BILL ANALYSIS SB 900 Page 1 Date of Hearing: August 4, 2010 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 900 (Alquist) - As Amended: August 2, 2010 Policy Committee: HealthVote:13-6 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill establishes the California Health Benefits Exchange (Exchange) within the California Health and Human Services Agency (HHSA) to conform to requirements of federal health reform (PL-111-148). Federal law requires California to establish an operational state-based exchange by January 1, 2014 or to allow the federal government to provide the exchange functions. Specifically, this bill: 1)Requires HHSA to apply for and receive federal funding for establishing the Exchange. 2)Establishes a scope of work for the Exchange and requires the Exchange to establish a governing board, receive federal funding for establishing and administering the Exchange, present standard health benefit packages, contract with health plans and insurers (carriers), determine carrier eligibility, inform individuals about eligibility related to Medi-Cal and the Healthy Families Program, provide an electronic coverage cost calculator, and grant certification of exemption from the individual mandate to have health coverage. Authorizes the Exchange to pursue a variety of regulatory and administrative functions, including establishing self-funding mechanisms. 3)Establishes the California Health Benefits Exchange Fund (Fund), and authorizes unexpended or unencumbered funds to be spent without regard to fiscal year. Requires the governing board to establish a prudent reserve. Prohibits loans from the Fund to the state General Fund, state special funds, or county funds. FISCAL EFFECT SB 900 Page 2 1)This bill establishes the California Health Benefits Exchange Fund, a special fund subject to appropriation by the Legislature to be used to support the administrative workload of the Exchange and to facilitate the purchase of health coverage for several million Californians. This bill authorizes unexpended or unencumbered funds at the end of a fiscal year to be carried forward and requires any interest earned to be retained by the Fund. This bill requires the Fund to include a prudent reserve. 2)Annual costs in 2011 through 2014 of $1 million (100% federal) to $2 million (100% federal) to the California Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI), combined, to provide support in establishing the Exchange. 3)Federal funding to establish the Exchange will be available from 2011 until January 1, 2015, at which time the Exchange must be self-sustaining. The federal government recently announced the availability of an initial allocation of $1 million per state to help states begin to establish exchanges. Applications for state funding are due September 1, 2010. This bill provides the Exchange the authority to establish self-funding mechanisms when federal funding support ends. 4)A key function of the Exchange will be to administer federally funded premium subsidies for low-income individuals. According to estimates, by 2016, between three million and eight million individuals and employees of small firms will be purchasing coverage through the Exchange. About three million of these individuals will be eligible for coverage subsidies either because of income (family income of less than 400% of federal poverty level) or because they work for small firms benefiting from a related tax credit. The actual number of people accessing health coverage through the Exchange will depend on a number of factors, including access to subsidies and tax credits, the kind of benefits and prices offered in the Exchange, administrative savings generated by purchasing economies of scale, and other market factors. COMMENTS SB 900 Page 3 1)Rationale . This bill enacts a key feature of federal health reform by establishing the California Health Benefits Exchange. According to the author this bill will enable the purchase of several million health insurance policies for between three and eight million individuals. The Exchange will be an active purchaser of coverage and will contract with health plans to provide high quality, affordable care. Standardized coverage available in the Exchange will conform to federal requirements regarding benefit design and essential health benefits. The Exchange will be a major factor in reducing the number of uninsured in California. Currently, 25% of non-elderly adults statewide are uninsured. Recent amendments address scope of work for the Exchange, reporting requirements related to the functioning of the Exchange, and clarifications on governing board policies. 2)State-Based Health Insurance Exchanges . The federal health reform law made broad changes to the way health coverage is to be provided and paid for in California. The federal law created a new mechanism for purchasing coverage, called exchanges, which are state-based entities established to create a more organized and competitive market for health insurance. Competition and efficiency is expected to increase by offering a choice of health plans, establishing common rules regarding the offering and pricing of insurance, and providing information to help consumers better understand the options available to them. Initially, the California Exchange will serve primarily individuals purchasing insurance on their own and smaller employers. In 2017, California will have the option of opening the Exchange to larger employers. 3)Related Legislation . AB 1602 (J. Perez), pending in the Senate, enacts a series of changes related to health reform including establishing the California Health Benefits Exchange and allowing young adults to stay on their parents' health coverage until age 26. Analysis Prepared by : Mary Ader / APPR. / (916) 319-2081