BILL ANALYSIS SB 227 Page 1 Date of Hearing: June 15, 2010 ASSEMBLY COMMITTEE ON HEALTH William W. Monning, Chair SB 227 (Alquist) - As Amended: June 3, 2010 SENATE VOTE : Not relevant SUBJECT : Health care coverage: temporary high risk pool. SUMMARY : Requires the Managed Risk Medical Insurance Board (MRMIB) to enter into an agreement with the federal Department of Health and Human Services (DHHS) to administer a qualified high risk pool to provide health coverage, until January 1, 2014 to individuals who have pre-existing conditions, consistent with the Patient Protection and Affordable Care Act, Public Law 111-148 (PPACA). Specifically, this bill : 1)Authorizes MRMIB to enter into an agreement with DHHS, to administer the federal temporary high risk pool consistent with PPACA and to do the following: a) Determine eligibility, enrollment and disenrollment criteria including waiting lists and enrollment limits; b) Determine participation requirements for applicants, subscribers, health plans, and third party administrators; c) Provide for processing applications, enrollment of subscribers, and when coverage begins and ends; d) Contract for application processing, enrollment or other activities, and exempt the contracts from competitive bidding requirements; e) Determine high risk medical coverage, including scope of benefits and subscriber cost sharing and establish subscriber premiums and plan rates; f) Provide coverage by contracting with licensed health plans or by contracting with third party administrators to provide or administer the coverage as specified and allows contracts with health plans to be for full or partial risk or to provide administrative services only. Preserves a plan's existing rights in the event MRMIB is unable to SB 227 Page 2 continue payments; g) Align program administration with the Managed Risk Medical Insurance Program (MRMIP); h) Make expenditures from the Federal Temporary High Risk Health Insurance Fund for covered, medically necessary services that exceed the subscriber's contribution, administration of the program, and marketing and outreach; and, i) Obtain General Fund loans for administration to be repaid by January 1, 2014. 2)Requires MRMIB to do the following: a) Administer the federal temporary high risk program in conformance with the agreement between the state and DHHS; b) Establish the scope and content of high risk medical coverage; c) Determine minimum standards for participating plans and third party administrators, methods and procedures for withdrawing program approval or limiting enrollment; d) Research and assess the needs of persons without adequate coverage and promote means of ensuring availability of adequate health care services; e) Adopt benefit and eligibility standards that are guided by the needs of the eligible population and by prevailing practices among private insurers; f) Maintain enrollment and expenditures to ensure that the program costs do not exceed the federal funds as allocated; g) Post the monthly progress reports submitted to HHS on the MRMIB web site as well as information about potential waiting lists or disenrollemts due to fund limitations; h) Implement a plan for marketing and outreach; i) Provide coverage through licensed health plans or third party administrators using provider networks; and, j) Implement a procedure for transition of subscribers into SB 227 Page 3 qualified health plans through the exchange established under PPACA. 3)Prohibits plan rates from being excessive, inadequate, or unfairly discriminatory and requires rates to be adequate to pay claims and services. 4)Provides for appeals of program decisions concerning eligibility and coverage decisions through a procedure to be established by MRMIB, as specified. Allows for appeals of coverage decisions that are within the jurisdiction of the Department of Managed Health Care (DMHC) to be exempted. 5)Requires a subscriber's contribution responsibility to begin upon enrollment. 6)Allows subscribers to change plans as prescribed. 7)Adds information about the federal temporary high risk pool to existing notice requirements health plans and insurers provide to applicants who are denied individual coverage or are offered coverage at a rate higher than the standard rate and requires it to be placed on the DMHC and Department of Insurance (CDI) Web sites. 8)Authorizes initial implementation without regulations, authorizes emergency regulations and other contracting and legal authorities. 9)Defines relevant terms and makes other conforming and technical changes. 10)Terminates coverage through the federal high risk pool on January 1, 2014, requires all claims to be submitted within 18 months following the delivery of service and sunsets this bill January 1, 2020. 11)Makes enactment contingent on the enactment of AB 1887 (Villines). EXISTING LAW : 1)Establishes MRMIP, administered by MRMIB, to provide health coverage for individuals unable to purchase coverage because they have been denied health coverage by at least one private SB 227 Page 4 health plan or are offered only limited coverage or coverage significantly above standard average individual rates, as determined by MRMIB. 2)Requires MRMIB to provide health coverage to subscribers in MRMIP through participating private health plans licensed by either the DMHC or the CDI. 3)Provides MRMIP with a $37 million continuous appropriation accompanied by an annual budget act Proposition 99 appropriation. 4)Establishes basic MRMIP program elements, including eligibility, premiums, benefits, and subscriber contributions, limits annual deductible and annual out-of-pocket costs. 5)Establishes, under PPACA, a temporary high risk health insurance pool program beginning July 1, 2010 to provide coverage to currently uninsured individuals with pre-existing conditions. FISCAL EFFECT : This bill has not been analyzed by a fiscal committee. COMMENTS : 1)PURPOSE OF THIS BILL . According to the author, this bill is needed to establish a high-risk pool that meets federal requirements because MRMIP and the federal high-risk pool program established by Section 1011 of PPACA differ in their eligibility criteria, benefits, coverage, and premiums in ways that would prevent MRMIP as it is currently structured from being used as the federal high-risk pool. The author argues that although most Californians obtain health insurance through their employer, many Californians do not have access to employer-sponsored health coverage and cannot buy private health insurance at any price because they have a pre-existing medical condition. The author further points out that having a pool run at the state level by a public board allows for better public participation, on-going monitoring, and transparency. MRMIB could provide a single point of application for people applying for either high risk pool, and the federal government has not directly administered a program similar to this SB 227 Page 5 before. Additionally, having similar programs run by different levels of government is confusing for the public and makes coordination of enrollment and outreach more difficult. 2)BACKGROUND . On March 23, 2010, President Obama signed into law the PPACA to provide coverage for over 90% of the presently uninsured population, adopt broad-reaching reforms in insurance practices, and make major new investments in public health. PPACA requires states to create health insurance exchanges by 2014 that will serve as competitive market places for individuals and small businesses to be able to purchase health insurance products. Insurers participating in the exchange will be barred from discriminating based on pre-existing conditions, health status, and gender. Until the implementation of state exchanges in 2014, certain individuals with pre-existing conditions, who have not had coverage for the prior six months and meet certain citizen or residency requirements will be eligible for the temporary high risk pool program. According to an April 2, 2010 letter from DHHS Secretary Sibelius, states may choose whether and how they participate in the program. A total of $5 billion in federal funds has been appropriated to support the program. California has been allocated $761 million over the life of the program. To date, 29 states plus D.C. have elected to operate their own, 18 have elected to have DHHS run it, two have deferred the decision and one has not indicated. 3)MRMIP . Presently, subscribers to MRMIP 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 two major private health plans that voluntarily participate in the program - Anthem Blue Cross and Kaiser. Premiums vary based on the age and region of the subscriber and the health plan they choose. For example, in Sacramento County, the 2010 premiums for a person age 50-54 are $551 per month for the Kaiser Permanente HMO plan and $878 for the Blue Cross PPO. These premiums pay for coverage that stops at $75,000 per year and includes a lifetime maximum of $750,000. MRMIP receives annual capped appropriations which have in recent years been set at $37 million in state Proposition 99 SB 227 Page 6 Cigarette and Tobacco Products Surtax Funds 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. As of April 1, 2010 there are 6,941 enrollees. 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. 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). 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)HIGH RISK POOLS . Prior to the enactment of PPACA, 35 states implemented high-risk health insurance pools to provide coverage to individuals who were uninsurable due to a pre-existing condition. According to the National Conference of State Legislatures (NCSL), across these 35 states, the national enrollment was slightly over 200,000 in December 2008. These uninsurable individuals have sought coverage, but have been unable to purchase it because they have been rejected or because they have been offered coverage only at unaffordable, high premium rates. NCSL also reports that SB 227 Page 7 enrollee premiums financed almost 60% of the costs and that states used other funds to cover the remainder such as insurer assessments, tobacco settlement costs, and general funds. Most states have an exclusionary period for individuals with pre-existing conditions. 5)STATE IMPLEMENTATION . On April 29, 2010, Governor Schwarzenegger notified Secretary Sibelius that the State of California intended to exercise the option to contract with the federal government to operate the federal high-risk pool alongside our current state high-risk pool under the same governance and operational framework. The Governor expressed his intention to immediately begin working with the Legislature and stakeholders and to make statutory changes necessary. On May 10, 2010 HHS provided to the states that chose to run their own pool, a solicitation for state proposals. The solicitation stated that the goal was to grant the flexibility needed to permit successful and expeditious implementation of the program by States. State submissions are due on a rolling monthly basis beginning June 1, 2010 for a July 1, 2010 implementation. States will be reimbursed for all reasonable, allowable start-up and administrative costs, including actuarial, legal, marketing, and outreach as well as ongoing administrative costs with a cap of 10% over the life of the program. The DHHS solicitation allows states to offer one or more benefit plans as long as they comply with the PPACA requirement that the plan's share is not less than 65% of the total cost of the benefit. The DHHS solicitation requires the high risk pool to demonstrate an adequate network to ensure that all covered services are reasonably available and accessible. This bill allows MRMIB to establish the specifics of premiums, cost-sharing, and benefit packages initially by board action without regulation in order to expedite implementation. AB 1887 (Villines), the companion legislation, allows MRMIB to begin discussing these details with the plans or third party administrators confidentially. SB 227 Page 8 6)MRMIP COMPARED TO PPACA HIGH RISK POOL . -------------------------------------------------------------- | FEDERAL | MRMIP | -------------------------------------------------------------- --------------------------------------------------------------- | ELIGIBLITY | --------------------------------------------------------------- |------------------------------+-------------------------------| |? Citizen or national of the | ? California resident | | United States or lawfully | | | present in the United | | | States | | -------------------------------------------------------------- |? Have no creditable coverage | ? Unable to secure adequate | | for the previous six months | coverage in the individual | | before applying for | market within the last 12 | | coverage | months, ineligible for | | | Medicare, COBRA or | | | Cal-COBRA | |------------------------------+-------------------------------| |? Have a pre-existing | ? No requirement, but denial | | condition, such as denial | or termination of insurance | | of coverage, coverage only | for other than nonpayment | | available with exclusion or | is one pathway to | | presence of certain medical | eligibility | | conditions specified by the | ? PPO products, three month | | state and approved by the | waiting period for services | | DHHS Secretary | for pre-existing conditions | | | ? HMO product, three month | | | post-enrollment waiting | | | period | -------------------------------------------------------------- --------------------------------------------------------------- | BENEFITS/COVERAGE | --------------------------------------------------------------- SB 227 Page 9 --------------------------------------------------------------- |? High Risk pool average | ? Comprehensive benefits with | | share of total costs of | annual $500 household | | required benefits must be | deductible | | at least 65% of costs. | ? Preventive services | | | excluded from deductible | --------------------------------------------------------------- |? No Pre-existing condition | ? Allows a 3 month waiting | | exclusion allowed | period or pre-existing | | | condition exclusion | --------------------------------------------------------------- |? Limits out-of-pocket to | ? Limits out-of-pocket | | equivalent in | maximum per year to $2,500 | | high-deductible plans | for individuals and $4,000 | | linked to health savings | for an entire household | | accounts ($5,950 for an | covered by the MRMIP. (Must | | individual). | be in network provider, | | | out-of-plan charges | | |allowed.) | |------------------------------+--------------------------------| |? No specification on caps, | ? Benefit limits of $75,000 | | but lifetime and | per calendar year and | | unreasonable annual caps | $750,000 in a lifetime. | | prohibited in exchange | | --------------------------------------------------------------- -------------------------------------------------------------- | FEDERAL | MRMIP | -------------------------------------------------------------- --------------------------------------------------------------- | PREMIUMS | --------------------------------------------------------------- --------------------------------------------------------------- |? No more than 100% of the | ? 125% to 137% of the | | standard rate for the | standard rate that a carrier | | benefits in the commercial | would charge for MRMIP | | market | benefits in the commercial | | | market | |------------------------------+--------------------------------| |? Limits rate variation by | ? 12 age variations with no | | age to a maximum of 4 to 1 | limit on differences | |? Rate variations allowed for | ? 3 possible family sizes | | whether the plan covers an | ? Six geographic regional | | individual or family, based |variations | | on regions, for tobacco use | | | but limited to 1.5 to 1 | | SB 227 Page 10 | | | --------------------------------------------------------------- 1)FEDERAL SPECIFICATIONS . The newly established Office of Consumer Information and Insurance Oversight at DHHS issued a Solicitation for State Proposals to Operate Qualified High Risk Pools on May 10, 2010 to those states who indicated intent to establish a federally qualified temporary high risk pool. Some of the highlights are: a) Six Month Bar . States are required to limit the enrollment to persons who have not had creditable coverage for a continuous six month period of time prior to the date of application. Creditable coverage is broadly defined and includes public and private health insurance that covers medical, hospital, and surgical and is not supplemental, Medicare, Medi-Cal, Healthy Families, or a state health benefits risk pool. b) Pre-existing Condition . States have some flexibility in determining who meets the pre-existing condition requirement. Examples provided are: i) Evidence of denial co coverage; ii) Evidence that coverage is available with only an exclusionary rider; and, iii) The presence of certain medical conditions specified by the State and approved by DHHS. This third pathway seems to be consistent with the broadest eligibility that states have used. For example, Minnesota allows people to enroll in their high risk pools with a doctor's diagnosis. c) Benefits Requirements . States also have flexibility to offer one or more benefit plans as long as they met the requirement that the issuer's share of the cost is not less than 65% of the total costs of the benefit. d) Premiums . States are required to determine a standard risk rate based on premium rates charged for similar benefits and cost-sharing by comparable products offered in the individual market using reasonable actuarial techniques. MRMIB has consulted PwC, who has provided a preliminary estimate of premiums compared to the existing MRMIP premiums. According to the report to the MRMIB on May 7, 2010, the new federal high risk pool premium for a benefit plan that mirrors MRMIP's plan design but with an SB 227 Page 11 annual benefit limit of at least $1 million and no lifetime limit is estimated to be approximately 5% less than the current MRMIP premiums, on average, given that premiums are required to be no more than 100% of standard rate. An alternative estimate was also provided based on the application of either the minimum or maximum adjustments made by plans in 2010, rather than an average adjustment, and suggests that the premiums may range from 14% less to 3% more. e) Administrative Costs . States are to be reimbursement for a broad spectrum of administrative costs, such as actuarial costs, agent referral fees, printing, salaries, and legal expenses. The DHHS solicitation, in recognition of the nature of initiating a new program, allows reimbursement for costs that are not tied to specific claims or enrollment until December 31, 2010. However, DHHS anticipates that over the life of the program, total administrative costs will not exceed 10% of the total claims. The solicitation also provides that premiums collected can be used to offset administrative costs as well as enrollee service claims. f) Maintenance of Effort. States that contract to administer their own high risk pool also agree not to reduce the annual amount spent to operate the existing high risk pool during the year preceding the year the contract is signed. The solicitation requires the state to provide a narrative description of its maintenance of effort strategy and a table identifying the state allocated funds and revenues from premiums paid in 2009 and how the state will maintain that level of support. g) Capped Allocation . Each state has been provided with a specific dollar allocation. The solicitation includes numerous provisions and requirements to monitor expenditures to protect a state from having any general fund liability and to allow DHHS to determine if the state will spend the full allocation. For instance, the state is required to submit requests for payment for claims on a weekly basis. An implementation plan is required to be submitted within 10 days of the award that specifies the date that enrollments will be accepted and progress reports are due quarterly. The progress reports are required to include the following: SB 227 Page 12 i) Evidence that major milestones have been met; ii) Risks and problems identified or encountered and mitigation strategies; iii) Description of enrollment, broken down at a minimum geographically and demographically and if it is representative of the state; iv) Information on disenrollment; and, v) Updated cost projections and in the case of a projected shortfall, cost-containment strategies. The state is also required to submit monthly reports with a complete accounting of the previous month's expenditures, revenues, number of enrollees, average monthly premiums, and out of pocket expenses. h) Marketing and Outreach . States may access funds for the high risk pool July 1, 2010. In order for California to maximize its allotment, an outreach and marketing effort must be undertaken immediately. The DHHS solicitation provides that the state will receive reimbursement for administrative costs, including marketing and outreach and requires a description of the proposed efforts to conduct marketing and outreach. 2)PRIOR AND RELATED LEGISLATION . a) AB 1887 (Villines) establishes the funding mechanism for the operation of the federal temporary high risk pool and adds MRMIB contract negotiations and rate information to existing open record and open meeting act exemptions. AB 1887 is pending on the Assembly floor. b) SB 57 (Aanestad) would have revised and restructured MRMIP, including securing additional funding by requiring each health plan and health insurer to add a surcharge on each individual policy and would have made specified program changes related to eligibility, plan choices, benefit limits and exclusions, and related changes. SB 57 failed passage in Senate Health Committee on April 22, 2009 by a vote of 2-6. c) AB 1379 (Ducheny), Chapter 607, Statutes of 2008, requires fines and administrative penalties levied against health plans under the Knox-Keene Health Care Service Plan Act of 1975 to be placed in the Managed Care Fund and used, upon appropriation by the Legislature, for the Steven M. SB 227 Page 13 Thompson Physician Corps Loan Repayment Program, a physician loan repayment program, up to $1 million per year, with the remainder being allocated to MRMIP. 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 and would 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, 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 because it would allow health insurance companies to pass the fee onto their enrollees, making it more expensive and 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 Guaranteed Issue Product (GIP) pilot project 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 the GIP until December 31, 2007 and appropriated, on a one-time basis, an additional $4 million in Proposition 99 funds for MRMIP. SB 227 Page 14 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 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 established the GIP pilot project. REGISTERED SUPPORT / OPPOSITION : Support Consumers Union Health Access California Opposition None on file. Analysis Prepared by : Marjorie Swartz / HEALTH / (916) 319-2097