BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair AB 1526 (Monning) - California Major Risk Medical Insurance Program. Amended: June 20, 2012 Policy Vote: Health 8-0 Urgency: No Mandate: No Hearing Date: August 16, 2012 Consultant: Brendan McCarthy SUSPENSE FILE. Bill Summary: AB 1526 authorizes the Managed Risk Medical Insurance Board to eliminate the annual and lifetime benefit limits in the state's Major Risk Medical Insurance Program, without requiring subscriber premium contributions to offset the cost increase. The bill also simplifies the process for enrolling in the program. Fiscal Impact: One-time costs of about $16 million (Proposition 99 funds) in 2013 due to elimination of annual and lifetime benefit caps. On average over the last year, the program has seen about 150 new enrollees per month. Assuming that the changes to the enrollment process in the bill speed the enrollment process by one month, costs would be about $100,000 (Proposition 99 funds) in 2013. Minor costs to change program eligibility and cost sharing rules (Proposition 99 funds). Background: Under current law, the state operates a high-risk insurance pool for people who cannot afford or have been rejected from private health coverage. Typically, these are people who have pre-existing medical conditions. The Major Risk Medical Insurance Program provides subsidized health coverage to people who have been denied private coverage. Under the program, participants are required to pay premiums between 125 percent and 137.5 percent of the standard average individual rate they would pay for comparable coverage. In addition, the program has annual benefit limits of $75,000 and lifetime benefit limits of AB 1526 (Monning) Page 1 $750,000. Currently, subscriber premiums cover 78 percent of total program costs. The state share of the program's cost, about $32 million per year, is funded from Proposition 99 tobacco tax revenues. In order to control program costs, the Board has instituted an enrollment cap of 8,000 individuals. Currently there are about 6,000 enrollees. Under the federal Patient Protection and Affordable Care Act (Affordable Care Act) the state is also operating a federally subsidized Pre-Existing Condition Insurance Program. This new program is similar to the existing Major Risk Medical Insurance Program, except that the new program has no annual cap on benefits and lower subscriber premiums, generally making the new program more attractive to subscribers. However, the new program requires applicants to have been without coverage for six months, a requirement not in the existing program and a provision that makes transitioning from the old program to the new program difficult because of a required gap in coverage. Therefore, the state continues to operate the existing program, but with declining enrollment as new applicants often elect to enroll in the Pre-Existing Condition Insurance Program. Federal law requires the state to maintain the same level of effort that was in place prior to the enactment of the Affordable Care Act, which for California is about $32 million per year. Proposed Law: AB 1526 authorizes the Managed Risk Medical Insurance Board to eliminate the annual and lifetime benefit limits in the state's Major Risk Medical Insurance Program, without requiring subscriber premium contributions to offset the cost increase. The bill also simplifies the application process, by allowing applicants to demonstrate eligibility by providing information from a health care provider of the existence of a pre-existing condition. (Rather than having to demonstrate that the applicant has been rejected from private coverage.) The bill authorizes the Board to adopt or update existing regulations to implement the bill as emergency regulations. AB 1526 (Monning) Page 2 Staff Comments: The bill's provisions will increase state expenditures for the Major Risk Medical Insurance Program compared to projected expenditures under current law. However, because of declining enrollment in the program, the state must increase per member expenditures if it is going to meet the federal maintenance of effort requirement. (If the state does not meet this requirement, it could risk federal funding for the Pre-Existing Condition Program.) After 2014, the Affordable Care Act requires health plans and insurers in the individual and small group market to provide "guaranteed issue" of policies, without regard to health status or pre-existing conditions, if an applicant pays the premiums. In addition, the Affordable Care Act expands Medi-Cal eligibility and provides subsidies for health coverage to low income individuals. Due to these changes, it is unlikely that there will be demand for either the Major Risk Medical Insurance Program or the Pre-Existing Condition Program after January 1, 2014.