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.








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           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
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            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
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          California Public Employees' Retirement System (Sponsor)

           Opposition 
           
          None on file
           
          Analysis Prepared by  :    Karon Green / P.E., R. & S.S. / (916) 
          319-3957