BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



           ------------------------------------------------------------ 
          |SENATE RULES COMMITTEE            |                   SB 227|
          |Office of Senate Floor Analyses   |                         |
          |1020 N Street, Suite 524          |                         |
          |(916) 651-1520         Fax: (916) |                         |
          |327-4478                          |                         |
           ------------------------------------------------------------ 
           
                                         
                              UNFINISHED BUSINESS


          Bill No:  SB 227
          Author:   Alquist (D)
          Amended:  6/21/10
          Vote:     27 - Urgency

           
           SENATE PRIOR VOTES NOT RELEVANT
           
           SENATE HEALTH COMMITTEE  :  6-0, 6/23/10
          AYES:  Alquist, Cedillo, Leno, Negrete McLeod, Pavley,  
            Romero
          NO VOTE RECORDED:  Strickland, Aanestad, Cox
           
          ASSEMBLY FLOOR  :  76-0, 6/21/10 - See last page for vote


           SUBJECT  :    Health care coverage

           SOURCE  :     The Governors Administration


           DIGEST  :    This bill requires the Managed Risk Medical  
          Insurance Board (MRMIB) to enter into an agreement with the  
          federal Department of Health and Human Services to  
          administer a qualified high-risk pool to provide health  
          coverage , until January 1, 2014, to individuals who have  
          pre-existing conditions, consistent with Patient Protection  
          and Affordable Care Act, establishes the authority and  
          requirements for MRMIB in administering the federal pool,  
          consistent with federal law, appropriates $761 million from  
          the Federal Trust Fund to MRMIB, makes this bill operative  
          contingent upon enactment of AB 1887 (Villines), and  
          sunsets both on January 1, 2020.
                                                           CONTINUED





                                                                SB 227
                                                                Page  
          2


           Assembly Amendments  deleted the previous version of the  
          bill dealing with Managed Risk Medical Insurance Program  
          (MRMIP) and instead require the MRMIB to enter into an  
          agreement with the federal Department of Health and Human  
          Services to administer a federally funded qualified  
          high-risk pool to provide health coverage, until January 1,  
          2014, to individuals who have pre-existing conditions,  
          consistent with federal health care reform.

           ANALYSIS  :    

           Existing state law
           
          1. Establishes the MRMIP, which is administered by the  
             MRMIB, to provide major risk medical coverage to  
             California residents who have been rejected for coverage  
             by at least one private health plan, or if the only  
             private health coverage that the applicant can secure  
             will:

             A.    Impose substantial waivers or provide limited  
                coverage that the MRMIB determines leaves a  
                subscriber without adequate coverage for medically  
                necessary service.

             B.    Afford coverage only at an excessive price,  
                which MRMIB determines is significantly above  
                standard average individual coverage rates.

          2. Caps the premium subscribers in MRMIP pay at 125 to  
             137.5 percent of the standard average individual rate  
             the enrollee pays would pay for comparable coverage.

          3. Establishes the Major Risk Medical Insurance fund, and,  
             except for the 2009-10 fiscal year, continuously  
             appropriates $30 million in Proposition 99 tobacco tax  
             funds from the Cigarette and Tobacco Products Surtax  
             Fund to this Fund.

           Existing federal law  .  The federal health care reform bill,  
          known as the Patient Protection and Affordable Care Act  
          (PPACA), requires the federal Secretary of the Department  
          of Health and Human Services (DHHS) to establish a  

                                                           CONTINUED





                                                                SB 227
                                                                Page  
          3

          temporary high-risk health insurance pool program to  
          provide health insurance coverage for eligible individuals  
          until January 1, 2014.  PPACA authorizes the Secretary to  
          carry out the program directly or through contracts with a  
          state or nonprofit entity.  To be eligible for the federal  
          pool, an individual must meet the following:

          1.Be a citizen or national of the United States (U.S.) or  
            lawfully present in the U.S.

          2.Have not been covered under "creditable coverage" (as  
            defined in federal law) during the six-month period prior  
            to the date on which such individual is applying for  
            coverage through the high-risk pool.

          3.Have a pre-existing condition, as determined in a manner  
            consistent with guidance issued by the Secretary of DHHS.

          Under PPACA, in order for a high-risk pool to be eligible  
          for federal funding, the pool must meet the following  
          criteria:

          1.Provide health insurance coverage to all eligible  
            individuals that does not impose any pre-existing  
            condition exclusion.

          2.Provide health insurance coverage:

             A.   In which the health insurer's share of the total  
               allowed costs of benefits provided under the  
               coverage is not less than 65 percent of such costs.

             B.   That has an out-of-pocket limit not greater than  
               the amount in federal law for a high deductible  
               health plan offered in conjunction with a health  
               savings account (except that the Secretary may  
               modify such limit if necessary to ensure the pool  
               meets the actuarial value limit).

          3.Require, with respect to the premium rate charged for  
            health insurance coverage offered to eligible individuals  
            through the high-risk pool, rates to:

             A.   Vary only for family size (individual or family),  

                                                           CONTINUED





                                                                SB 227
                                                                Page  
          4

               geographic rating area, and tobacco use.

             B.   Vary on the basis of age by a factor of not  
               greater than 4 to 1.

             C.   Be established at a standard rate for a standard  
               population.

             D.   Meet any other requirements determined  
               appropriate by the Secretary of DHHS.

          PPACA requires the Secretary of DHHS to develop procedures  
          to provide for the transition of eligible individuals  
          enrolled in health insurance coverage offered through a  
          high-risk pool into qualified health plans offered through  
          an Exchange.

          PPACA appropriates to the Secretary of DHHS $5 billion to  
          pay claims against (and the administrative costs of) the  
          high-risk pool that are in excess of the amount of premiums  
          collected from eligible individuals enrolled in the  
          high-risk pool.

          This bill:

          1. Establishes the Federal Temporary High Risk Pool in the  
             Health and Human Services Agency, and requires the  
             program to be managed by MRMIB.

          2. Authorizes MRMIB to take the specified actions,  
             consistent with the provisions of PPACA establishing a  
             federal pool.  These include the following:

             A.    Entering in an agreement with the federal DHHS  
                to administer the federal pool.

             B.    Determining eligibility criteria for the federal  
                pool, including when coverage begins and ends.

             C.    Determining the high-risk medical coverage to be  
                provided (including the scope of benefits and  
                cost-sharing).

             D.    Establishing rates paid by individuals enrolled  

                                                           CONTINUED





                                                                SB 227
                                                                Page  
          5

                in the federal pool.

             E.    Providing coverage through health plans or  
                third-party administrators (TPA).

             F.    Determining participation requirements for  
                people enrolling in the federal pool, and entities  
                contracting with MRMIB.

             G.    Contracting with private and public entities for  
                program administration.

             H.    Issuing rules and regulations.

             I.    Initially implementing the provisions of this  
                bill pursuant to the agreement with DHHS without  
                taking regulatory action.

             J.    Aligning program administration with MRMIP.

             K.    Authorizing expenditures for the federal pool.

          3. Requires, consistent with PPACA, state and federal law  
             and contingent on the agreement of the federal DHHS and  
             receipt of sufficient federal funding, MRMIB to enter  
             into an agreement with the federal DHHS to administer  
             the federal temporary high risk pool.

          4. Requires MRMIB, if the federal DHHS and the state enter  
             into an agreement, to take specified actions to  
             administer the program, including:

             A.    Establishing the scope and content of high risk  
                medical coverage.

             B.    Determining standards for participating health  
                plans, TPAs, and other contractors.

             C.    Implementing procedures to transition  
                individuals into health plans offered through an  
                exchange after the end of the federal pool.

             D.    Developing a plan for marketing and outreach.


                                                           CONTINUED





                                                                SB 227
                                                                Page  
          6

          5. Prohibits plan rates for high risk medical benefits  
             approved for the federal pool from being excessive,  
             inadequate, or unfairly discriminatory, but requires  
             plans rates to be adequate to pay anticipated costs of  
             claims or services and administration.

          6. Requires MRMIB to provide coverage under this bill  
             through participating health plans or through provider  
             networks using a TPA, and permits MRMIB to contract for  
             the processing of applications, the enrollment of  
             subscribers, and all activities necessary to administer  
             the program.

          7. Exempts any contract entered into under this bill from  
             provisions of law relating to competitive bidding, and  
             also exempts contracts from the review or approval of  
             the Department of General Services.  

          8. Permits program decisions concerning an applicant's or  
             subscriber's eligibility or eligibility date to be  
             appealed to MRMIB, according to procedures to be  
             established by MRMIB.

          9. Permits coverage determinations to be appealed to MRMIB,  
             according to procedures established by MRMIB.  If  
             allowed by DHHS, MRMIB is not required to provide an  
             appeal concerning a coverage determination if the  
             subject of the appeal is within the jurisdiction of the  
             Department of Managed Health Care or the Department of  
             Insurance.

          10.Requires hearings to be conducted according to the  
             requirements of the federal DHHS and, insofar as  
             practicable and not inconsistent with those  
             requirements, pursuant to the APA.

          11.Appropriates $761 million in federal funds without  
             regard to fiscal years from the Federal Trust Fund to  
             MRMIB for transfer to the Federal Temporary High Risk  
             Health Insurance Fund created by AB 1887 for covered,  
             medically necessary services that exceed subscribers'  
             contributions, program administration, and marketing and  
             outreach.


                                                           CONTINUED





                                                                SB 227
                                                                Page  
          7

          12.Permits MRMIB to obtain loans from the General Fund  
             (GF), subject to the approval of the Department of  
             Finance, for all necessary and reasonable expenses  
             related to the administration of the fund and the  
             program.  MRMIB must repay principal and interest to the  
             GF, using the pooled money investment account rate of  
             interest, no later than July 1, 2014.

          13.Requires MRMIB to ensure that the program subsidy amount  
             does not exceed amounts transferred to the fund under  
             this bill, and that the aggregate amount spent for high  
             risk medical coverage and program administration does  
             not exceed the federal funds available to the state for  
             this purpose, and that no state funds are spent for the  
             purposes of this bill.  

          14.Requires MRMIB to maintain enrollment and expenditures  
             to ensure that expenditures do not exceed amounts  
             available in the fund and that no state funds are spent  
             for purposes of this bill.  If sufficient funds are not  
             available to cover the estimated cost of program  
             expenditures, MRMIB is required to institute appropriate  
             measures to limit enrollment.

          15.Requires health plans and health insurers to inform  
             applicants rejected for coverage, or offered coverage at  
             higher than a standard rate, about the temporary high  
             risk health insurance pool established by this bill, and  
             would require that the information be provided in  
             accordance with standards developed by the Department of  
             Managed Health Care or the Department of Insurance, as  
             specified.

          16.Prohibits any liability in a private capacity from being  
             imposed on the part of MRMIB or any member of the board,  
             or any officer or employee of MRMIB for or on account of  
             any act performed or obligation entered into in an  
             official capacity, when done in good faith, without  
             intent to defraud, and in connection with the  
             administration, management, or conduct of this bill or  
             affairs related to this bill.

          17.Requires MRMIB to cease to provide coverage through the  
             program on January 1, 2014, and at that time to cease to  

                                                           CONTINUED





                                                                SB 227
                                                                Page  
          8

             operate the program except as required to complete  
             payments to, or payment reconciliations with,  
             participating health plans or other contractors, process  
             appeals, or conduct other necessary transition  
             activities, including, but not limited to, transition of  
             subscribers into an exchange or exchanges established  
             under PPACA.

          18.Makes this bill operative contingent upon enactment of  
             AB 1887 (Villines), and sunsets this bill on January 1,  
             2020.

           Background
           
          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 because they have a pre-existing medical  
          condition.  Since 1991, California has operated a high-risk  
          pool known as MRMIP to provide the medically uninsurable  
          with health coverage.  Premiums paid by individuals  
          receiving coverage are supplemented with state tobacco tax  
          revenues to fund coverage through the program.  MRMIP  
          currently has approximately 6,800 individuals receiving  
          coverage in the program, and approximately 4,700  
          individuals who were previously enrolled in MRMIP under a  
          pilot program, and whose costs above the amounts they pay  
          in premiums, are split by health plans in MRMIP and the  
          state.  However, the program's current enrollment is much  
          lower than the MRMIP's maximum enrollment of 21,900 in June  
          1998.  The 2010-11 proposed budget for MRMIP is $37  
          million.

          In March 2010, President Obama signed into law PPACA  
          (Public Law 111-148) as amended by the Health Care and  
          Education Reconciliation Act of 2010 (Public Law 111-152)  
          to provide coverage for over 90 percent of the presently  
          uninsured population.  Until the implementation of the  
          health insurance exchanges in 2014, individuals with  
          pre-existing conditions, who have not had coverage for the  
          prior six months and who meet certain citizen or residency  
          requirements will be eligible for the temporary high-risk  
          pool program created by PPACA.  


                                                           CONTINUED





                                                                SB 227
                                                                Page  
          9

          PPACA appropriated $5 billion in federal funds to support  
          the high-risk pool program, of which California is  
          estimated to receive $761 million.  According to an April  
          2, 2010 letter from the federal DHHS Secretary, states can  
          choose whether and how they participate in the program.  To  
          be eligible to enter into a contract with the Secretary, a  
          state must agree to not reduce the annual amount the state  
          expended for the operation of its high-risk pool.  

          To date, twenty-nine states plus the District of Columbia  
          have elected to operate their own pool, eighteen states  
          have elected to have HHS run the pool, two have deferred  
          the decision and one has not indicated.  In April 2010,  
          Governor Schwarzenegger indicated in a letter to the  
          federal DHHS Secretary his intention to contract with the  
          federal government to operate a temporary health insurance  
          program for currently uninsured individuals with  
          preexisting medical conditions.   The Governor's indicated  
          his decision was based on the Secretary's assurances that  
          100 percent of the costs will be provided by the federal  
          government for the duration of the program.  The Governor  
          announced the state will apply to operate the federal  
          high-risk pool alongside the current state high-risk pool,  
          under the same governance and operational framework.

           Related Legislation
           
          AB 1887 (Villines) establishes the Federal Temporary High  
          Risk Health Insurance Fund (Fund).  Requires money in the  
          Fund to be continuously appropriated to the MRMIB for the  
          purpose of establishing a federal temporary high-risk pool  
          established under this bill for individuals with a  
          pre-existing medical condition.  Takes effect immediately  
          as an urgency statute, contingent upon the enactment of  
          this bill.

           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes    
          Local:  Yes

          According to the Assembly Appropriations Committee,  
          according to information provided by the federal  
          government, California will receive $761 million (100  
          percent federal) to administer the high risk pool until  
          January 1, 2014 when broader insurance market re reforms  

                                                           CONTINUED





                                                                SB 227
                                                                Page  
          10

          and coverage expansions occur.  This allocation results in  
          about $218 million (federal) on an annualized basis.  This  
          funding will be used to provide premium support to  
          previously uninsured individuals.  Depending on the average  
          monthly premium charged for coverage, between 25,000 and  
          35,000 individuals will benefit from this funding support.   
          The federal government proposes to allocate state funds  
          based on a formula used for the Children's Health Insurance  
          Program, which relies on a combination of factors including  
          nonelderly population, proportion of uninsured, and  
          geographic cost variation.  The federal government will  
          reassess state high risk pool allocations within two years.  
           States, like California, that have high rates of medically  
          uninsured individuals may pursue aggressive enrollment  
          strategies to ensure continued optimal funding when  
          expenditures are reassessed by the federal government.

          This bill authorizes MRMIB to pursue General Fund (GF)  
          loans only to the extent needed to ensure continuity of  
          operation.  The pool will be a new federally-funded,  
          state-administered program, and full guidance on the timing  
          of federal reimbursement mechanisms is not yet available.   
          Providing GF loan authority to MRMIB will ensure continuity  
          of funding support and program administration.  Other  
          provisions of the bill require MRMIB to maintain enrollment  
          and expenditures in line with federal funds, ensure that  
          subsidies do not exceed the amount of federal funding  
          available, and ensure no state funds are spent in support  
          of the high risk pool.

           SUPPORT  :   (Verified  6/23/10)

          The Governor's Administration (source)
          AARP  
          Asthma and Allergy Foundation, California Chapter
          Blue Shield of California
          California Academy of Family Physicians
          California Association of Health Plans
          California Chronic Care Coalition
          California Chiropractic Association
          California Hepatitis C Task Force
          California Hospital Association
          California Medical Association
          Consumers Union

                                                           CONTINUED





                                                                SB 227
                                                                Page  
          11

          Health Access California
          TMJ Society of California


           ARGUMENTS IN SUPPORT  :    Governor Schwarzenegger, is the  
          sponsor of this bill and AB 1887, writes in support for  
          several reasons.  First, the Governor states the $761  
          million allocated to California is for a time-limited  
          purpose, and the Governor argues California can maximize  
          these federal funds in a way that will quickly and capably  
          address the needs of our state's medically uninsured.   
          Second, the federal government, which is operating these  
          high-risk pools in other states, does not have the ability  
          to address California's unique and diverse needs.  Third,  
          the Governor agues California is in the best position to  
          run a program for our residents, as we can bring jobs to  
          California by directing as much work as possible to  
          California-based companies and vendors.  While it is true  
          that the federal government can step in and run a federal  
          pool for the states that decline to do so, the Governor  
          argues that he believes running our own federal high-risk  
          pool allows us an opportunity to maximize jobs here in  
          California.  Finally, the Governor concludes that these  
          bills have strong provisions that protect our state's  
          General Fund, and California will use this federal money  
          responsibly and without risking our state's own precarious  
          fiscal resources.  
          
          AARP writes in support of this bill and AB 1887, that this  
          issue is very important to AARP members as the individuals  
          over age 50 are most likely to be denied coverage on the  
          basis of pre-existing health conditions.  AARP states that,  
          while the federal government will administer the program in  
          California if the state does not, this is not a good option  
          for consumers.  AARP argues the state currently administers  
          a high-risk pool for consumers and will be able to  
          coordinate outreach and enrollment for the two programs so  
                                                                that it is seamless, much less confusing for consumers, and  
          much less likely to result in consumers being dropped  
          between the cracks of the two programs.  The danger of  
          consumers getting lost in the shuffle between two similar  
          programs with distinct eligibility requirements is  
          magnified tremendously by having them administered by two  
          different entities and levels of government, one of which  

                                                           CONTINUED





                                                                SB 227
                                                                Page  
          12

          have never before administered such a program.  AARP writes  
          it is much more comfortable that consumers will have  
          meaningful access to state program administrators to deal  
          with the inevitable glitches in any new program.  AARP  
          concludes that this is such an important benefit for AARP  
          members who have been denied coverage based on pre-existing  
          conditions that it does not want to take any chances on a  
          federal system that has been designed in just a few months.

          The California Medical Association (CMA) writes in support  
          that this bill and its companion measure, AB 1887  
          (Villines) will provide the statutory authority necessary  
          for California to access $761 million in federal funds and  
          provide a vital coverage option to individuals with a  
          pre-existing medical condition.  CMA states it supports  
          high risk pools, as they provide a critical health  
          insurance coverage option to those who do not have  
          employer-sponsored coverage and are otherwise medically  
          uninsurable in the individual market.


           ASSEMBLY FLOOR  : 
          AYES:  Adams, Ammiano, Anderson, Arambula, Bass, Beall,  
            Bill Berryhill, Tom Berryhill, Block, Blumenfield,  
            Bradford, Brownley, Buchanan, Caballero, Charles  
            Calderon, Carter, Chesbro, Conway, Cook, Coto, Davis, De  
            La Torre, De Leon, DeVore, Eng, Evans, Feuer, Fletcher,  
            Fong, Fuentes, Fuller, Furutani, Gaines, Galgiani,  
            Garrick, Gatto, Gilmore, Hagman, Hall, Harkey, Hayashi,  
            Hernandez, Hill, Huber, Huffman, Jeffries, Knight, Lieu,  
            Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning,  
            Nava, Nestande, Niello, Nielsen, Norby, V. Manuel Perez,  
            Portantino, Ruskin, Salas, Saldana, Silva, Smyth,  
            Solorio, Audra Strickland, Swanson, Torlakson, Torres,  
            Torrico, Tran, Villines, Yamada, John A. Perez
          NO VOTE RECORDED:  Blakeslee, Jones, Skinner, Vacancy


          CTW:do  6/24/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****


                                                           CONTINUED