BILL ANALYSIS Ó AB 2142 Page 1 Date of Hearing: April 26, 2012 ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL SECURITY Warren T. Furutani, Chair AB 2142 (Furutani) - As Amended: April 23, 2012 SUBJECT : Public employees' health benefits: premiums. SUMMARY : Authorizes the California Public Employees' Retirement System (CalPERS) to implement risk adjustment procedures that adjust and redistribute payments across its health plans based on rules and regulations established by the CalPERS Board of Administration (Board). The Board would also be authorized to adjust premiums as part of health promotion and disease management programs. EXISTING LAW : 1)Authorizes the CalPERS Board to administer the Public Employees' Medical and Hospital Care Act (PEMHCA), which provides health benefits for the State of California and for more than 1,100 local and governmental agency and school employers. The Board annually determines health plan availability, covered benefits, health premiums, and out-of-pocket payments for over 1.3 million participants at an annual cost of nearly $7 billion. 2)Authorizes the Board to contract with health plan providers, to contract with providers based on performance, and to credit premiums to an employer for expenditures that are likely to improve the health status of employees and annuitants. 3)Authorizes the Board to contract for, or approve, health benefit plans that charge a contracting agency and its employees and annuitants rates based on regional variations in the costs of health care services, and to contract for, or approve, health benefit plans exclusively for the employees and annuitants of contracting agencies. 4)Specifies the premiums charged for health plan participants must also reasonably reflect the cost of the benefits provided. FISCAL EFFECT : Unknown. AB 2142 Page 2 COMMENTS : CalPERS administers three Health Maintenance Organization (HMO) plans: Blue Shield of California Net Value; Blue Shield Access+; and Kaiser Permanente. It also manages three self-funded Preferred Provider Organization (PPO) plans, which are PERS Select, PERS Choice, and PERSCare. In addition, CalPERS administers three plans for association members, which are the California Correctional Peace Officers Association, the California Association of Highway Patrolmen, and the Peace Officers Research Association of California. The following information was provided to the Committee by CalPERS: The risk-adjustment process allows for the adjustment of health plan payments, health care provider payments and individual or group premiums, so that they reflect the health status of members. It typically involves two steps: 1) Risk assessment - measuring the risk (represented by predicted overall claim dollars) of each person in a group relative to the average risk. 2) Premium/payment adjustment - modifying of premiums/payments to health plans to reflect differences in risk. Risk adjustment encourages CalPERS health plan providers to compete on the basis of medical and administrative efficiency and quality of care rather than on their ability to select risk, equitably compensates providers for the participant health risks they assume, and maintains participant choice from among multiple health plans based on premiums that reflect plan design differences and relative efficiencies, rather than participants' health status. The federal Affordable Care Act (ACA) authorized the establishment of risk adjustment programs as part of the newly created statewide health insurance exchanges to transfer funds from health plans enrolling the lowest-risk individuals to health plans enrolling the highest-risk individuals in order to reduce or eliminate premium differences among health plans. The federal Department of Health and Human Services (HHS) is developing a methodology for the risk-adjustment program and will adopt these changes through regulations. Although CalPERS AB 2142 Page 3 is not subject to this requirement or participation in a statewide insurance exchange, it is seeking the authority to adopt methodologies through regulations similar to those developed by HHS for risk adjustment. Wellness and disease management incentives improve participants' health outcomes by increasing participation in wellness programs to prevent disease, and in disease management programs to slow or halt disease progression. While existing law provides authority for the Board to implement cost containment and cost reduction incentive programs, AB 2142 would give the Board broad authority to develop wellness and risk adjustment programs that include the adjustment of premiums, including the provision of incentives for disease management and tobacco cessation. These changes may be incorporated into the Board's next health benefits plan procurements for 2014. Wellness promotion and prevention initiatives are also included as part of the ACA as a means to constrain the continuing growth trend of medical-treatment spending and costs. According to the Centers for Disease Control and Prevention, chronic diseases such as asthma, cancer, diabetes and heart disease account for more than 75 cents of every dollar spent on health care in the United States. Wellness promotion and disease management may help prevent more expensive modes of treatment for these and other chronic diseases, which might have been prevented or better managed at the outset. According to CalPERS, "Authorizing the Board to adopt these changes will allow CalPERS to improve participant health outcomes, encourage health plan competition, maintain plan choices, promote efficiency and quality amongst health plans, and lower health care costs. Without these changes, CalPERS will be limited in its ability to develop more effective health benefit programs and reduce participant, State and contracting agency benefit costs." REGISTERED SUPPORT / OPPOSITION : Support AB 2142 Page 4 California Public Employees' Retirement System (Sponsor) Opposition None on file Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916) 319-3957