BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 227
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          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  


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               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;  

             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  

             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  


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               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  

           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  


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            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  

          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  

           FISCAL EFFECT  :  This bill has not been analyzed by a fiscal  

           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  


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            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  

          MRMIP receives annual capped appropriations which have in recent  
            years been set at $37 million in state Proposition 99  


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            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  


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            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  

          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  

          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. 


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            |           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                      |


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            |?  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     |                                |


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            |                              |                                |

          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  


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               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:


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               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.  


             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.  


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               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.


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             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.  


           Consumers Union
          Health Access California
           None on file.

           Analysis Prepared by  :    Marjorie Swartz / HEALTH / (916)