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