BILL ANALYSIS Ó SENATE HEALTH COMMITTEE ANALYSIS Senator Ed Hernandez, O.D., Chair BILL NO: SB 703 S AUTHOR: Hernandez B AMENDED: March 30, 2011 HEARING DATE: April 6, 2011 7 CONSULTANT: 0 Bain 3 SUBJECT Health care coverage: Basic Health Program SUMMARY This bill implements an option in federal health care reform to establish a Basic Health Program (BHP) to provide health plan coverage to individuals under age 65 with family incomes between 133 percent and 200 percent of the federal poverty level (FPL), and legal immigrants with family incomes at or below 133 percent of the FPL who are not eligible for Medicaid, rather than providing these two groups of individuals with federal premium tax credits and cost-sharing subsidies through the California Health Benefits Exchange. The BHP would be administered by the Managed Risk Medical Insurance Board (MRMIB). CHANGES TO EXISTING LAW Existing federal law: Requires, under the federal Patient Protection and Affordable Care Act (PPACA), (Public Law 111-148), as amended by the Health Care Education and Reconciliation Act of 2010 (Public Law 111-152), each state, by January 1, 2014, to establish an American Health Benefit Exchange Continued--- STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 2 (Exchange) that makes qualified health plans available to qualified individuals and qualified employers. If a state does not establish an Exchange, the federal government administers the Exchange. Federal law establishes requirements for the Exchange, for health plans participating in the Exchange, and defines who is eligible to receive coverage in the Exchange. Effective January 1, 2014, PPACA will allow eligible individual taxpayers whose household income equals or exceeds 100 percent, but does not exceed 400 percent of the federal poverty level (FPL), an advanceable and refundable tax credit for a percentage of the cost of premiums for coverage under a qualified health plan offered in the Exchange. PPACA also requires a reduction in cost-sharing for individuals with incomes below 250 percent of the FPL, and a lower maximum limit on out-of-pocket expenses for individuals whose incomes are between 100 percent and 400 percent of the FPL. Legal immigrants with household incomes less than 100 percent of the FPL who are ineligible for Medicaid because of their immigration status are also eligible for the premium tax credit and the cost-sharing reductions. Requires health plans sold to individuals and small employers, and products sold in the Exchange and BHP, to provide the federally required "essential health benefits," effective January 1, 2014. Requires the federal Secretary of the Department of Health and Human Services (DHHS) to establish a BHP under which a state is authorized to enter into contracts to offer one or more standard health plans providing at least the essential health benefits to eligible individuals, in lieu of offering such individuals coverage through an Exchange. Defines an individual eligible ("eligible individuals") to enroll in the BHP as an individual under age 65 at the beginning of the plan year who is not eligible for minimum essential coverage, or who is eligible for an employer-sponsored plan that is not affordable and who meets either of the following requirements: § Has household income that exceeds 133 percent but does not exceed 200 percent of the federal poverty STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 3 level (FPL); or, § Is an immigrant lawfully present in the United States whose income is not greater than 133 percent of the FPL but who is ineligible for federal Medicaid because of his or her immigration status. Prohibits, in a state that has a BHP, an eligible individual from being eligible for enrollment in a qualified health plan offered through the Exchange. Date Nov 24 2008 18:12 Apr Requires the federal DHHS Secretary, for a state that meets the requirements of a BHP, to transfer to the state in each fiscal year the amount the Secretary determines is equal to 95 percent of the premium tax credits and the cost-sharing reductions that would have been provided to eligible individuals in the state if such eligible individuals were allowed to enroll in qualified health plans through the Exchange. Existing state law: Establishes MRMIB, which administers the Healthy Families Program (HFP), the Major Risk Medical Insurance Program, and the Access for Infants and Mothers Program. MRMIB is a seven-member board in the Health and Human Services Agency (Agency) with three gubernatorial appointments, two legislative appointments and two ex officio non-voting members. MRMIB has broad authority to administer these three programs, including the authority to contract with health plans. Establishes the California Health Benefits Exchange (Exchange) in state government, and specifies the duties and authority of the Exchange. Requires the Exchange be governed by a board that includes the Secretary of the Agency and four members with specified expertise who are appointed by the Governor and the Legislature. Requires the Exchange to determine the minimum requirements health plans must meet for participation in the Exchange and the standards and criteria for selecting health plans to be offered in the Exchange. Requires the Exchange to provide, in each region of the state, a choice of qualified health plans, at each of the five levels of coverage contained in federal law (a platinum, gold, silver, bronze and catastrophic-level benefit plan). STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 4 This bill: Establishes the BHP, requires it be administered by MRMIB, and requires MRMIB to enter into a contract with the federal Secretary of the Department of Health and Human Services to implement a BHP to provide coverage to eligible individuals. Requires coverage in BHP to begin January 1, 2014. Requires MRMIB to administer the BHP in conjunction with the HFP, and to provide an eligibility and enrollment process that allows individuals to enroll in the BHP at the same time an individual applies for HFP enrollment. Authorizes MRMIB, consistent with the requirements of the federal BHP statute, to take various actions in implementing BHP, including the following: § Determine eligibility criteria for BHP, the participation requirements of eligible individuals applying for coverage in the BHP and the participation requirements of participating health plans. § Determine when the coverage of eligible individuals begins and the extent and scope of coverage. § Determine, through negotiation with health plans, premium and cost-sharing amounts. § Collect premiums. § Provide or make available subsidized coverage through participating health plans. § Provide for the processing of applications and the enrollment of eligible individuals. § Determine and approve the benefit designs and co-payments required by health plans participating in the BHP. § Enter into contracts. § Employ necessary staff. § Authorize expenditures from the Basic Health Program Trust Fund (Fund) to pay program expenses that exceed eligible individual premium contributions and to administer the BHP, as necessary. § Maintain enrollment and expenditures to ensure that expenditures do not exceed amounts available in the Fund, and, if sufficient STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 5 funds are not available to cover the estimated cost of program expenditures, MRMIB is required to institute appropriate measures to reduce costs. § Issue rules and regulations, as necessary, including emergency regulations until January 1, 2016. § Make application assistance payments to individuals who have successfully completed the requirements of a Certified Application Assistant in the HFP and who successfully enroll eligible individuals in BHP coverage. § Exercise all powers reasonably necessary to carry out the powers and responsibilities expressly granted or imposed by this bill and the BHP provision of federal law. Authorizes MRMIB to amend existing HFP contracts to allow the parents of children enrolled in HFP to enroll in the same plan as their child or children through the BHP. Authorizes MRMIB to require, as a condition of participation in BHP, health plans to participate in HFP. Requires eligibility for coverage, benefits, premiums, and cost-sharing in, the BHP to meet the requirements of federal BHP law. Permits MRMIB to determine the benefits, if any, to offer BHP participants that are in addition to the essential health benefits package required by federal law. Requires MRMIB to notify eligible individuals of the availability of BHP coverage, and requires written enrollment information and telephone services to the meet language requirements of the Dymally-Alatorre Bilingual Services Act. Requires MRMIB to use appropriate and efficient means to notify eligible individuals of the availability of BHP health coverage, and to conduct a community outreach and education campaign. Requires a participating health plan that contracts with the BHP, and is regulated by the Insurance Commissioner or the Department of Managed Health Care, to be licensed and in good standing with its respective licensing agency. Requires MRMIB to contract with a broad range of health STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 6 plans in an area, if available, to ensure that subscribers have a choice of health plans from among a reasonable number and different types of competing health plans. Requires MRMIB to designate a community provider plan that is the participating health plan that has the highest percentage of traditional and public and private safety-net providers in its network, and requires subscribers selecting such a health plan to be given a premium discount in an amount determined by MRMIB. Establishes requirements for disenrollment for non-payment of premiums, and authorizes BHP to place a lien on compensation or benefits, recovered or recoverable by a subscriber or applicant, or from any party or parties responsible for the compensation or benefits for which benefits have been provided under a plan contract or policy issued under this bill. Requires MRMIB to establish and use a competitive process to select participating health plans and any other contractors under this bill, but exempts those contracts from the provisions of the Public Contract Code and from the review or approval of the Department of General Services. Prohibits health care providers from "balance billing" BHP enrollees for covered services by prohibiting a health care provider that is provided documentation of an individual's enrollment in BHP from seeking reimbursement or attempting to obtain payment for any covered services provided to that individual other than from the individual's participating health plan, except for any required cost-sharing. Requires, to the extent permitted by federal law, an eligible individual enrolled in the BHP to continue to be eligible for BHP for a period of 12 months from the month eligibility is established. Requires MRMIB to make use of a simple and easy to understand mail-in and internet application process, provide for operation of a toll-free telephone hotline, maintain an internet web site that allows individuals to learn the cost-sharing requirements of their health plan, and to establish a standard format for presenting health plan options. STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 7 Establishes the Fund, requires it be continuously appropriated, permits money in Fund that is unexpended at the end of a fiscal year to be carried forward to the next fiscal year, prohibits moneys deposited in the Fund from being loaned to or borrowed by any other fund, requires MRMIB to maintain a prudent reserve in the Fund, requires all interest to be retained in the Fund, and permits a General Fund (GF) loan for reasonable start-up and initial expenses, subject to Department of Finance approval and notification to the Legislature. Prohibits the use of GF for any purpose in implementing this bill, except for the GF start-up loan. Requires MRMIB to ensure that the establishment, operation, and administrative functions of the BHP do not exceed the combination of federal funds, private donations, premiums paid by eligible individuals, and other non-GF moneys available for this purpose. Requires MRMIB, in the event that it reasonably expects that the cost of BHP to exceed the available funds, to allow coverage for eligible individuals in BHP to continue until the annual redetermination of each eligible individual, after which time MRMIB is required to immediately transfer the eligible individual to coverage in the Exchange. Requires MRMIB, to the extent allowed by federal law, to contract with the federal government to allow federal funds made available to BHP to be used for the costs of MRMIB in implementing and administering this bill. FISCAL IMPACT This bill has not been analyzed by a fiscal committee. BACKGROUND AND DISCUSSION According to the author, electing the federal option to establish a BHP may provide low-income Californians enrolled in the BHP with less expensive health plan premiums and cost-sharing and richer benefits than are STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 8 provided in the Exchange. In addition, the author states, the BHP presents an opportunity to provide BHP participants with a product with a higher medical loss ratio than in the Exchange, which allows consumers to get more value out of their premium dollar. Because federal BHP financing is based on the amount spent on premium tax credit and cost-sharing subsidies for commercial Exchange products, the BHP also provides an opportunity to increase funding to health plans and rates paid to providers at amounts that, while lower than commercial rates, would exceed rates paid to health plans and health care providers through Medi-Cal. The author continues that establishing a BHP could also reduce state GF Medi-Cal costs by making it more likely that individuals who qualify for share-of-cost Medi-Cal, because they incur medical costs significant enough to enable them to "spend down" to Medi-Cal eligibility, will shift to the federally-funded BHP. Finally, establishing a BHP administered by MRMIB will enable parents of children enrolled in HFP with incomes between 133 and 200 percent of the FPL to enroll in the same health plan as their children. The author states that a California HealthCare Foundation-funded actuarial analysis of the BHP option will be provided in May 2011 to determine if this federal option presents a viable option for California to provide to low-income individuals a health plan product with lower premiums, cost-sharing and richer benefits than could be provided in the Exchange. Who is eligible for the Basic Health Program? If a state elects to establish a BHP, federal law makes the following two groups of individuals eligible ("eligible individuals") to enroll in BHP who would otherwise be eligible for the Exchange: § Individuals whose household income exceeds 133 percent but does not exceed 200 percent of the federal poverty level (FPL); or, § Immigrants lawfully present in the United States whose income is not greater than 133 percent of the FPL but who are ineligible for federal Medicaid because of his or her STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 9 immigration status. An "eligible individual" must be under age 65 at the beginning of the plan year. Finally, an eligible individual cannot be an individual who is eligible for minimum essential coverage (e.g., through public or employment-based coverage meeting minimum standards). Federal law prohibits an eligible individual from being eligible for enrollment in a qualified health plan offered through the Exchange if the person is eligible for BHP. The UCLA Center for Health Policy Research estimates there are 829,000 individuals eligible for the BHP. Of these 829,000 individuals, 783,000 individuals will be eligible for the BHP because they have family incomes between 138 and 200 percent of the FPL (Medi-Cal will effectively be up to 138 percent of the FPL because of a 5 percent income disregard that increases income eligibility from 133 percent to 138 percent). An additional 46,000 individuals who are immigrants lawfully present in the United States, whose income is less than 133 percent of the FPL but who are ineligible for federal Medicaid because of immigration status, will also be eligible for BHP. What are the premium, cost-sharing and out-of-pocket reductions in the Exchange and the Basic Health Program? Individuals receiving coverage through the Exchange, depending upon their income, may be eligible for premium tax credits, lower cost-sharing and lower maximum out-of-pocket limits, depending upon their income. The BHP would cover two groups of individuals, both of whom are eligible for premium and cost-sharing subsidies in the Exchange. The premium credit is to make coverage more affordable and is based on a percentage of an individual's income related to the FPL. PPACA provides refundable and advanceable tax credits that reduce premium costs for individuals with incomes up to 400 percent of the FPL (maximum BHP income eligibility is 200 percent of the FPL). Premiums and cost-sharing in the BHP cannot exceed the premiums and cost-sharing in the Exchange. In addition, the benefits provided in the BHP must cover at least the federal essential health benefits. These premium tax STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 10 credits, cost-sharing assistance and essential health benefit requirements begin in 2014. A. Premiums The amount of the tax credit that a person can receive is based on the premium for the second lowest cost silver plan in the Exchange in the area where the person is eligible to purchase coverage. A silver plan is a plan that provides the federally-required essential benefits, and has an actuarial value (AV) of 70 percent (a 70 percent actuarial value means that, on average, the plan pays 70 percent of the cost of covered benefits for a standard population of enrollees). The amount of the tax credit varies with income such that the premium a person would have to pay for the second lowest cost silver plan would not exceed a specified percentage of their income (adjusted for family size), as follows: ------------------------------------ |Income Level |Maximum Premium as a | | |Percentage of Income | | |for 2nd Lowest Cost | | |Silver Plan | | | | |-------------+----------------------| | Up to 133% |2% of income | | FPL | | |-------------+----------------------| |133-150% FPL |3 - 4% of income | |-------------+----------------------| |150-200% FPL |4 - 6.3% of income | |-------------+----------------------| |200-250% FPL |6.3 - 8.05% of income | |-------------+----------------------| |250-300% FPL |8.05 - 9.5% of income | |-------------+----------------------| |300-400% FPL |9.5% of income | ------------------------------------ The example below shows how the premium tax credits would work today, if they were in effect. Assume: § Joe is 45 years old and has an income in 2014 that is 150 percent of poverty (about $16,335 in 2011). STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 11 § The cost of the second lowest cost silver plan in the Exchange in Joe's area is $4,000. § Under PPACA, Joe would not be required to pay more than 4 percent of income, or $653, to enroll in the second lowest cost silver plan. § The tax credit available to Joe would be $3,347 ($4,000 premium minus the $653 limit on what Joe must pay). PPACA requires that any advance payments received in a year be reconciled against the tax credits for which individuals and families are eligible based on their annual income reported on their tax return. If the advance payments exceed the amount of the credit for which individuals are ultimately eligible, a portion of the overpayment must be repaid. While PPACA originally limited the amount that had to be repaid to $250 for an individual and $400 for a family, a provision in the Medicare and Medicaid Extenders Act of 2010 raised the minimum repayment amounts to $300 for an individual and $600 for a family below 200 percent of the poverty level ($44,700 for a family of four in 2011) and created a scaled repayment structure for those with incomes up to 500 percent of the poverty level. A. Cost-Sharing PPACA provides cost-sharing subsidies for lower-income people with health insurance to reduce the out-of-pocket costs (co-payments and deductibles) the person pays when receiving health care services. People with incomes up to 250 percent of the FPL purchasing coverage in the silver tier through the Exchange and legal immigrants below 100 percent of FPL who are ineligible for Medicaid are eligible for reduced cost-sharing (e.g., coverage with lower deductibles and co-payments). Instead of having a silver product with 70 percent AV, they receive a silver product with a higher AV, depending on their income. This means that the health plan on average pays a greater share of covered benefits. The chart below shows the higher AV by income group for individuals with incomes below 250 percent of the FPL: --------------------------------------- | Federal Poverty Level | Actuarial | STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 12 | | Value (AV) | | | | |-----------------------+---------------| | 100-150%* | 94% | |-----------------------+---------------| | 150-200% | 87% | |-----------------------+---------------| | 200-250% |73% | | | | --------------------------------------- *Legal immigrants ineligible for Medicaid with incomes below 100 percent of the FPL are eligible for plans that have an AV of 94 percent also. B. Out-of-Pocket Limits In addition to the cost-sharing limits at the point of service, PPACA limits the maximum amount that people (individuals and employees of small employers) must pay out-of-pocket for cost-sharing for essential health benefits. An out-of-pocket limit is a dollar amount that, after an individual has paid for covered health care expenses reaching that dollar amount, the individual no longer pays any cost-sharing at the time they receive covered health care services. Generally, the limits in PPACA are based on the maximum out-of-pocket limits for Health Savings Account-qualified health plans ($5,950 for single coverage and $11,900 for family coverage in 2011), which will be indexed to the change in the Consumer Price Index until 2014 when the provision takes effect. After 2014, the limits will be indexed to the change in the cost of health insurance. People with incomes at or below 400 percent of poverty (including individuals in BHP) have their out-of-pocket liability capped at lower levels, as shown below: -------------------------------- | Federal | Reduction in | |Poverty Level | Out-of-Pocket | | | Maximum | | | | | | | |--------------+-----------------| | 100-200% |Two-thirds of | STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 13 | |Maximum | |--------------+-----------------| | 200-300% |One-half of | | |Maximum | |--------------+-----------------| | 300-400% |One-Third of | | |Maximum | | | | -------------------------------- Medical loss ratio in Exchange compared to Basic Health Program The amount of money that a health plan or health insurer spends on medical care, versus administrative expenses and profit, is referred to in the health care industry as a medical loss ratio (MLR). Federal health care reform requires health insurers offering coverage in the large group market to have a MLR of 85 percent, or a higher percentage that a state may, by regulation determine. With respect to a health insurance issuer offering coverage in the small group market or in the individual market, the MLR must be 80 percent, or such higher percentage as a state may by regulation determine, except that the Secretary may adjust such percentage with respect to a state if the federal DHHS Secretary determines that the application of the 80 percent MLR may destabilize the individual market in such a state. The federal law requires annual rebates to enrollees on a pro rata basis if the plan does not meet the minimum ratio. For coverage in the BHP, PPACA requires the MLR to be 85 percent, instead of 80 percent in the individual and small group market. How is the Basic Health Program funded? If a state elects the BHP option, PPACA requires the federal government to transfer to a state with a qualified BHP the amount the federal Secretary of DHHS determines is equal to 95 percent of the premium tax credits and the cost-sharing reductions that would have been provided to eligible individuals in the state if such eligible individuals were allowed to enroll in qualified health plans through the Exchange. In addition, individuals enrolled in the BHP will pay premiums and have cost-sharing that do not exceed the premiums and cost-sharing and benefits in the Exchange. STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 14 Federal law requires the Secretary to make the 95 percent determination on a per enrollee basis and to take into account all relevant factors necessary to determine the value of the premium tax credits and cost-sharing reductions that would have been provided to eligible individuals. Federal law is silent on whether the 95 percent funding can be used to pay for BHP administrative costs in administering the program. For states, implementing the BHP presents a fiscal risk to their GF if 95 percent of federal funding is insufficient to provide BHP benefits and administer the program within the federal allotment. Because of the state's on-going fiscal condition, this bill has been drafted to prohibit the use of GF funding, except for an initial start-up loan that must be repaid with interest. This bill requires MRMIB, in the event that it reasonably expects that the cost of BHP to exceed the available funds, coverage for eligible individuals in BHP to continue until the annual redetermination of each eligible individual. After that time period ends, MRMIB is required to immediately transfer the eligible individual to coverage in the Exchange. This provision is intended to protect the state GF and to ensure the enrollee has continued coverage until his or her annual redetermination of eligibility. California HealthCare Foundation funded modeling The California HealthCare Foundation (CHCF) is funding actuarial modeling of the BHP option to determine if the federal financing available would be adequate if California were to pursue a BHP. CHCF is contracting with the actuarial firm Mercer to do the modeling, which will estimate the adequacy of federal funding for eligible populations under selected scenarios consistent with federal law. This modeling will include selected premium and cost-sharing scenarios and several provider reimbursement scenarios. However, the modeling will not examine take-up rates in BHP as compared to the Exchange. The CHCF modeling results are anticipated to be available in early May 2011. Prior legislation SB 900 (Alquist), Chapter 659, Statutes of 2010, established the California Health Benefit Exchange (the STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 15 Exchange) as an independent public entity within state government, required the Exchange to be governed by a board composed of the Secretary of California Health and Human Services, or his or her designee, and four other members appointed by the Governor and the Legislature who meet specified criteria. AB 1602 (J. Perez), Chapter 655, Statutes of 2010, specified the powers and duties of the Exchange relative to determining eligibility for enrollment in the Exchange and arranging for coverage under qualified health plans, required the Exchange to provide health plan products in all five of the federal benefit levels (platinum, gold, silver, bronze and catastrophic), required health plans participating in the Exchange to sell at least one product in all five benefit levels in the Exchange, required health plans participating in the Exchange to sell their Exchange products outside of the Exchange, and required health plans that do not participate in the Exchange to sell at least one standardized product designated by the Exchange in each of the four levels of coverage, if the Exchange elects to standardize products. Arguments in support This bill is sponsored by the Local Health Plans of California (LHPC), an association of community-based non-profit health plans in California that serves over 2.5 million primarily low-income Californians. LHPC believes that California should exercise the option offered in the PPACA to establish a BHP as an extension of the HPF because a BHP would benefit low-income working families who will find it difficult to sustain the premium and cost-sharing requirements of Exchange coverage. LHPC states the BHP will offer these low-income working families a better benefit at lower cost than will be available to them in the Exchange. LHPC also argues the BHP will provide for continuity and the convenience of unified care for low-income California families whose children are participating in the HFP, as parents and children will be able to have the same providers in the same health plan networks. Additionally, LHPC argues BHP, as an extension of the HFP, will allow HFP health plans and their safety-net providers who deliver health care to low-income Californians to preserve their patient base and revenue streams. LHPC states California will continue to need STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 16 safety-net providers after national health care reform is fully implemented, and the preservation of safety-net providers and the health plans that have organized networks for care of the low-income is important for California's future health care needs. Finally, LHPC argues BHP has the potential to raise the level of compensation for HFP providers by providing them with a more sustainable funding base through the BHP. The Congress of California Seniors (CCS) writes in support of providing more affordable coverage to low-income individuals by taking advantage of options created by federal health care reform. CCS writes that the BHP would be administered by MRMIB and would therefore not incur any additional cost to the state, and this bill would retain the existing incentive to for individuals to choose plans with safety net providers. Amendments The Western Center on Law and Poverty (WCLP) supports the creation of a BHP in California if it is achieves the requirement of being cheaper than the Exchange for the low-income individuals it would serve, and if it is coordinated as seamlessly as possible with Medi-Cal and the Exchange. WCLP writes that it would urge that the BHP not be administered by MRMIB, but rather by the Department of Health Care Services (DHCS) or the Exchange. WCLP states an estimated 900,000 Californians would qualify for BHP, and people in this income level have high rates of income volatility, so significant numbers of people would move from Medi-Cal to BHP and vice-versa. Because of these frequent transitions, it makes sense to have the program administered by DHCS, since it already administers Medi-Cal. Health Access California (HAC) writes seeking amendments to this bill. HAC states that it supports the concept of a BHP if the financing provides lower cost-sharing and more comprehensive benefits, and better reimbursement for providers, but the BHP should be lodged in the Exchange instead of MRMIB if the BHP option proves financially viable. HAC writes that housing BHP in MRMIB reduces the bargaining power of the Exchange, worsens risk selection problems by taking the population most likely to enroll in the Exchange and sending them to MRMIB, leaves the STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 17 higher-income parents of HFP-eligible children in the Exchange, and complicates seamless coverage. Arguments in opposition The American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO writes in opposition that it seeks additional amendments to SB 703. AFSCME writes that it is not opposed to exploring the concept of the BHP, which has the potential to provide lower cost-sharing and better benefits for adults making 133-200 percent FPL and to improve provider reimbursement for safety-net hospitals by reimbursing at 95 percent of the Exchange tax credit level, which should be above Medi-Cal. AFSCME seeks amendments to ensure that it is the Exchange, not MRMIB which operates the BHP. AFSCME argues that slicing off roughly a quarter of the enrollment of the Exchange will undermine its bargaining power with carriers and providers, and AFSCME does not support this. Additionally, AFSCME argues that, while the argument that this bill covers the parents of HFP children, this is not entirely true as some as parents with incomes 200-250 percent of the FPL would be in the Exchange, and AFSCME notes that HFP does not cover adults without children who have incomes 133-200 percent of the FPL. AFSCME writes that creating another narrow slice of eligibility further complicates a situation already complicated by a separate HFP. Finally, AFSCME writes that MRMIB has privatized 80-90 percent of the work to its enrollment vendor (Maximus), which AFSCME believes provides poor service to the enrollees with limited phone accessibility and literally no way to see an agency representative in person. COMMENTS 1)Which state entity should administer the Basic Health Program? This bill has the BHP administered by MRMIB, which currently administers HFP, MRMIP and AIM. Federal law requires a state implementing a BHP to establish a competitive process for entering into contracts with health plans, including negotiation of premiums, cost-sharing and benefits, in addition to the federally required essential health benefits. Additionally, federal law requires a state to seek to coordinate the administration of, and provision of benefits under its STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 18 BHP program with the state Medicaid program (Medi-Cal in CA, which is administered by DHCS), the state child health plan (CHIP, which is known as the HFP, which is administered by MRMIB), and other state-administered health programs, to maximize the efficiency of such programs and to improve the continuity of care. Because Medi-Cal does not provide Medi-Cal managed care in each region of the state, or competitive contracting in each region of the state where Medi-Cal managed care enrollment is required, including BHP in DHCS may not meet the federal competitive process requirement. The newly created California Health Benefits Exchange is another option for administering the BHP as the individuals eligible for BHP are a subset of the individuals eligible for the Exchange. Four of the five board members of the Exchange have been appointed but the Exchange has not held a board meeting to date. 2)How will the Basic Health Program affect the Exchange? Estimates of Exchange enrollment vary. A January 2011 article in Health Affairs estimates 4 million people in California are expected to enroll in the state's Exchange when it is fully implemented in 2016. The UC Berkeley Labor Center estimates, using 2007 data advanced to 2016 levels, that nearly 4.4 million individuals will receive coverage through the Exchange, including 925,000 individuals with incomes between 133 and 200 percent of the FPL. The UCLA Center for Health Policy Research (UCLA) estimates a total of 2.9 million individuals will be enrolled in the Exchange. Of this number, 1.7 million uninsured adults and children, comprising one-fourth of the population that was uninsured for all or part of 2009 (24.6 percent), will be eligible for federal subsidies to purchase their own health insurance through the Exchange, and an additional 1.2 million uninsured persons who do not qualify for subsidized premiums because they either have household incomes above 400 percent of the FPL or who could get coverage through their work, will be eligible. UCLA estimates there are 829,000 people who would be eligible for the BHP, representing 28 percent of the potential Exchange enrollment. One of the concerns expressed in establishing a BHP is how removing this many individuals will affect the purchasing clout of the Exchange, particularly if the individuals in STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 19 BHP are younger, healthier, and more likely to sign up for coverage because the subsidies are greater at lower incomes. Of the 783,000 individuals with incomes between 133-200 percent of the FPL, UCLA indicates 40.2 percent indicated their health status was excellent or good, 31.4 percent indicated their health status was good, 28.4 percent indicated their health status was fair or poor. Of the legal immigrants ineligible for Medicaid with incomes below 133 percent of the FPL, 18.6 percent indicated their health was excellent or very good, 57.9 percent indicated their health was good, and 23.7 percent indicated their health was fair or poor. 3)Will the BHP be able to provide lower premiums and reduced cost-sharing? BHP could make coverage more affordable for low-income residents without spending state funds because federal BHP payments could enable the state to directly provide a benefit package to BHP enrollees that has lower premiums and cost-sharing than these individuals could obtain through the Exchange. The 95 percent allotment provided to states is going to be based on premium tax credits and cost-sharing subsidies for private commercial coverage provided in the Exchange. The state could provide a BHP benefit package using federal BHP payments so that health plan and provider rates are above Medi-Cal levels but less than commercial rates. According to the Urban Institute's modeling of PPACA, average federal BHP payments, based on the cost of subsidies for private insurance in the Exchange, will exceed by 29 percent what it would cost Medicaid to cover BHP-eligible individuals. The Urban Institute states this is because the tax credits and cost-sharing subsidies are based on commercial Exchange products, the lower rates paid to Medicaid providers, and its estimate that BHP enrollees are more likely to be younger than Exchange enrollees. 4)Which entities should be eligible to contract with BHP for providing health services? The entities eligible under the federal BHP statute to offer standard health plans under the BHP include a licensed health maintenance organization, a licensed health insurance insurer, or a network of health care providers established to offer services under the program. Because MRMIB will likely be entering into full STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 20 risk contracts with entities providing BHP services, this bill only authorizes MRMIB to contract with health plans licensed by the DMHC and health insurers regulated by CDI. 5)Could Medi-Cal state General Fund costs be reduced by BHP? The federal BHP statute prohibits individuals who are eligible for Medicaid from being eligible to enroll in the BHP. However, people can become eligible for Medi-Cal who have incomes too high to qualify for Medi-Cal when these individuals "spend down" to Medi-Cal eligibility when an individual's health care costs reach a pre-determined amount. "Share of cost" is a term that refers to the amount of health care expenses a recipient must accumulate and pay out-of pocket each month before Medi-Cal coverage begins. Once a recipient's health care expenses reach the predetermined amount, Medi-Cal will pay for any additional covered expenses for that month. Share of cost is an amount that is owed to the provider of health care services, not to the state. Share of cost Medi-Cal will likely be reduced by the existence of tax subsidized coverage in the Exchange. However, if the BHP offers lower premiums than would otherwise be available in the Exchange, and this results in more people purchasing health coverage, the BHP could reduce, by some additional amount, state GF expenditures in share of cost Medi-Cal if fewer individuals spend down to Medi-Cal eligibility than would be the case without a BHP in place. In addition, there may be other groups of individuals with incomes above 133 percent of the FPL who are currently eligible for Medi-Cal whose coverage could be shifted to the entirely federally funded BHP. POSITIONS Support: Local Health Plans of California (sponsor) Congress of California Seniors Oppose: American Federation of State, County and Municipal Employees -- END -- STAFF ANALYSIS OF SENATE BILL 703 (Hernandez) Page 21