BILL ANALYSIS SB 227 Page 1 Date of Hearing: June 30, 2009 ASSEMBLY COMMITTEE ON HEALTH Dave Jones, Chair SB 227 (Alquist) - As Amended: May 28, 2009 SENATE VOTE : 23-15 SUBJECT : Health care coverage. SUMMARY : Revises and secures additional funding for the Major Risk Medical Insurance Program (MRMIP) for medically uninsurable persons by requiring all health care service plans and health insurers in the state (collectively "health plans") to share in the costs of the program, either by accepting assignment of persons eligible for the program or, in lieu of enrolling eligible persons based on assignment, by paying a fee to the state to support MRMIP program costs. Specifically, this bill : 1)Effective January 1, 2010, requires all health plans in the state to accept for coverage persons eligible for MRMIP, as assigned to each plan by the Managed Risk Medical Insurance Board (MRMIB), regardless of the health status or previous claims experience of the eligible individuals. Requires health plans to guarantee renewal of the coverage. 2)Permits health plans and insurers, as an alternative to 1) above, to pay a fee to support the costs of MRMIP, based on the number of covered lives, as defined, and designates these health plans as payers. 3)Exempts from the requirements in 1) above specialized health plans, such as dental-only and vision-only, Medicare and other similar health plans, hospital-only, hospital indemnity and fixed benefit plans. 4)Requires health plans to make an annual election to accept assignment of MRMIP-eligible persons or to instead pay a fee based on covered lives and, for health plans electing to pay the fee, requires the health plan to report to MRMIB on or before March 1 of each year, beginning in 2010, the total number of covered lives, as defined. 5)Defines "covered lives," for purposes of the optional fee, as individuals receiving health care coverage provided, SB 227 Page 2 indemnified, or administered by a health plan, and individuals who receive health care through an arrangement in which a health plan rents or leases a contracted network of providers (self-insured employers and other self-insured plans, such as labor union benefit trusts, often lease networks and/or contract for benefit administration). 6)Exempts from the definition of covered lives individuals covered under government programs, including Medi-Cal, Medicare, the Healthy Families Program, the Access for Infants and Mothers Program, MRMIP and the Guaranteed Issue Pilot (GIP) program, the California Children and Families Act of 1998, local nonprofit programs or counties providing coverage for low-income children, as specified, and the California Public Employees' Retirement System (CalPERS). 7)Caps the total amount of the fee at no more than $1.00 per covered life per month, but for those lives enrolled through group coverage arrangements requires that every ten enrolled persons counts as one covered life for purposes of the fee. The maximum fee that could be assessed would be $12.00 per year for individual insurance purchasers and $1.20 per year for persons in group coverage. Requires the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) to collect and transmit any fee revenues to MRMIB, to allow health plans to pay the fee quarterly and exempts the fee from any consideration of health plan administrative costs or calculation of health plan medical loss ratios. 8)Establishes timelines and mechanisms for the setting, collection, transferring and enforcement of the fee and requires, in the event that fee revenues exceed MRMIP costs, the excess to be retained in the fund to reduce the fee paid by payers in the subsequent fiscal year. 9)Requires health plans accepting assignment of MRMIP-eligible persons to provide coverage with the same level of benefits provided to MRMIP subscribers, as determined by MRMIB, to charge premium rates set by MRMIB, and limits health plans to only those coverage exclusions or waiting periods authorized by law or regulations adopted by MRMIB. 10)Requires MRMIB to do all of the following in administering the revised MRMIP: SB 227 Page 3 a) Develop a process for and implement assignment of MRMIP-eligible persons to health plans that takes into account geographic locations of health plans and enrollees; provides eligible persons with a choice of health plan, to the greatest extent possible; and, determine the number of persons to assign to each health plan, taking into consideration program costs and fees paid by payers; b) Implement strategies to ensure program integrity and to ensure that the program serves the target population of uninsurable individuals, including ensuring that applicants provide adequate evidence of their inability to obtain private individual coverage, as specified; c) Administer the program to maximize eligibility for federal high risk pool funds that may be available and to apply for available federal funds that are consistent with the program goals and requirements; d) Establish by February 1, 2010 an 11-member advisory panel, with specified membership, who would serve without compensation, to advise MRMIB on policies, regulations and MRMIP program operations; to make recommendations to improve the quality and cost-effectiveness of MRMIP; and to make recommendations to ensure the affordability of coverage for subscribers, especially low-income subscribers. Requires reimbursement for advisory committee members and authorizes per diem compensation for consumer representatives if the representatives are otherwise economically unable to attend and participate in panel activities; and, e) Establish by regulation a process for eligibility and voluntary reenrollment for persons enrolled in guaranteed individual coverage under GIP pilot project established pursuant to AB 1401 (Thomson), Chapter 794, Statutes of 2002. GIP, which sunset December 31, 2007, limited enrollment in MRMIP to 36 months and required all health plans selling individual coverage to accept for coverage MRMIP enrollees reaching the time limit. f) Requires GIP enrollees remaining in continuation coverage to be eligible for voluntary reenrollment in MRMIP if the following conditions are met: i) There are no individuals on a MRMIP waiting list SB 227 Page 4 because of insufficient funds; ii) GIP enrollees wishing to reenroll in MRMIP are made eligible on a first-come, first serve basis, as funds allow, and based on the date they were originally disenrolled from MRMIP; iii) MRMIB sets the number of GIP enrollees who may reenroll from each GIP health plan based on the health plan's proportion of GIP enrollment; and, iv) GIP health plans provide specified notice to GIP enrollees of the potential to reenroll. g) Report to the Legislature on or before July 1, 2012 on the implementation of this bill, as specified, and to include in the report an implementation and transition plan for an alternative approach to coverage of medically uninsurable persons, as specified. 11)Revises MRMIP benefits and establishes criteria for MRMIB in developing benefits as follows: a) Prohibits any annual benefit limit, and requires a lifetime benefit limit of $1 million; b) Requires benefits to be comprehensive, compatible with comprehensive products available in the individual market to the greatest extent possible, and include no less than the minimum benefits required under the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene) , plus prescription drugs. (Knox-Keene is the body of law which regulates health maintenance organizations (HMOs) and some Preferred Provider Organization (PPO) health plans in California); c) Effective January 1, 2011, requires lower subscriber cost sharing for primary and preventive care and the medications necessary and appropriate for the treatment and management of chronic health conditions; d) Requires benefits and cost-sharing appropriate for a program serving high-risk and medically uninsurable persons; e) Requires MRMIB to develop guidelines, as appropriate, for disease management, case management, care management or other cost management strategies to ensure cost-effective, high-quality health care services for MRMIP subscribers; SB 227 Page 5 and, f) Authorizes but does not require MRMIB to offer more than one benefit design option with different subscriber cost sharing in the form of copayments, deductibles, and annual out-of-pocket costs. 12)Revises MRMIP subscriber contribution rates as follows: a) Revises the subscriber rate from the current 125-137.5% of market rates for comparable coverage to a rate set by MRMIB, but requires that rate to be no less than 110% and no more than 150% of market rates; b) Requires MRMIB to establish a sliding scale with lower contribution requirements for subscribers at or below 300% of the federal poverty level (FPL) ($32,490 for a family of one in 2009); c) Allows MRMIB to set rates below 110% for persons at or below 300% of FPL, if federal funds are available for that purpose, and there are no MRMIP-eligibles on a waiting list, as long as the subscriber rates are not lower than 6% of income; d) In addition, allows MRMIB to set rates below 110% for persons with incomes 300-400% of FPL, if federal funds are available, there are no MRMIP-eligibles on a waiting list, and rates have been adjusted for persons at or below 300% FPL, as long as the rates for those 300-400% FPL are not lower than 6% of income; and, e) Authorizes MRMIB to exclude from rates the cost associated with eliminating annual benefit limits and increasing the lifetime benefit maximum from $750,000 to $1 million pursuant to this bill. 13)Authorizes rather than requiring MRMIB to set a period of time individuals must stay out of MRMIP if they voluntarily disenroll, or are terminated for nonpayment of premium, unless MRMIB determines that an individual applying for the program had good cause for disenrolling and then reapplying for coverage. 14)Makes changes to the duties, responsibilities and authority of MRMIB consistent with the program changes in this bill, and SB 227 Page 6 makes clarifying changes to the MRMIB statute to reflect common practices in the program, including requiring MRMIP to only contract with participating health plans that are either health insurers with a valid certificate of authority from CDI or health care service plans licensed under Knox-Keene. 15)Authorizes DMHC and CDI to take all actions necessary to enforce the provisions of this bill and makes demonstration of the health plan's compliance with the assignment obligation, or alternatively, timely payment of the fee, a prerequisite for obtaining or retaining a health plan license or certificate of health insurance in this state. 16)Requires MRMIB, on or before September 1, 2010, to assess products provided in the private market to persons eligible for guaranteed issue under the federal Health Insurance Portability and Accountability Act (HIPAA), based on an actuarial analysis MRMIB obtains, and to make recommendations to the Legislature on needed policy changes related to HIPAA rates, in relationship to MRMIP rates, including the impact of MRMIP program changes on HIPAA rates. Requires health plans to provide information requested by MRMIB related to the study, as specified. 17)Authorizes the adoption and one re-adoption of emergency regulations to implement this bill. EXISTING LAW : 1)Establishes MRMIP, administered by MRMIB, to provide health coverage for individuals unable to purchase private individual coverage because they have been denied health coverage by at least one private health plan, or are offered only limited coverage or coverage significantly above standard average individual rates, as determined by MRMIB. 2)Establishes basic MRMIP program elements, including eligibility, benefits, and subscriber contributions, and limits any annual deductible for MRMIP coverage to $500 and total annual out-of-pocket costs to $2,500 for an individual and $4,000 for a family. Establishes, by regulation, an annual cap on coverage in MRMIP at $75,000 per subscriber, with a lifetime limit of $750,000. 3)Requires health plans selling individual coverage to provide continuation coverage to any person enrolled with the health SB 227 Page 7 plan as part of the GIP prior to the December 31, 2007 sunset, requires GIP health plans to charge GIP subscribers at 110% of MRMIP rates, and requires MRMIB to continue to make payments to GIP health plans equal to one-half of the amount of expenses incurred by GIP enrollees, minus the premiums paid by GIP subscribers, based on costs reported by GIP health plans. FISCAL EFFECT : According to the Senate Appropriations Committee analysis, MRMIB estimates that at least 4.5 positions would be needed to implement this bill's provisions at costs of $184,000 in fiscal year 2009-10 and $475,000 annually thereafter. Additionally, MRMIB estimates that it would require $395,000 in fiscal year 2009-10, and $500,000 annually thereafter, to fund increased administrative costs. The Committee estimates that the fees collected pursuant to this bill would result in revenues of up to $25 million beginning in fiscal year 2010-11. COMMENTS : 1)PURPOSE OF THIS BILL . The author believes that this bill is necessary to restructure and secure stable funding for MRMIP. The author points out that, while subscriber premiums and state tobacco tax revenues fund the program, these revenues have rarely been sufficient to allow all eligible individuals into the program. The author highlights that MRMIP currently serves a maximum of 7,100 individuals, far short of the almost 1 million people who may need such coverage next year. The author contends that without reform of MRMIP, many Californians will be forced to go without needed health care services, which will only result in increased use of the emergency room, or more costly care needed later. The author cites a study referenced in the 22nd edition of the Comprehensive Health Insurance for High-Risk Individuals: a State-by-State Analysis, published by the National Association of State Comprehensive Health Insurance Plans, which found that the absence of high-risk pools would result in an additional $1 billion in uncompensated care, and $1.1 billion in care not rendered. The author believes that, absent broader health care reform at the state or federal level, increasing funding for MRMIP is critical to stemming the growing ranks of the uninsured. 2)BACKGROUND . Private health plans and insurers use "medical underwriting" to screen applicants for individual health coverage and determine the individual's risk profile and SB 227 Page 8 potential need for health care services. Health insurers typically deny coverage or charge higher rates to individuals with pre-existing serious health conditions, such as cancer or heart disease. In addition, individuals with any previous health service use, even for conditions that no longer exist or with chronic conditions that are successfully being treated (such as mental illness, diabetes, or asthma) are also often denied coverage. In many cases, other health-related factors, such as being overweight or being a tobacco user can result in a coverage denial. There is limited data on the extent of coverage denials in the individual health insurance market because health plans and insurers are not required to report the data. A September 2006 Commonwealth Fund national survey found that 89% of working-age adults who sought coverage in the individual market during the past three years ended up never buying a plan. A majority (58%) found it very difficult or impossible to find affordable coverage. One-fifth (21%) of those who sought to buy coverage were turned down, were charged a higher price because of a pre-existing condition, or had a health problem excluded from coverage. 3)MRMIP . California's program for medically uninsurable persons, MRMIP, provides individual coverage through private health plans for those whose applications for private individual coverage are rejected by health insurers because of the individual's health history or health status. MRMIP is administered by MRMIB, which also administers the Healthy Families Program, which provides coverage for low-income children. Presently, subscribers pay approximately 60% of the program costs, paying premiums that are 125-137.5% of what they would pay in the private market for the same coverage. There are four major private health plans that voluntarily participate in the program - Blue Cross, Blue Shield, Kaiser, and Contra Costa Health Plan. Premiums vary based on the age and region of the subscriber and the health plan they choose. For example, in Sacramento County, the 2009 premiums for a person age 50-54 are $435 per month for the Kaiser Permanente HMO plan, $776 for the Blue Cross PPO and $1,120 per month for the Blue Shield HMO. These premiums pay for coverage that stops at $75,000 per year and includes a lifetime maximum of $750,000. MRMIP receives annual appropriations which have in recent years been set at $40 million in state Proposition 99 Cigarette and Tobacco Products Surtax Funds ($30 million in the MRMIP statute and $10 million through annual or one-time SB 227 Page 9 appropriations) to pay for the costs exceeding subscriber premiums. The capped funding has routinely required the program to limit enrollment. MRMIP can only enroll the number of people that MRMIB's contracted actuaries, PricewaterhouseCoopers (PwC), estimate can be served with the funds available. PwC estimates the state share of GIP costs, subtracts those costs from the funds appropriated for MRMIP, and then estimates the number of MRMIP subscribers who can be enrolled with the remaining funds. The current enrollment cap is 7,100 and as of June 22, 2009, there were more than 225 persons on the waiting list because of insufficient funding. SB 1702 (Speier), Chapter 683, Statutes of 2006, provided a one-time additional appropriation of $4 million in Proposition 99 funds. SB 1379 (Ducheny), Chapter 607, Statutes of 2008, resulted in a one-time allocation to MRMIP of $10 million of the fines and penalties against health plans collected by DMHC, to reduce MRMIP's waiting list, which had grown to 1,000 individuals by July 2008 because of the sunset of GIP. Prior to the additional funds being made available, the MRMIP waiting list consistently had at least 500 people and was only open to new individuals when MRMIP subscribers disenrolled and slots opened up. The $10 million allocation reduced the waiting list of 700 uninsurable individuals in October 2008 to zero (excluding those whose coverage was pending fulfillment of a waiting period). This year, the most recent budget proposal would eliminate $6.6 million in Proposition 99 funding for MRMIP for 2009-10. MRMIP has served more than 100,000 individuals over the life of the program, but as a result of recurring waiting lists, many individuals most in need of health coverage and who are willing to pay a high price for it are unable to purchase it. Moreover, many observers believe that the wait list represents only a fraction of those who would be eligible for the program. Reasons offered for why many people would not even sign up to be on the waiting list include the high MRMIP premiums that make it unaffordable for many and the $75,000 annual cap on covered benefits which has not increased as health care costs have grown. 4)GIP . The Legislature passed AB 1401 (Thomson), Chapter 794, Statutes of 2002, establishing a pilot project to reduce what had historically been long waiting lists in MRMIP. The GIP pilot project sunset December 31, 2007. The essence of the AB 1401 pilot project, (also referred to as the incubator, the SB 227 Page 10 graduate program, or GIP), was that individuals were covered through MRMIP for 36 months and, after 36 months, were disenrolled with the option to seek private individual coverage from any health plan selling individual health insurance. Under the GIP rules, health plans were required to offer GIP-eligible individuals coverage on a "guaranteed issue" basis (accepting an applicant regardless of their age, health status, health condition, or prior health service utilization). The medical care costs for GIP subscribers that exceed the premiums paid (losses) are covered in a 50/50 share by the state and the health plans covering GIP subscribers. By law, GIP enrollees pay an additional 10% above the MRMIP rates for similar coverage. Although GIP enrollees have the right to coverage from any carrier in the individual market, the three health plans covering the bulk of MRMIP subscribers also dominate in the GIP coverage market: Anthem Blue Cross, Kaiser Permanente, and Blue Shield of California. Near the end of the GIP project, data revealed that more than 85% of GIP subscribers were enrolled in Anthem's GIP product. Although the GIP project has ended, individuals enrolled while the project was in effect are able to remain with GIP health plans until they get other coverage, such as becoming eligible for Medicare, or voluntarily disenroll. Although there is inconsistent reporting of GIP enrollment by health plans, there are an estimated 6,000 individuals who continue to be enrolled in GIP coverage. 5)OTHER STATE HIGH RISK POOLS . State programs such as MRMIP are typically referred to as "high-risk pools," because of the risk and costs associated with individuals whose health status disqualifies them for private coverage with most insurers. California is one of only three states that subsidize coverage programs for medically uninsurable persons exclusively with state funds and have capped program enrollment. State-sponsored high risk pools for uninsurable persons have been implemented in 34 states, and 27 of the state programs use assessments on health insurers to fund at least a portion of the program costs. According to the National Association of State Comprehensive Health Insurance Plans (NASCHIP), state high risk pools serve nearly 200,000 eligible persons. MRMIP is the only high risk pool in the nation to have an annual benefit cap of $75,000, which has made MRMIP ineligible for potentially millions of dollars in federal high risk pool funds that could otherwise enroll more people in MRMIP. MRMIP served 6,719 persons in May 2009, significantly fewer people than high risk pools in other large states. By SB 227 Page 11 contrast, Minnesota has 31,000 subscribers, Texas has 28,000, Oregon has 15,000 and Wisconsin has 19,000 (NASCHIP, 2007 data). According to NASCHIP, state high risk pools support the existence of an individual market for persons who have no access to employer based group coverage. Health insurers selling individual policies use underwriting to determine which risks to insure and which risks to leave to the state high risk pools. Those persons rejected, due to high risk conditions, can seek health coverage through the state high risk pool, if they live in one of the 34 states with a pool. The existence of state high risk pools allows sellers of individual coverage to offer affordable rates, to most of their customers. NASCHIP points out that the flip side is that high risk pools charge premiums significantly higher than premiums for the average individual policy sold in the private market. 6)PREVIOUS AND RELATED LEGISLATION . a) SB 57 (Aanestad) would revise and restructure MRMIP, including securing additional funding by requiring each health plan and health insurer to add a surcharge on each individual policy. SB 57 would also enact specified program changes related to eligibility, plan choices, benefit limits, and benefit exclusions, and related changes. SB 57 failed passage in Senate Health Committee on April 22, 2009 by a vote of 2-6. b) SB 499 (Ducheny) requires MRMIB to report to the Legislature no later than March 1, 2010, and annually thereafter, on the amount and use of moneys transferred to the Major Risk Medical Insurance Fund from the Managed Care Administrative Fines and Penalties Fund, pursuant to SB 1379 (Ducheny) of 2008, and to report on the effect of the transferred funds on the MRMIP waiting list. c) SB 1379 (Ducheny) of 2008 requires fines and administrative penalties levied against health plans under Knox-Keene to be placed in the Managed Care Fund and used, upon appropriation by the Legislature, for the Steven M. Thompson Physician Corps Loan Repayment Program, a physician loan repayment program, up to $1 million per year, with the remainder being allocated to MRMIP. SB 227 Page 12 Requires DMHC to make a one-time transfer of $10 million to MRMIP and $1 million to the Thompson Program. Prohibits using the penalties authorized by Knox-Keene to reduce assessments for support of DMHC, and prohibits any refunds or reductions in those assessments because of penalty revenues, as specified. d) SB 27 X1 (Aanestad) of 2008 would have revised and restructured MRMIP, including securing additional funding by requiring each health plan and health insurer to add a surcharge to each individual policy and diverting penalties levied against health plans to support MRMIP. SB 27 X1 would also have enacted specified program changes related to eligibility, plan choices, benefit limits, and benefit exclusions, as well as enact other related changes. SB 27 X1 was held in the Senate Health Committee without a hearing. e) AB 2 (Dymally) of 2009 would have revised and restructured MRMIP, in a manner similar to this bill, but would have required only health plans selling individual coverage in the state to accept assignment of such persons or to support the costs of MRMIP through a per person fee on individual health plan contracts and policies. AB 2 was vetoed by Governor Arnold Schwarzenegger. In his veto message, the Governor objected to the assessment on individual coverage and stated, in part, that AB 2 "would allow health insurance companies to pass the fee onto their enrollees, making it more expensive. This population is the most sensitive to price. Many must bear the entire cost of their coverage because they are self-employed or their employers do not offer coverage - a bill such as this only exacerbates their burden." The Governor concluded that "Comprehensive health care reform that guarantees issuance of coverage to all individuals, along with an individual mandate, cost-containment, prevention and shared responsibility is the only solution for our health care crisis." f) AB 1378 (Nakanishi) would have extended GIP for six months to July 1, 2008 and tightened the eligibility criteria for MRMIP. At the request of the author, AB 1378 was never heard in Assembly Health Committee. g) SB 1702 (Speier), Chapter 683, Statutes of 2006, extends SB 227 Page 13 the GIP until December 31, 2007 and appropriates, on a one-time basis, an additional $4 million in Proposition 99 funds for MRMIP. h) AB 1971 (Chan) of 2006 would have extended the GIP until December 31, 2007, and, effective January 1, 2008, would have required all health plans in the state to share in the costs of the program, either as a participating health plan in MRMIP or, in lieu of participation, by paying a fee to the state to support MRMIP program costs. AB 1971 included many similar elements to this bill and died pending concurrence in Senate amendments on the Assembly floor. i) AB 1401 (Thomson), Chapter 794, Statutes of 2002, makes various changes in the individual health insurance market in California and establishes the GIP pilot project. 7)SUPPORT . Health Access California supports this bill and points out that half of those purchasing MRMIB coverage have household incomes of less than $60,000 per year and three-quarters make less than $100,000 per year, and yet are still willing to pay very high premiums. Health Access states that people who buy health insurance on their own are willing to make substantial sacrifices to buy coverage and find all too often private coverage is unavailable to them. Health Access regards the lack of access to coverage for persons with pre-existing conditions as a major issue for consumers. Congress of California Seniors (CCS) supports this bill stating that access to coverage for high risk persons is one of the most pressing problems in efforts to ensure all Californians have access to quality, affordable health care, with the problem being especially acute for people over age 50. CCS notes that California was one of the first states to establish a high risk pool but the program changes in this bill are long overdue. The California Medical Association (CMA) supports this bill and states that it is often nearly impossible for uninsured Californians with pre-existing conditions to secure insurance as an individual. CMA argues that this bill will ensure that Californians who are unable to obtain health insurance on their own have access to relatively affordable coverage. According to CMA, having access to a regular source of care is especially important for the health and wellness of people with higher health care needs or preexisting conditions. The American Federation of State, County and Municipal Employees (AFSCME) supports this bill in part because of amendments to this bill which exempt from the SB 227 Page 14 definition of covered lives individuals covered through CalPERS. 8)SUPPORT IF AMENDED . MRMIB, an independent board with membership appointed by the Governor and the Legislature, supports this bill if amended to address specific policy and technical concerns provided to the author's office. MRMIB strongly urges the author to consider an amendment that reduces the maximum subscriber contributions from 150% of the standard average individual rate for comparable coverage to 125%. According to MRMIB, a maximum rate of 125% is consistent with existing maximum subscriber contribution rates. MRMIB writes that even at existing subscriber contribution levels, it recognizes that MRMIP is unaffordable to many Californians who are eligible for the program. MRMIB contends that increasing the maximum subscriber contribution to 150%, as proposed in this bill, would only exacerbate this problem. In support, MRMIB finds that this bill would expand access to MRMIP-eligible individuals and broaden funding for the program. In addition, MRMIB points out that the capped appropriation has forced the Board to impose an annual benefit limit of $75,000 in order to maximize enrollment, which can be devastating to any subscriber who reaches this limit. MRMIB indicates that this benefit limit is not found in benefits sold in the California commercial market and is the primary reason California does not qualify for federal high risk pool funding which otherwise might help to support program costs. Ultimately, MRMIB concludes that this bill is consistent with the guiding principles adopted by the Board for the future of MRMIP, which include: providing sufficient funding for the program for all those wishing to purchase coverage, eliminating the existing annual benefit caps, spreading the costs of the MRMIP subsidy broadly so no one segment of insured persons is disproportionately affected, allowing MRMIB to address premium affordability for the lowest income subscribers, and removing any disincentives for health plans to voluntarily provide MRMIP coverage. California Association of Health Underwriters (CAHU) supports many of the provisions of this bill, stating that California must have an insurer of last resort and fund it appropriately. CAHU argues, however, that the program should have expanded benefit choices to include a higher deductible product with a Health Savings Account, advocates for assessments spread SB 227 Page 15 across all persons with health insurance, including self-funded and partially self-funded plans, and expresses concerns about the premium subsidies in this bill for persons above 300% of FPL. 9)OPPOSE UNLESS AMENDED . The California Labor Federation (CalFed) opposes this bill unless it is amended to exempt collectively bargained health care coverage from the fee. According to CalFed, group plans, such as union trust funds, do not discriminate among the healthy and sick so should not have to pay the fee. CalFed states that because union trusts include those with chronic and expensive health care needs, they have already socialized the costs of unhealthy individuals in the group costs. 10)OPPOSITION . The California State Employees Association opposes this bill because they argue that this bill would penalize working families with group coverage while asking nothing of those who profit from the system, or who fail to provide coverage to their own employees. The California Chamber of Commerce (CalChamber) opposes this bill arguing that it creates a state bureaucracy, singles out a specific industry, and, since the fee will most likely be passed on to employers, will further erode coverage for workers. Three health insurers whose California business is primarily in the group rather than the individual market, Aetna, CIGNA and UnitedHealthcare argue in opposition: this bill "singles out" a specific industry when in fact all Californians should bear the costs for MRMIP, the benefit design does not resemble coverage in the individual market, and MRMIP subscribers should be required to participate in wellness incentives and disease management programs. The large group carriers also suggest that there will be a legal challenge as to whether the fee in this bill is a tax and whether the assessment imposed on health plans providing administrative services to self-insured plans is a violation of the federal Employee Retirement Income and Security Act. Health insurer trade associations and CalChamber oppose this bill as a tax on insurers that will erode the affordability of health insurance and state that this bill may be premature given the potential for federal health insurance reform. The Association of California Life and Health Insurance Companies states that the fee in this bill should be subject to a 2/3 vote requirement as a tax. SB 227 Page 16 11)POLICY ISSUES . a) Rationale for this proposal . This bill is the latest in a series of legislative proposals over the last decade attempting to increase and stabilize funding for MRMIP. This bill would secure additional revenues for MRMIP in the same manner as 27 of the 34 high risk pools around the country, through assessments on health insurance. Some opponents argue to be excluded from this fee because they, or their particular source of current health coverage, such as a group health plan, do not contribute directly to the number of medically uninsurable persons seeking individual coverage. However, the policy rationale for a fee such as the one proposed in this bill is fundamentally different. The rationale is that everyone pays a small amount into the pool while they have insurance so that if they are ever in need of last resort coverage, it will be available to them. Individuals in employment-based group health insurance, or those currently with individual coverage, are one job change, one new business opportunity, one disabling illness, one early retirement, or one other change in life circumstances away from needing to seek individual coverage. Most people over the age of 50, and many younger persons, have, or have had in the past, some health issue or illness that could easily make them medically uninsurable. The policy rationale for the funding mechanism in this bill is that everyone pays into the fund as a precaution should they ever need high risk coverage in the future. In this way, the fee in this bill is most analogous to state disability insurance and is not intended to be an industry penalty on health insurers because they exclude high cost individuals from coverage. The author may wish to amend this bill to emphasize the goal of the fee by allowing or requiring health plans to separately identify and list the assessment as part of all health insurance premium bills. b) High-deductible health coverage options . As the strategies for financing and restructuring MRMIP have been debated in recent years, some stakeholders have suggested that much of the affordability problem with MRMIB results from benefits that are higher than the private market. At the same time, the low annual and lifetime benefit caps in the program are not mirrored in the private market. Some stakeholders argue that MRMIP subscribers should have an SB 227 Page 17 option to choose a product with a higher deductible than the current $500 deductible, because a higher deductible plan would result in lower, more affordable premiums, would be more in keeping with benefits in today's private individual market, and would offer federal Health Savings Account tax benefits to reduce subscriber costs overall. However, it isn't clear what impact a high deductible option would have on subscriber premiums or program costs given the health status of MRMIP subscribers. The Commonwealth Fund (TCF) has reported that 38% of adults with deductibles of $1,000 or more reported at least one of four cost-related problems: not filling a prescription, not getting needed specialist care, skipping recommended tests or follow-up, and having a medical problem but not visiting a doctor or clinic. In addition, TCF reports that people who are sick have a more difficult time obtaining needed care with a deductible than healthier people, and medical bill problems and medical debt are greater among those with high deductibles, especially those with lower incomes. The chance that MRMIP subscribers, already determined to be high risk, would delay or forego needed medications or regular medical follow-up could actually lead to increased MRMIP program costs overall, if chronic illnesses are poorly managed or a lack of access to regular medical supervision fails to detect new health problems in a timely manner. A requirement for MRMIP to offer at least one high deductible plan option should only be implemented if an actuarial analysis determines that premiums, plus the total maximum out-of-pocket costs for subscribers choosing the plan, would be lower than existing MRMIP premiums, and that MRMIP program costs would not be expected to increase as a result of some individuals being enrolled in the reduced coverage option. IN addition, requiring MRMIB to offer many benefit designs is impractical and administratively complex for such a small program. c) Premium Affordability . This bill proposes to increase subscriber premiums from a maximum of 125-137.5% to no more than 150% of standard rates for comparable individual coverage, while allowing for lower rates for low-income subscribers. At 150%, for 2009, a 50-year old resident of Sacramento County would be paying $1,164 per month, or $13,968 annually, for the Blue Cross PPO product in MRMIP, SB 227 Page 18 with benefits that stop at $75,000 each year, and up to $2,500 for deductibles and coinsurance. At this rate, a person making $65,872 per year could be paying 25% of their income for health insurance and cost sharing, with the possibility of additional health care costs above $75,000 in a year where the person experienced a hospitalization, surgery or other costly event. A person making $32,936 per year would be paying 50% of their income for health insurance, deductibles and copayments, but would be just above the 300% FPL income level that allows for a lower premium. Affordability is already a significant barrier for medically uninsurable persons seeking coverage in MRMIP, and the increased premium contributions proposed in this bill have the very real potential to place premiums for MRMIP out of reach for additional numbers of current and future subscribers. In addition, one likely result of higher premiums for most eligible persons who are not at the lowest income levels could be a drastic reduction in the take up rate among MRMIP-eligibles who would be asked to pay the maximum premium. The combination of reduced numbers of persons paying the maximum premium, combined with subscribers at the lowest incomes paying lower premiums, could actually decrease revenues from subscriber premiums overall. The increase in premium levels proposed in this bill seems inconsistent with making coverage realistically available for medically uninsurable persons and may be counterproductive to maximizing program revenues. The author may wish to re-consider the higher premium amount proposed in this bill and keep MRMIP premium rates at no more than 125% of standard market rates, consistent with current premiums in MRMIP, but continue to allow premiums to be set as low as 110% of standard rates for very low income subscribers. d) Bill language needs review . Many of the provisions of this bill are similar to elements proposed in prior legislation relating to MRMIP funding (AB 1971 of 2006 and AB 2 of 2008). The prior bills underwent significant negotiations and amendments in an effort to reach a compromise on a MRMIP restructuring plan. This bill incorporates many of these amendments. For example, this bill requires MRMIB to meet complex benefit rules and cost sharing standards aimed at focusing on primary and SB 227 Page 19 preventive care, disease management and other elements that had been raised in opposition arguments. At this juncture, the author may need to review and revise the bill language and eliminate unnecessary elements of this bill that will add administrative complexity and increase MRMIP program costs without having eliminated the opposition of stakeholders raising the various concerns. e) Suggested amendments . i) Technical amendment . Page 7, line 16, should read: specialized health insurance ii) Rate study . Delete or revise the study requiring MRMIB to analyze rates for persons eligible for guaranteed coverage under the Health Insurance Portability and Accountability Act. This activity is outside of the expertise of MRMIB and unrelated to the MRMIP program. It should be deleted or assigned to DMHC and CDI. (Page 5, lines 9-16; page 7, lines 21-29; page 14, lines 25-40; and page 15, lines 1-9). iii) Proof of uninsurability . Delete language requiring a MRMIP applicant to attest that the person does not have health care coverage that meets their needs. Individuals must currently show that they have been denied health insurance coverage or quoted a rate higher than the MRMIP premium. (Page 12, lines 14-16). iv) Advisory panel . Authorize but do not require the reimbursement of travel costs for advisory panel members. Changeshallto may . (Page 14, lines 17-20). REGISTERED SUPPORT / OPPOSITION : Support American Federation of State, County and Municipal Employees, AFL-CIO California Chiropractic Association California Medical Association Congress of California Seniors Health Access California Support if Amended California Association of Health Underwriters California Managed Risk Medical Insurance Board Oppose unless Amended SB 227 Page 20 California Labor Federation Opposition Aetna Association of California Life & Health Insurance Companies California Association of Health Plans California Chamber of Commerce California Labor Federation California State Employees Association CIGNA UnitedHealthcare Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097