BILL ANALYSIS Ó SB 703 Page 1 Date of Hearing: August 17, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 703 (Hernández) - As Amended: July 12, 2011 Policy Committee: HealthVote:13-5 Urgency: No State Mandated Local Program: Yes Reimbursable: No SUMMARY This bill implements the Basic Health Program (BHP) state option contained in the federal health care reform law, to provide health care coverage to individuals under 200% of poverty who do not qualify for Medi-Cal. Specifically, this bill: 1)Requires the Managed Risk Medical Insurance Board (MRMIB) to enter into a contract with the United States Secretary of the Department of Health and Human Services (DHHS) to implement the BHP to provide coverage to eligible individuals. Permits enrollment on January 1, 2014. 2)Provides MRMIB authority to take actions to administer the BHP, including the following: a) Determine eligibility criteria, requirements for coverage and health plan participation, premiums, and cost-sharing amounts. b) Collect premiums and provide or make available subsidized coverage through participating health plans. c) Processing applications and enroll eligible individuals. d) Determine and approve the benefit designs and cost sharing required by health plans. e) Maintain enrollment and expenditures to ensure that expenditures do not exceed amounts available in the fund, and, if sufficient funds are not available to cover the estimated cost of program expenditures, institute appropriate measures to reduce costs. f) Issue rules and regulations, and until January 1, 2016, provide emergency regulation authority. g) Make application assistance payments to individuals who successfully complete the requirements of a Certified SB 703 Page 2 Application Assistant in HFP and who successfully enroll eligible individuals in BHP. 3)Authorizes MRMIB to determine benefits, in addition to the EHB packages required by the federal Patient Protection and Affordable Care Act (ACA) (Public Law 111-148), including benefits provided through specialized health care service plans and specialized health insurance policies, to the extent ACA authorizes the inclusion of such plans or policies in the BHP. 4)Requires MRMIB to coordinate with DHCS and the California Health Benefits Exchange (Exchange) with respect to eligibility, enrollment, and outreach efforts. 5)Requires MRMIB to meet various conditions with respect to provision of linguistically and culturally appropriate services, plan choice, provider networks, and coordination of enrollment with other public health care programs. 6)Requires MRMIB to designate a community provider plan (CPP) in each geographic area that is the participating health plan with the highest percentage of traditional and public and private safety net providers in its network, and provide a premium discount to enrollees in the CPP. 7)Continues enrollment for an eligible individual enrolled in the BHP for a period of 12 months from the month eligibility is established, to the extent permitted by federal law. 8)Authorizes MRMIB to disenroll an eligible individual enrolled in BHP after two consecutive months of nonpayment of premiums, and a reasonable written notice period of not less than 30 days. Authorizes MRMIB to conduct or contract for collection actions. 9)Requires health plan contracts entered into shall require the participating health plan to assume full risk for the cost of care for the contract period. 10)Except for a specifically authorized start-up loan, prohibits state GF money from being used for any purpose related to the administration of the BHP. 11)Requires MRMIB, in the event MRMIB expects the cost of BHP SB 703 Page 3 will exceed the available funds, to transfer individuals at annual redetermination to coverage in the Exchange. 12)Requires MRMIB to request an evaluation of the BHP by July 1, 2017. FISCAL EFFECT 1)Unknown one-time administrative start-up costs, likely in the range of low millions of dollars. These costs would be funded initially via a General Fund loan authorized in the bill. 2)Ongoing costs to administer the BHP, conservatively in the range of $50 million annually (federal funds/premium revenues), based on current projections of BHP enrollment of approximately 720,000. At this time, it is uncertain whether the federal Department of Health and Human Services (HHS) will allow federal subsidy payments to be used to cover BHP administrative costs, though it seems likely. 3)Program costs in the range of $3 to 4 billion annually (federal funds/premium revenues), based on current projections of BHP enrollment and federal subsidy amounts. 4)Although the bill states no GF money shall be used for the BHP aside from a loan for start-up costs, there is potential for GF risk and/or cost pressure to the state to fund program costs to the extent that federal funds are insufficient to cover these costs. Even a relatively small shortfall in a program of this size could pose significant fiscal risk to the state under certain circumstances. In addition, notwithstanding the GF prohibition, program costs could be funded through non-GF sources (for example, Proposition 99 revenues) that could otherwise be used to offset GF costs. If this occurred, it would result in indirect GF costs. The following are specific areas of GF risk and/or cost pressure. a) Administrative Costs. As noted above, federal regulations have not yet specified whether the estimated $50 million in state administrative costs related to the BHP can be funded through with federal BHP payments. b) Reconciliation with Federal Government . Section 1331 SB 703 Page 4 (d)(3)(B) of the ACA may expose the state to fiscal risk based on errors in the determination of federal BHP payments to the state for the previous fiscal year. These payments may be adjusted based on year-end reconciliation of individual enrollees' income. The magnitude and likelihood of downside risk to the state related to reconciliation is not clear, as the operational details of this process have not yet been specified. c) Cost Pressure to Maintain Coverage and Benefit Levels . This bill specifies that MRMIB shall transition individuals to the Exchange at the end of their benefit year if the board reasonably expects cost of the BHP will exceed available funds. In this instance, and in other circumstances where the board would need to roll back benefits or increase costs to enrollees in order to maintain balance between revenues and expenditures, there would be pressure on the state to provide funds to maintain benefits and cost-sharing levels. 1)In addition to direct program implementation costs and fiscal risks identified above, the BHP could have a number of secondary potential fiscal impacts. These impacts are speculative, through plausible, and difficult to estimate precisely at this time. a) Potential increased administrative costs related to "churning ," i.e., individuals transitioning between the BHP and the Exchange. b) Potential for increased GF costs related to larger Medi-Cal enrollment. If BHP coverage is more attractive than Exchange coverage for the BHP-eligible population, the state could expect a larger proportion of this population to enroll in coverage than would enroll in the absence of BHP. In this case, a larger pool of individuals would go through an annual redetermination of eligibility for BHP than for subsidies through the Exchange, leading a larger number of individuals enrolled in Medi-Cal at annual redetermination. c) Potential for reduced GF costs in the share of cost (SOC) Medi-Cal program . SOC Medi-Cal requires an individual to spend a certain amount on health care each month before Medi-Cal begins covering costs. Assuming SOC SB 703 Page 5 Medi-Cal remains the same, BHP-eligible individuals dually enrolled in SOC Medi-Cal may incur lower health care costs if they were enrolled in BHP than if they were enrolled in the Exchange (the BHP plan would presumably cover more of their costs). The longer it takes an enrollee to meet his/her SOC, the less Medi-Cal would be liable to pay. d) Potential for reduced GF costs related to state benefit mandates. The ACA specifies that if a state mandates benefits that go beyond the minimum essential health benefits (EHBs) required to be covered in the Exchange, the state will have to bear the increased costs related to these benefit mandates for the population receiving subsidies through the Exchange. Assuming benefit mandates are retained as under current law, if a BHP could offer a richer benefit package, including some state-mandated benefits that go beyond the EHBs, the state could avoid costs related to benefit mandates for the BHP-eligible population. COMMENTS 1)Rationale . The author indicates SB 703 will create affordable health care coverage for hundreds of thousands of people with no funding from California's taxpayers. The intent of the BHP is to provide low-income Californians with equal or better benefit levels, and less expensive health plan premiums and lower cost-sharing than would be available to them in the Exchange, using exclusively federal dollars. The author contends that adopting the BHP option will lead to more individuals receiving health care coverage as a result of lower premiums, greater ability of individuals to access health care because of the lower cost-sharing, increased compliance with the federal individual mandate, and a reduction in uncompensated care for health care providers. This bill is sponsored by the Local Health Plans of California, an association of public non-profit health plans that provide coverage to Medi-Cal and Healthy Families Program enrollees. 2)Health Care for Low-Income Individuals Post-2014 . Starting in 2014, the ACA provides federal tax credits and subsidies to Californians with incomes between 133 and 400 % of the federal poverty level (FPL) (approximately $29,000 to $88,000 for a family of four) who do not receive employer-provided health SB 703 Page 6 benefits. The ACA also authorizes states to establish Health Benefit Exchanges to provide an organized marketplace for individuals buying insurance using the federal tax credits. Individuals and small employers meeting federal citizenship requirements may enroll in the exchanges. Plans offered in the Exchange will have to cover minimum EHBs and will have to be offered in platinum, gold, silver, bronze, and catastrophic levels. These levels correspond to actuarial value, which measures the generosity of a plan for a standard population. The premium credits will be tied to the second-lowest-cost silver-level plan in the area and will be set on a sliding scale such that the premium contributions are limited to percentages of income for specified income levels (e.g., for incomes at 133% FPL, the premium contribution will be limited to 2% of income). Per ACA, a standard silver plan will, on average, cover about 70% of health care costs. Standard plans offered for sale in the Exchange will also have an out-of-pocket maximum currently set at around $6,000, a significant sum for low-income populations. Thus, under the ACA, individuals with incomes under 250% of poverty are eligible for subsidies that reduce their out-of-pocket costs in addition to the premium tax credit amounts. 3)ACA offers states the option to implement a BHP to serve a portion of the population who would otherwise be eligible for tax credits and subsidies in the Exchange. If a state chooses to implement the BHP, the federal government provides directly to states 95 % of what it otherwise would have spent on tax credits and subsidies for the individuals enrolled in BHP to purchase coverage in the Exchange. The following two groups are eligible for BHP: a) Adults with income between 133 and 200 % of the FPL. b) Legally resident immigrants with incomes below 133 % of the FPL whose immigration status disqualifies them from federally matched Medicaid. If California implements BHP, these two groups of consumers would not participate in the Exchange, but instead would receive coverage through a state BHP that resembles the Healthy Families Program. Per the ACA, the state would contract with health plans or providers to provide coverage that included at least the minimum essential benefits package SB 703 Page 7 (to be defined by DHHS). In addition, the state would have to ensure out-of-pocket costs would be the same or lower as those in the Exchange, and consumers could not be charged premiums higher than what they would pay in the Exchange for the second-lowest-cost silver-level plan. Detailed federal regulations implementing the BHP have not yet been released by DHHS, but may be released this fall. 1)Studies of BHP Feasibility . To date, several studies have been conducted on the feasibility of implementing the BHP. Key findings include the following. a) Modeling studies performed by Mercer and by the Urban Institute indicate the BHP could, using 100% federal funds, offer a relatively generous benefit package with very low premiums (around $10-20 per month), with provider rates 15-25% higher than Medi-Cal rates. These studies estimate that approximately 700,000 to 800,000 individuals will enroll in a BHP. b) Studies agree that BHP will significantly reduce the size of the Exchange. The Urban Institute study estimates that the BHP would reduce the size of California's Exchange by 500,000 lives (from 3.6 million to 3.1 million) and the size of the subsidized population by half (from 1.2 million to 600,000). c) The modeling studies mentioned above indicate that despite removing a significant number of lives from the state's Exchange, the somewhat reduced Exchange population should not significantly change the ability of the Exchange to selectively contract. The Urban Institute study points out that a BHP would increase per capita administrative costs in the Exchange. d) A recent study by the Institute for Health Policy Solutions raises several concerns related to the BHP option in California, including potential impacts on Exchange viability, lower federal revenues than projected in the other studies, and fiscal risk to the state from reconciliation with projected federal tax-credit spending. e) Studies generally agree that any findings are preliminary and subject to change for many reasons, SB 703 Page 8 including uncertainties in federal interpretation of various provisions of ACA, uncertainties about consumer behavior, and operational and structural details of a BHP. 1)Specific Areas of Uncertainty that Impact State Fiscal Risk . Notwithstanding modeling exercises that have projected adequate revenues for a robust BHP, there are a number of additional factors that could impact state fiscal risk and the viability of a BHP. As explained below, this uncertainty is largely due to the lack of specific federal rules related to BHP and the lack of pricing and risk experience in the Exchange that will begin full operation in 2014. a) Sensitivity of Federal Subsidy Revenues to Benchmark Plan . As described above, federal subsidy revenues to the state for the BHP are calculated based on the cost of a benchmark plan-the second-lowest priced silver-level plan offered through the Exchange. Thus, the actual federal subsidy amounts that would be available for the BHP are highly sensitive to the price of these benchmark plans. The participation of lower-cost plans in the Exchange could significantly decrease federal subsidy amounts available for BHP. b) Start-up Volatility . Because the precise risk composition of the Exchange population is unknown, there may be some level of volatility in prices as the market readjusts in the first several years based on experience. Initial price volatility of benchmark plans would affect the federal subsidy revenues available for BHP. For example, if the plans initially overestimate the risk and the benchmark plan price is set too high, the initial federal subsidy revenues available for BHP will also be higher than the level that will be sustainable over time. Risk adjustment mechanisms in the ACA may moderate this volatility, but uncertainty around the operational details and timing of risk adjustment exposes the state to some fiscal risk. c) Flexibility to Control Costs . The less flexibility the state has to control costs, the greater the potential state fiscal liability. Although the bill provides general authority for the board to "institute appropriate measures" to reduce costs if available funds are insufficient to cover the costs of estimated program expenditures, SB 703 Page 9 forthcoming federal rules defining the structure of the BHP may clarify the circumstances in which the state can implement cost-saving changes in BHP. Other public federal health care programs such as Medicaid and Children's Health Insurance Program (CHIP) have strict rules requiring federal approval of changes to benefits, cost-sharing, and provider payment levels that would be necessary to reduce costs. d) Number of BHP Eligibles . The income eligibility range for BHP is fairly narrow (138%-200% of the FPL). The number of people who enter this income range at some point during the year is large compared to the number of people who earn income in this range based on a year-end tax return. Depending upon the details of how income is counted for eligibility determination purposes, the BHP could be larger, and the Exchange population smaller, than projected in some recent models. e) Regional Effects . Although studies of the viability of the Exchange have assumed that the size of the Exchange population is large enough to foster a robust marketplace irrespective of a BHP, it is plausible that regional variation in plan offerings as well as the relative size of BHP-eligible populations in different regions could impact the viability of the Exchange in some areas of the state. 1)Policy Issues . Assuming the BHP is fiscally viable and is able to offer generous coverage at a low price, as some models have indicated, the choice of whether to establish a BHP or to allow BHP-eligible individuals to obtain coverage through the Exchange has significant policy implications and tradeoffs. In a BHP, rates paid to providers are likely to be lower than those in a commercial plan, leading to reduced access and smaller provider networks that are more heavily reliant on traditional and safety net providers. On the other hand, if BHP was able to offer lower cost-sharing and premiums as compared to the Exchange, it would presumably attract more eligible individuals in to coverage, leading to fewer uninsured and a better risk pool. Specifically, this bill raises the following key policy questions: SB 703 Page 10 a) Does improved affordability for low-income consumers compensate for potentially lower reimbursement rates and smaller provider networks? b) What is the impact on the Exchange of removing a large portion of the population receiving federal subsidies? c) Will coverage be seamless, or will the existence of another state health program provide another point of discontinuity and further fragment access to care? d) Who is the optimal entity administer the BHP-MRMIB, as envisioned in the bill as currently drafted, DHCS, or the Exchange? e) Do other alternatives exist to address the issue of affordability for low-income consumers? f) Is there urgency to establishing the BHP this year? 1)Prior Legislation . a) SB 900 (Alquist), Chapter 659, Statutes of 2010, established the California Health Benefit Exchange (Exchange) as an independent public entity within state government, and established the governance structure of the Exchange board. b) 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 through 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. Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081 SB 703 Page 11