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 








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          $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.









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          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.