BILL ANALYSIS Ó
SB 703
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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
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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
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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
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(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
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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
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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
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(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,
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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,
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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:
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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
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