BILL ANALYSIS                                                                                                                                                                                                    

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          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,  


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            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:


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              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  


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                 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  
              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  
              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;  


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              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  

          14)Makes changes to the duties, responsibilities and authority  
            of MRMIB consistent with the program changes in this bill, and  


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            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  


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            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  


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            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  

          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  


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            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  


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            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  


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            contrast, Minnesota has 31,000 subscribers, Texas has 28,000,  
            Oregon has 15,000 and Wisconsin has 19,000 (NASCHIP, 2007  

          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  


             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.   


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               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  


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               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  


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            definition of covered lives individuals covered through  

           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  

          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  


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            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
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           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  

             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  


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               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  

             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
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               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  


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               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.  
                  Change  shall  to  may  .  (Page 14, lines 17-20).


          American Federation of State, County and Municipal Employees,  
          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  


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                                                                  Page  20

          California Labor Federation

          Association of California Life & Health Insurance Companies
          California Association of Health Plans
          California Chamber of Commerce
          California Labor Federation
          California State Employees Association

           Analysis Prepared by  :    Deborah Kelch / HEALTH / (916) 319-2097