BILL ANALYSIS                                                                                                                                                                                                    Ó

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          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  


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            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  

          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.


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          10)Requires the employer responsibility penalty to be adjusted  
            annually based on wage and enrollment data from the prior  

          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  

          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)  


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            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  

             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  

             d)   ACA sets a standard for what constitutes affordable,  
               employment-based coverage and imposes penalties on any  


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               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, 


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             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  

             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  


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            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  


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          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  

          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%  

          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  

          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  

           COMMENTS  :


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           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  

          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  


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            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  

          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  


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            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  


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               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  


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               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 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  


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               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  

              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  

              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
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               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  

           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
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            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.  


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                                                                  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  

             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. 



           California Labor Federation (co-sponsor)
          United Food & Commercial Workers Western States Council  
          American Federation of State, County and Municipal Employees,  
          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  
          Utility Workers Union of America

          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)