a
written request from an employee to work an alternative
workweek schedule. The bill would require the employee and
employer maintain a written agreement outlining the
proposed workweek schedule, and would grant authority to
the employer and employee to terminate the agreement upon
seven days of advance notice.
This bill would also state legislative intent to enact
legislation that would provide incentives to employers who
offer health insurance, flex-time work schedules, and other
benefits agreed upon by employers and employees.
F. Money transmission fees
Existing law requires businesses that engage in the
business of receiving money for the purpose of transmitting
it to foreign countries to obtain a license from the
Department of Corporations, and sets forth various
requirements these businesses must meet, including
requirements to maintain adequate capital, as well as a
financial condition that would allow for the safe sound
engagement of business.
This bill would require the licensee or agent of such a
business to collect a three percent fee on transmitted
money received from a customer who is unable to provide
documentation of lawful presence in the United States. The
fee would be deposited into a newly established fund, and
used to pay for emergency medical care provided to
undocumented immigrants.
G. Other legislative intent
The bill would state legislative intent to enact
legislation that would address the overutilization of
hospital emergency rooms by allowing hospitals to offer
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 22
preventative medical services delivered through the
hospital's primary care or community-based clinic.
The bill would also state legislative intent to enact
legislation that would impose consequences on attorneys and
litigants who file at least two lawsuits within a five-year
period against one or more health care providers if the
providers are found to have given appropriate care that did
not contribute to a patient's complications, or who file a
lawsuit against a health care provider that is dismissed
with prejudice.
FISCAL IMPACT
Unknown.
BACKGROUND AND DISCUSSION
According to the author, this bill would encourage
consumer-directed health care as a way to reform health
care in a manner that would increase access to affordable,
quality health care without restricting a patient's right
to make medical decisions, promote patient safety, and
allow doctors and nurses to do what they do best-care for
people. The author states that, unlike traditional high
cost insurance plans, HSAs allow consumers to take control
of how and where their health care dollars are spent. The
author states that HSAs work in combination with lower cost
insurance plans under which consumers may pay for services
when they need them, in turn saving money on premiums. The
author states that, unlike restrictive cafeteria plans,
unused HSA funds carry over toward future health care
expenses, earning interest tax-free. The author states
that this is in contrast to the yearly "investment" made to
insurers who do not return dividends to healthy people.
The author states that traditional high cost plans place
limitations on health care treatment options. For example,
the author states that patients who choose alternative
healing practitioners, often do not have coverage for their
preferred health care needs. The author states that,
unlike typical health insurance, HSAs may be used for
expenses not covered by the individual's health plan,
including nonprescription medication, eyeglasses, dental
services, acupuncture, contact lenses, service dogs,
hearing aids, homeopathic treatment, medical conferences
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 23
for disease education, lead based paint removal,
traditional Chinese medicine, transportation to medical
care-even home modifications like bathtub support bars and
door hardware appropriate for the disabled, as well as for
services of naturopaths, Christian Science practitioners,
nurse midwives and chiropractors.
The author states that consumers, for whom quality,
cost-effectiveness, and choice in health care are
important, value the flexibility that HSA-compatible plans
provide. The author states that, it is for these
attributes that HSAs are under attack by proponents of
patient-hostile, economically unsustainable and government-
or employer-controlled health care delivery.
The author asserts that the health care safety net in
California has been jeopardized by current tax law, under
which physicians cannot write off bad debt for
uncompensated health care. The author states that this
bill would allow a provider tax credit for doctors who care
for patients with few resources. The author states that
this bill would also assess foreign money transfers-untaxed
disposable income sent from the U.S. by undocumented
immigrants to their native countries-to reimburse hospitals
and providers for uncompensated medical care.
The author states that this bill would reform entitlement
programs like Medi-Cal, and that Medi-Cal beneficiaries
should not receive better health care benefits than the
taxpayers who fund the program, many of whom cannot afford
basic care like cancer screenings and childhood
immunizations. The author states that this bill would
initiate a Medi-Cal "online checkbook" available to the
public to examine Medi-Cal expenditures, and would also
prohibit non-licensed insurance plan utilization reviewers
and independent medical reviewers from interfering in the
private treatment decisions made by patients and the
doctors they choose to care for them.
Uninsured Californians
According to a 2008 California HealthCare Foundation (CHCF)
report citing research from the Employee Benefit Research
Institute, the percent of uninsured Californians under age
65 has continued to rise over the last two decades as
employer-sponsored health insurance has declined. CHCF
states that between 1987 and 2007, employer-sponsored
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 24
coverage declined almost 8 percent, and that although
Medi-Cal and individually purchased coverage partially
offset that decline, more than 20 percent (6.6 million) of
Californians remain uninsured. CHCF states that California
has a lower percentage of individuals with
employer-sponsored coverage and a higher proportion of
uninsured when compared to the nation.
CHCF also states that workers at private sector businesses
of all sizes are experiencing an increased likelihood of
being uninsured, although it is most pronounced in
businesses with fewer than 10 employees. More than a third
of the uninsured in California have family incomes of more
than $50,000 per year; 27 percent of families with incomes
between $25,000 and $50,000 are uninsured. Seventy percent
of uninsured children are in families where the head of the
household has a year round, full-time job. In addition,
nearly 60 percent of the state's uninsured are Latino.
California's regulatory framework for health plans and
insurers
California's two regulatory agencies, DMHC and the
Department of Insurance, have oversight over roughly 200
health care service plans and health insurers, which
collectively provide coverage for 27 million people.
DMHC enforces the provisions of the Knox-Keene Health Care
Service Plan Act, which sets rules for mandatory basic
services; financial stability; availability and
accessibility of providers; review of provider contracts;
cost sharing; on-site medical surveys, including review of
patient medical records; and consumer disclosure and
grievance requirements. Basic services that Knox-Keene
licensed plans must offer include: physician services,
inpatient and outpatient hospital services, diagnostic lab
and radiology, therapeutic radiology, home health,
preventive, emergency, and hospice services. In addition,
these plans are mandated to cover or offer to cover various
benefits, including mental health, contraception, cancer
screening, and coverage of diabetic supplies, among others.
California currently has 46 benefits mandated under current
law.
A Knox-Keene licensed plan must submit for review and
approval all of the types of contracts it will offer, as
well as its standard provider contracts and payment
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 25
methods, audited financial statements, administrative
structure, financial viability, actuarial analyses,
proposed advertising and marketing materials, and proposed
service areas. Additionally, plans must designate a medical
director to oversee the plan's policy,
retain legal responsibility for ensuring that a contracted
provider has the administrative and financial capacity to
handle the contract, and pay an annual assessment based on
plan size and enrollees in addition to paying the corporate
tax rate.
Knox-Keene plans also must provide a number of patient
protections, including guaranteed coverage for second
opinions, time limits on utilization review, mandated
disclosure to DMHC of the criteria used in denying
coverage, independent external medical review for disputes,
and a right to sue an HMO for damages related to denials or
delays in care.
CDI generally has fewer requirements and less oversight of
insurers that underwrite health insurance through preferred
provider networks and traditional indemnity insurance, but
CDI also requires products to comply with various consumer
and provider protections as well as some benefit coverage
mandates.
California Health Benefits Review Program analysis
Pursuant to provisions of SB 1704 (Kuehl), Chapter 684 of
2006, and AB 1996 (Thomson), Chapter 795 of 2002, which
requests the University of California to assess legislation
proposing or repealing a mandated benefit or service, the
California Health Benefits Review Program (CHBRP) submitted
an analysis of this measure, as it pertains to the proposal
or repeal of mandated benefits or services. In its
analysis, CHBRP relied in part on its analysis of two prior
bills, SB 365 (McClintock) of 2007, and AB 1214 (Emerson)
of 2008, which contained similar provisions to this bill's
provisions regarding out-of-state carriers and mandate
waivers, as well as its analysis of other legislation
mandating a benefit or service.
Mandate waiver provisions
CHBRP modeled two scenarios and their impacts pertaining to
the switch to limited-mandate policies. In the scenario
where all currently insured switch their current insurance
to a limited-mandate version of the same plan or policy,
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 26
CHBRP estimated that total expenditures among the currently
insured population would decline by $2.214 billion, a
reduction of 2.63 percent. This overall reduction in
expenditures would be attributable to a cost shift from
insurer to insured of $1.675 billion for benefits currently
mandated that would no longer be covered but would still be
utilized, and a cost reduction of $1.675 billion due to
members reducing their utilization of services that are no
longer covered. CHBRP estimates, under this scenario, that
an estimated 99,000 Californians would become insured as a
result of the reduced premiums in this scenario,
representing a 2.04 percent decrease in the number of
uninsured, and these newly insured individuals would
account for an increase in overall expenditures of $228.676
million. The combined effect on overall health expenditures
of this scenario would be a net savings of $1.985 billion,
or 2.12 percent.
In the second scenario, where only those currently insured
with HDHPs, and incomes below 350 percent FPL, in the
CDI-regulated individual market switch to limited-mandate
policies, total expenditures among the currently insured
population would decline by $74.134 million, a reduction of
0.09 percent. This overall reduction in expenditures
includes a shift in costs from insurer to insured of
$42.314 million for currently mandated services that would
no longer be covered. CHBRP estimates 5,000 Californians
would become insured as a result of the reduced premiums in
this scenario, representing a 0.1 percent decrease in the
number of uninsured. These newly insured individuals would
account for an increase in overall expenditures of $2.552
million. The combined effect on overall health of this
scenario would be a net savings of $71.582 million, or 0.08
percent.
In assessing the potential public health impact of allowing
carriers to offer limited-mandate plans, CHBRP noted that
the primary health benefit of SB 92 could be an expansion
of the insured population by an estimated 5,000 to 99,000
persons. CHBRP noted that, compared to the insured,
uninsured individuals obtain less preventive, diagnostic,
and therapeutic care, are diagnosed at more advanced stages
of illness, have a higher risk of death, and have worse
self-reported health. CHBRP noted that such individuals
would likely realize improved health outcomes and reduced
financial burden for medical expenses.
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 27
However, CHBRP also noted that having less comprehensive or
limited mandate health insurance exposes individuals to the
financial and health risks of becoming underinsured if
insurers drop coverage for effective health services
currently mandated in California. CHBRP estimated that SB
92 could result in 666,000 to 18,100,000 previously insured
persons moving from a plan with mandated benefits to one
where coverage of mandated benefits is no longer required;
and with out-of-pocket expenditures for benefits previously
covered potentially increasing for this population to
between $42 million and $1.7 billion, these insured have an
increased risk of foregoing treatment for services no
longer covered under limited mandate policies. CHBRP also
noted that it is possible that persons moving to
limited-mandate plans could develop a preexisting medical
condition that would exclude them from moving back to a
plan with increased benefits.
CHBRP posited that, based on the prototype limited-mandate
plans, the medically effective mandated benefits that are
most likely to be dropped include: alcoholism treatments
and parity in coverage for severe mental illness/coverage
for mental and nervous disorders, PKU treatment with
medical formula and foods, expanded alpha-fetoprotein
screening (AFP), prescription contraceptive devices,
acupuncture, infertility treatments, jawbone or associated
bone joint surgery, orthotics and prosthetics, special
footwear for persons with rheumatoid arthritis, general
anesthesia for dental procedures, and home care services
for elderly and disabled adults.
CHBRP also highlighted that a number of mandates are
associated with benefits primarily for females (e.g.,
breast/cervical cancer, maternity care-related mandates,
and prescription contraceptives). Of the 666,000 to
18,100,000 previously insured persons that could move from
a plan with mandated benefits to one where coverage of
mandated
benefits is no longer required, females would be at greater
risk for underinsurance
compared to males. CHBRP further noted that, among the
5,000 to 99,000 estimated newly insured, a larger
proportion of minorities compared to whites could change
from being uninsured to insured under SB 92; but that
coverage under limited-mandate policies would likely
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 28
attract low-risk enrollees rather than those uninsured with
chronic or high-risk conditions.
Policies by out-of-state carriers would tend to be lower
in cost than policies by in-state carriers because
presumably carriers would elect to be domiciled in a
state with minimal insurance requirements, regulatory
review, or oversight.
Impact of out-of-state carrier rules
To assess the outcome of allowing out-of-state carriers to
sell policies in California without obtaining a license
from the DMHC or CDI, CHBRP identified the following
potential impacts.
Out-of-state carriers would be exempt from
California-specific consumer protection and financial
solvency requirements, and enrollees in plans offered by
such carriers would have to contact the insurance
commissioner in the state of domicile to deal with denied
claims or other disputes, which may not be addressed.
All states require insurance products to maintain
adequate reserves to be financially solvent and be able
to pay claims; however, these requirements and the
capacity to monitor solvency of their carriers vary
across states. Historically, less stringent solvency
requirements have been associated with insolvency.
When examining the projected impacts of similar federal
proposals on the California market, researchers found
that there was virtually no increase, less than one
percent, in insurance coverage resulting from the
introduction of plans exempt from state requirements into
the market. Analyses of similar projects have shown that
savings in premiums accrue to those in the
out-of-California market, while premiums for
policyholders who stay in the insured, state-regulated
market increased.
Small groups may face dramatic variations in premiums
when California-specific rate protections do not apply.
The CDI calculated projected premium impacts if a similar
measure were to pass and found that small-group employees
of the same firm could face premium differentials of 67
percent (versus 22 percent under current California law)
based on less stringent rate band requirements. However,
low-risk individuals who were uninsured would obtain
low-cost, out-of-state individual policies, offsetting
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 29
those who lost insurance. Although the characteristics of
the insured population could change, with low-risk
individuals gaining insurance coverage and high-risk
individuals losing coverage, the net effect with respect
to the number of insured would be insubstantial.
Such proposals exempting products from state-specific
requirements are projected to result in out-of-state
policies attracting healthy, low-risk employees in the
small-group and individual market. This selection of
low-cost enrollees and risk segmentation could lead to a
change in the composition of the market, leaving the
high-risk individuals in the state-regulated market
uninsured.
Medical necessity determinations
In addition to reviewing the provisions of SB 92 affecting
mandated benefits, this committee requested that CHBRP
provide input on what issues must be considered to
determine how the definition of medical necessity under
this bill may impact coverage of benefits.
In response to this request, CHBRP provided a memo with the
following highlights:
In 1999, the California HealthCare Foundation funded
Stanford University's Center for Health Policy to
identify the variation in how coverage determinations are
made based on various definitions of medical necessity in
California.
Researchers found that: most plans make coverage
determinations after an initial review of the member's
benefits, eligibility, the plans' coverage policies and
guidelines, and the effectiveness and appropriateness of
treatment; lack of a standard, clear and specific
definition of medical necessity (and benefit coverage
guidelines) has led to disputes among treating physicians
and plans; the process in which a service or treatment is
considered medically necessary and subsequently covered
or denied is important to all stakeholders, including the
plan, the treating provider, and the patient;
transparency in the process, opportunities for input, and
clear communications are important components to ensure a
functioning process; and there is variation among medical
directors' determinations regarding whether treatments
are effective or appropriate and should be considered
medically necessary.
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 30
Based on these findings, researchers developed Model
Contractual Language for Medical Necessity through a
consensus-building process, including input from plan and
medical group directors, consumers, treating physicians,
regulators, and other stakeholder groups. The model
language states:
An intervention is medically necessary if, as recommended
by the treating physician and determined by the health
plan's medical director or physician designee, it is (all
of the following):
A health intervention for the purpose of treating a
medical condition;
the most appropriate supply or level of service,
considering potential benefits and harms to the patient;
known to be effective in improving health outcomes; (For
new interventions, effectiveness is determined by
scientific evidence. For existing interventions,
effectiveness is determined first by scientific evidence,
then by professional standards, then by expert opinion);
and,
cost effective for this condition compared to alternative
interventions, including no intervention. "Cost
effective" does not necessarily mean lowest price.
CHBRP also noted that, in order to assess the potential
impacts of the provision in SB 92 related to medical
necessity, one would have to consider a myriad of
implementation questions. Some examples of questions raised
include:
The current language includes services that "prevent
significant illness or disability" as medically
necessary. However, how would diagnostic services be
considered under this definition since they would not be
preventive?
The same phrase raises additional questions regarding the
definition of "significant illness or significant
disability." Would physical therapy be considered
medically necessary under this definition since, in some
instances, a patient may get better eventually without
the therapy? Would gym memberships or over-the-counter
nicotine replacement therapy be considered medically
necessary since lack of exercise or continued smoking may
lead to "significant illness?"
Would diagnostic and treatment services that are not
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 31
related to severe pain or are not considered
life-threatening be considered medically necessary?
Would the condition of pregnancy be considered an
"illness" or "disability?"
What would be considered "significant" illness or
disability and what is the threshold for "significant?"
The term "significant" may be interpreted by plans or
insurers, regulators, and providers differently and may
ultimately be clarified or decided by the courts.
Who would determine whether the "pain" that is being
experienced is "severe" enough to warrant medically
necessary treatment?
How would the diagnosis and treatment of mental health
care services be considered under this definition of
medical necessity?
What are the implications for the DMHC's and the CDI's
current independent medical review processes?
Medi-Cal rates
A study of Medi-Cal physician and dental payment rates by
the Lewin Group in 2001 concluded that Medi-Cal
fee-for-service payments to physicians are below average
when compared to other states' programs, ranking 37th among
51 state Medicaid programs. A study by the Urban Institute
showed that California's Medi-Cal payments to physicians
were only 59 percent of the Medicare payment, below the
national Medicaid average of 69 percent. Other studies
have found low rates of physician participation in Medi-Cal
that can be attributed to payment rates. For example, a
study in 2003 by researchers at the University of
California, San Francisco and the Medi-Cal Policy Institute
found that nearly half of all physicians in California's
urban counties are not willing to take Medi-Cal patients.
Provider enrollment
The Bureau of State Audits conducted audits of Medi-Cal
provider enrollment in May 2002 and April 2007. The 2002
audit found that DHCS' Provider Enrollment Branch was not
effectively using its resources to process provider
applications, nor was it effectively coordinating its
efforts with the Audit & Investigations Branch. The 2007
audit found that, despite the department's effort to
shorten the average time to process applications, the
department does not process some applications within the
specified timeframe under current law. As a result, the
enrollment branch continues to review the applications
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 32
after this deadline, and is forced to enroll these
applicants into Medi-Cal automatically on a provisional
status, because it cannot make a timely determination on
the application. Finally, the report states that the
Medi-Cal enrollment process could be better streamlined for
providers that also bill Medicare by relying on some of the
data in Medicare enrollment applications, which contain
many similar elements.
According to the State Auditor, the federal government is
launching two initiatives to provide more accurate
information on Medicare providers. Under current federal
regulations, Medicare providers are required to certify the
accuracy of their enrollment information every five years
as a condition of maintaining their billing privileges and
will also be required to disclose their national provider
identification number to any entity upon request. It
appears that this same provider number could also be used
on Medi-Cal enrollment applications. The Medicare provider
enrollment application contains 34 out of the 44
application elements that the department requires for the
Medi-Cal program and provides verification for most of the
information that state regulations require Medi-Cal to
verify. The State Auditor recommended that using Medicare
data would streamline the enrollment for Medi-Cal and would
allow department staff to focus on other elements of the
application.
Disproportionate Share Hospital Program
The federal Medicaid Disproportionate Share Hospital
Program (DSH) program provides financial help to hospitals
that serve large numbers of Medicaid and uninsured
patients, thereby offsetting a portion of a hospital's
uncompensated care costs. The cost of providing
uncompensated care is incurred when a patient is unable to
fully or partially pay for their care. Uncompensated care
costs are a major factor creating financial pressure for
many hospitals, especially for public hospitals that serve
large numbers of low-income patients, either Medi-Cal
recipients or the uninsured. Even though the state pays
hospitals for treating Medi-Cal patients, the hospital
rates for Medi-Cal are so low that hospitals generally
incur substantial uncompensated care costs.
Congress has allocated about $1 billion annually in DSH
funds for California. Both public and private hospitals
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 33
are eligible to receive DSH funds. However, the current
Medicaid hospital waiver directs DSH funding to public
hospitals, while providing other state and federal funds to
private hospitals who would otherwise qualify for DSH
funds.
Health Savings Accounts
For most working Americans and their families, tax
treatment of health expenses depends largely on whether
their health plan is paid for by an employer, whether they
are self-employed, and whether they itemize deductions and
have medical expenses that exceed 7.5 percent of their
adjusted gross income. This situation changed when the
2003 Medicare prescription drug law created HSAs.
HSAs are tax-exempt accounts created solely for the
purposes of paying for qualified medical expenses incurred
by the account holder, his or her spouse and his or her
dependants. To be eligible to contribute to an HSA,
individuals must be covered by a HDHP. Under federal law,
an HDHP must have a deductible of at least $1,150 for
individuals and $2,300 for families. Furthermore, the
annual out-of-pocket expenses under the HDHP may not exceed
$5,800 for individuals and $11,600 for families. These
limits are indexed for inflation.
Because HSAs are individually owned and controlled, an
individual may choose the level at which to fund the
account, which medical expenses to pay for, and which
investments to make. HSAs are also fully portable; an
individual keeps his or her HSA even if he or she changes
jobs, moves to a different state, or becomes unemployed.
There are no income limits for participation in an HSA.
HSAs can be funded by the employee, the employer, or both,
but are owned by the employee. When combined with a
qualifying HDHP, HSA contributions from the consumer are
tax-deductible, and employer contributions (including
salary reduction contributions made through a cafeteria
plan) are not considered income for the employee, and are
not, therefore, subject to employee income taxes or payroll
taxes. The maximum annual HSA contribution, regardless of
the HDHP deductible, is $3,000 for an individual and $5,950
for families. Individuals aged 55 and older can make an
annual catch-up contribution of $1000 to an HSA. Again,
these limits are indexed for inflation.
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 34
HSAs funds may be placed in a variety of investment
vehicles. Earnings accrued on these accounts are not
taxed, and withdrawals are tax-exempt if spent on
out-of-pocket medical costs. HSA funds not spent in one
year are allowed to roll over and are available in
subsequent years. Distributions can be spent for costs
other than health care, but are then taxable as income and
subject to an additional 10 percent penalty.
California tax payers face limitations in funding their
HSAs as they cannot make either a tax-free rollover from an
MSA or a distribution from an IRA to an HSA under
California law without incurring taxes and penalties.
While the MSAs still exist in federal law, they are
infrequently used, as HSAs are considered a more simple tax
planning tool.
Use of HSAs
According to the American Association of Health Insurance
Plans, there were 438,000 Americans covered by an HSA-type
plan in 2004. In 2007, this total grew to 4.5 million
people, of which 27 percent were previously uninsured
individuals and about one-third of those enrolled were
obtaining their insurance through the small business group
market. The U.S. Treasury Department projects that by 2010
there will be 14 million HSA policies in force nationally,
covering 25 to 30 million people.
In August 2006, the United States Government Accountability
Office issued a report titled, "Consumer-Directed Health
Plans: Early Enrollee Experiences with Health Savings
Accounts and Eligible Health Plans." The report stated
that the median income of tax filers reporting an HSA
contribution in 2004 was $133,000. Additionally, 51
percent of those tax filers contributing to an HSA had an
income of $75,000 or more. According to the report,
"HSA-eligible plan enrollees had higher incomes than
comparison groups."
The report also stated that:
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 35
In addition to using HSAs to pay for medical and
other expenses, account holders appear to use their
HSAs as a savings vehicle. About 55 percent of those
reporting HSA contributions to the IRS in 2004 did
not withdraw any funds from their account. We could
not determine whether HSA-eligible plan enrollees
accumulated balances because they did not need to use
their account (that is, they paid for care from
out-of-pocket sources or did not need health care
during the year) or because they reduced their health
care spending as a result of financial incentives
associated with the HSA-eligible plan and HSA.
However, many focus group participants reported using
their HSAs as a tax-advantaged savings vehicle,
accumulating their HSA funds for future use.
High deductible health plans
An HDHP is a type of health plan designed to encourage
consumers to actively participate in decisions about their
health care spending. By requiring enrollees to pay for
routine health expenses, either directly out-of-pocket or
from contributions made to a medical savings account, such
as an HSA, HDHPs provide consumers with an incentive to
become aware of the actual costs of care and to explore
less costly health care alternatives.
According to an April 2006 report issued by the California
Health Benefits Review Program (CHBRP), although HDHPs
currently have a small market share nationally, studies and
surveys consistently predict growth in the HDHP market
share. CHBRP cited an annual survey of employers, in which
researchers reported that in 2003, 5 percent of employers
offered an HDHP, versus 10 percent in 2004 and 20 percent
in 2005. Of those firms that did not offer an
HSA-qualified HDHP, 25 percent reported that they were
somewhat likely, or very likely, to do so in the next year.
Approximately one-third of employers who offered an
HSA-qualified HDHP did not contribute to the employee's
HSA. CHBRP estimated that, in California, about 11 percent
of enrollees in the privately insured market are enrolled
in HDHP, a majority of them in the individual market.
CHBRP estimated that most Californians currently in HDHPs
do not have an HSA.
According to a report issued by the California HealthCare
Foundation (CHCF), individuals enrolled in an HDHP that is
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 36
not linked to a medical savings account, such as an HSA,
spend, on average, 4 to 15 percent less on medical care
than what the same individuals would spend in a traditional
health care service plan or health insurance policy. The
report notes that the lower spending may prevent access to
appropriate and necessary care with consequent health
effects, especially among the poor who are sick.
A December 2006 survey of health consumers by the
Commonwealth Fund found that, while the law that created
HSAs allows people to have HDHPs which cover the cost of
preventive services (i.e., preventive services are excluded
from the deductible), more than half of the enrollees in
HDHPs are in plans with deductibles that apply to all
health care services. Survey results also indicated that
individuals in HDHPs exhibit more cost-conscious behavior
in their health care decision-making than individuals with
more comprehensive health insurance, but that individuals
in HDHPs are more likely than those with comprehensive
health insurance to report that they delayed or avoided
needed care because of cost. The survey also found that
despite the emphasis on informed choice surrounding
consumer-driven health care, people in HDHPs were less
likely to report that their health plans provided
information on the cost and quality of providers than those
in more comprehensive plans.
24-hour care
The California workers' compensation system provides
insurance coverage for both medical care and (partial) wage
replacement for work-related injuries or other health
conditions, as well as disability benefits for workers
whose injuries prevent them from returning to work for
extended periods. This system operates separately from the
traditional group health care insurance under which
employees and their families obtain coverage for their
personal health care, and it operates separately from other
disability insurance plans.
The term "24-hour care" refers to the consolidation of
health care benefits and, possibly, disability benefits for
both work-related and non-work-related claims, so that
services are delivered by the same group of providers under
a coordinated insurance package. According to a 2006 RAND
Corporation study commissioned by the California Department
of Industrial Relations, California policymakers have
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 37
previously examined 24-hour care as an alternative option
to the current California workers' compensation benefits
system, because of increasing growth of system costs,
driven by growth in medical care expenditures in workers'
compensation cases, issues with appropriateness of care,
and relatively high litigation rates associated with
California workers' compensation claims.
The study stated that a 24-hour care system offers the
potential to reduce both administrative costs and medical
care costs. However, despite a substantial amount of
published material on the concept of 24-hour care, there
have been few systematic attempts to estimate the potential
benefits of 24-hour care and almost no attempts to assess
the likely benefits of a fully scaled program. The study
stated that past
experience demonstrates that many states failed to get
24-hour-care pilots started, and other states that achieved
operating pilots had limited success in achieving cost
savings or
improvements in care. According to the study, only one
empirical evaluation of 24-hour care pilot programs has
been conducted, which evaluated the performance of a
24-hour care pilot program in California that allowed
employers to contract with a Kaiser Permanente to be the
exclusive provider of medical treatment for both
work-related and non-work-related injuries and illnesses.
The evaluation found that, in this pilot program, workers'
compensation medical costs were higher than they would have
been under the existing system, but costs for permanent and
partial disability claims did not change significantly. The
effects of the pilot program on costs for non-work related
medical care were not analyzed, which makes it difficult to
interpret overall effects. The evaluation found no
differences in patient satisfaction or in self-reported
emotional or functional outcomes.
The RAND Corporation study outlined various barriers to the
implementation of 24-hour care policies, including, the
federal Employee Retirement Income Security Act (ERISA),
which limits the range of 24-hour care designs that are
legally permissible in an employer-based health insurance
environment. In addition, the study found that employers
and insurers face operational barriers that would influence
their willingness to participate in a voluntary program,
such as the time and costs required for employers to
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 38
negotiate consolidation of coverage with multiple health
plans and insurers. Given the implications of ERISA and
the other identified barriers, the study concluded that it
was premature for the State of California to embark on
statewide introduction of 24-hour care, and recommended
policymakers use small-scale pilots to test 24-hour-care
models and to move forward carefully as they do so, placing
an emphasis on effective design, implementation, and
evaluation of the models being tested.
Related legislation
SB 1 (Steinberg and Alquist) expands the Medi-Cal and
Healthy Families program eligibility to cover all children
in families with incomes at or below 300 percent of the
federal poverty level (FPL). Establishes a Healthy
Families buy-in program for children in families with
incomes above 300 percent of the FPL. Establishes
presumptive eligibility for children in families applying
for Medi-Cal at county eligibility offices. Expands
eligibility for California Children's Services (CCS)
program. This bill is currently in the Senate Health
Committee.
SB 810 (Leno) would establish a single-payer universal
health care system that provides all California residents
with comprehensive health insurance including a choice of
doctors and hospitals. The bill would consolidate federal,
state, and local monies currently being spent on health
care services into a health care trust fund, and would
require employers to contribute a percentage of payroll
toward employee health care costs and individuals to
contribute a percentage of income into the health care
trust fund; these contributions would replace premiums now
paid to insurance companies. The bill would contain
long-term growth in health care spending through savings on
administrative overhead, increased emphasis on preventive,
primary, and chronic care, and using statewide purchasing
power to negotiate discounts on drugs and durable medical
equipment. This bill is currently in the Senate
Appropriations Committee.
Previous legislation
ABX1 1 (Nunez) of 2008 would have required all California
residents to carry a minimum level of health insurance
coverage for themselves as well as for their dependents,
established a state purchasing pool through which
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 39
qualifying individuals would be allowed to obtain
subsidized or unsubsidized health care coverage, expanded
eligibility for the Medi-Cal and Healthy Families programs,
and increased Medi-Cal provider rates for hospitals and
physician services. Would have required health plans and
insurers to offer and renew, on a guaranteed basis,
individual coverage in five designated coverage categories,
regardless of the age, health status, or claims experience
of applicants, and established new modified community
rating rules for the pricing of individual coverage. Would
have contained provisions intended to reduce or offset a
portion of the costs of health coverage as well as several
new programs and initiatives related to the prevention and
promotion of health and wellness, and would have expressed
intent that financing for the bill's provisions come from a
variety of sources, including federal funds, fees from
employers, revenues from counties, fees paid by acute care
hospitals, premium payments from individuals, and funds
from a new tobacco tax. Some of these financing measures
would have been contained in a proposed ballot initiative.
This bill failed passage by the Senate Health Committee.
ABX1 2 (No author) of 2008 contains the language from
Governor Schwarzenegger's health care reform proposal. The
bill would require all California residents to carry a
minimum level of health insurance coverage for themselves
as well as for their dependents, and would establish a
state purchasing pool through which qualifying individuals
would be allowed to obtain subsidized or unsubsidized
health care coverage. The bill would expand eligibility
for the Medi-Cal and Healthy Families programs, and
increase Medi-Cal provider rates for hospitals and
physician services. The bill would require health plans
and insurers to offer and renew, on a guaranteed basis,
individual coverage in five designated coverage categories,
regardless of the age, health status, or claims experience
of applicants, and establish new, modified community rating
rules for the pricing of individual coverage. The bill
contains provisions intended to reduce or offset a portion
of the costs of health insurance coverage, as well as
several new programs and initiatives related to prevention
and promotion of health and wellness, and expresses intent
that financing for the bill's provisions shall come from a
variety of sources, including federal funds related to
Medi-Cal and Healthy Families program expansions, fees from
employers who do not offer health insurance coverage to
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 40
their employees, revenues from counties, fees paid by acute
care hospitals, premium payments from individuals, and
funds from the lease of the State Lottery. The bill would
make implementation of its provisions contingent upon a
finding by the Director of Finance that sufficient state
resources are available to implement the provisions. This
bill was held in the Assembly Health Committee.
SBX1 5 (Cox) of 2008 would have eliminated existing
allocations of tobacco tax revenue under Proposition 10 to
state and local county children and families commission
accounts and, instead, requires those funds to be used to
provide health care services and health care initiatives,
including, but not limited to, the Healthy Families
Program. Failed passage in the Senate Health Committee.
SBX1 9 (Runner) of 2008 would have directed DHCS to develop
a plan for redirecting federal DSH funds, which currently
are paid to public hospitals, to pay for primary care at
clinics and prevents the plan's implementation until the
Legislature grants specific authorization. Failed passage
in the Senate Health Committee.
SBX1 10 (Maldonado) of 2008 would have conformed state law
with federal law by granting a personal income tax
deduction for the establishment of a health savings account
(HSA). Also would conform state law to other related
provisions of federal law regarding rollovers, creation of
tax exempt trusts, and penalties for paying non-medical
expenses. Failed passage in the Senate Health Committee.
SBX1 21 (Cogdill) of 2008 would authorize a 25 percent
credit against the net personal income tax of a medical
care professional who provides medical services in a rural
area for each taxable year beginning January 1, 2008. This
bill was held in the Senate Health Committee.
SBX1 23 (Ashburn) of 2008 would provide an income tax
credit taken against personal and corporate income taxes,
equal to 15 percent of the costs related to establishing or
administrating cafeteria plans, authorized under the
Internal Revenue Code, that provide for the payment of
health insurance premiums to employees. This bill was held
in the Senate Revenue and Taxation Committee.
SB 32 (Steinberg) of 2008 and AB 1 (Laird) of 2008 would
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 41
have expanded eligibility for Healthy Families to children
with family incomes at or below 300 percent of the FPL and
would have deleted the specified citizenship and
immigration status requirements for children to be eligible
for Medi-Cal and Healthy Families. The bill would have
allowed applicants to self-certify their income and assets
for the purposes of establishing eligibility for Healthy
Families, and would have established a Medi-Cal presumptive
eligibility program, as specified. SB 32 was placed on
the Assembly inactive file, and AB 1 was held on the
Assembly floor.
SB 365 (McClintock) of 2008 and SBX1 16 (McClintock) of
2008 would have allowed a health care service plan or
health insurance carrier domiciled in another state to
offer, sell, or renew a health care service plan or a
health insurance policy in this state without holding a
license issued by the Department of Managed Health Care
(DMHC), or a certificate of authority issued by the
Insurance Commissioner, and without meeting specified
requirements for a license or certificate, provided that
the carrier is authorized to issue a plan or policy in the
domiciliary state and complies with that state's
requirements. Failed passage in the Senate Health
Committee.
SB 840 (Kuehl) of 2008 would have implemented a system
substantially similar to that proposed by this year's SB
810. This bill was vetoed.
SB 1014 (Kuehl) of 2008, a companion to the version of SB
840 introduced in the 2007-2008 legislative session, would
have imposed specified health care coverage taxes on
employer payroll, employee wages, self-employment income,
and other non-wage income, as specified, and direct
revenues generated from these taxes to fund the single
payer system that would have been created by SB 840. This
bill was held by the Senate Revenue and Taxation Committee.
AB 2 (Dymally) of 2008 and ABX1 3 (Dymally) of 2007
proposed to restructure the MRMIP, including eligibility,
benefits, and premium rates for the program, and would
require all health care service plans and disability
insurers selling health insurance in the state to share in
the costs of MRMIP, by either paying a fee to the state to
support MRMIP costs, or by offering coverage in the
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 42
individual market on a guaranteed issue basis with
community rating of premiums and prior rate approval
requirements. The bill required health care service plans
and health insurers in the individual insurance market to
provide coverage on a guaranteed issue basis to individuals
not eligible for MRMIP starting January 1, 2009. AB 2 was
vetoed. ABX1 3 was held in the Assembly Health Committee.
AB 1554 (Jones) of 2008 would have required health care
services plans and health insurers to receive approval from
the DMHC or DOI to increase premiums, co-payments,
co-insurance obligations, and deductibles. The bill would
have required both departments to notify the public of, and
hold hearings on, applications from plans or insurers to
increase rates. This bill failed passage in the Senate
Health Committee.
SB 48 (Perata) of 2007 proposed a health care reform plan
designed to insure all working Californians and their
dependents, as well as all children regardless of residency
status in households with incomes up to 300 percent of the
federal poverty level. These provisions were deleted and
subsequently replaced with different provisions that did
not pertain to health care reform.
AB 8 (Nunez) of 2007 proposed a health care reform plan
designed to insure all working individuals and dependents
employed by firms of two or more employees, all children,
regardless of residency status, with household incomes up
to 300 percent of the federal poverty level, and eventually
low-income childless adults. This bill was vetoed.
SB 25 (Maldonado) of 2007 contained identical provisions to
SB1X 10. The bill was held is in the Senate Revenue and
Taxation Committee.
AB1X 8 (Villines) of 2007 would have conformed state tax
law with federal law for HSAs, among the bill's other
provisions. The bill failed passage in the Assembly Health
Committee
SB 1584 (Runner and Ackerman) of 2006, generally would have
conformed state tax law with federal for HSAs. The bill
was held in Senate Health Committee.
San Francisco Health Care Security Ordinance (2006)
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 43
requires employers with 20 or more employees to spend a
minimum amount per hour, per employee, on health care
services, with certain exceptions. Employers could spend
this amount on various health care services for its
employees, including, but not limited to, health insurance,
contributions to public programs for the uninsured, health
savings accounts, or direct reimbursements to employees for
health expenses. The Ordinance also establishes a new
Health Access Program, focused on prevention services, to
replace the city's current system for providing health care
to the uninsured. This ordinance was adopted by San
Francisco in 2006. In December 2007, in response to a
legal challenge filed by an employer group, a federal
district court ruled that the ordinance's employer spending
requirements violate federal ERISA law. In January 2008, a
federal appellate court ruled in favor of San Francisco's
request for an emergency stay, granting the City the right
to implement the employer mandate while the City appeals
the district court decision.
SB 173 (Maldonado) of 2005 generally would have conformed
state tax law with federal for HSAs. The bill was held in
the Senate Revenue and Taxation Committee.
SB 1100 (Perata and Ducheny), Chapter 560, Statutes of
2005, implemented a five-year hospital demonstration
waiver project, revised the methods the state uses to pay
private, public, and university hospitals that contract
with the state under the Medi-Cal selective provider
contracting program, and provides a mechanism for
allocating DSH payments.
SB 2 (Burton and Speier), Chapter 673, Statutes of 2003,
would have required California employers with 50 or more
employees to pay a fee to the state to provide health
coverage for employees or to directly provide the health
coverage to employees (and dependents for larger
employers). The bill would have defined minimum required
coverage, and required employers to contribute at least 80
percent of the costs of coverage and employees up to 20
percent of the costs, with a cap for low-wage earners. The
bill established a purchasing pool to provide coverage for
employees, expanded small group market reforms to cover
employers with 51-199 employees, and included a premium
assistance program for individuals eligible for Medi-Cal or
Healthy Families. SB 2 was overturned in a November 2004
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 44
referendum.
AB 1264 (Cogdill) of 2002 would have authorized medical
professionals who practice medicine in an area lacking
health professionals the choice of either a nonrefundable
tax credit or a tax deduction. AB 1264 was held in the
Assembly Committee on Revenue and Taxation.
Arguments in support
The California Right to Life Committee (Committee) states
that the current practice of requiring all health insurance
companies to be licensed within a state before permitting a
company to do business in that state appears to be a
serious restraint of trade and limitation on persons
seeking health insurance to freely decide what coverage
they want, and what company they want to do business with.
The Committee further states that, by licensing health
insurance companies, the state assumes the right to make
decisions for its residents as to what is appropriate
coverage, without consulting with the resident who will be
purchasing that coverage. The Committee states that it is
not the role of the state government to control the means
and the end of doing business in the private sector, and
requirements for health insurance plans and insurers to be
licensed is an indication by the state that its residents
are incapable of determining their own needs. The
Committee states that this bill would provide freedom of
choice in medical coverage for every individual.
The California Chiropractic Association (CCA) states that
chiropractic care within the Medi-Cal program is one of the
most successful and cost-effective options for patients,
and would support the bill if amended to specify that
chiropractors would be included in any of the proposed
changes to Medi-Cal provider reimbursement.
Arguments in opposition
Health Access California states that this bill would make
drastic changes to the health care system, but do little to
expand coverage or contain costs. Health Access states
that the bill's provisions to allow out-of-state insurers
to sell plans in California would effectively eliminate
almost all consumer protections and insurance regulations
that the Legislature has put in place. Health Access
California states that this bill would allow insurers to
sell "junk" insurance to low- and moderate-income families
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 45
that does not contain mandates, essentially encouraging
insurers to target low- and moderate-income families to
sell inadequate coverage policies. Health Access
California states that this bill would dilute the Medi-Cal
program by reducing benefits requiring parity with
commercial plans which often do not provide adequate
coverage, and also would give Medi-Cal enrollees a
risk-adjusted amount of money to purchase a plan in the
private market, funneling taxpayer dollars to the private
insurance market without proper public accountability and
assurance of plan quality. Health Access states that the
bill would narrow the definition of "medical necessity,"
making it more likely that patients will be denied care.
Health Access California states that the bill would segment
the small group insurance market, by taking association
health plans out of the market, leaving behind only the
smallest employers, with the highest risk, paying the
highest premiums. Health Access California states that
while community clinics are an important aspect of the
public health safety net, this bill would shift an
important funding source for the uninsured away from
hospitals, undermining the whole safety net while not
addressing the lack of access for the uninsured.
Planned Parenthood Affiliates of California (PPAC) opposes
this bill, because it allows individual coverage plans and
policies to be sold without having to abide by state
benefit mandates. PPAC states that Californians who
purchase these plans would be in jeopardy of being
underinsured, requiring them to possibly forgo treatment
for conditions that are not covered, or to be responsible
for expenses related to unanticipated health conditions.
PPAC states that allowing out-of-state carriers to sell
plans and policies in California without a license presents
public health and safety issues, that all health insurers
should be held to the same high California standards, and
that licensing of such plans should not be negotiable.
PPAC states that DHCS already has mechanisms in place to
provide internet access to Medi-Cal expenditure
information, and to identify and address fraud, and that
the bill's provisions to require DHCS to create a website
that includes a line item breakdown of administrative
costs, and to develop a computer modeling system to
identify fraud are duplicative and burdensome. PPAC
opposes the bill's provisions establishing a "defined
contribution" system in the Medi-Cal program, stating that
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 46
Medi-Cal enrollees should have easy access to needed
services, and that the state should provide these services
rather than granting enrollees a defined sum of money with
the expectation of finding private services. Lastly, PPAC
opposes the proposed three percent fee on money transmitted
abroad, stating that a fee on this service is not germane
to emergency care.
The Western Center on Law and Poverty (WCLP) states that
this bill would make sweeping changes to health care
delivery, particularly in the Medi-Cal program, that would
expose low-income consumers to medical debt, and take away
state legal protections. WCLP states that Medi-Cal
enrollees, particularly seniors and disabled persons, need
options for health coverage, and that subjecting them to a
defined-benefit system and higher cost sharing in Medi-Cal
would not achieve that goal. WCLP states that the proposed
HOA accounts, which are in essence HSAs, would subject
Medi-Cal enrollees to potentially significant out-of-pocket
deductible costs which would pose financial hardships for
low-income individuals and families. WCLP states that the
provisions declaring intent to realign Medi-Cal benefits
with benefits provided through private health coverage
would leave some of Medi-Cal's unique populations without
the services or equipment they need, such as durable
medical equipment or home health services which are not
often covered by many private health plans. WCLP also
states that the deductibles associated with HDHPs would be
unaffordable for low-income people, and that, when faced
with higher out-of-pocket costs, many low-income
individuals and families will forgo effective medical care
as they already struggle to pay for life necessities such
as food and housing.
The California School Employees Association (CSEA), the
California Labor Federation (CLF), and the California
Nurses Association (CNA), each oppose the bill's provision
authorizing employers to implement alternative work
schedules, stating that they undermine the eight-hour day
and overtime pay for employees who are provided health
benefits, that there is no justification for linking health
benefits with employee guaranteed overtime protections, and
that these provisions would allow employers to leverage and
coerce employees into working longer work days, without
overtime pay, in exchange for health care coverage. The
organizations oppose the bill's provisions to allow
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 47
out-of-state carriers to sell health care policies in
California without being licensed, because they undermine
California standards which are designed to protect the best
interests of purchasers and consumers, and to set a
meaningful floor for quality coverage, and oppose HSAs, and
other similar products, stating that they do not provide
comprehensive, affordable quality health care, and shift
health care costs to workers, thereby imposing significant
out-of-pocket costs which may discourage workers from
seeking care for routine illnesses. CLF and CNA oppose the
bill's provisions to integrate health and worker's
compensation coverage, stating that they are not sufficient
to ensure that workers' needs are met in either system, and
do not contain requirements pertaining to minimum treatment
standards, access to care, which treatment guidelines would
prevail in the case of a conflict, and how patient cost
sharing would be integrated. CLF and CNA also state that
the bill's provisions pertaining to the transmission of
money abroad would turn private financial institution
employees into de facto immigration agents, and run counter
to the well-documented reality that undocumented immigrants
make up only a fraction of the state's uninsured and use
notably fewer health care services than uninsured citizens.
The California Association of Health Plans (CAHP) state
that this bill would greatly weaken the ability of health
plans to use evidence-based medicine to ensure that
enrollees are receiving quality care, and would change the
processes that plans use to ensure that enrollees are
receiving evidence-based, quality medical care. CAHP
asserts that by creating hurdles to health plan reviews of
treatment recommendations, this bill would greatly increase
costs to comply with these new requirements or health plans
will cease to review treatment requests to ensure they are
evidence based. CAHP asserts that either outcome would be
detrimental to our health care system. CAHP states that
this bill would change the impartiality of IMR reviewers
and would increase the time it takes to conduct IMRs. CAHP
states that the current IMR system is working, and that it
is opposed to the changes proposed in this bill.
The Consumer Attorneys of California (CAOC) oppose the
bill's provisions that would impose consequences on
attorneys and litigants who file lawsuits against
providers, as specified. CAOC states that the provision is
unworkable, contravenes public policy related to patient
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 48
protection, and hurts patients injured by medical
malpractice. CAOC states that existing law already places
strong restrictions upon patients who wish to file lawsuits
for medical negligence or malpractice, and this bill would
impose a one-sided penalty against attorneys and patients
when their cases are not won on the merits, not simply when
the case is deemed "frivolous" by a court, in which case
the court may already impose penalties. CAOC also states
that under this bill, patients with real injuries from
medical negligence or malpractice would face increasing
difficulties finding attorneys to represent them. CAOC
states that patients who receive negligent care must be
able to have full access to our civil justice system.
The Money Services Round Table (MSRT), comprised of
national non-bank money transmitters, such as Western Union
Financial Services, opposes the bill's provision to assess
a three percent fee on money transmitted abroad if the
customer is unable to provide documentation of lawful
presence in the United States. The MSRT states that the
provision is problematic in that it does not provide any
clear definition or guidance on what documentation would be
sufficient to prove lawful presence, and that under complex
federal immigration laws, there are more than 50 different
visa classifications governing the ways a person can
lawfully be in the country, as well as ways under federal
law for a person to be lawfully present without a visa,
such as an individual visiting the country. The MSRT also
states that, in most cases, clerks in grocery stores and
convenience markets, with little to no proper training,
would be responsible for checking the documentation of
lawful presence. The MSRT states that this provision may
drive customers to transmit money through underground,
unlicensed money transmitters, which do not abide by
federal anti-terrorism and anti-money laundering
requirements, thereby undermining national and state
efforts to identify suspicious and illicit transactions.
The MSRT states that it has been the policy of the federal
government to reduce costs on money transmission conducted
through legitimate entities, and to limit extra fees which
have the effect of discriminating against customers, or
providing incentives for customers to send money via
illegitimate means. The MSRT also states that the fee
imposed by this provision, is actually a tax imposed only
on money transmitters, and that the provision undermines
competition, because it only applies to non-bank money
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 49
transmitters.
COMMENTS
1. Bill would institute a number of significant changes in
the Medi-Cal program. These changes are contained both in
the proposed statutory language and the intent language.
The major changes include shifting hospital funding to
clinics, the Health Opportunity Account provisions, the
Healthy Action Incentives and Rewards provisions, and the
intended shift to make Medi-Cal more like private
insurance. Given the Medi-Cal population is composed of
low-income individuals, many of whom are medically fragile,
there are risks of such significant changes. The risks
include potential impacts on providers and on the health
and financial state of the beneficiaries. It is also
unclear how these changes would affect one of the largest
components of Medi-Cal, the long term care program.
2. Medical necessity definition is problematic. The
definition of medical necessity proposed by the bill would
affect all covered health care services under a plan
contract or insurance policy. The definition used by the
bill appears to be more restrictive than the various
definitions currently used by the largest health plans, as
well as Medi-Cal, which employs the same definition
provided by the author only in instances where prior
authorization is required, and the health care service is
not a family planning service, an early and periodic
screening, diagnosis, and treatment service, or mental
health service, as defined. It is unclear whether the
author seeks to narrow the terms and conditions upon which
covered health care services may be accessed or simply
provide more uniformity by defining medical necessity in
law.
3. Out-of-state carrier provisions. Based on the analysis
provided by CHBRP, while low-risk individuals who were
uninsured might be able to obtain low-cost, out-of-state
individual policies and increase the ranks of the insured,
these provisions may have countervailing and ultimately
more negative consequences, such as driving up the cost of
coverage for higher-risk individuals, leaving individuals
in out-of-state plans or policies with inadequate consumer
protections, causing individuals insured through small
employer groups to become uninsured, and eroding the rate
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 50
protections of the small group market.
4. Mandate waiver provisions. Based on the analysis
provided by CHBRP, while somewhere between 5,000 and 99,000
persons might gain less than comprehensive coverage, which
may still improve their health outcomes and reduce their
financial burden, approximately 666,000 to 18,100,000
previously insured persons could move from a plan with
mandated benefits to one where coverage of mandated
benefits is no longer required. This could result in a cost
shift of between $42 million and $1.7 billion to this
population. These insured would have an increased risk of
foregoing treatment for services no longer covered under
limited mandate policies. Additionally, persons moving to
limited-mandate plans could develop a preexisting medical
condition that would exclude them from moving back to a
plan with increased benefits.
5. Guaranteed associations and eligible associations may
raise costs for small employer and other groups. The
bill's provisions to allow guaranteed associations of at
least 100 individuals and eligible associations, such as
community or civic group or charitable or religious
organization, to receive all the protections of the small
group market (limited rate bands, six-month limitations on
preexisting condition exclusions, limited risk adjustment
factors) may be problematic. Under such a scenario,
individuals may be able to join a group to access
comprehensive benefits on a guaranteed basis when health
care needs arise, and drop coverage when health care
services are no longer anticipated. Historically, strict
limits (a prohibition on such guaranteed associations,
excepting those that had been in existence for five years
prior to 1992, and had more than 1,000 in the group) have
been placed on guaranteed associations, due to problems of
adverse selection, where higher risk, higher cost
individuals have a greater propensity to purchase coverage
than lower risk, lower cost individuals. To the extent that
health plans and insurers rate small employer groups as a
block (using small employer age bands, geographic regions,
and family size), losses in newly formed, smaller, more
adversely selected guaranteed and eligible associations may
drive up costs for small employers.
6. Provisions requiring good faith examinations unclear
and may be burdensome. The provisions requiring good faith
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 51
examinations to be conducted by California-licensed
providers, prior to a health plan or insurer's denial,
delay or modification of a request for authorization of
health care services, and in the independent medical review
process, would result in health plans and insurers needing
to employ or contract with additional physicians, within
every scope of practice, to be available within 72 hours.
The additional requirement that these must be done for all
services that are not explicitly excluded in the plan
contract or insurance policy may result in a significant
increase of second examinations. It is unclear what is
meant by "good faith" examination.
7. IMR provision unnecessary. The provision related to
independent medical review allows the organization or its
medical reviewers to determine that a contract or policy
excludes coverage of the disputed health care service. This
is unnecessary and contrary to the determination by the
regulator or health plan or insurer that the service is a
covered service, and thus subject to an independent medical
review.
8. Cost effectiveness of tax credits. This bill provides
tax credits to employers for some of the costs of providing
health insurance to employees, for a taxpayer's own health
insurance costs, for physicians in primary care, for
medical professionals who locate in rural areas, and for
uncompensated care costs incurred by physicians. Questions
the committee may want to consider are: (1) Will credits
cause the desired change in behavior, and (2) is a tax
preference the most efficient way to bring about the
change? The level of funding to support the credit may be
more wisely spent on subsidies or other types of incentive
programs that have proven to be effective in recruiting new
providers, encouraging more primary care physicians,
helping people with medical costs, and helping pay for
health insurance
Additionally, some of the proposed tax credits treat
similarly situated individuals differently. For example,
the proposed tax credit for providing health insurance to
employees is only for firms who do not currently provide
health insurance. A similarly situated employer who does
currently provide insurance to his or her employees would
not receive the benefit of the credit, raising significant
equity issues.
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 52
9. Tax credits for rural areas may not be well targeted.
The tax credit for providers who locate in rural areas does
not target underserved areas per se. There are areas in
the state that are not classified as underserved based on
the ratio of primary care providers to total population,
yet the bill would provide a credit to providers who locate
in those areas. Also under this bill, any licensed healing
arts practitioner who chooses to practice in a rural area
would be eligible for the proposed tax credit. However,
not all types of providers are needed in all rural areas.
As drafted, there would be no way to target the benefit
under the bill to providers who are specifically needed.
10. Medi-Cal fraud provisions are problematic. Under the
bill, DHCS would be required to develop a computer modeling
system to detect Medi-Cal fraud. The bill also contains
criteria for when DHCS must conduct a fraud investigation.
A legislative requirement for a computer modeling program
with legislatively mandated criteria for investigating
specific practices could deprive DHCS of the flexibility it
may need to combat fraud. In addition, there does not
appear to be evidence to support the bill's specific
proposed criteria for initiating an investigation.
Further, establishing specific criteria by statute would
allow those who would commit fraud to know the criteria for
being used by the department. For much the same reason,
tax agencies do not publicly disclose their auditing
criteria.
11. Bill's impact on public hospitals is unclear. The
bill contains intent language that DSH funds and SNCP funds
be used for primary clinics. Currently these funds are
important sources of funding for uncompensated costs of
treating large numbers of Medi-Cal and uninsured patients.
Expanding clinics, especially those considered to be safety
net clinics, have the potential to reduce at least some of
the uncompensated costs, as patients who previously would
have sought treatment in hospital emergency rooms would be
treated at clinics, at reduced costs. The bill also
contains intent language that the federal government
reimburse the costs for providing federally mandated care,
including providing care to undocumented patients. Such
reimbursement could help public hospitals, but the
likelihood of the state receiving such funding is low. The
net effect of these bill's intended changes could be to
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 53
impair the financial viability of public hospitals.
12. Authorization for statewide implementation of 24-hour
care policies may be premature. With only one evaluation
of a fully implemented 24-hour care system in California,
which demonstrated increase costs within the workers'
compensation segment of the system, as well as demonstrated
challenges faced in other states where 24-hour care policy
implementation was attempted, it may be premature to give
broad authority for plans and insurers to seek licensure
for 24-hour care policies on a statewide basis.
Additionally, the bill does not provide DMHC or CDI any
guidance as to how these policies should be structured,
including whether or not existing requirements imposed upon
health and workers' compensation insurance would be
applicable to these policies. To understand the extent to
which cost savings may actually be realized, as well as the
potential impact of 24-hour care policies on employers,
employees, insurers, and state regulators, it may be more
prudent to authorize a pilot program, as recommended by the
RAND Corporation, to implement 24-hour care policies.
13. Bill would have an immediate impact on the general
fund. The overall fiscal impact of the bill is unknown,
however, a number of the proposed tax credits and
deductions would take effect in the current tax year.
Because of that, the bill would have an immediate effect of
reducing state revenues, as taxpayers reduce their
withholding and estimated tax payments in anticipation of
reduced tax bills.
POSITIONS
Support: California Chiropractic Association (if amended)
California Right to Life Committee
Two individuals
Oppose: American Federation of State, County, and
Municipal Employees
California Association of Health Plans
California Labor Federation
California Nurses Association
California Professional Firefighters
California School Employees Association
California Teachers Association
Consumer Attorneys of California
STAFF ANALYSIS OF SENATE BILL SB 92 (Aanestad)Page 54
Money Service Round Table
Planned Parenthood Affiliates of California
Planned Parenthood Mar
Monte
Service Employees International Union
United Nurses Associations of California/Union of
Health Care Professionals
Western Center on Law and Poverty
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