BILL ANALYSIS                                                                                                                                                                                                    






                                 SENATE HEALTH
                               COMMITTEE ANALYSIS
                        Senator Elaine K. Alquist, Chair


          BILL NO:       SB 900                                       
          S
          AUTHOR:        Alquist                                      
          B
          AMENDED:       April 8, 2010                               
          HEARING DATE:  April 21, 2010                               
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          CONSULTANT:                                                 
          0
          Bain/cjt                                                    
          0              
                                     SUBJECT
                                         
                      California Health Benefits Exchange

                                     SUMMARY  

          Establishes in the California Health and Human Services  
          Agency (Agency) the California Health Benefits Exchange  
          (Exchange).  Specifies the duties and authority of the  
          Exchange.  Requires the Exchange be governed by a board  
          with four-year terms whose members are appointed by the  
          Governor and the Legislature.  Requires the Exchange to  
          negotiate and enter into contracts with health plans.   
          Requires the Exchange to offer a choice of health plans in  
          each region of the state, including a choice in each region  
          of the state between the five levels of coverage contained  
          in federal law (a platinum, gold, silver, bronze and  
          catastrophic level benefit plan).
           
                             CHANGES TO EXISTING LAW  

          Existing state law:
          Establishes the Managed Risk Medical Insurance Board  
          (MRMIB), which administers the Healthy Families Program,  
          the Major Risk Medical Insurance Program, and the Access  
          for Infants and Mothers Program.  MRMIB is a seven-member  
          board in the Agency with three gubernatorial appointments,  
          two legislative appointments and two ex officio non-voting  
          members.  MRMIB administers three programs (the Healthy  
          Families Program, the Access for Infants and Mothers  
                                                         Continued---



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          Program and the Major Risk Medical Insurance Program),  
          under which it has authority to contract with health plans.  

          
          Existing federal law:
          Existing law, the federal Patient Protection and Affordable  
          Care Act (the federal Act), (Public Law 111-148), requires  
          each state, by January 1, 2014, to establish an American  
          Health Benefit Exchange that makes qualified health plans  
          available to qualified individuals and qualified employers.  
           Federal law establishes requirements for the Exchange, for  
          health plans participating in the Exchange, and defines who  
          is eligible to receive coverage in the Exchange.

          Effective January 1, 2014, the federal Act allows  
          individual taxpayers whose household income equals or  
          exceeds 100 percent, but does not exceed 400 percent of the  
          federal poverty level, a refundable tax credit for a  
          percentage of the cost of premiums for coverage under a  
          qualified health plan.  The federal Act also requires  
          reductions in the maximum limits for out-of-pocket expenses  
          for individuals enrolled in qualified health plans whose  
          incomes are between 100 percent and 400 percent of the  
          federal poverty level.  

          The federal Act also allows "qualified small employers" to  
          elect, beginning in 2010, a tax credit worth up to 35  
          percent of a small business' health insurance premium costs  
          in 2010.  On January 1, 2014, this rate increases to 50  
          percent (35 percent for tax-exempt employers).  A  
          qualifying employer must cover at least 50 percent of the  
          cost of health care coverage for some of its workers based  
          on the single rate.  A qualifying employer must have less  
          than the equivalent of 25 full-time workers (for example,  
          an employer with fewer than 50 half-time workers may be  
          eligible).  A qualifying employer must pay average annual  
          wages below $50,000.  Both taxable (for-profit) and  
          tax-exempt firms (nonprofits) qualify.  The credit phases  
          out gradually for firms with average wages between $25,000  
          and $50,000 and for firms with the equivalent of between 10  
          and 25 full-time workers.  After January 1, 2014, the tax  
          credit is only available for coverage purchased through the  
          Exchange, and only for two consecutive years.

          This bill:
          Establishes in the Agency the Exchange, and makes the  




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          purpose of this bill to implement the provisions of the  
          federal Act requiring the establishment of an American  
          Health Benefit Exchange.  Requires the Exchange be governed  
          by a board with four-year terms whose members are appointed  
          by the Governor and the Legislature. 

          Requires the Exchange board to hold public meetings on a  
          bimonthly basis, or more frequently as necessary.

          States legislative intent that the Exchange provide a  
          consumer-friendly process that facilitates the seamless  
          enrollment of individuals in health care coverage.

          Requires the Exchange to meet various requirements,  
          including: 

           Negotiating and entering into contracts, including  
            selective provider contracts, with health plans seeking  
            to offer coverage in the Exchange;
           Providing a choice of health plans in each region of the  
            state, including a choice in each region of the state  
            between the five levels of coverage contained in federal  
            law (a platinum, gold, silver, bronze and catastrophic  
            benefit plan);
           Requiring the Exchange to employ necessary staff,  
            including actuarial staff;
           Requiring the Exchange to receive federal funds for  
            purposes of establishing and administering the Exchange,  
            including funds made available by the federal Act.  

          Requires the Exchange to meet the requirements of the  
          federal Act for establishing an Exchange, and requires the  
          Exchange to perform the following federal requirements in a  
          consumer-friendly manner:

           Provide for the operation of a toll-free telephone  
            hotline to respond to requests for assistance.
           Maintain an Internet website through which enrollees and  
            prospective enrollees of qualified health plans can  
            obtain standardized comparative information on those  
            plans.
           Assign a rating to each qualified health plan offered  
            through the Exchange in accordance with federal criteria  
            developed under the Act.
           Utilize a standardized format for presenting health  
            benefits plan options in the Exchange, including the use  




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            of the uniform outline of coverage established under  
            federal law.
           Inform individuals of eligibility requirements for the  
            Medi-Cal Program, the Healthy Families Program, or any  
            applicable state or local public health care coverage  
            program and, if eligible, enroll the individual in that  
            program.
           Establish and make available by electronic means a  
            calculator to determine the actual cost of coverage after  
            the application of any premium tax credit and any  
            cost-sharing reduction under the federal Act.
           Grant a certification, subject to the federal Act and any  
            implementing regulations, attesting that an individual is  
            exempt from the individual responsibility requirement  
            (known as the individual mandate) or from the penalty  
            imposed because of either of the following:
               o       There is no affordable qualified health plan  
                 available through the Exchange, or the individual's  
                 employer, covering the individual.
               o       The individual meets the requirements for any  
                 other exemption from the individual responsibility  
                 requirement or penalty.
           Establish quality incentives and rewards consistent with  
            specified provisions of the Act, including, but not  
            limited to, incentives that encourage the use of delivery  
            systems that deliver cost-effective, high-quality care. 

          Permits the Exchange to do the following:

           Issue rules and regulations, as necessary, and until  
            January 1, 2014, emergency regulations.  
           Apply for and receive funds from private foundations.
           Exercise the federal option to provide a single exchange  
            for providing services to both qualified individuals and  
            qualified small employers, if the Exchange makes all of  
            the following determinations:
               o       Providing coverage through a single exchange  
                 will provide a significant benefit for the health  
                 coverage marketplace in the state.
               o       Providing coverage through a single exchange  
                 will be cost effective for both qualified  
                 individuals and qualified small employers.
               o        The Exchange can make coverage available  
                 through a single exchange on a guarantee issue basis  
                 without undue risk of adverse selection.
           Enter into other contracts as are necessary or proper to  




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            carry out the duties of the Exchange, including, but not  
            limited to, contracts for enrollment processing.
           Determine the health benefits coverage for small  
            employers that the Exchange will contract to purchase  
            from participating carriers.
           Appoint committees, as necessary, to provide technical  
            assistance in the operation of the Exchange.
           Undertake activities necessary to administer the  
            Exchange, including marketing and publicizing the  
            Exchange and establishing rules, conditions, and  
            procedures for ensuring carrier, employer, and enrollee  
            compliance with Exchange requirements, consistent with  
            federal law and regulations.
           Consistent with federal procedures established by the  
            Act, establish procedures to allow agents or brokers to  
            do both of the following:
                 o        Enroll individuals in any qualified health  
                   plan in the individual or small group market as  
                   soon as the plan is offered through the Exchange.
                 o        Assist individuals in applying for premium  
                   tax credits and cost-sharing reductions for health  
                   plans sold through the Exchange.
           
          Prohibits the Exchange from being subject to licensure or  
          regulation by the California Department of Insurance or the  
          Department of Managed Health Care.

          Requires carriers that contract with the Exchange to be in  
          good standing with their respective regulatory agencies.

          Allows individuals and employers the right to appeal to the  
          board if they are dissatisfied with any action or failure  
          to act that has occurred in connection with eligibility  
          for, or enrollment in, the Exchange.  Requires the  
          individual/employer be accorded an opportunity for a fair  
          hearing, and requires hearings to be conducted pursuant to  
          the provisions of the Administrative Procedure Act.

          Prohibits this bill from being construed to compel an  
          individual to enroll in a qualified health plan or to  
          participate in the Exchange. 

                                  FISCAL IMPACT  

          This bill has not been analyzed by a fiscal committee.   
          This bill establishes the California Health Benefits  




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          Exchange Fund (Fund) in the State Treasury as a special  
          fund consisting of revenue necessary for the purposes of  
          this bill.  Permits any moneys in the Fund that are  
          unexpended or unencumbered at the end of a fiscal year to  
          be carried forward to the next succeeding fiscal year, and  
          requires all interest earned on money in the fund to be  
          retained in the Fund.  This bill requires the board to  
          establish a prudent reserve in the Fund, requires moneys in  
          the Fund, upon appropriation by the Legislature, to be used  
          by the board for the purposes of this bill.

                            BACKGROUND AND DISCUSSION  

          According to the author, one of the critical pieces of the  
          federal health reform legislation is the establishment of  
          an American Health Benefit Exchange.  Each state is  
          required to establish such an Exchange by January 1, 2014,  
          and this bill would require the establishment of a  
          California Health Benefit Exchange as a government entity  
          within the California Health and Human Services Agency.   
          The author argues the Exchange should be a public entity  
          with legislative and gubernatorial appointments that holds  
          public meetings to ensure accountability and transparent  
          decision-making.  

          According to the author, the Exchange would be an "active  
          purchaser" on behalf of people receiving coverage in the  
          Exchange.  It would negotiate and enter into contracts with  
          health plans seeking to participate in the Exchange, and  
          would establish quality incentives for health plans that  
          encourage the use of cost-effective, high-quality delivery  
          systems.  Additionally, the author argues a broad choice of  
          health plans should be available in the Exchange beyond  
          what is required under federal law.  This bill requires the  
          Exchange to offer a choice of health plans in each region  
          of the state of the five levels of coverage (platinum,  
          gold, silver, bronze and catastrophic) contained in federal  
          law, rather than the two levels of coverage (gold and  
          silver) required in the federal Act.  

          The author points out that California is familiar with the  
          Exchange model as the state currently administers a  
          purchasing pool for approximately 1.3 million public  
          employees (through CalPERS) and three smaller purchasing  
          pools, one for pregnant women, one for low-income children,  
          and one for medically uninsurable individuals, that are  




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          administered by the Managed Risk Medical Insurance Board  
          and that have a combined enrollment of over 900,000  
          individuals.  MRMIB also previously administered a  
          purchasing pool for small employers known as the Health  
          Insurance Plan of California or "HIPC."

          While there are many policy decisions to make regarding  
          state implementation of an Exchange, the author believes  
          the statutory framework must be built early so that the  
          state can begin establishing the administrative  
          infrastructure (hiring staff, contracting with health plans  
          and vendors, and establishing enrollment processes) for an  
          entity that will ultimately facilitate the enrollment of  
          millions of Californians in health coverage.  

          Background on the Exchange
          The federal Act requires each state, by not later than  
          January 1, 2014, to establish an American Health Benefit  
          Exchange that:

           Facilitates the purchase of qualified health plans, and,
           Provides for the establishment of a Small Business Health  
            Options Program or "SHOP Exchange" that is designed to  
            assist small employers in facilitating the enrollment of  
            their employees in qualified health plans offered in the  
            small group market in the state.  

          The Secretary of the federal Department of Health and Human  
          Services is required (through regulation) to establish  
          criteria for the certification of health plans qualified to  
          participate in the Exchange.  Those requirements include  
          meeting marketing requirements; ensuring a sufficient  
          choice of providers; and requiring plans to consider all  
          enrollees in the individual market (except for  
          grandfathered plans), both in and outside the Exchange, to  
          be considered members of a single risk pool, and all  
          enrollees in the small group market (except for  
          grandfathered plans), both in and outside the Exchange to  
          be members of a single risk pool.  

          The Act also sets forth the requirements for an Exchange,  
          including that an Exchange must be a governmental agency or  
          nonprofit entity that is established by a state.  The  
          Exchange is also charged with several duties, including  
          screening and enrolling individuals in other public  
          programs, establishing a toll-free hotline and website,  




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          assigning a quality and price rating to each health plan,  
          granting exemptions from the federal requirement to have  
          health insurance, providing an online calculator to  
          determine the actual cost of coverage after federal tax  
          subsidies are considered, and awarding grants to  
          "navigators" to conduct public education and facilitate in  
          qualified health plans.  

          Enrollment in the Exchange is open to any "qualified  
          individual" who seeks to enroll in a qualified health plan  
          in the individual market offered through the Exchange and  
          who resides in the state that established the Exchange.   
          Individuals who are incarcerated (except for incarceration  
          pending the disposition of charges) are ineligible for the  
          Exchange, as are undocumented immigrants. 

          The Exchange is also open to a "qualified employer," which  
          is defined as a small employer that elects to make all  
          full-time employees of such an employer eligible for one or  
          more qualified health plans offered in the small group  
          market through an Exchange.


          Federal health care reform establishes, for qualified  small  
          employers , a tax credit for up to 50 percent of their  
          employee health care coverage expenses beginning in 2010.   
          In 2014, federal health care reform allows  individual  
          taxpayers  whose household income equals or exceeds 100  
          percent but does not exceed 400 percent, of the federal  
          poverty level (FPL) a refundable tax credit for a  
          percentage of the cost of premiums for coverage under a  
          qualified health plan.  The Act also requires reductions in  
          the maximum limits for out-of-pocket expenses for  
          individuals enrolled in qualified health plans whose  
          incomes are between 100 percent and 400 percent of FPL.   
          The Exchange is the only place where tax credits for health  
          coverage are available to individuals.  Beginning in 2014,  
          the tax credits for small employers are also only available  
          through the Exchange, and small employers can claim the  
          credit only for two consecutive taxable years.

          Because the tax credits are only being available through  
          the Exchange, the Exchange is projected to have a sizable  
          number of individuals, and a significant impact on the  
          health insurance marketplace.  A UC Berkeley estimate  
          following the enactment of federal health care reform  




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          estimates 8.4 million Californians will be eligible for the  
          Exchange, with 2.9 million (35 percent) of those  
          individuals eligible for the Exchange with a subsidy.  Of  
          the 2.9 million individuals eligible for a subsidy in the  
          Exchange, the UC Berkeley estimate is that 2,450,000 (84  
          percent) are individuals and 545,000 are employees of small  
          employers.

          Related bills
          AB 1602 (Perez) would establish the California Health  
          Benefit Exchange in state government to be governed by an  
          executive board appointed, in an unspecified manner, by the  
          Governor and the Legislature.  The bill would specify the  
          powers and duties of the board relative to determining  
          eligibility for enrollment in the Exchange and arranging  
          for coverage with participating health, dental, and vision  
          plans.  AB 1602 would create the California Health Trust  
          Fund as a continuously appropriated fund, and would enact  
          other related provisions.  AB 1602 is set for hearing in  
          the Assembly Health Committee on April 20, 2010.

          SB 890 (Alquist) would allow people to switch to a  
          different individual health plan or insurer on the  
          anniversary date of their current policy, on a guarantee  
          issue basis, to a policy of equal or lesser value.   
          Requires health plans and health insurers in the individual  
          market to offer standardized products (five preferred  
          provider organization [PPO] products and five health  
          maintenance organization [HMO] products), and prohibits  
          plans and insurers from offering other products.  Specifies  
          the cost-sharing requirements for each product in each  
          coverage choice category.  Requires health insurers to  
          cover medically necessary basic health care services.   
          Prohibits health insurers from having an annual or lifetime  
          benefit limit.  Requires health plans to change premium  
          rates for adults based on one-year changes in a person's  
          age, and establishes standard rating factors and limits on  
          premium variation.  Requires a minimum health plan medical  
          loss ratio of 85 percent for large group and 80 percent for  
          individual and small group. 

          Prior legislation
          AB1X 1 (Nunez) of 2007, among its many provisions, would  
          have established the California Cooperative Health  
          Insurance Purchasing Program (Cal-CHIPP) as a state  
          purchasing program, or health insurance purchasing pool,  




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          administered by MRMIB, to negotiate and contract with  
          carriers to offer health coverage to eligible persons.  AB  
          1X 1 would have established the duties, authority and  
          responsibility for MRMIB in the operation of Cal-CHIPP.   
          Cal-CHIPP would have been operational on January 1, 2009  
          and would have been required to provide health care  
          coverage beginning July 1, 2010.  Failed passage in Senate  
          Health.

          AB 8 (Nunez) of 2007 was similar to AB1X 1, including that  
          it would have established a purchasing pool.   Vetoed by  
          the Governor.  

          Arguments in support
          CALPIRG writes that creating a strong consumer-friendly  
          Exchange has the potential to leverage significant  
          improvements in almost every aspect of how consumers shop  
          for, purchase and receive coverage.  CALPIRG writes in  
          support that this bill makes key policy decisions that will  
          help to lower costs for consumers, such as creating a  
          single exchange for both small businesses and individuals,  
          and by offering incentives and rewards to encourage health  
          plans to adopt cost-saving quality-enhancing delivery  
          system reforms.  CALPIRG writes this bill will spur the  
          development of an innovative approach to care that can  
          truly bend the curve of rising health care costs.  The  
          Congress of California Seniors writes in support that the  
          Exchange established by this bill is a key piece of the  
          reformed health insurance system required by federal law,  
          and this bill would allow California to begin preparing for  
          these reforms in a timely fashion.

          Health Access California (HAC) writes that it strongly  
          supports this bill as the enactment of federal health  
          reform shifts the debate over health care back to the  
          states.  One of the first steps that must occur is to  
          create an exchange that will offer affordable coverage to  
          individuals and small businesses.  HAC states California  
          has a long experience with Exchanges as CalPERS operates an  
                                                                     exchange or purchasing pool to provide health benefits for  
          state and local government employees, as does MRMIB.  HAC  
          states MRMIB once operated an exchange for small  
          businesses, but it was privatized and later failed.  HAC  
          states the relative success of the publicly operated  
          exchanges, with their governing boards that meet in public  
          and that are subject to legislative oversight, along with  




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          the failure of the privatized small business exchange,  
          argue for a public governance structure like that proposed  
          in this measure.

          HAC states CalPERS has led the way nationally in purchasing  
          health insurance based on both cost and quality, and that  
          MRMIB has done an effective job of purchasing based on  
          cost, but because it has had a relatively small market  
          share, it has not had the capacity to drive quality  
          improvements.  HAC states an Exchange should build on this  
          experience to reduce the cost of coverage for individuals  
          and small businesses while driving an agenda of improving  
          quality and making prevention a key priority.  In addition,  
          HAC writes that the newly created Exchange should use its  
          market power to drive delivery system improvements similar  
          to changes for Medicare and Medi-Cal, and prevention should  
          be among the objectives of the Exchange.  HAC states it  
          looks forward to working with the author to strengthen this  
          language as this measure progresses.  

          HAC writes that, while the Exchange is a major market  
          player, it should not be housed with the regulator, and the  
          exchange is first and foremost a purchaser of coverage,  
          with the objective of getting the best deal in buying that  
          coverage.  HAC concludes that it is essential that the  
          Exchange be consumer friendly both for individual consumers  
          and for small businesses who will be the customers for the  
          exchange.  HAC concludes that, like others involved in the  
          policy process, it is continuing to refine and improve its  
          thinking on the Exchange as the discussion progresses, and  
          it looks forward to working with the author as well as  
          others in this effort.
          
          Arguments in opposition
          Anthem Blue Cross (ABC) writes in opposition that the  
          Exchange established by this bill is inconsistent with the  
          concept of consumer choice because it requires the Exchange  
          to determine the health benefits coverage for small  
          employers.  ABC argues having the Exchange determine the  
          health benefits coverage is duplicative of federal  
          requirements, will limit the choice of plans for those  
          purchasing coverage with a tax credit in the Exchange, and  
          having the Exchange perform this function adds an added  
          layer of expense because DMHC and CDI already will be  
          approving products consistent with the new federal Act.  





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          ABC also objects to allowing Medi-Cal County Organized  
          Health Systems (COHS) to provide coverage in the private  
          market through the Exchange.  ABC argues COHS are  
          government-run plans, and the idea of allowing the  
          government to sell coverage in the private market was  
          rejected during the federal legislative process.  ABC  
          argues the COHS would not meet federal requirements to  
          qualify as a qualifying plan in the Exchange.

          Concerns
          The California Association of Health Plans (CAHP) writes  
          that this bill in its current form includes a number of  
          duties for the Exchange beyond the mandatory and optional  
          powers outlined in federal health care reform, including  
          granting the Exchange the power to contract with plans and  
          providers, set benefit designs in the small group market,  
          and purchase coverage.  CAHP states that, while it is still  
          formulating its opinions on these aspects of the bill, it  
          believes it is important to note its concerns to the  
          committee as this bill moves forward.  The Association of  
          California Life and Health Insurance Companies (ACLHIC)  
          writes with similar concerns, arguing the bill goes beyond  
          federal law in giving the Exchange the authority to decide  
          which health insurers and health plans would be allowed to  
          participate.  ACLHIC also expresses concern that the bill  
          appears to give the board premium setting authority, which  
          ACLHIC argues exceeds the provisions of federal law.
          
          Health Net also has concerns with this measure as its  
          preliminary review of this bill found that there are  
          provisions relating to the creation of the Exchange that  
          are consistent with the duties of the exchange outlined in  
          the federal act; in some cases wording is identical, but in  
          others that is not the case.  Health Net states that there  
          are some provisions that do not follow the authority as set  
          forth in federal health care reform, and there are some  
          provisions found in the federal act that are not yet  
          reflected in the language of this bill.  Health Net  
          indicates it will work collaboratively with the Legislature  
          and our California regulators to implement federal health  
          care reform, including the creation of an Exchange.
          
                                     COMMENTS
           
          Federal law places a number of specific requirements on the  
          Exchange and on health plans that participate in the  




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          Exchange, but leaves several policy decisions up to states  
          for implementation.  Those policy choices include what type  
          of entity administers the Exchange, whether to combine the  
          individual and small employer SHOP Exchange into one  
          Exchange, whether to have a regional exchange with another  
          state or allow multiple exchanges within a state, whether  
          to allow large employers to participate in the Exchange,  
          how to provide ongoing funding for the Exchange, the scope  
          of benefits in the Exchange, and the number of products and  
          health plans offered through the Exchange.  Policy  
          questions for the Legislature to consider in establishing  
          an Exchange include the following:

          1.  What entity should be the Exchange?  Federal law  
            requires the Exchange to be a governmental agency or  
            nonprofit entity that is established by a state.  If a  
            state fails to establish an Exchange, the Secretary of  
            HHS must (either directly or through agreement with a  
            not-for-profit entity) establish and operate the Exchange  
            within the state, and the Secretary must take actions  
            necessary to implement these other requirements.  This  
            bill establishes the Exchange in the Agency, and requires  
            the Exchange be governed by an unspecified board with  
            four-year terms whose members are appointed by the  
            Governor and the Legislature. 

          2.  The Exchange as active purchaser, passive clearinghouse  
          or hybrid market   
               organizer?  This bill authorizes the Exchange to  
            negotiate and enter into contracts with carriers seeking  
            to offer coverage in the Exchange.  According to a  
            California HealthCare Foundation issue brief entitled,  
            "Building a National Insurance Exchange: Lessons from  
            California" released in July 2009, the basic concept of  
            an insurance exchange is not new, but there are several  
            variations on the idea:

            a.  Active purchaser.  The model for this approach is  
              large employers who negotiate and selectively contract  
              with insurers that offer a high-value product in  
              exchange for a large volume of enrollees.  Where this  
              exchange model has operated in the past, there has been  
              a market both within and outside the exchange seeking  
              to attract the same customers.  The Health Insurance  
              Plan of California (HIPC) and its successor  
              PacAdvantage are examples of this model. 




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            b.  Passive clearinghouse.  An exchange built on this  
              model is merely a "price taker" willing to accept all  
              health plans, a place where employers and individuals  
              can go to find a range of coverage offerings and  
              compare price, quality, and service levels.   
              Participating plans compete for exchange enrollees on  
              the basis of cost and quality.  The Federal Employees  
              Health Benefit Program is an approximate example of  
              this model.

            c.  Hybrid market organizer.  An entity built on this  
              model does not directly negotiate prices or selectively  
              contract; however, it may define standard benefit  
              packages, provide some degree of endorsement, and  
              otherwise indirectly encourage health plans to offer  
              high-value coverage.  The Massachusetts Connector is an  
              example.

              Among the findings of the issue brief are:  (a) that  
              any exchange that actively enters the market for health  
              insurance will have a very difficult time achieving its  
              objectives if it is not the exclusive source of  
              coverage for some populations, such as small employers  
              or individual purchasers; (b) if there is competition  
              for the same customers inside and outside the exchange,  
              the exchange will be unable to offer lower prices on a  
              sustained basis; and (c) without sufficient numbers of  
              health plans, the exchange cannot offer meaningful  
              choice or enhance the portability of coverage.
          
          3.  Should the state operate one exchange for both  
            qualified individuals and small employers?  Should the  
            state have more than one exchange within the state, or  
            form a regional exchange with another state?  Federal law  
            requires states to establish an Exchange that facilitates  
            the purchase of qualified health plans and provides for  
            the establishment of a SHOP.  Federal law allows states  
            to elect to provide only one Exchange for providing both  
            Exchange and SHOP Exchange services to both qualified  
            individuals and qualified small employers, but only if  
            the Exchange has adequate resources to assist such  
            individuals and employers.  

          This bill is silent on forming more than one Exchange in  
            the state and authorizing a regional Exchange.  This bill  




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            authorizes the Exchange to provide a single exchange for  
            providing services to both qualified individuals and  
            qualified small employers (SHOP), if the Exchange makes  
            all of the following determinations:

                  a)        Providing coverage through a single  
                    exchange will provide a significant benefit for  
                    the health coverage marketplace in the state;
                  b)        Providing coverage through a single  
                    exchange will be cost effective for both  
                    qualified individuals and qualified small  
                    employers; and, 
                  c)        The Exchange can make coverage available  
                    through a single exchange on a guarantee issue  
                    basis without undue risk of adverse selection.

          4.  How should the Exchange be funded on an ongoing basis?   
            Federal health care reform requires there be appropriated  
            an amount necessary to enable the Secretary to make  
            awards to states not later than one year after the date  
            of enactment of the federal Act.  States are required to  
            use the amounts awarded for activities (including  
            planning activities) related to establishing an Exchange.  
             The Secretary can renew a grant, but federal law  
            prohibits a grant from being awarded after January 1,  
            2015.  

          In establishing an Exchange, federal law requires states to  
            ensure that the Exchange is self-sustaining beginning on  
            January 1, 2015.  Federal law permits allowing the  
            Exchange to charge assessments or user fees to  
            participating health insurance issuers, or to otherwise  
            generate funding, to support its operations.  This bill  
            is silent on ongoing funding for the Exchange.  
          
          5.  Should the Exchange include large employers?  Beginning  
            in 2017, each State can allow health insurers offering  
            coverage in the large group market to offer such health  
            plans in the Exchange.  In determining whether to offer  
            health plans in the large group market through an  
            Exchange, states must take into account any excess  
            premium growth outside of the Exchange as compared to the  
            rate of such growth inside the 
            Exchange.  Plans are also not required to offer such  
            products in the Exchange.  This bill is silent on  
            including large employers in the Exchange after 2017.




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          6.  Health plan benefits beyond required federally required  
            "essential health benefits."  Federal law requires health  
            plans and health insurers, effective January 1, 2014, to  
            ensure health plans provide coverage for "essential  
            health benefits," as defined by the Secretary of HHS.   
            The statutory list of essential health benefits in the  
            federal Act is generally broader than state law  
            requirements (two exceptions are the requirement that  
            DMHC plans cover home health services and hospice care),  
            although the scope of essential health benefits will  
            depend upon the federal regulations.  

          Exchanges can require that a qualified health plan offer  
            benefits in addition to the federal essential health  
            benefits.  However, a state must assume the cost of doing  
            so by making payments to an individual eligible for the  
            premium tax credit and any cost-sharing reduction under  
            the Act to defray the cost to the individual of any  
            additional benefits which are not eligible for such  
            credit or reduction.  Following the regulatory  
            publication of what is and what is not included in the  
            federal definition of "essential health benefits," the  
            Legislature may need to determine whether to continue  
            existing benefit mandates that exceed federal minimums,  
            or determine how to fund the cost to the individual for  
            benefits that are not eligible for the federal credit or  
            cost-sharing reduction.
          
          7.  What health plans should be eligible to participate in  
            the Exchange?  This bill requires health plans in the  
            Exchange to be licensed and in good standing with their  
            regulator, and specifically includes local initiative  
            plans (LIs), a county organized health systems (COHS), or  
            a joint venture of local initiative plans and county  
            organized health systems, as entities eligible to provide  
            coverage in the Exchange.  LIs and COHS plans are  
            Medi-Cal plans in nearly all of the major population  
            counties.  Anthem Blue Cross objects to including COHS in  
            the Exchange, arguing that including government plans in  
            the Exchange was rejected during the federal legislative  
            process, and that COHS would not meet the federal  
            requirements to qualify as a qualifying health plan in  
            the Exchange.  The COHS dispute this interpretation, and  
            seek to be eligible to determine if they want to  
            participate in the Exchange.




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          The policy rationale for making LIs and COHS eligible to  
            participate in the Exchange is to offer a broader choice  
            of plans, and to ensure continuity of care for  
            individuals who lose Medi-Cal eligibility.  Some of the  
            individuals in the Exchange may be moving from Medi-Cal  
            coverage to Exchange coverage due to increases in income.  
             In 2014, Medi-Cal eligibility will be expanded up to 133  
            percent of the federal poverty level, and the Exchange  
            will offer subsidies to individuals with incomes between  
            100 and 400 percent of the federal poverty level.  As  
            individuals lose eligibility for Medi-Cal because of a  
            growth in income, having the COHS and LIs be part of the  
            Exchange will enable individuals to keep their current  
            coverage, and maintain their continuity of care and  
            patient-provider relationship.

                                    POSITIONS  


          Support:  CALPIRG 
                 Congress of California Seniors
                 Consumers Union
                 Health Access California
          
          Oppose:  Anthem Blue Cross


                                   -- END --