BILL ANALYSIS                                                                                                                                                                                                    ”





                                                                  SB 1182
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          Date of Hearing:  June 24, 2014

                            ASSEMBLY COMMITTEE ON HEALTH
                                 Richard Pan, Chair
                     SB 1182 (Leno) - As Amended:  April 10, 2014

           SENATE VOTE :  21-12
           
          SUBJECT  :  Health care coverage: rate review.

           SUMMARY  :  Requires health plans and insurers in the large group  
          market to file rate information with state regulators when they  
          increase rates by more than 5% and requires health plans and  
          insurers to share specified data with purchasers that have 1,000  
          or more enrollees or that are multiemployer trusts.   
          Specifically,  this bill  :  

          LARGE GROUP RATE FILING

          1)Requires health plans and insurers to submit information to  
            regulators (the Department of Managed Health Care, or DMHC,  
            and the Department of Insurance, or CDI) to review the rates  
            of any large group plan contract or policy 60 days prior to  
            implementing rate increases that exceed 5% of the prior year's  
            rate.  This replaces a provision that required submission of  
            information for unreasonable rate increases.

          2)Requires each rate filing to include:

             a)   Company name and contact information;
             b)   Number of plan contract forms covered by the filing;
             c)   Plan contract form numbers covered by the filing;
             d)   Product type, such as preferred provider organization or  
               health maintenance organization;
             e)   Segment type;
             f)   Type of plan involved, such as for profit or not for  
               profit;
             g)   Whether the products are opened or closed;
             h)   Enrollment in each plan contract and rating form;
             i)   Enrollee months in each plan contract form;
             j)   Annual rate;
             aa)  Total earned premiums in each plan contract form;
             bb)  Total incurred claims in each plan contract form;










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             cc)  Average rate increase initially requested;
             dd)  Review category:  initial filing for new product, filing  
               for existing product, or resubmission;
             ee)  Average rate of increase;
             ff)  Effective date of rate increase;
             gg)  Number of subscribers or enrollees affected by each plan  
               contract form;
             hh)  The plan's overall annual medical trend factor  
               assumptions in each rate filing for all benefits and by  
               aggregate benefit category, as specified, with geographic  
               aggregation limited to nine regions, as defined by DMHC and  
               CDI.  Requires a health plan that exclusively contracts  
               with no more than two medical groups to disclose the amount  
               of its actual trend experience for the prior contract year  
               by aggregate benefit category, as specified;
             ii)  The amount of the projected trend attributable to the  
               use of services, price inflation, or fees and risk for  
               annual plan contract by aggregate benefit category, as  
               specified.  Requires a plan that exclusively contracts with  
               no more than two medical groups, as specified, to disclose  
               the amount of its actual trend experience for the prior  
               contract year by aggregate service category, as specified;
             jj)  A comparison of claims cost and rate of changes over  
               time;
             aaa) Any changes in enrollee cost-sharing over the prior  
               year;
             bbb) Any changes in enrollee benefits over the prior year;
             ccc) A certification by an independent actuary about the  
               reasonableness of the rate increase; and,
             ddd) Any other information required for rate review under the  
               federal Patient Protection and Affordable Care Act (ACA).

          3)Requires annual disclosure of the following aggregate data for  
            products sold in the large group market:  plan/policy year;  
            segment type; product type; number of subscribers; number of  
            covered lives affected; the plan's average rate increase by  
            plan/policy year; segment type; product type; benefit  
            category; and trend attributable to cost and trend  
            attributable to utilization by benefit category.

          4)Requires a health plan or insurer that is unable to provide  
            information on rate increases by benefit categories, as  
            specified, or information on trend attributable to cost and  










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            utilization by benefit category, to annually disclose all of  
            the following aggregate data for its large group contracts or  
            policies:

             a)   The plan's or insurer's overall aggregate data  
               demonstrating or reasonably estimating year-to-year cost  
               increases in the aggregate for large group rates by major  
               service category.  Requires the plan or insurer to  
               distinguish between the increase ascribed to the cost of  
               services provided for those assumptions and that include  
               the following categories:

                i)      Hospital inpatient;
                ii)     Outpatient visits;
                iii)    Outpatient surgical or other procedures;
                iv)     Professional medical;
                v)      Mental health;
                vi)      Substance abuse;
                vii)    Skilled nursing facility, if covered;
                viii)   Prescription drugs;
                ix)     Other ancillary services;
                x)      Laboratory; and,
                xi)     Radiology or imaging;

             b)   The amount of projected trend attributable to use of  
               services by service and disease category, capital  
               investment, and community benefit expenditures; and,

             c)   The amount and proportion of costs attributed to  
               contracting medical groups that would not have been  
               attributable as medical losses if incurred by the plan or  
               health insurer rather than the medical group.

          SHARING OF CLAIMS AND OTHER PATIENT-LEVEL DATA

          5)Requires a health plan or insurer annually to provide claims  
            data at no charge to a large group purchaser upon request, if  
            the purchaser is able to demonstrate its ability to comply  
            with state and federal privacy laws and is either an employer  
            with enrollment of greater than 1,000 covered lives or a  
            multiemployer trust.  

          6)Makes the information shared not subject to public  










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            availability, as specified.

          7)Requires, if claims data are not available, at no charge to  
            the purchaser, all of the following:

             a)   Deidentified data sufficient for the large group  
               purchaser to calculate the cost of obtaining similar  
               services from other health plans or health insurers and  
               evaluate cost-effectiveness by service and disease  
               category;

             b)   Deidentified patient-level data of demographics,  
               prescribing, encounters, inpatient services, outpatient  
               services, and other data, as specified; and,

             c)   Deidentified patient-level data used to experience rate  
               the large group, including diagnostic and procedure coding  
               and costs assigned to each service.

          8)Requires the health plan or insurer to obtain a formal  
            determination from a qualified statistician that the shared  
            data have been deidentified so that the data do not provide a  
            reasonable basis from which to identify an individual.   
            Requires the statistician to certify the formal determination  
            in writing and to, upon request, provide the protocol used for  
            deidentification to the CDI and DMHC.

           EXISTING LAW  : 

          1)Requires individual and small group health plan contract and  
            insurance policy rate information to be filed with DMHC or CDI  
            concurrent with required notices explaining reasons for  
            denials, increases in premium rates, and the plan's average  
            rate increase by plan year, segment type, and product type.

          2)Requires plans and policies for individual and small group  
            health care contracts to be filed with regulators at least 60  
            days prior to implementing any rate change, including  
            disclosures such as average rate increase initially requested,  
            average rate increase, and effective date of rate increase.   
            Authorizes a plan or insurer to provide aggregated additional  
            data that demonstrates, or reasonably estimates, year-to-year  
            cost increases in specific benefit categories in major  










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            geographic regions, defined by regulators, but not more than  
            nine regions.

          3)Requires plan filings to include certification by an  
            independent actuary or actuarial firm that the rate increase  
            is reasonable or unreasonable; if unreasonable, that the  
            justification for the increase is based on accurate and sound  
            actuarial assumptions and methodologies.

          4)Requires rate increase information to be made public 60 days  
            prior to implementation, including justification for any  
            unreasonable rate increases including all information and  
            supporting documentation as to why the rate change is  
            justified.
          5)Requires the regulators to accept and post to their Internet  
            Web sites any public comment on a rate increase submitted to  
            each department during the 60-day period prior to  
            implementation, as specified.

          6)Requires, if DMHC or CDI find that an unreasonable rate  
            increase is not justified or that a rate filing contains  
            inaccurate information, DMHC or CDI to post their findings on  
            their Internet Web sites.

          7)Establishes the following provisions related to disclosure  
            requirements for a health plan that exclusively contracts with  
            no more than two medical groups in the state to provide or  
            arrange for professional medical services for the enrollees of  
            the plan:

             a)   With regard to the plan's overall annual medical trend  
               factor to disclose the amount of its actual trend  
               experience for the prior contract year by aggregate benefit  
               category, using benefit categories that are, to the maximum  
               extent possible, the same or similar to those used by other  
               plans; and,

             b)   With regard to the amount of the projected trend  
               attributable to the use of services, price inflation, or  
               fees and risk for annual plan contract trends by aggregate  
               benefit category, such as hospital inpatient, hospital  
               outpatient, physician services, etc., to instead disclose  
               the amount of its actual trend experience for the prior  










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               contract year by aggregate benefit category, using benefit  
               categories that are, to the maximum extent possible, the  
               same or similar to those used by other plans.

          8)For the large group market, requires health plans and health  
            insurers to file with the DMHC and CDI, at least 60 days prior  
            to implementing any rate change, all required rate information  
            for unreasonable rate increases.  Requires all information  
            that is required by the Affordable Care Act (ACA), and any  
            other information required pursuant to state regulations to be  
            submitted.  Requires disclosure of the following aggregate  
            data for all rate filings submitted:

             a)   Number and percentage of rate filings reviewed by the  
               following:

               i)     Plan year;
               ii)    Segment type;
               iii)   Product type;
               iv)    Number of subscribers; and,
               v)     Number of covered lives affected.

             b)   The plan's average rate increase by the following  
               categories:

               i)     Plan year;
               ii)    Segment type; and,
               iii)   Product type.

          9)Prohibits a health plan from releasing any information to an  
            employer that would directly or indirectly indicate to the  
            employer that an employee is receiving or has received  
            services from a health care provider covered by the plan  
            unless authorized to do so by the employee.  Prohibits an  
            insurer that has, pursuant to an agreement, assumed the  
            responsibility to pay compensation, as specified, from being  
            considered an employer.  States that nothing in this provision  
            prohibits a health plan from releasing relevant information  
            for the purposes of fraud prevention, as specified.

          10)Establishes under federal law, the Health Insurance  
            Portability and Accountability Act of 1996 (HIPAA), which  
            among various provisions, mandates industry-wide standards for  










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            health care information on electronic billing and other  
            processes; and requires the protection and confidential  
            handling of protected health information.

          11)Establishes under state law, the Confidentiality of Medical  
            Information Act which governs the disclosure of medical  
            information by health care providers, the Knox-Keene Health  
            Care Service Plan Act of 1975 (Knox-Keene) regulated plans,  
            health care clearinghouses and employers.

           FISCAL EFFECT  : According to the Senate Appropriations Committee:

          1)Likely costs in the tens of thousands to low hundreds of  
            thousands per year to develop regulations, review insurance  
            plan rate filings, respond to complaints, and take enforcement  
            actions by CDI (Insurance Fund).

          2)One-time costs of about $715,000 in 2014-15 and $960,000 in  
            2015-16 and ongoing costs of about $685,000 per year  
            thereafter to develop regulations, review health plan rate  
            filings, respond to complaints, and take enforcement actions  
            by DMHC (Managed Care Fund).

           COMMENTS  :

           1)PURPOSE OF THIS BILL  .  The author writes the rising cost of  
            health care is a major concern for employers in California,  
            and the lack of transparency in pricing for the large group  
            market has contributed to uncontrolled cost increases for  
            large employers and union trusts.  According to the 2014  
            California Employer Health Benefits Survey, health premiums in  
            California rose by 185% since 2002, more than five times the  
            state's overall inflation rate.  In addition, one in four  
            California employers reported that they reduced benefits or  
            increased employee cost sharing in the last year because of  
            the rising cost of health care.  

          The ACA requires state regulators to collect detailed  
            information regarding premium increases and to make this  
            information publicly available.  SB 1163 (Leno), Chapter 661,  
            Statutes of 2010, required health plans and insurers to  
            provide regulators and consumers with critical data and  
            information documenting the true drivers of premium increases.  










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             The author contends that, since its enactment in 2011, SB  
            1163 has saved California consumers in the individual and  
            small group markets nearly $400 million.  This bill is  
            intended to further transparency efforts and protect large  
            employers and their employees and dependents from  
            unjustifiable rate increases through transparency.

           2)BACKGROUND  .  

             a)   Health care premiums in the group market.  The Medical  
               Expenditure Panel Survey (MEPS) insurance component is a  
               survey of business establishments and governments that  
               collects information on employer-sponsored health  
               insurance, such as whether insurance is offered,  
               enrollments, types of plans, and premiums.  The survey is  
               conducted annually by the U.S. Census Bureau under the  
               sponsorship of the Agency for Healthcare Research and  
               Quality (AHRQ).  MEPS data tables from 2012 show average  
               annual premiums for private sector employer coverage in  
               California of $5,422, compared with premiums of $2,936 in  
               2002, an 85% increase, or an average 6.3% yearly increase.   
               For family coverage, premiums increased from $8,380 in 2002  
               to $15,898 in 2012, a 90% increase, or an average 6.6%  
               yearly increase.  For comparison, prices for goods and  
               services increased 27.6%, an average yearly rate of about  
               2.5%, between 2002 and 2012, according to the Bureau of  
               Labor Statistics' Consumer Price Index.

             b)   Market segments and employer-based coverage.  According  
               to estimates by the California Health Benefits Review  
               Program (CHBRP), the large group health insurance market in  
               California includes 11.8 million enrollees, compared to the  
               small and individual groups, which, combined, include 6.6  
               million.  However, there are indications that the group  
               market is eroding.  A recent survey by the California  
               HealthCare Foundation indicates the proportion of  
               California employers offering coverage has declined  
               significantly over the last decade, from 69% in 2000 to 61%  
               in 2013.  Coverage is offered to employees at a higher rate  
               at larger firms, firms with higher wages, and firms with  
               some union workers.  California workers paid an average of  
               22% of the total premium for single coverage and 33% for  
               family coverage in 2013, significantly higher shares than  










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               in the previous year.  California's HMO premiums have been  
               higher than the national average since 2010, a shift from  
               the previous decade.  Nearly one-third of covered workers  
               in small firms had a deductible of $1,000 or more for  
               single coverage in 2013, up from just 7% in 2006.  In large  
               firms, only 9% had a deductible of $1,000 or more.  One in  
               four California firms reported that they reduced benefits  
               or increased cost sharing in the last year.  California  
               employers viewed consumer directed health plans, disease  
               management, and changes in care delivery and payment as the  
               most effective at controlling health care costs.

             c)   Rate review in California.  The ACA requires the federal  
               Department of Health and Human Services Secretary, in  
               conjunction with states, to establish a process for the  
               annual review of "unreasonable increases in premiums" for  
               health insurance coverage. Under the ACA, starting  
               September 1, 2011, insurance companies seeking to increase  
               premium rates in the individual or small group markets, as  
               specified are required to justify and submit for review by  
               experts, the need for the rate increase by providing  
               information on the factors contributing to the proposed  
               increase.  Forty-four states have programs to review the  
               proposed increases.  The ACA established the Rate Review  
               Grants Program, a $250 million program providing states  
               with funds to strengthen and improve their rate review  
               processes, monitor premium increases, and make health  
               insurance rates understandable for all consumers.  On  
               August 16, 2010, the DMHC and the CDI were jointly awarded  
               $1 million to establish and enhance their premium rate  
               review process in California.

               SB 1163 (Leno) of 2010 established rate review provisions  
               in state law.  For large group filings, SB 1163 required  
               health plans to submit all information required by ACA and  
               any additional information adopted through regulation by  
               DMHC necessary to comply with the bill.  The rate review  
               provisions in ACA have not been applied to the large group  
               market and DMHC and CDI have not adopted regulations to  
               establish rate review for the large group market in  
               California.  

               Under current rate review law, and under the provisions of  










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               this bill, regulators do not have the authority to modify  
               or reject rate changes; however, rate review has increased  
               transparency on rate increases in the individual and small  
               group market.

           3)SUPPORT  .  The California Labor Federation (Labor Fed), a  
            co-sponsor of this bill, writes that rising health care costs  
            are taking a toll on employers, workers, and union trust  
            funds.  Premiums for employer health insurance plans have  
            risen 185% since 2002, more than five times the increase in  
            the state's overall inflation.  The Labor Fed argues every  
            dollar that large purchasers have to put toward health  
            coverage is a dollar that comes out of workers' pockets.  The  
            Labor Fed contends that, in the individual and small group  
            market, rate review has increased scrutiny and public  
            attention to rate increases and has resulted in $300 million  
            in savings for consumers.  The Labor Fed suggests that this  
            bill's rate filing requirement could similarly create savings  
            in the large group market.  Finally, the Labor Fed argues that  
            this bill's requirement for health plans to disclose claims  
            data to large purchasers will help those purchasers understand  
            health care cost drivers, institute cost savings programs, and  
            bargain effectively with health plans.  

          UNITE HERE, AFL-CI, also a co-sponsor, describes programs in Las  
            Vegas, Atlantic City, and New York City that have met the  
            triple aim of slowing cost increases, improving care quality,  
            and improving the health of members.  UNITE HERE states this  
            goal was achieved by intense management of the care of members  
            and careful design of benefits to meet low wage workers'  
            needs.  In Las Vegas, health care costs were reduced by $67  
            million over 18 months while outcomes were improved by  
            eliminating copays for diabetes care, working with casinos to  
            provide health meals, and intense diabetes care management.   
            The result, according to UNITE HERE, was a wage increase for  
            its members, a strike avoided, and better health for workers.   
            UNITE HERE argues that its attempts to implement similar  
            strategies in California have been stymied by Kaiser  
            Permanente and other HMOs, which would not provide robust and  
            timely patient-level data needed to design care management  
            programs.  UNITE HERE further states it has worked with the  
            American Civil Liberties Union to assure the data sharing  
            requirements in this bill protect the privacy of workers,  










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            creating patient privacy protections that are stronger than  
            federal requirements.

          Numerous unions, in support, attest that some of their trust  
            funds spend more per hour on health benefits than the San  
            Francisco minimum wage, a situation that is outrageous and  
            unsustainable.  These supporters write this bill will help  
            them determine whether health plans are shifting costs from  
            the individual and small employer markets to large purchasers.  
             These supporters further state that, contrary to Governor  
            Brown's exhortation in his veto of SB 746 (Leno) of 2013, they  
            have not yet received the data necessary to analyze health  
            care costs.  

          Health Access California, which was the sponsor of SB 1163,  
            states that the intention of that legislation was for rate  
            review to apply in the large group market, but, contrary to  
            expectations when that law was passed, the federal government  
            has not yet defined unreasonable rate increases.  CALPIRG, in  
            support, argues that by holding insurers accountable for  
            justifying their requested rate increases and allowing for a  
            public dialogue, rate review can be a powerful tool to prevent  
            excessive rate hikes from private insurers.  CALPIRG asserts  
            that state regulators have reported an estimated $349 million  
            in savings for consumers in the individual and small group  
            markets due to rate review since 2011.  Since large group  
            products serve the majority of the private insurance market in  
            California, CALPIRG predicts this bill will enable state  
            regulators to save consumers millions of dollars more.
           4)OPPOSITION  .  America's Health Insurance Plans (AHIP), in  
            opposition, argue large group plans are very sophisticated in  
            their product designs, which are often tailored to the needs  
            of the large group purchaser.  AHIP notes the U.S.  Department  
            of Health and Human Services determined that regulatory review  
            of large groups was unnecessary under the ACA on the basis  
            that market forces that keep premiums from being unreasonable  
            in the large group market.  AHIP argues that this bill, by  
            placing an administrative burden on large groups, this bill  
            will encourage the groups to move to self-insured plans, which  
            are outside the regulatory jurisdiction of the state and which  
            do not provide the state with revenue through premium taxes.  

          The California Association of Health Plans argues that current  










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            law creates an adequate framework for large group rate review,  
            should the federal government choose to require it.  CAHP  
            estimates that there are over 14,000 large group products that  
            must be filed with DMHC if they were subject to regulatory  
            review, each of which would be subject to costly independent  
            actuarial certification.  The Association of California Life  
            and Health Insurance Companies states it is critical to put  
            all resources toward implementing the ACA in a meaningful way  
            rather than implementing costly, unnecessary, and  
            time-consuming new requirements.  

          The California Chamber of Commerce (CalChamber) argues this  
            bill's rate review process could actually make large group  
            plans more expensive.  CalChamber argues that rate review does  
            nothing to control the underlying cost drivers in health care,  
            such as prices charged by providers, utilization by enrollees,  
            and new medical technologies, but instead adds administrative  
            expenses that will be passed on to purchasers.  CalChamber  
            concedes that the transparency created by current rate review  
            law has led some health plans to roll back increases in  
            California, but that expanding review will only increase  
            workload for regulators and drive up costs for employers.

           5)RELATED LEGISLATION  .  

             a)   AB 1558 (Roger HernŠndez) creates the California Health  
               Data Organization within the University of California to  
               organize data provided by health plans and insurers on a  
               website to allow consumers to compare the prices paid for  
               procedures, as specified.  AB 1558 is currently in the  
               Senate Health Committee4.

             b)   SB 746 (Leno) would have established new data reporting  
               requirements on all health plans applicable to products  
               sold in the large group market and established new specific  
               data reporting requirements, as well as claims data or  
               deidentified patient-level data, as specified, for a health  
               plan that exclusively contracts with no more than two  
               medical groups in the state to provide or arrange for  
               professional medical services for the enrollees of the plan  
               (referring to Kaiser Permanente). SB 746 was vetoed by the  
               Governor. In his veto message, the Governor stated:











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                    This bill would require all health plans and insurers  
                    to disclose every year broad data relating to services  
                    used by large employer groups, including aggregate  
                    rate increases by benefit category. The bill also  
                    requires that one health plan additionally provide  
                    anonymous claims data or patient level data upon  
                    request and without charge to large purchasers. I  
                    support efforts to make health care costs more  
                    transparent, and my administration is moving forward  
                    to establish transparency programs that will cover all  
                    health plans and systems. I urge all parties to work  
                    together in this effort. If these voluntary efforts  
                    fail, I will seriously consider stronger actions.

             c)   SB 1322 (Ed Hernandez) creates the California Health  
               Care Cost and Quality Database to receive and report  
               information from all types of health care entities.  SB  
               1322 is currently in this Committee.

             d)   SB 1340 (Ed Hernandez) expands provisions related to gag  
               clauses in contracts between health plans or insurers and  
               providers.  SB 1340 is pending on the Assembly Floor.

           6)PREVIOUS LEGISLATION  . SB 1163 of 2010 requires health plans  
            and health insurers to file with DMHC and CDI specified rate  
            information for individual and small group coverage at least  
            60 days prior to implementing any rate change.  Requires the  
            filings in the case of large group contracts only for  
            unreasonable rate increases prior to implementing any such  
            rate change. Makes additional changes related to notification  
            requirements for enrollees and insureds.
           
           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Labor Federation (cosponsor)
          Teamsters (cosponsor)
          UNITE HERE (cosponsor)
          American Federation of State, County, and Municipal Employees
          California Alliance of Retired Americans
          California Conference Board of the Amalgamated Transit Union
          California Conference of Machinists










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          California Nurses Association
          California Professional Firefighters
          California Retired Teachers Association
          California School Employees Association
          CALPIRG
          California Teachers Association
          California Teamsters Public Affairs Council 
          Congress of California Seniors
          Engineers and Scientists of California, IFPTE Local 20, AFL-CIO
          Health Access
          Health Care for All California
          International Longshore and Warehouse Union
          Professional and Technical Engineers, IFPTE Local 21, AFL-CIO
          San Diego Electrical Health and Welfare Trust
          Services Employees International Union California
          State Building and Construction Trades Council
          Utility Workers Union of America, Local 132
           
           

           Opposition 
           
          America's Health Insurance Plans
          Anthem Blue Cross
          Association of California Life & Health Insurance Companies
          California Association of Health Plans
          California Association of Health Underwriters
          California Chamber of Commerce
          Kaiser Permanente

           Analysis Prepared by  : Ben Russell / HEALTH / (916) 319-2097