BILL ANALYSIS
SB 900
Page 1
Date of Hearing: June 29, 2010
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 900 (Alquist and Steinberg) - As Amended: June 23, 2010
SENATE VOTE : 21-12
SUBJECT : California Health Benefits Exchange.
SUMMARY : Establishes the California Health Benefits Exchange
(Exchange) within the California Health and Human Services
Agency (CHHSA), and states the purpose of this bill is to
implement the provisions of the federal Patient and Protection
and Affordable Care Act (PPACA) that require the establishment
of an American Health Benefit Exchange. Specifically, this
bill :
1)Establishes the Exchange in the CHHSA, and states the purpose
of this bill is to implement the provisions of the PPACA that
require the establishment of an American Health Benefit
Exchange. States legislative intent that that the Exchange
provide a consumer friendly process that facilitates the
seamless enrollment, provides an easily understandable
marketplace for purchasing health care coverage, and organizes
the health care coverage and cost choices to facilitate
competition based on price and quality.
2)Requires the Exchange to be governed by a five-member board,
as specified, with four-year terms. Requires board members to
have the responsibility and duty to meet the requirements of
this bill and PPACA, to serve the public interest of the
individuals and small businesses seeking health care coverage
through the Exchange, and to ensure the operational well-being
and fiscal solvency of the Exchange. Requires the board
chairperson to hire an executive director to organize,
administer, and manage the operations of the Exchange, and to
serve as secretary and ex officio nonvoting member of the
board. Prohibits board members from being employed by, a
consultant for, a member of the board of directors of,
affiliated with an agent of, or otherwise a representative of,
any carrier or other insurer, agent, or broker, or a health
care provider, health care facility, or health clinic.
Prohibits board members from receiving compensation for
service on the board, but permits the receipt of per diem and
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reimbursement for travel and other necessary expenses, as
specified. Requires the board to hold public meetings and be
subject to the Bagley-Keene Opening Meeting Act, except that
closed sessions may be held when considering matters related
to litigation, personnel, contracting, and the development of
rates.
3)Requires the Exchange to meet specified requirements of the
PPACA and, in a consumer-friendly manner, to:
a) Provide for the operation of a toll-free telephone
hotline to respond to requests for assistance;
b) Maintain a Web site through which enrollees and
prospective enrollees of qualified health plans can obtain
standardized comparative information;
c) Assign a rating to health plans offered through the
Exchange in accordance with the PPACA;
d) Utilize a standardized format for presenting health
benefits plan options in the Exchange, including the use of
the uniform outline of coverage established under the
PPACA;
e) Inform individuals of eligibility requirements for the
Medi-Cal and Healthy Families programs, or any applicable
state or local public health care coverage program and, if
eligible, enroll the individual in that program;
f) 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 PPACA; and,
g) Grant a certification, subject to the PPACA and any
implementing regulations, attesting that an individual is
exempt from the individual mandate or from the penalty
imposed because there is no affordable qualified health
plan available through the Exchange or the individual's
employer or because the individual is otherwise exempted.
4)Requires the Exchange, in addition to requirements of PPACA,
to:
a) Develop and maintain an electronic clearinghouse of all
products offered to individuals and small employers inside
and outside of the Exchange. Permits the board to require
carriers participating in the Exchange to make available
and regularly update an electronic directory of contracting
health care providers;
b) Negotiate and enter into contracts, including selective
carrier contracts, with carriers seeking to offer coverage
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in the Exchange;
c) Determine the participation requirements, standards, and
selection criteria for carriers and products offered
through the Exchange, as specified;
d) Provide a choice of products in each region of the
state, including a choice in each region of the state
between the five levels of coverage contained in PPACA;
e) Require carriers, as a condition of participation in the
Exchange, to fairly and affirmatively offer, market, and
sell all products made available in the Exchange to
individuals and small employers purchasing coverage outside
the Exchange;
f) Administer a separate Small Business Health Options
Program that is designed to assist small employers in
facilitating the enrollment of their employees in products
offered in the small group market through the Exchange;
g) Undertake activities necessary to market and publicize
the availability of coverage through the Exchange;
h) Select and set performance standards and compensation
for navigators selected pursuant to PPACA; and,
i) Employ necessary staff, including actuarial staff.
5)Permits the Exchange to:
a) Issue rules and regulations, as necessary, and until
January 1, 2014, issue emergency regulations;
b) Apply for and receive funds from private foundations;
c) Report to the Legislature, or contract with an
independent entity to report, on whether to exercise the
federal option to provide a single exchange for providing
services to both qualified individuals and qualified small
employers, as specified;
d) Enter into other contracts as are necessary or proper to
carry out the duties of the Exchange, including, but not
limited to, contracts for enrollment processing;
e) Determine the health benefits coverage for small
employers that the Exchange will contract to purchase from
participating carriers;
f) Appoint committees, as necessary, to provide technical
assistance in the operation of the Exchange;
g) 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; and,
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h) Consistent with procedures established by the PPACA,
establish procedures to allow agents or brokers to:
i) Enroll individuals in any qualified health plan in
the individual or small group market as soon as the plan
is offered through the Exchange; and,
ii) Assist individuals in applying for premium tax
credits and cost-sharing reductions for health plans sold
through the Exchange.
6)Prohibits the Exchange from being subject to licensure or
regulation by the California Department of Insurance (CDI) or
the Department of Managed Health Care (DMHC).
7)Requires carriers that contract with the Exchange to be in
good standing with their respective regulatory agencies.
8)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, as specified.
Prohibits the board shall from being required to provide an
appeal concerning a coverage determination if the subject of
the appeal is within the jurisdiction of (DMHC or CDI.
9)Prohibits this bill from being construed to compel an
individual to enroll in a qualified health plan or to
participate in the Exchange.
10) Requires the Exchange to receive federal funds for
purposes of establishing and administering the Exchange,
including funds made available by the PPACA.
11) Creates the Exchange Fund in the State Treasury as a
special fund consisting of revenue necessary for the purposes
of this division. Permits 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 may be
spent without regard to fiscal year. Requires the board to
establish a prudent reserve in the Exchange Fund. Prohibits
fund moneys from being loaned to, or borrowed by, any other
special fund or the General Fund, or a county general fund or
any other county fund.
EXISTING STATE LAW :
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1)Provides for the regulation of health plans by DMHC and
regulation health insurers by CDI.
2)Establishes the Medi-Cal Program, administered by the
Department of Health Care Services, to provide comprehensive
health benefits to low-income pregnant women, children, and
people who are aged, blind, and disabled.
3)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.
EXISTING FEDERAL LAW :
1)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.
2)Permits Effective January 1, 2014, the individual taxpayers
with household income between 100% and 400% 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. Requires reductions in the maximum limits for
out-of-pocket expenses for individuals enrolled in qualified
health plans whose incomes are between 100% and 400% of FPL.
3)Permits "qualified small employers" to elect, beginning in
2010, a tax credit worth up to 35% of a small business' health
insurance premium costs in 2010. On January 1, 2014, this
rate increases to 50% (35% for tax-exempt employers).
Requires a qualifying employer to cover at least 50% of the
cost of health care coverage for some of its workers based on
the single rate. Requires a qualifying employer to have less
than the equivalent of 25 full-time workers (for example, an
employer with fewer than 50 half-time workers may be
eligible). Requires a qualifying employer to 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
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$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.
FISCAL EFFECT : According to the Senate Appropriations
Committee analysis of a previous version of this bill:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Initial start-up costs likely in the millions of
dollars General/*
annually through January 1, 2014
Federal
Ongoing Exchange administration likely to start January 1, 2014,
in the Special**
tens of millions of dollars annually
CDI oversight, filing review approximately $160 ongoing
onceSpecial***
The Exchange is operational
*Unspecified amount of federal funds available likely in 2011;
General Fund pressure if total
expenses not met by federal funds grant
**Exchange Fund-fully supported by an assessment on consumer
premiums
***Insurance Fund
COMMENTS :
1)PURPOSE OF THIS BILL . 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 the Exchange as a government entity within CHHSA. 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
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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.
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 administered by MRMIB 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.
2)STATE INSURANCE EXCHANGES . On March 23, 2010, President Obama
signed the PPACA (Public Law 111-148), as amended by the
Health Care and Education Reconciliation Act of 2010 (Public
Law 111-152). Among other provisions, the new law makes
statutory changes affecting the regulation of and payment for
certain types of private health insurance.
Each state is required to establish an American Health Benefit
Exchange and a Small Business Health Options Program Exchange
by 2014 for individuals and small employers with 50 to 100
employees; after 2017, states have the option of opening the
small business exchange to employers with more than 100
employees. States can opt to provide a single exchange for
individuals and small employers. Groups of states can form
regional exchanges or states can form more than one in-state
exchange, but the exchanges must serve a geographically
distinct area. While the individual and small-group markets
will not be replaced by the exchanges, the same market rules
will apply inside and outside the exchanges. Premium
subsidies can be used only for plans purchased through the
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exchanges. If the federal Department of Health and Human
Services (DHHS) determines in 2013 that a state will not have
an exchange operational by 2014, DHHS is required to establish
and operate an exchange in the state. In 2017, states will
have the opportunity to opt out of the federal requirements to
establish insurance exchanges through a five-year waiver; if
they are able to demonstrate that they can offer all residents
coverage at least as comprehensive and affordable as that
required by this bill.
Federal responsibilities. DHHS' responsibilities with respect
to the exchanges include: establishing certification criteria
for "qualified health plans" that will be sold through the
exchanges; requiring such plans to provide the essential
benefits package; requiring that the licensed insurance
carriers issuing plans offer at least one qualified health
plan at the silver and gold levels and meet marketing
requirements; ensuring a sufficient choice of providers; and,
ensuring that essential community providers are included in
networks, are accredited on quality, implement a quality
improvement strategy, use a uniform enrollment form, present
plan information in a standard format, and provide data on
quality measures. In addition, the DHHS Secretary will
develop a rating system for qualified health plans and a model
template for an exchange's Internet portal, and determine an
initial and open enrollment period as well as special
enrollment periods for people under varying circumstances.
The DHHS Secretary is also required to establish procedures
under which states may allow agents or brokers to enroll
individuals in qualified health plans and assist them in
applying for subsidies. Such procedures may include the
establishment of rate schedules for broker commissions paid by
health plans offered through the exchange.
State responsibilities. The state exchanges will be required
to certify qualified health plans, operate a toll-free hotline
and Web site, rate qualified health plans, present plan
options in a standard format, inform individuals of the
eligibility requirements for Medicaid and the Children's
Health Insurance Program, provide an electronic calculator to
calculate plan costs, and grant certifications of exemption
from the individual requirement to have health insurance.
Exchanges will be required to be self-sustaining by 2015 and
will be allowed to charge assessments or user fees to
participating health insurance issuers or otherwise generate
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funding to support their operations. The exchanges also will
award grants to "navigators" who will educate the public about
qualified health plans, distribute information on enrollment
and subsidies, facilitate enrollment, and provide referrals on
grievances. Navigators may include trade and professional
organizations, farming and commercial fishing organizations,
community and consumer-focused nonprofit groups, chambers of
commerce, unions, or licensed insurance agents or brokers.
Qualified employers purchasing through the exchange.
Employers that are qualified to offer coverage to their
employees through the Exchange may provide premium support for
a level of coverage (bronze, silver, gold, platinum) and
employees may choose a plan within the designated level.
3)RELATED LEGISLATION . AB 1602 (Perez) enacts the California
PPACA to implement reforms under the federal PPACA in
California. As such, prohibits group or individual health
care service plans or health insurers (collectively carriers)
from establishing lifetime or unreasonable annual limits on
the dollar value of benefits. Requires carriers to provide
minimum coverage for specified preventive services. Prohibits
carriers from imposing preexisting condition exclusions for
enrollees or insureds under 19 years of age. Prohibits the
limiting age for dependent health care coverage to be less
than 26 years of age. Creates the Exchange for the purchase
of health care coverage. AB 1602 is set to be heard in the
Senate Health Committee on June 30, 2010.
4)PRIOR LEGISLATION . AB 1 X1 (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,
administered by MRMIB, to negotiate and contract with carriers
to offer health coverage to eligible persons. AB 1 X1 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. AB 1 X1 failed passage in the Senate Health Committee.
AB 8 (Nunez) of 2007 was similar to AB1X 1, including that it
would have established a purchasing pool. AB 8 was vetoed by
Governor Schwarzenegger.
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5)SUPPORT . CALPIRG, writing in response to a previous version
of this bill, states 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 to a previous version of this bill 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. Consumers Union states, in
response to a previous version of this bill, that this bill
would set California on the path to creating a thoughtful
model for the Exchange, embodying standards of transparency,
good governance, and negotiation for the best deals on high
quality, affordable coverage on behalf of the people of
California. The Local Health Plans of California, also in
response to a previous version of this bill, writes that it is
imperative to enact legislation this year to authorize the
creation of the Exchange as delaying will jeopardize
California's ability to receive federal grant dollars
available under the PPACA.
6)SUPPORT IF AMENDED . Health Access California seeks amendments
to: a) clarify that part of the purpose and mission of the
Exchange is to promote prevention and wellness; b) make
changes to the description of two members of the Board to
ensure that consumer advocates can serve on the Board; c) add
a public health expert, including an expert in population or
community health, to the board membership; d) expand the
prohibition against board members being employed or affiliated
with a carrier or other insurer, agent, or broker, or a health
care provider, health care facility, or health clinic so that
the ban is in effect for two years before and two years after
appointment to the board; e) require people enrolled in
coverage through the Exchange to be regarded as "members" to
whom the Board and the staff owe a duty; f) require people
enrolled in coverage through the Exchange to pay their share
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of premiums to the Board rather than to the carrier; g)
require the Exchange to provide services and materials in
languages other than English; h) clarify the Legislature's
intent to maximize enrollment and retention of coverage
through the Exchange; and, i) require minimum standards for
consumer-friendly service through the Exchange.
The Western Center on Law and Poverty seeks amendments to: a)
require the Exchange to design a process that prevents
Californians from experiencing any gap in coverage and define
the other programs with which the Exchange will coordinate
seamless coverage, listing the California-specific programs by
name and the "residual county indigent health programs;" b)
include more specific language to ensure Board members have
severed all relationships with the health care industry prior
to being considered for the Board and mandatory waiting
periods for former Board members to become an employee, Board
member or agent of any kind for an insurer, agent, broker,
health care provider, or other industry organization;
c) require the establishment of a stakeholder committee to
direct the Board on the design and protocol for the call
center, online application and screening and enrollment
functions of the Exchange in order to guarantee a "no wrong
door" architecture for the new system; d) require standard
notification requirements for the grievance and appeals
process; e) educate health consumers of their right to a
certificate and facilitate the process of applying for a
certificate of exemption from the requirement to maintain
minimum essential coverage; f) require the Exchange to ensure
that all activities and functions of the exchange are pursued
in a linguistically and culturally appropriate manner; g)
clarify that nothing in this bill will replace or alter the
existing eligibility and enrollment system for Medi-Cal; and,
h) require the Exchange to manage the collection, distribution
and maintenance of personal information in a way that
maximizes the confidentiality of this information.
7)OPPOSE UNLESS AMENDED . The American Federation of State,
County, and Municipal Employees, AFL-CIO suggests language to
protect the inherently governmental functions of the Exchange,
performed by a public agency and public staff, and to ensure
that the Exchange is an active purchaser and has sufficient
power to drive positive market change.
8)CONCERNS . Anthem Blue Cross (Anthem) states that this bill
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sets up an Exchange framework that is inconsistent with the
concept of consumer choice by requiring the exchange to
"determine health benefits." Furthermore, Anthem states that
the PPACA already establishes benefit tiers and "essential
health benefits" for the individual and small employer
markets, whether coverage is purchased inside or outside the
Exchange, and that having the Exchange "determine and approve
benefit designs" is duplicative of federal requirements and
will only serve to further limit consumer choice. Anthem
writes that this bill makes the Exchange an "active
purchaser," thus allowing it to set prices. Anthem states
that the PPACA already establishes a rate review process for
premiums charged in the individual and small group markets,
which will be executed by the CDI and DMHC. Anthem states
that if both the regulators and the Exchange are responsible
for approving rates without a consistent process, the rates
for the same product could be different inside and outside of
the Exchange, violating the federal requirement that the
entire market be treated as a single risk pool. Finally,
Anthem asserts that setting rates in the Exchange would likely
politicize the rate-setting process, which has proven to lead
to insurer insolvency and insurers withdrawing from the
market, reducing choices for consumers. Anthem suggests
amending this bill to remove these provisions and instead
clarifying that regulation of health plan and insurance
products sold through the exchange are the sole purview of the
CDI and DMHC.
The Association of California Life and Health Insurance
Companies (ACLHIC) writes that the Exchange appears to have
the power to negotiate rates for the products sold within the
Exchange, and at the same time, requires participating
carriers to offer the same products outside the Exchange.
ACLHIC is concerned that these negotiated rates may not be
actuarially sound and place participating carriers at a market
disadvantage with nonparticipating carriers. ACLHIC states
that participating carriers should compete on quality and
price. ACLHIC also writes that there is already extensive
criteria for carrier certification to participate in an
Exchange included in PPACA, and will be further expanded when
federal rules come forward, and that additional and
potentially conflicting state standards may serve to limit the
choice of plan in the Exchange. ACLHIC argues that, given the
robust certification criteria that will already apply, any
carrier that can meet those criteria should be eligible to
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participate in the Exchange.
The California Hospital Association (CHA) is concerned over
the provision in this bill that specifically expand the role
of County Organized Health Systems beyond the original scope
and purpose. CHA states that without a compelling reason to
do so, it could be premature to provide for
government-operated health plans to offer commercial coverage
in the private health insurance market.
9)ADDITIONAL COMMENTS . The New America Foundation, Pacific
Business Group on Health, Small Business California, and Small
Business Majority write that while they support the state
moving ahead with the implementation of federal reform, they
propose amending this bill to establish a task force that
would evaluate the pros and cons of different structures
before making a recommendation that would be acted upon in the
next legislative session. If, however, the leadership in the
Legislature and the Administration believe that the decision
about Exchange governance must be made this year, they
recommend amending this bill to replace the proposed model
with a quasi-governmental structure.
The County Welfare Directors Association of California,
Service Employees International Union, LIUNA Local 777 and
Local 792, and the American Federation of State, County, and
Municipal Employees, AFL-CIO write that with respect to
eligibility and enrollment, they urge the adoption of a "no
wrong door" approach that allows enrollment via multiple paths
and provides two-way coordination between the Exchange, the
county human services departments, and the Healthy Families
Program, depending which path the individual enters the system
through.
REGISTERED SUPPORT / OPPOSITION :
Support (prior version)
California Chiropractic Association
CALPIRG
Children Now
Children's Defense Fund - California
Congress of California Seniors
Consumers Union
International Brotherhood of Electrical Workers - Local 332
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Local Health Plans of California
PICO California
Planned Parenthood Advocacy Project Los Angeles County
Planned Parenthood Affiliates of California
The Children's Campaign
Unitarian Universalist Legislative Ministry of California
United Ways of California
Opposition
None on file.
Analysis Prepared by : Melanie Moreno / HEALTH / (916)
319-2097