BILL ANALYSIS SB 838 Page 1 Date of Hearing: May 12, 2010 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 838 (Strickland) - As Amended: May 6, 2010 Policy Committee: Health Vote:19-0 Urgency: Yes State Mandated Local Program: Yes Reimbursable: No SUMMARY This bill conforms California law to federal requirements for continuation health coverage under the California Omnibus Budget Reconciliation Act (Cal-COBRA) statutes. Cal-COBRA provides the option of continuation coverage for workers at small firms (two to 19 employees). This bill clarifies notification requirements for employers, health plans, and health insurers to allow unemployed individuals to continue health coverage with a federal subsidy for 65% of monthly premium costs. The premium subsidy was established in the federal American Recovery and Reinvestment Act (ARRA) (PL-111-5) in February 2009. Since that time, the subsidy has been extended and eligibility has been broadened three times by federal legislation. FISCAL EFFECT 1)According to recent analysis, COBRA enrollments have doubled since the provision of federal subsidies. Due to the expense of unsubsidized health coverage, only 10% of individuals accept unsubsidized continuation coverage during a period of unemployment. This bill enables continued support of premium subsidies and the higher take-up rate of continuation health coverage. 2)The average monthly health premium is approximately $400 for an individual and $1,100 for a family. The federal subsidies addressed in this bill mean these monthly premiums will drop to $140 for individuals and $385 for families. Without premium assistance, health premiums account for 30% to 85% of an individual's unemployment benefits. SB 838 Page 2 3)The federal subsidy is phased out for higher income individuals with adjusted gross income above $125,000 and couples with adjusted gross income above $250,000. COMMENTS 1)Rationale . This bill clarifies notification requirements about premium subsidies for unemployed workers from firms with fewer than 20 employees. This bill ensures these workers and their families have the option of accepting health coverage with major premium support from the federal government. By enabling a 65% federal subsidy, this bill reduces a barrier to health coverage significantly. 2)COBRA , a federal law enacted in 1985, provides workers at larger firms (20 or more employees) continuity of health coverage by allowing former employees to choose to pay the full premium cost (capped at 102% for COBRA) otherwise paid by the employer. For workers at small firms (two to 19 employees), California has Cal-COBRA (capped at 110% of full premium cost). COBRA is available for up to 18, 29, or 36 months and Cal-COBRA is available for up to 36 months depending on eligibility. In addition, individuals who exhaust 18 months of COBRA also have access to continuity coverage through Cal-COBRA. Individuals who exhaust Cal-COBRA coverage have access to continuation coverage under the federal Health Insurance Portability and Accountability Act (HIPAA). The federal subsidies for COBRA and Cal-COBRA are now available for a total of 15 months. 3)Highest Unemployment Rate in Decades Erodes Health Coverage . The unemployment rate statewide has hovered between 10% and more than 12% over the past year. In many parts of the state, the unemployment rate is higher. Because a majority of people access health coverage through an employer, the rate of unemployment has contributed to erosion in health coverage. According to recent research, the number of uninsured adults increased from 5.3 million to 6.8 million, with job-based coverage dropping from 57% to 51%. 4)Related Legislation AB 23 (Jones), Chapter 3, Statutes of 2009 conformed California law to federal American Recovery and Reinvestment SB 838 Page 3 Act (ARRA) (Public Law 111-5, 2009) requirements for continuation health coverage under the Cal-COBRA statutes. Analysis Prepared by : Mary Ader / APPR. / (916) 319-2081