Amended in Senate June 16, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 124


Introduced by Committee on Budget (Weber (Chair), Bloom, Bonta, Campos, Chiu, Cooper, Gordon, Jones-Sawyer, McCarty, Mullin, Nazarian, O'Donnell, Rodriguez, Thurmond, Ting, and Williams)

January 9, 2015


begin deleteAn act relating to the Budget Act of 2015. end deletebegin insertAn act to amend Sections 22775, 22781, 22844, 22865, 22866, and 22940 of, to add Section 22843.1 to, and to repeal Section 12439 of, the Government Code, relating to state government, and making an appropriation therefor, to take effect immediately, bill related to the budget.end insert

LEGISLATIVE COUNSEL’S DIGEST

AB 124, as amended, Committee on Budget. begin deleteBudget Act of 2015. end deletebegin insertState government.end insert

begin insert

(1) The Public Employees’ Medical and Hospital Care Act (PEMHCA), which is administered by the Board of Administration of the Public Employees’ Retirement System, governs the funding and provision of postemployment health care benefits for eligible retired public employees and their families. PEMHCA defines “family member” for these purposes. PEMHCA authorizes the board to contract with carriers offering health benefit plans and prohibits employees, annuitants, and their family members who are eligible for Medicare, as specified, from enrolling in a basic health benefit plan. PEMHCA requires the board to make certain notifications and reports to the Legislature in connection with health benefit plans offered pursuant to its provisions.

end insert
begin insert

This bill would clarify the definition of family for the purposes of PEMHCA by specifically excluding former spouses and former domestic partners. The bill would require the employing office, as specified, of a state employee or state annuitant, pursuant to standards established by the Department of Human Resources, to possess documentation verifying eligibility of an employee’s family member prior to the enrollment of a family member in a health benefit plan and to verify continued eligibility pursuant to a specified schedule. The bill would prohibit the board from granting further exceptions to the rule against enrolling in employees, annuitants, and their family members who are eligible for Medicare, as specified, in a basic health benefit plan. The bill would revise the entities to which the board is required to provide notification of approval of proposed benefit and premium readjustments to exclude the Legislature as a whole and to instead require provision of an initial estimate of proposed changes in writing to the Joint Legislative Budget Committee, the chairpersons of the committees and subcommittees in each house of the Legislature that consider the Public Employees’ Retirement System’s budget and activities, the State Controller, the Director of Finance, and the Legislative Analyst. The bill would specify the latest date that this notification may take place. The bill would require the board to provide a specified, detailed report to the Legislature and the Director of Finance annually, on November 1, regarding the health benefit plans it provides.

end insert
begin insert

(2) PEMHCA establishes the Annuitants’ Health Care Coverage Fund, which is continuously appropriated for the purpose of prefunding of health care coverage for annuitants, including administrative costs. PEMHCA defines “prefunding” for these purposes.

end insert
begin insert

This bill would prohibit the use of certain state funds in the Annuitants’ Health Care Coverage Fund for the payment of benefits until the earlier of 2 specified dates. The bill would revise the definition of prefunding to include employee as well as employer payments and to provide that payments may fund the actuarially determined normal costs of postemployment health care benefits. By providing a new funding source for a continuously appropriated fund, this bill would make an appropriation.

end insert
begin insert

(3) Existing law prescribes the duties of the Controller, which generally regard supervision of the fiscal concerns of the state. Existing law requires the Controller to abolish a state position that is vacant for 6 consecutive monthly pay periods on the following July 1, and permits the Director of Finance to authorize reestablishment of a position abolished pursuant to this authority under certain conditions. Among other things, existing law requires the Controller to reestablish a position abolished pursuant to this authority if the director of the department in which that position existed prior to abolishment makes a certification by August 15, as specified.

end insert
begin insert

This bill would repeal the provisions pertaining to vacant positions described above.

end insert
begin insert

This bill would declare that it is to take effect immediately as a bill providing for appropriations related to the Budget Bill.

end insert
begin delete

This bill would express the intent of the Legislature to enact statutory changes relating to the Budget Act of 2015.

end delete

Vote: majority. Appropriation: begin deleteno end deletebegin insertyesend insert. Fiscal committee: begin deleteno end deletebegin insertyesend insert. State-mandated local program: no.

The people of the State of California do enact as follows:

P3    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 12439 of the end insertbegin insertGovernment Codeend insertbegin insert is
2repealed.end insert

begin delete
3

12439.  

(a) Beginning July 1, 2002, any state position that is
4vacant for six consecutive monthly pay periods shall be abolished
5by the Controller on the following July 1. The six consecutive
6monthly pay periods may occur entirely within one fiscal year or
7between two consecutive fiscal years.

8(b) The Director of Finance may authorize the reestablishment
9of any positions abolished pursuant to this section if one or more
10of the following conditions existed during part or all of the six
11consecutive monthly pay periods:

12(1) There was a hiring freeze in effect during part or all of the
13six consecutive pay periods.

14(2) The department has diligently attempted to fill the position,
15but was unable to complete all the steps necessary to fill the
16position within six months.

17(3) The position has been designated as a management position
18for purposes of collective bargaining and has been held vacant
19pending the appointment of the director, or other chief executive
20officer, of the department as part of the transition from one
21Governor to the succeeding Governor.

22(4) The classification of the position is determined to be
23hard-to-fill.

P4    1(5) Late enactment of the budget causes the department to delay
2filling the position.

3(c) The Controller shall reestablish any position for which the
4director of the department in which that position existed prior to
5abolishment certifies by August 15 that one or more of the
6following conditions existed during part or all of the six
7consecutive pay periods:

8(1) The position is necessary for directly providing 24-hour care
9in an institution operated by the state.

10(2) The position is necessary for the state to satisfy any licensing
11requirements adopted by a local, state, or federal licensing or other
12regulatory agency.

13(3) The position is directly involved in services for public health,
14public safety, or homeland security.

15(4) The position is being held vacant because the previous
16incumbent is eligible to exercise a mandatory right of return from
17a leave of absence as may be required by any provision of law
18including, but not limited to, leaves for industrial disability,
19nonindustrial disability, military service, pregnancy, childbirth, or
20care of a newborn infant.

21(5) The position is being held vacant because the department
22has granted the previous incumbent a permissive leave of absence
23as may be authorized by any provision of law including, but not
24limited to, leaves for adoption of a child, education, civilian
25military work, or to assume a temporary assignment in another
26agency.

27(6) Elimination of the position will directly reduce state revenues
28or other income by more than would be saved by elimination of
29the position.

30(7) The position is funded entirely from moneys appropriated
31pursuant to Section 221 of the Food and Agricultural Code, was
32established with the Controller pursuant to Section 221.1 of the
33Food and Agricultural Code, and directly responds to unforeseen
34agricultural circumstances requiring the relative expertise that the
35position provides.

36(d) Each department shall maintain for future independent audit
37all records on which the department relied in determining that any
38position or positions satisfied one or more of the criteria specified
39in paragraphs (1) to (6), inclusive, of subdivision (c).

P5    1(e) The only other exceptions to the abolishment required by
2subdivision (a) are those positions exempt from civil service or
3those instructional and instruction-related positions authorized for
4the California State University. No money appropriated by the
5subsequent Budget Act shall be used to pay the salary of any
6otherwise authorized state position that is abolished pursuant to
7this section.

8(f) The Controller, no later than September 10 of each fiscal
9year, shall furnish the Department of Finance in writing a
10preliminary report of any authorized state positions that were
11abolished effective on the preceding July 1 pursuant to this section.

12(g) The Controller, no later than October 15 of each fiscal year,
13shall furnish the Joint Legislative Budget Committee and the
14Department of Finance a final report on all positions that were
15abolished effective on the preceding July 1.

16(h) Departments shall not execute any personnel transactions
17for the purpose of circumventing the provisions of this section.

18(i) Each department shall include a section discussing its
19compliance with this section when it prepares its report pursuant
20to Section 13405.

21(j) As used in this section, department refers to any department,
22agency, board, commission, or other organizational unit of state
23government that is empowered to appoint persons to civil service
24positions.

25(k) This section shall become operative July 1, 2002.

end delete
26begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 22775 of the end insertbegin insertGovernment Codeend insertbegin insert is amended to
27read:end insert

28

22775.  

“Family member” means an employee’s or annuitant’s
29spouse or domestic partner and any child, including an adopted
30child, a stepchild, or recognized natural child. The board shall, by
31regulation, prescribe age limits and other conditions and limitations
32pertaining to children.begin insert “Family member” does not include a former
33spouse or former domestic partner of an employee or annuitant.end insert

34begin insert

begin insertSEC. 3.end insert  

end insert

begin insertSection 22781 of the end insertbegin insertGovernment Codeend insertbegin insert is amended to
35read:end insert

36

22781.  

“Prefunding” means the making of periodic payments
37by an employerbegin insert or employeeend insert to partially or completelybegin insert fund orend insert
38 amortize thebegin insert actuarially determined normal costs orend insert unfunded
39actuarial obligation of the employer forbegin insert postemploymentend insert health
40begin insert careend insert benefits provided to annuitants and their family members.

P6    1begin insert

begin insertSEC. 4.end insert  

end insert

begin insertSection 22843.1 is added to the end insertbegin insertGovernment Codeend insertbegin insert, to
2read:end insert

begin insert
3

begin insert22843.1.end insert  

(a) Pursuant to standards established by the
4Department of Human Resources, the employing office of a state
5employee or state annuitant shall possess documentation verifying
6eligibility of an employee’s or annuitant’s family member prior to
7the enrollment of a family member in a health benefit plan. The
8employing office shall maintain the verifying documentation in the
9employee or annuitant’s official personnel or member file.

10(b) The employing office of the state employee or state annuitant
11shall obtain verifying documentation to substantiate the continued
12eligibility of family members as follows:

13(1) At least once every three years for the following family
14members:

15(A) Spouses.

16(B) Domestic partners.

17(C) Children and stepchildren.

18(D) Domestic partner children.

19(2) At least once annually for other children for whom the state
20employee or state annuitant has assumed a parent-child
21relationship.

22(c) For purposes of this section, the Public Employees’
23Retirement System is the employing office of a state annuitant.

end insert
24begin insert

begin insertSEC. 5.end insert  

end insert

begin insertSection 22844 of the end insertbegin insertGovernment Codeend insertbegin insert is amended to
25read:end insert

26

22844.  

(a) Employees, annuitants, and family members who
27become eligible to enroll on or after January 1, 1985, in Part A
28and Part B of Medicarebegin delete mayend deletebegin insert shallend insert not be enrolled in a basic health
29benefit plan. If the employee, annuitant, or family member is
30enrolled in Part A and Part B of Medicare, he or she may enroll
31in a Medicare health benefit plan.

32(b) Employees, annuitants, and family members enrolled in a
33prescription drug plan under Part D of Medicarebegin delete mayend deletebegin insert shallend insert not be
34enrolled in a board-approved health benefit plan. This subdivision
35does not apply to an individual enrolled in a board-approved or
36offered health benefit plan that provides a prescription drug plan
37or qualified prescription drug coverage under Part D of Medicare
38as part of its benefit design.

P7    1(c) This section does not apply to employees and family
2members that are specifically excluded from enrollment in a
3Medicare health benefit plan by federal law orbegin insert federalend insert regulation.

begin insert

4(d) The board shall not grant any further exemptions to this
5section after July 1, 2015.

end insert
6begin insert

begin insertSEC. 6.end insert  

end insert

begin insertSection 22865 of the end insertbegin insertGovernment Codeend insertbegin insert is amended to
7read:end insert

8

22865.  

begin delete Priorend deletebegin insert Not later than 30 days priorend insert to the approval of
9begin delete proposedend delete benefits and premium readjustments authorized under
10Section 22864, the board shallbegin delete notifyend deletebegin insert provide an initial estimate
11of proposed changes and costs in writing toend insert
thebegin delete Legislature,end deletebegin insert Joint
12Legislative Budget Committee,end insert
thebegin insert chairpersons of the committees
13and subcommittees in each house of the Legislature that consider
14the Public Employees’ Retirement System’s budget and activities,
15the State Controller, theend insert
Trustees of the California State University,
16begin delete andend delete the Department of Humanbegin delete Resourcesend deletebegin insert Resources, the Directorend insert
17 ofbegin insert Finance, andend insert thebegin delete proposed changes in writing.end deletebegin insert Legislative
18Analyst.end insert

19begin insert

begin insertSEC. 7.end insert  

end insert

begin insertSection 22866 of the end insertbegin insertGovernment Codeend insertbegin insert is amended to
20read:end insert

21

22866.  

begin insert (a)end insertbegin insertend insert The board shall report to the Legislaturebegin insert and the
22Director of Financeend insert
annually, on November 1, regarding the
23begin delete success or failure of eachend delete healthbegin delete benefit plan.end deletebegin insert benefits program.end insert
24 The report shall include, but not be limitedbegin delete to, the costsend delete to thebegin delete board
25and to participants, the degree of satisfaction of members and
26annuitants with the health benefit plans and with the quality of the
27care provided, as determined by a representative sampling of
28participants, and the level of accessibility to preferred providers
29for rural members who do not have access to health maintenance
30organizations.end delete
begin insert following:end insert

begin insert

31(1) General overview of the health benefits program, including,
32but not limited to, the following:

end insert
begin insert

33(A) Description of health plans and benefits provided, including
34essential and nonessential benefits as required by state and federal
35law, member expected out-of-pocket expenses, and actuarial value
36by metal tier as defined by the federal Patient Protection and
37Affordable Care Act (Public Law 111-148), as amended by the
38federal Health Care and Education Reconciliation Act of 2010
39(Public Law 111-152).

end insert
begin insert

40(B) Geographic coverage.

end insert
begin insert

P8    1(C) Historic enrollment information by basic and medicare
2plans, by state and contract agencies, by active and retired
3membership, and by subscriber and dependent tier.

end insert
begin insert

4(D) Historic expenditures by basic and medicare plans, by state
5and contract agencies, by active and retired membership, and by
6subscriber and dependent tier.

end insert
begin insert

7(2) Reconciliation of premium increases or decreases from the
8prior plan year, and the reasons for those changes.

end insert
begin insert

9(A) Description of benefit design and benefit changes, including
10prescription drug coverage, by plan. The description shall detail
11whether benefit changes were required by statutory mandate,
12federal law, or an exercise of the board’s discretion, the costs or
13savings of the benefit change, and the impact of how the changes
14fit into a broader strategy.

end insert
begin insert

15(B) Discussion of risk.

end insert
begin insert

16(C) Description of medical trend changes in aggregate service
17categories for each plan. The aggregate service categories used
18shall include the standard categories of information collected by
19the board, consisting of the following: inpatient, emergency room,
20ambulatory surgery, office, ambulatory radiology, ambulatory
21lab, mental health and substance abuse, other professional,
22prescriptions, and all other service categories.

end insert
begin insert

23(D) Reconciliation of past year premiums against actual
24enrollments, revenues, and accounts receivables.

end insert
begin insert

25(3) Overall member health as reflected by data on chronic
26conditions.

end insert
begin insert

27(4) The impact of federal subsidies or contributions to the health
28care of members, including Medicare Part A, Part B, Part C, or
29Part D, low-income subsidies, or other federal program.

end insert
begin insert

30(5) The cost of benefits beyond Medicare contained in the
31board’s Medicare supplemental plans.

end insert
begin insert

32(6) A description of plan quality performance and member
33satisfaction, including, but not limited to, the following:

end insert
begin insert

34(A) The Healthcare Effectiveness Data and Information Set,
35referred to as HEDIS.

end insert
begin insert

36(B) The Medicare star rating for Medicare supplemental plans.

end insert
begin insert

37(C) The degree of satisfaction of members and annuitants with
38the health benefit plans and with the quality of the care provided,
39to the extent the board surveys participants.

end insert
begin insert

P9    1(D) The level of accessibility to preferred providers for rural
2members who do not have access to health maintenance
3organizations.

end insert
begin insert

4(E) Other applicable quality measurements collected by the
5board as part of the board’s health plan contracts.

end insert
begin insert

6(7) A description of risk assessment and risk mitigation policy
7related to the board’s self-funded and flex-funded plan offerings,
8including, but not limited to the following:

end insert
begin insert

9(A) Reserve levels and their adequacy to mitigate plan risk.

end insert
begin insert

10(B) The expected change in reserve levels and the factors leading
11to this change.

end insert
begin insert

12(C) Policies to reduce excess reserves or rebuild inadequate
13reserves.

end insert
begin insert

14(D) Decisions to lower premiums with excess reserves.

end insert
begin insert

15(E) The use of reinsurance and other alternatives to maintaining
16reserves.

end insert
begin insert

17(8) Description and reconciliation of administrative
18expenditures, including, but not limited to, the following:

end insert
begin insert

19(A) Organization and staffing levels, including salaries, wages,
20and benefits.

end insert
begin insert

21(B) Operating expenses and equipment expenditure items,
22including, but not limited to, internal and external consulting and
23intradepartmental transfers.

end insert
begin insert

24(C) Funding sources.

end insert
begin insert

25(D) Investment strategies, historic investment performance, and
26expected investment returns of the Public Employees’ Contingency
27Reserve Fund and the Public Employees’ Health Care Fund.

end insert
begin insert

28(9) Changes in strategic direction and major policy initiatives.

end insert
begin insert

29(b) A report submitted pursuant to subdivision (a) shall be
30provided in compliance with Section 9795.

end insert
31begin insert

begin insertSEC. 8.end insert  

end insert

begin insertSection 22940 of the end insertbegin insertGovernment Codeend insertbegin insert is amended to
32read:end insert

33

22940.  

begin insert (a)end insertbegin insertend insert There is in the State Treasury the Annuitants’
34Health Care Coverage Fund that is a trust fund and a retirement
35fund, within the meaning of Section 17 of Article XVI of the
36California Constitution.begin delete Notwithstandingend deletebegin insert Subject to the limitation
37provided in subdivision (b), notwithstandingend insert
Section 13340, all
38moneys in the fund are continuously appropriated without regard
39to fiscal years to the board for expenditure for the prefunding of
40health care coverage for annuitants pursuant to this part, including
P10   1administrative costs. The board has sole and exclusive control and
2power over the administration and investment of the Annuitants’
3Health Care Coverage Fund and shall make investments pursuant
4to Part 3 (commencing with Section 20000).

begin insert

5(b) (1) Moneys accumulated in the designated state subaccounts
6of the fund, or a successor fund, that are derived from investment
7income shall not be used to pay benefits for state annuitants and
8dependents until the earlier of:

end insert
begin insert

9(A) With regard to a particular designated state subaccount,
10the date the funded ratio of the designated state subaccount reaches
11at least 100 percent as determined in that employer’s
12postemployment benefits actuarial valuation and then only for the
13purpose of paying benefits for state annuitants and dependents
14associated with that subaccount.

end insert
begin insert

15(B) July 1, 2046.

end insert
begin insert

16(2) For purposes of this subdivision, “designed state
17 subaccount” means a separate account maintained within the fund
18to identify prefunding contributions and assets attributable to a
19specified state collective bargaining unit or other state entity for
20the purpose of providing benefits to state annuitants and
21dependents associated with a specified collective bargaining unit
22or other state entity.

end insert
begin insert

23(3) This subdivision shall not be construed as prohibiting an
24alternative funding strategy agreed to in a written memorandum
25of understanding.

end insert
26begin insert

begin insertSEC. 9.end insert  

end insert
begin insert

This act is a bill providing for appropriations related
27to the Budget Bill within the meaning of subdivision (e) of Section
2812 of Article IV of the California Constitution, has been identified
29as related to the budget in the Budget Bill, and shall take effect
30immediately.

end insert
begin delete
31

SECTION 1.  

It is the intent of the Legislature to enact statutory
32changes relating to the Budget Act of 2015.

end delete


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