BILL ANALYSIS Ó AB 880 Page 1 Date of Hearing: April 30, 2013 ASSEMBLY COMMITTEE ON HEALTH Richard Pan, Chair AB 880 (Gomez) - As Amended: April 24, 2013 SUBJECT : Medi-Cal program costs: large employer responsibility. SUMMARY : Creates the Employer Responsibility for Medi-Cal Cost of Employees Act of 2013 (Act). Requires large employers, employing 500 or more employees, to pay a penalty, as specified if their employees, who work more than eight hours per week, are enrolled in Medi-Cal based on the Modified Adjusted Gross Income (MAGI) eligibility standard. Specifies a formula for calculating the penalty based on the average cost of health care coverage provided to employees of large employers. Requires the Department of Health Care Services (DHCS) to determine the penalty, based on the calculation. Requires the Employment Development Department (EDD) to provide notice of the amount and to collect the penalty. Creates the Employer Responsibility for Medi-Cal Trust Fund (Fund) and requires monies collected from the penalties to be deposited in the Fund and used in the Medi-Cal program. Specifically, this bill : 1)Defines employer as an employing unit, as defined in current law regarding unemployment insurance, including all members of a controlled group of corporations, as defined in the Internal Revenue Code, except that "more than 50%" is substituted for "at least 80%" in regard to combined voting power and the total value of shares. 2)Defines covered employee as: a) An employee of an employer employing 500 or more persons, with exceptions for state, city, county, city and county, district or other local governmental employers; b) Enrolled in Medi-Cal on the basis of eligibility using the MAGI eligibility standard, but not on the basis of being a senior or person with disabilities; c) Works more than eight hours per week; and, d) Includes leased employees or other individuals under the direction and control of the employer. 3)Requires every large employer to pay a large employer AB 880 Page 2 responsibility penalty for each covered employee as defined in 2) above. 4)Requires DHCS to obtain information necessary to determine the penalty from EDD, including the employer's wage and hour information. 5)Establishes the basis of the penalty as 110% of the average cost of health care coverage provided by large employers to their employees, including both the employer and employee share of premium. 6)Requires the average cost of health care coverage provided by large employers to be determined using information filed, by health plans and health insurers with the Department of Managed Health Care (DMHC) or the California Department of Insurance (CDI) respectively, in order to comply with provisions related to review of rate increases. 7)Provides that if information is not provided pursuant to 6) above, the average cost to be determined using a statistically valid, scientifically reliable survey of large employers, which may be conducted by a nonprofit foundation established as a result of the conversion of a health care service plan from a nonprofit to for-profit tax status. 8)Provides that the specific amount of the employer responsibility penalty is to be determined by multiplying the employer's total annual wage payments to all covered employees by a fraction calculated as follows: a) Specifies the numerator to be 110% of the average cost of health care established by 6) or 7) above multiplied by the share of a 40 hour work week that the average California employee working for a large employer and enrolled in the Medi-Cal program works; and, b) The denominator to be the average annual wage of California employees that work for large employers and that are enrolled in the Medi-Cal program. 9)Requires DHCS, for 2014, to obtain the wage information necessary to compute 8) above from the California Current Population Survey, and thereafter, obtain the information from wage and enrollment data from EDD for the prior year. AB 880 Page 3 10)Requires the employer responsibility penalty to be adjusted annually based on wage and enrollment data from the prior year. 11)Requires DHCS to match the Social Security Numbers (SSNs) of low-income individuals covered by the Medi-Cal program with information provided by EDD to determine whether the individuals are covered employees, as defined. 12)Requires DHCS to provide information about covered employees to EDD in order to permit collection of the employer responsibility penalty. 13)Provides for the confidentiality of all documents and records that result from DHCS and EDD matching records. 14)Provides that nothing in this bill is to be construed to supersede requirements and protections in the California Right to Financial Privacy Act. 15)Requires DHCS to provide notice to EDD of the amount of the employer responsibility penalty in a time and manner that permits EDD to provide notice to all large employers of the estimated penalty for the budget year, as specified, and requires EDD to notify the employer annually. Provides for 10% interest if a penalty is more than 60 days overdue. 16)Requires a large employer to pay into the Employer Responsibility for Medi-Cal Trust Fund, any employer responsibility penalties imposed, in the same manner as employer contributions for unemployment compensation insurance. 17)Requires employers to provide information to all newly hired and existing employees of the availability of Medi-Cal coverage for individuals or families under the MAGI threshold established for the Medi-Cal program pursuant to the ACA. Requires EDD, in consultation with DHCS, to develop a simple, uniform notice containing the information. 18)Prohibits an employer from requiring, as a condition of employment, an employee to not enroll in or disenroll from a public health benefit program, including, but not limited to, the Medi-Cal program, or Advance Premium Tax Credit (APTC) AB 880 Page 4 through the California Health Benefit Exchange (Exchange). Prohibits a large employer from encouraging or discouraging enrollment in a public health benefit program for which an employee is otherwise eligible, but may provide information on the programs as otherwise provided by state or federal law. 19)Creates the and requires monies collected from the Act to be deposited in the Fund. Provides that the Fund is continuously appropriated to DHCS for the following purposes: a) To provide payment for the nonfederal share of Medi-Cal costs for covered employees; b) To increase reimbursement of providers; and, c) To provide reimbursement to county health systems, community clinics, and other entities that provide care, without expectation of compensation, to those Californians who do not have minimum essential coverage as defined by the ACA. 20)Requires all costs of implementation to be paid from monies deposited in the Fund, including costs to EDD, FTB, and any other governmental agency. 21)States findings and declarations that: a) Working Californians should have affordable, comprehensive health insurance coverage; b) Most working Californians obtain their health insurance coverage through their employment, but some working Californians are covered by Medi-Cal and, commencing in 2014, some will be covered through Covered California,(the Exchange); c) In 2012, more than 7 million Californians lacked health insurance coverage at some time in the year. The ACA is expected to reduce the number of Californians without health insurance coverage by providing coverage through changes to the Medi-Cal program and the creation of the Exchange; d) ACA sets a standard for what constitutes affordable, employment-based coverage and imposes penalties on any AB 880 Page 5 large employer whose full-time, nonseasonal employees receive coverage through the Exchange. Federal law imposes no penalty on large employers whose employees receive coverage through the taxpayer-funded Medi-Cal program; e) Employers who fail to provide affordable coverage to low-wage workers who are covered by Medi-Cal shift the cost of health care coverage from the employer to the taxpayer. Employers can avoid the employer responsibility penalty of ACA by reducing wages, hours worked, or both, so that workers are no longer full-time, full-year employees within the meaning of the ACA. Workers who face low wages, work part-time, or both, are too often eligible for taxpayer-funded Medi-Cal instead of affordable, employer-based coverage; f) Persons who are covered by health insurance have better health outcomes than those who lack coverage. Persons without health insurance coverage are more likely to be in poor health, more likely to miss needed medications and treatment, and more likely to have chronic conditions that are not properly managed; g) Persons without health insurance coverage are at risk of financial ruin. Medical debt is the second most common cause of personal bankruptcy in the United States; h) California provides health insurance coverage to low-income workers through the Medi-Cal program. The taxpaying public pays the cost of coverage for those working people who are not provided health care coverage through employment. The number of working people whose coverage is provided through the Medi-Cal program is expected to increase because of the ACA; i) Taxpayers, through state and local governments, fund county hospitals and clinics, community clinics, and other safety net providers that provide care to those working people whose employers fail to provide affordable health care coverage to their employees, as well as, to other uninsured persons; j) Controlling health care costs can be more readily achieved if a greater share of working people and their families have health benefits, so that cost shifting is minimized; and, AB 880 Page 6 aa) The social and economic burden created by the lack of health care coverage for some workers and the coverage of other workers through the Medi-Cal program creates a burden on other employers, the state, affected workers, and the families of affected workers who suffer ill health and risk financial ruin. 22)States it is the intent of the Legislature, as follows: a) Ensure that large employers pay a fair share penalty for health coverage received by their employees through the Medi-Cal program and to base that penalty on the cost of coverage provided by other large employers to their employees; b) Encourage the provision of affordable, employer-based coverage to low-wage employees who would otherwise be covered by the Medi-Cal program and to discourage employers from reducing hours, wages, or both in order to avoid the employer responsibility penalty of the ACA by extending an employer responsibility penalty to employers with employees covered by the Medi-Cal program; c) Ensure that employees who receive coverage through the Medi-Cal program are protected from any possible retaliation by their employer for seeking or obtaining that coverage; and, d) Pay the nonfederal share of costs for care provided to working adults who lack affordable employer coverage and who receive coverage through Medi-Cal, improve reimbursement for the Medi-Cal providers who care for these workers, and support the safety net of county hospitals and community clinics that provide care for the remaining uninsured adult workers. 23)Provides that it is unlawful for a large employer, as defined by this bill, to designate an employee as an independent contractor or temporary employee, reduce an employee's hours of work, or terminate an employee if the purpose of the action is to avoid the employer's obligation under the Act. 24)Prohibits a large employer from requesting or otherwise seeking to obtain information concerning income, family AB 880 Page 7 income, or other eligibility requirements for public health benefit programs about an employee, other than that information about the employee's employment status otherwise known to the employer consistent with state and federal law and regulation. 25)Prohibits a large employer from discharging or in any manner discriminating or retaliating against an employee who enrolls in a public health benefit program, including, but not limited to, the Medi-Cal program, or the APTC. 26)Provides that any employee who is discharged, threatened with discharge, demoted, suspended, or in any other manner discriminated, or retaliated, against in the terms and conditions of employment by his or her employer because the employee has enrolled in a public health benefit program or the APTC through the Exchange to be entitled to reinstatement and reimbursement for lost wages and work benefits caused by the acts of the employer. 27)A large employer who willfully refuses to rehire, promote, or otherwise restore an employee or former employee described in this section who has been determined to be eligible for rehiring or promotion by a grievance procedure or hearing authorized by law, is guilty of a misdemeanor. 28)An employer who violates the provisions related to protections of employees who enroll in a public health benefit program or the APTC through the Exchange is to be charged a penalty of 200% of the amount of any penalty that would have otherwise been paid by the employer for the period for covered employees, and authorizes the employee to file a complaint with the Department of Industrial Relations. 29)Makes other clarifying and conforming changes. EXISTING LAW : 1)Establishes, under state and federal law, the Medicaid program (Medi-Cal in California) as a joint federal and state program offering a variety of health and long-term services to low-income women and children, low-income residents of long-term care facilities, seniors, and people with disabilities. AB 880 Page 8 2)Requires, effective January 1, 2014, under federal law, an individual to have the option to apply for state subsidy programs, which includes the state Medicaid program, the state Children's Health Insurance Program (CHIP), enrollment in a qualified health plan through a state exchange, and a Basic Health Plan (BHP), if there is one, by either in person, mail, online, telephone, or other commonly available electronic means. 3)Under the ACA, effective January 1, 2014, requires states to extend Medi-Cal coverage to former foster youth up to age 26, eliminate the asset test for certain groups of applicants to Medi-Cal and establish a new methodology for counting income in Medi-Cal, known as MAGI. 4)Under the ACA, effective January 1, 2014, provides 100% federal matching funds to states to expand Medicaid coverage of adults under age 65 who are not currently eligible with incomes up to 138% of the federal poverty level (FPL), decreasing to 95% in 2017; 94% in 2018; 93% in 2019; and 90% thereafter. 5)Creates the Exchange referred to as Covered California, as an independent state entity governed by a five-member Board of Directors, to be a marketplace for Californians to purchase affordable, quality health care coverage, claim available tax credits and cost-sharing subsidies and one way to meet the personal responsibility requirements of the ACA. 6)Requires employers to report information regarding wages, payroll taxes, personal income tax (PIT) deposits, and state disability insurance (SDI), to EDD and provides for the deposits of payroll taxes, SDI, PIT, and Unemployment Insurance. 7)Permits the EDD and the Franchise Tax Board (FTB) to share information and develop data interfaces with the Exchange for purposes of enabling the Exchange to make eligibility determinations and comply with certain federal requirements. FISCAL EFFECT : This bill has not been analyzed by a fiscal committee. COMMENTS : AB 880 Page 9 1)PURPOSE OF THIS BILL . According to the author, the purpose of this bill is to extend the employer responsibility requirement in the ACA to employers with employees who enroll in Medi-Cal to discourage these employers from shifting the cost of providing health coverage for their employees onto the state. The author states that this bill closes a loophole in the employer penalty provisions of the ACA. Specifically, the ACA requires individuals, employers, and government to share responsibility for health coverage. Individuals must have health coverage or pay a penalty. Employers with an average of at least 50 full time employees must either provide affordable health coverage or pay a penalty for each employee who accesses subsidized coverage in the state Exchange. However, an employer whose employees become eligible for Medi-Cal because their wages and hours cause the family income to fall below the MAGI standard will be eligible for Medi-Cal with no cost to the employer. The author states that the penalty proposed in this bill is intended to help offset that cost of the public subsidy. The federal government provides subsidies for premiums and cost-sharing through state exchanges and allows states to expand their Medicaid programs with 100% federal funding for the first three years. The author points out that legislation pending in the First Extraordinary Session proposes to expand the Medi-Cal program to provide coverage to childless adults up to 138% of the FPL (currently set at $15,415 annually for an individual) and will streamline eligibility and enrollment for anyone who is eligible under the MAGI standard, including families and children. The author further states that the ACA does not extend the employer responsibility penalty to employers who have workers enrolled in Medi-Cal, even though it is a public subsidy for their employees' health coverage. Citing a forthcoming study from the University of California, Berkeley Center for Labor Research and Education (UC Berkeley Labor Center), the author estimates that 250,000 parents working for firms with 500 or more employees are currently enrolled in Medi-Cal, and the study estimates that an additional 290,000 non-disabled adults, ages 19-64 working for firms with 500 or more employees will be enrolled in Medi-Cal. Furthermore, the author argues, the ACA penalty does not apply to part-time workers, defined as working fewer than, on average, 30 hours a week. The author asserts that this AB 880 Page 10 creates an incentive for some employers to cut hours and eliminate benefits for part-timers in order to evade the ACA penalty. In addition, this creates downward pressure on wages and strips workers of employer-sponsored coverage. According to the author, several large employers have announced that they are already starting to cut hours and benefits in preparation for the implementation. Darden Restaurants, which includes Olive Garden and Red Lobster; Papa John's Pizza; Universal; Denny's, and others have all moved to cut hours below the 30 hour per week mark. The author states that employers like Wal-Mart have moved to eliminate benefits for newly-hired workers who work less than 30 hours a week, shifting them into the Exchange, or more likely, onto Medi-Cal. According to the author, Wal-Mart has a history of shifting employees onto Medi-Cal. Citing a 2004 study by the UC Berkeley Center for Labor Research and Education, "Hidden Cost of Wal-Mart Jobs," Wal-Mart workers' reliance on public health care programs cost the state $32 million annually. Trended forward a decade, the state cost would be higher. The author states that the expansion of the Medi-Cal program allows large employers to shift even more of the costs of their employees' health care onto the public. A childless adult could work 30 hours a week at $10 an hour and still qualify for Medi-Cal under the expansion. Given that the typical retail worker earns $9.61 an hour, and Wal-Mart workers earn an average wage around $8.81 an hour, many new Medi-Cal eligible employees will be working for the largest employers in the state who can afford to pay for health coverage. In conclusion, the author states this bill is designed to ensure that the largest employers in the state do not evade their responsibilities under the ACA by cutting hours and eliminating benefits so that their employees qualify for Medi-Cal. This shifts costs onto the public and threatens the fiscal solvency of the state. This bill will also ensure the stability of the Medi-Cal program by paying for the nonfederal state share, increasing reimbursement rates for providers and preserving the health care safety net, thus increasing access to care for low-income Californians. 2)BACKGROUND . On March 23, 2010, President Obama signed comprehensive health reform (the ACA). One of its main objectives is to dramatically increase the number of AB 880 Page 11 individuals with health insurance coverage in this country. By mandating health insurance coverage for all with subsidies to offset the costs for low-income people; expanding Medicaid eligibility; establishing virtual market places, known as health insurance exchanges, to assist individuals and small employers in purchasing health insurance; allowing young adults to remain covered under their parents' health insurance until age 26; and, requiring significant nationwide reforms of state health insurance markets such as requiring health insurers to take all comers despite preexisting conditions, the ACA should lead to the largest expansion of healthcare coverage since the creation of Medicare and Medicaid in the 1960s. By 2014, either a state will establish a separate exchange to offer individual and small-group coverage or the federal government will establish one. Exchanges will not be insurers but will provide eligible individuals and small businesses with access to private plans in a comparable way. In 2014 some individuals with income below 400% FPL will qualify for APTC and cost-sharing reductions, for insurance purchased through an exchange. California has established Covered California. The Supreme Court ruling on the ACA, National Federation of Independent Business v. Sebelius , 132 S. Ct. 2566 (2012), maintained the adult Medicaid expansion, but limited the Secretary of the Federal Health and Human Services' authority to enforce it as mandatory on the states, effectively making implementation of the expansion a state choice. The Supreme Court left the requirements for streamlining and simplification of enrollment for subsidized coverage, as well as, the individual mandate intact. a) Individual Mandate . The ACA requires U.S. citizens and legal residents to have qualifying health coverage. In 2016 and beyond, those without coverage pay a tax penalty up to a maximum of $2,085 per family or 2.5% of household income. The penalty will be phased-in according to the following schedule: $95 per adult in 2014, $325 per adult in 2015, and $695 per adult in 2016 or the flat fee or 1% of taxable income in 2014, 2% of taxable income in 2015, and 2.5% of taxable income in 2016. Beginning after 2016, the penalty will be increased annually by the cost-of-living adjustment. Exemptions will be granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, undocumented immigrants, incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of their AB 880 Page 12 income, and those with incomes below the tax filing threshold (in 2009 the threshold for taxpayers under age 65 was $9,350 for singles and $18,700 for couples). b) Employer Mandate . The ACA assesses employers with an average of 50 or more full-time employees who do not offer coverage and have at least one full-time employee who receives an APTC through the Exchange, a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. Employers with 50 or more full-time employees that offer coverage but have at least one full-time employee receiving an APTC, will pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee, excluding the first 30 employees from the assessment, effective January 1, 2014. Employers with up to 50 full-time employees are exempt from the penalties. The ACA requires employers with more than 200 employees to automatically enroll employees into health insurance plans offered by the employer. Employees may opt out of coverage. The co-sponsors of this bill, California Labor Federation and the United Food and Commercial Workers Western States Council, have provided numerous news reports of the impact of the ACA provisions that apply the large employer mandate to full-time employees in low-wage jobs. For instance, the Huffington Post reported in January, 2012, that Wal-Mart decided to exclude newly hired workers who work fewer than 30 hours per week from its medical plans as an attempt to limit costs while taking advantage of the expansion of Medicaid under the ACA. According to the article, Wal-Mart employees have little control over their schedules because Wal-Mart uses a system that constantly alters shifts and hours according to store traffic and sales figures. Several workers described their oft-changing schedules as a source of fear that they might earn too little to pay their bills. Many said they have begged managers to assign them additional hours only to see their shifts cut further as new workers were hired. According to the article, the new plan detailed in the "2013 Associate's Benefits Book" adds another element to that fear: the risk of losing health coverage. According to the plan, part-time workers hired in or after 2011 are now subject to an "Annual Benefits Eligibility Check" each August, during which managers will review the average number of hours per week that workers AB 880 Page 13 have logged over the past year. If part-time workers hired after February 1, 2012, fail to reach the 30-hour threshold, they will lose benefits the following January. Part-time workers hired after January 15, 2011, but before February 1, 2012, must work at least 24 hours a week to retain coverage and will be subject to an eligibility check each year. Those hired before 2011 aren't subject to the minimum hours requirements or eligibility checks. As for full-time workers under the plan, those who lose hours and slip to part-time at any point during the year will see their spouses' health coverage dropped immediately. Those workers will also lose their dental and life insurance policies in the following pay period, according to the plan. The article also reported that several other employers such as Darden Restaurants, owner of Olive Garden and Red Lobster were considering cutting employee hours to push more workers below the 30-hour threshold. An article in the Financial Times, on February 18, 2013, reported that some restaurants, including Wendy's and Taco Bell franchises have explored slashing worker hours so fewer employees qualify for health insurance. A Fox News story from April 15, 2013, reported that Regal Entertainment, the nation's largest movie theater chain, cut the hours of thousands of employees blaming "Obama Care" in a company memo. Regal Entertainment Group, which operates more than 500 theaters in 38 states, rolled back shifts for non-salaried workers to 30 hours per week, putting them under the threshold at which employers are required to provide health insurance. One Regal theater manager told FoxNews.com the move has sparked a wave of resignations from full-time managers who have seen their hours cut by 25% or more. c) Medicaid . The ACA provides for coordinated, streamlined enrollment processes for all "insurance affordability programs," including Medicaid, CHIP, and APTCs for coverage provided through new exchanges and optional state-established BHPs. With regard to Medicaid, beginning in 2014, the ACA expands eligibility to a new "adult group" and collapses most existing eligibility categories into three broad groups: parents, pregnant women, and children under age 19. The "adult group" includes all non-pregnant individuals ages 19 to 65 with household incomes at or below 133% FPL. (The law includes a five percentage point AB 880 Page 14 of FPL disregard making the effective limit 138% FPL). As required by the ACA, Medicaid financial eligibility for most groups will be based on MAGI, as defined in the Internal Revenue Code. The rule generally adopts MAGI household income counting methods, eliminating various income disregards currently used by states. CMS guidelines also generally align "family size" in the current Medicaid rules with the MAGI definition of "household" and provides household composition rules for individuals, such as non-tax filers, who are not addressed by MAGI methods. Certain groups are exempt from use of MAGI; their financial eligibility will continue to be determined using existing Medicaid rules. Eligibility for the insurance affordability programs at the Exchange will begin with a MAGI screen. If an individual is not found eligible for a MAGI group, the state must collect necessary information and determine eligibility under all other Medicaid eligibility categories (i.e., MAGI-exempt groups, such as disability) and potential eligibility for APTC in an Exchange. States are also required, to the maximum extent possible, to rely on electronic data matches with trusted third party sources to verify information provided by applicants. d) California Healthcare Eligibility, Enrollment, and Retention System (CalHEERS) . The Exchange was established in 2010 by AB 1602 (John A. Pérez), Chapter 655, Statutes of 2010, and SB 900 (Alquist), Chapter 659, Statutes of 2010. Through the Exchange people with incomes up to 400% FPL are eligible for APTCs and those up to 250% FPL are also eligible for additional cost sharing reductions. The ACA requires states to have a single streamlined application for Exchange subsidies, their Medicaid programs, and their CHIP programs. Covered California and DHCS are joint program sponsors of the CalHEERS which is the Information Technology system running both the online application for the Exchange, Medi-Cal, and Access for Infants and Mothers and also the phone service center functions. e) Electronic data matching . The ACA establishes a number of requirements regarding the eligibility and enrollment process with the goal of creating a consumer--friendly, streamlined and coordinated application process. CMS regulations require state Medicaid and CHIP agencies to AB 880 Page 15 develop online single streamlined applications, and build or modernize their eligibility systems to implement MAGI rules and facilitatef) coordination among insurance affordability programs, all of which need to incorporate electronic data sources and verification procedures. Federal regulations require that individuals must not be required to provide additional information or documentation unless information cannot be obtained electronically or the information obtained electronically is not reasonably compatible with self-attested information. 3)Employer PENALTY . This bill requires DHCS to calculate a penalty that will be assessed against and collected from large employers, as defined, whose employees are enrolled in the MAGI-based Medi-Cal program. In so doing, it attempts to rely, to the greatest extent possible, on existing data sources or verification processes, including those that are already required to be developed to implement the ACA. For instance, in order to identify employers with employees enrolled in Medi-Cal, this bill allows DHCS to match income, identity, and eligibility information through EDD in the same fashion as will be done for establishing eligibility for public benefits programs or will be done by the Exchange for APTC eligibility. The employees will be identified by matching the SSN, which is required for Medi-Cal eligibility, against income information currently reported to EDD by employers, also tied to an employee SSN and can be matched to an employer identification number. This bill also relies on wage and withholding information currently reported to EDD for the purposes of collecting Personal Income Tax (PIT), unemployment insurance, and State Disability Insurance (SDI). This bill uses existing EDD employer notification systems and collection processes for collection of the penalty. a) Penalty Calculation. The intent of this bill is to establish a penalty that is 110% of the cost of coverage to similarly situated employers who do not reduce hours to avoid the mandate, adjusted to reflect the fact that the employees are not full-time. The adjustment is accomplished by using data from the California Current Population Survey that reports the number of hours that an average employee enrolled in Medi-Cal works. The calculation is further adjusted because hours are not reported to EDD and the penalty calculation based on the number of hours worked is converted to a dollar amount AB 880 Page 16 using the employer's annual wage payments reported to EDD. b) Cost of coverage. In order to calculate the cost of coverage, this bill relies on two alternative data sources. The first is based on a requirement that for large group health plan contracts, all health plans are required to file with the DMHC and CDI at least 60 days prior to implementing any rate change all required rate information needed to determine whether a proposed rate increase is an unreasonable rate increase as defined by the ACA. According to DMHC the final federal regulation implementing the rate review provisions of the ACA never defined "unreasonable rate" for the large group market. Consequently, as there is no federal definition of "unreasonable rate" for large group plan contracts, the filing requirement cannot be triggered. Accordingly, DMHC, reports that it has not received any large group rate filings. There was no response to a similar request to CDI for this data. This bill provides, as an alternative, use of a statistically valid, scientifically reliable survey of large employers, which may be conducted by a nonprofit foundation established as a result of the conversion of a health care service plan from a nonprofit to for-profit tax status. This is intended to refer to The California Employer Health Benefits Survey which is a joint product of the California HealthCare Foundation (CHCF) and the National Opinion Research Center at the University of Chicago (NORC). The survey was designed and analyzed by researchers at NORC, and administered by National Research LLC (NR). The findings, published April 2013 are based on a random sample of 659 interviews with employee benefit managers in private firms in California. NR conducted interviews from August to December 2012. The sample of firms is drawn from the Dun & Bradstreet list of private employers with three or more workers. The margin of error for responses among all employers is +/- 3.8%; for responses among employers with three to 199 workers it is +/- 5.0%; among employers with 200 or more workers it is +/- 5.9%. The findings for 2012 were that annual premiums for single coverage in California were $6,540, compared to $5, 616 nationally. Family coverage premiums were $16,632 in California and $15,744 nationally. The 2011 Survey AB 880 Page 17 reported that employers in California contributed $5,213 annually for single coverage and $11,921 for family coverage. 4)ANTI-RETALIATION . This bill includes employee protections that are intended to prevent employers from retaliating against an employee who enrolls in Medi-Cal and to prevent employers from asking for information regarding whether the employee has enrolled in Medi-Cal. This is to ensure that this bill is not in conflict with a primary goal of the ACA, which is to reduce the numbers of uninsured by expanding Medi-Cal coverage. The anti- retaliation and other protections are modeled after existing law that prohibits an employer from discharging, discriminating, or retaliating against an employee who is a victim of domestic violence or sexual assault for taking time off from work to attend judicial proceedings or to attend specified medical, domestic violence prevention, or counseling services. That law also states that an employee who is discharged, threatened with discharge, suspended, or in any other manner discriminated against for taking time off for these purposes is entitled to reinstatement and reimbursement for lost wages and work benefits and may file a complaint with the Division of Labor Standards Enforcement. Additionally, an employer that willfully refuses to rehire, promote, or otherwise restore an employee who has been determined to be eligible for rehiring or promotion is guilty of a misdemeanor. 5)SUPPORT . The California Labor Federation, cosponsor of this bill writes in support that the ACA is built on a foundation of individual, employer, and government responsibility. The sponsor further points out that individuals must have health insurance or pay a penalty. According to this support, the government provides subsidies and an expansion of Medicaid. Employers are required to provide affordable coverage or pay a penalty to offset the cost of public subsidies for their full-time employees who go into the state Exchange. However, the California Labor Federation points out that the ACA does not impose a penalty on employers whose workers enroll in Medi-Cal. The sponsor states that this means that employers who pay low-wages, reduce hours, and fail to provide benefits are able to evade the ACA penalties. Essentially employers can shift the cost of health coverage for their employees onto taxpayers. The sponsors argue that this bill closes the loophole in the ACA by requiring large employers to pay their fair share in order to ensure the stability of the Medi-Cal AB 880 Page 18 program and the fiscal solvency of the state. According to the sponsor, it does this by imposing a penalty on large employers with 500 or more employees that have workers enrolled in Medi-Cal. The penalty is equivalent to the average cost of commercial health coverage. They argue that only the largest employers in the state who can afford to provide health coverage to workers are subject to the penalty. According to the sponsor, there are 1,194 businesses with more than 500 employees in the state, but only those businesses that have workers enrolled in Medi-Cal are subject to the penalty, in order to offset the cost to the state of providing that coverage. Furthermore, the sponsor points out that the penalty will be used exclusively to support the Medi-Cal program. The Medi-Cal expansion is the cornerstone of the ACA and will extend coverage to millions of Californians. The penalty revenue will go to pay the nonfederal state share of program costs for workers, to increase the reimbursement rate for providers to ensure access for enrollees and to shore up the safety net for all Californians who need care. The ACA gives the state an opportunity to make health coverage accessible and affordable for all Californians. The California Labor Federation further argues that individuals, government, and employers have to do their part to make the ACA successful and that this bill ensures that employers pay their fair share into the state Medi-Cal program for the benefit of their employees, the Medi-Cal program, and the fiscal health of the state. Other supporters, such as the United Food and Commercial Workers ( co-sponsors) California Teamsters Public Affairs Council, UNITE HERE, California Conference of Machinists, Engineers and Scientists of California, IFPTE Local 20, AFL-CIO, Professional and Technical Engineers, IFPTE Local 21, AFL-CIO, and Utility Workers Union of America, write in support that their unions are proud to have won health benefits for their members and are appalled that many workers in the retail industry end up on taxpayer-funded Medi-Cal even though some of them work for some of the largest and most profitable companies in the country. These supporters further state that the lack of a penalty when a worker makes so little as to end up eligible for Medi-Cal rather than the Exchange gives employers an incentive to cut wages or hours or both in order to evade the employer penalty. In support, they state the penalty is designed to encourage very large employers to offer employer-paid health benefits. AB 880 Page 19 6)OPPOSITION . The California Retailers Association and the California Business Properties Association, write in opposition that the penalty of 110% of the average cost of health insurance provided by large employers is based on individual or family coverage, yet it is estimated to run between $6,000 and $15,745. Citing a Kaiser Family Foundation study, this opposition states the national average cost for individual healthcare coverage in 2012 was $5,615. The opposition states that this bill doesn't even provide employers enough information to comply with the law. Furthermore, the opposition states that this bill would make it illegal to inquire about an employee's enrollment in Medi-Cal or about a family's income. Therefore in order to completely avoid the penalty, employers would have to assume that the wages it pays are the only income received by the employee's family. The opposition further states this bill goes beyond the scope of the ACA by taxing employers that do not provide their employees quality jobs with a host of benefits and will discourage large employers from hiring at a time when California's unemployment rate is one of the highest in the country. The California Chamber of Commerce (Chamber) writes in opposition that this bill would impose a number of significant new penalties on private employers with 500 or more employees in California and would dramatically increase the amount of frivolous litigation under the Labor Code. According to the Chamber this bill goes well beyond the requirements of the ACA in two ways. First, under the ACA, the formula for assessing a penalty on employers who do not offer affordable health care coverage when their employee receives subsidized care is $2,000 annually times the number of full-time employees minus 30. In contrast, the Chamber points out, the formula for assessing a penalty under this bill is based on the cost of health insurance premiums for the employee and the employer which far exceeds $2,000. The Chamber also states that it is unclear whether this bill sets the penalty level at the individual or family level of healthcare coverage. Second, according to this opposition, this bill applies its provisions to part-time as well as full-time employees. The opposition states that it can understand the goals of supporting employer coverage for full-time employees, since this has been a common and expected practice for decades; the "employer responsibility" provisions of the ACA reflected that. AB 880 Page 20 However, this bill would go far beyond common practice and the ACA by applying the penalty to employers whose part-time employees receive Medi-Cal benefits. The Chamber further opposes this bill because it creates a broad protected class of employees and will significantly hamper an employer's ability to manage its workforce. The Chamber points out that this bill extends the Labor Code Private Attorney General Act (PAGA) to include retaliation/discrimination claims that are generally pursued through the Department of Fair Employment and Housing (DFEH) under the Fair Employment and Housing Act (FEHA) and are subject to the exhaustion of administrative remedies. Specifically, instead of filing a retaliation claim through FEHA based upon race or national origin, this bill would allow an employee to side step the exhaustion of administrative remedies that FEHA requires and pursue a PAGA claim for retaliation that allows the employee to obtain statutory penalties, as well as employee only attorney's fees. The Chamber believes discrimination and retaliation type claims that are based on a protected class should be mandated to comply with the administrative process of first submitting such claims to DFEH for review. 7)RELATED LEGISLATION . a) AB 2 X1 (Pan) and SB 2 X1 (Ed Hernandez) enact substantially similar provisions in each bill to implement the ACA insurance provisions related to health insurance regulated under the Insurance Code and the Health and Safety Code, respectively. Ties both bills together so that they both have to be enacted. b) AB 1 X1 (John A. Pérez) and SB 1 X1 (Ed Hernandez and Steinberg) implement various provisions of the ACA regarding Medi-Cal eligibility and program simplification including the use of MAGI and expansion of eligibility in the Medi-Cal program. c) SB 3 X1 (Ed Hernandez) requires Covered California to establish a "bridge" plan product by contracting with Medi-Cal managed care plans for individuals losing Medi-Cal coverage (for example, because of an increase in income), the parents of Medi-Cal children, and individuals with incomes below 200% FPL. d) SB 18 (Ed Hernandez) establishes legislative intent to AB 880 Page 21 enact legislation to reform the individual health care coverage market consistent with the ACA. e) SB 28 (Ed Hernandez and Steinberg) implements various provisions of the ACA regarding Medi-Cal eligibility and program simplification including the use of the MAGI and expansion of eligibility in the Medi-Cal program. a) AB 50 (Pan) requires DHCS to establish a process to implement the ACA provision that allows hospitals to make a preliminary determination of a person's eligibility for Medi-Cal, requires DHCS to revise the existing process used for Medi-Cal enrollees to choose a managed care plan, requires DHCS, in consultation with the Exchange, and stakeholders, establish a new more coordinated process that is consistent with the ACA and allows applications for renewal of a person's Medi-Cal eligibility to be streamlined by prepopulating the form with existing available information. 8)PREVIOUS LEGISLATION . a) AB 43 (Monning) of 2012 would have expanded Medi-Cal coverage to persons with income that does not exceed 133% FPL, effective January 1, 2014 and would have required a transition plan for persons enrolled in a Low Income Health Program (LIHP). AB 43 died on the Senate Inactive File. b) SB 677 (Ed Hernandez) of 2012 would have required DHCS to implement the provisions of the ACA relating to eligibility and benefits in the Medi-Cal program. SB 677 died on the Assembly Inactive File. c) SB 1487 (Ed Hernandez) of 2012 would have required DHCS to extend Medi-Cal eligibility to youth who were formerly in foster care and who are under 26 years of age, subject to federal financial participation being available and to the extent required by federal law. SB 1487 would have also made legislative findings and declarations regarding the ACA, stated legislative intent to ensure full implementation of the ACA, and to enact into state law any provision of the ACA that may be struck down by the US Supreme Court. SB 1487 was held on the Senate Appropriations Committee suspense file. AB 880 Page 22 d) AB 342 (John A. Pérez), Chapter 723, Statutes of 2010, enacts the LIHP and Coverage Expansion and Enrollment Projects to provide health care benefits to uninsured adults up to 200% of the FPL, at county option through a Medi-Cal waiver demonstration project. e) AB 1296 (Bonilla), Chapter 641, Statutes of 2011, the Health Care Eligibility, Enrollment, and Retention Act, requires the California Health and Human Services Agency, in consultation with other state departments and stakeholders, to undertake a planning process to develop plans and procedures regarding these provisions relating to enrollment in state health programs and federal law. AB 1296 also requires that an individual would have the option to apply for state health programs through a variety of means. f) AB 1595 (Jones) of 2010, would have required DHCS to expand Medi-Cal eligibility to individuals with family income up to 133% of FPL without regard to family status by January 1, 2014. AB 1595 died on suspense in the Assembly Appropriations Committee. g) AB 1602 establishes the Exchange as an independent public entity to purchase health insurance on behalf of Californians with incomes of between 100% and 400% FPL and employees of small businesses. Clarifies the powers and duties of the board governing the Exchange relative to the administration of the Exchange, determining eligibility and enrollment in the Exchange, and arranging for coverage under qualified carriers. h) SB 900 establishes the Exchange. Requires the Exchange to be governed by a five-member board, as specified. 9)POLICY COMMENT a) Employer Penalty. The employer penalty is 110% of the estimated average of what it might cost the employer to provide health care coverage to a full-time employee. It is further adjusted by the average amount of hours Medi-Cal enrollees actually work. Therefore it is a proxy for what the employer would actually pay, is based on actual premiums, not the employer contribution and is therefore not based on the employer's actual employees or the actual AB 880 Page 23 cost. The author may want to explain why this is a reasonable methodology. In addition, it is not possible to know the amount without access to the data. The author may also want to give specific scenarios that demonstrate how much an employer might have to pay. b) Use of data sources. The calculation of the penalty is dependent on data sources that may or may not be available and updated on an annual basis. For instance, the most recent California Current Population Survey, produced by the Department of Finance (DOF) does not have the data reported as specified by this bill, but according to DOF could be run from other available data. The cost of coverage data is dependent on a private organization continuing to produce a particular report. The cost of coverage report reference in this bill also doesn't specify whether it is California specific organization. The author may want to consider providing further discretion to DHCS if the current sources become unavailable or more reliable sources become available in the future. REGISTERED SUPPORT / OPPOSITION : Support California Labor Federation (co-sponsor) United Food & Commercial Workers Western States Council (co-sponsor) American Federation of State, County and Municipal Employees, AFL-CIO CA Conference Board of the Amalgamated Transit Union CA Conference of Machinists California Immigrant Policy Center California Nurses Association California Pan Ethnic Network California State Association of Electrical Workers California Teachers Association California Teamsters Public Affairs Council Congress of California Seniors Engineers and Scientists of CA, IFPTE Local 20, AFL-CIO Greenlining Institute Health Access California International Longshore and Warehouse Union Professional and Technical Engineers, IFPTE Local 21, AFL-CIO San Mateo County Central Labor Council AB 880 Page 24 SEIU California UAW Local 5810 United Nurses Association of California/Union of Health Care Professionals UNITE-HERE, AFL-CIO Utility Workers Union of America Opposition California Business Properties Association California Chamber of Commerce California Grocers Association California Lodging Industry Association California Manufacturers and Technology Association California Retailers Association California Restaurant Association Messenger Courier Association of America United Ag Western Growers Analysis Prepared by : Marjorie Swartz / HEALTH / (916) 319-2097