BILL ANALYSIS                                                                                                                                                                                                    

                               Dr. Richard Pan, Chair
                                2015 - 2016  Regular 

          Bill No:            AB 1031         Hearing Date:    6/08/15
          |Author:    |Thurmond                                             |
          |Version:   |2/26/15    As introduced                             |
          |Urgency:   |No                     |Fiscal:    |No               |
          |Consultant:|Pamela Schneider                                     |
          |           |                                                     |
          Subject:  Public Employees' Medical and Hospital Care Act:   
          contracting entities

            SOURCE:  California Professional Firefighters
            ASSEMBLY VOTES:
          |Assembly Floor:                 |79 - 0                          |
          |Assembly Public Employees,      |7 - 0                           |
          |Retirement/Soc Sec Committee:   |                                |
           DIGEST:  This bill requires an employer that contracts with the  
          California Public Employees' Retirement System (CalPERS) for  
          health care coverage pursuant to the Public Employees' Medical  
          and Hospital Care Act (PEMHCA) to meet its obligation to provide  
          any collectively bargained, statutorily required, or vested  
          retiree health care contribution, including reimbursement for  
          Medicare Part B premiums.

          Existing law:
          1)Establishes PEMHCA under the administration of CalPERS.


          AB 1031 (Thurmond)                                 Page 2 of ?
          2)Allows a local public employer to contract with CalPERS for  
            PEMHCA coverage for its employees and retirees and requires  
            that the contract must provide coverage for both.

          3)Provides the following three contract options for the purpose  
            of setting the employer contribution toward PEMHCA coverage  
            for retirees:

             a)   The contracting agency may choose to make the employer  
               contribution toward PEMHCA premiums equal for both active  
               employees and retirees.  Under this option, an employee who  
               retires and meets the definition of annuitant (i.e., a  
               retiree who is receiving a monthly benefit) receives an  
               employer contribution amount equal to what the active  
               employees receive.

             b)   A contracting agency that joins PEMHCA on or after  
               January 1, 1986, has the option to temporarily pay a lesser  
               employer contribution for retirees than for active  
               employees provided the agency increases its contribution  
               for retirees each year, over a 20-year period, until the  
               contribution for retirees equals the employer's  
               contributions for active employees.

             c)   The contracting agency may opt for a pre-set "vesting  
               schedule" that establishes specific percentages of employer  
               contributions based on an employee's credited years of  
               service.  Under this option, an employee must have at  
               least10 years of CalPERS service, with at least five of  
               those years performed with the contracting agency, to  
               qualify for an employer contribution equal to 50% of the  
               average premium cost of the 4 most highly utilized PEMHCA  
               health care plans.  The employer contribution increases 5%  
               for each additional year of service until the employee is  
               eligible for a 100% contribution for 20 or more years of  
               service.  Under this option, the retiree's spouse is  
               eligible for a contribution equal to 90% of the  
               contribution for the retiree.  This employer contribution  
               formula is sometimes referred to as the 100/90 formula.

          1)Establishes, with regard to specific contracting agencies,  
            alternative vesting and employer contribution schedules that  
            have been agreed to in collective bargaining and approved in  
            statute by the Legislature for those specific agencies.


          AB 1031 (Thurmond)                                 Page 3 of ?
          2)Allows a covered retiree to choose health care coverage in any  
            of the PEMHCA health plans available to active employees until  
            the retiree is eligible for Medicare.

          3)Requires the retiree to pay, from his or her retirement  
            warrant, any PEMHCA premium costs not covered by the employer  

          4)Requires, when a retiree becomes eligible for Medicare, that  
            he or she enroll in Medicare and elect one of the PEMHCA  
            coordinated Medicare health plans.  In general, these plans,  
            referred to as Medicare supplement plans, are cheaper than the  
            full-coverage plans because they are coordinated with Medicare  
            Part A and Part B benefits.  A retiree that is not eligible  
            remains enrolled in one of the full-coverage health care  

          5)Requires, in the case of state retirees who are enrolled in  
            Medicare supplement plans, that the retirees receive  
            reimbursement for the personal costs of their Medicare Part B  
            plans.  The total cost of the reimbursement added to the  
            premium cost of the PEMHCA Medicare supplement plan cannot  
            result in an employer contribution higher than the maximum  
            employer contribution the retiree is eligible for.

          6)Allows a contracting agency to elect to participate in a  
            Medicare reimbursement program by amending its PEMHCA contract  
            to do so.

          This bill:

          Requires that a local employer that contracts for PEMHCA must  
          meet its obligation to retirees with respect to the amount of  
          the employer contribution for health care benefits, including  
          reimbursement for Medicare Part B premiums, as mutually agreed  
          upon through collective bargaining or as specified in statute.


          Medicare is a federal health insurance program that covers  
          individuals age 65 and older.  Medicare also covers some  
          individuals under age 65 with Social Security-qualified  
          disabilities and with End-Stage Renal Disease.  The Social  
          Security Administration (SSA) is the federal agency responsible  
          for Medicare eligibility determination, enrollment and premiums.


          AB 1031 (Thurmond)                                 Page 4 of ?

          Medicare Part A is hospital insurance that helps pay for  
          inpatient hospital stays, skilled nursing facilities, hospice  
          care and some home health care.  Retirees and their dependents  
          may become eligible for premium-free Part A at age 65 with a  
          work history of 10 years (40 quarters) with Social  
          Security/Medicare-covered employment, or through the work  
          history of a current, former or deceased spouse.

          Medicare Part B is medical insurance that helps pay for  
          outpatient health care expenses, including doctor visits.   
          Individuals are responsible for paying the Part B premiums to  
          the SSA.  If an individual is receiving SSA benefits, the  
          premiums will be deducted from his or her Social Security  

          CalPERS annuitants must have Medicare Part B in order to  
          participate in a PEMHCA Medicare supplemental health plan.   
          Existing statute requires CalPERS to reimburse State of  
          California and CSU retirees enrolled in a PEMHCA Medicare plan  
          for all or a portion of the Medicare Part B premiums they pay on  
          behalf of themselves and their spouses.  This reimbursement  
          appears as a credit on the annuitant's benefit warrant.  The  
          total of the reimbursement added to the supplemental plan  
          premium cost cannot exceed the maximum employer contribution  
          amount that the retiree would be eligible for.

          Individuals that entered public employment prior to April 1,  
          1986 and were not subject to Social Security were not initially  
          subject to the Medicare tax, and are therefore not eligible for  
          Medicare Part A and B benefits without additional payments.

          Prior/Related Legislation
          In the FY 2015-16 State budget, the Administration is proposing  
          trailer bill language (RN 15 09900), to prohibit all state  
          officers who are eligible to receive benefits who are first  
          appointed or elected on or after January 1, 2016, and to  
          prohibit all employees and annuitants first hired on or after  
          January 1, 2016, by the state or a state entity, including, but  
          not limited to the Legislature, the judicial branch, and the  
          California State University, from being reimbursed for the cost  
          of Medicare Part B premiums for themselves or their enrolled  
          family members.


          AB 1031 (Thurmond)                                 Page 5 of ?
          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             No           Local:          No


          California Professional Firefighters (source)
          California State Firefighters Association
          Peace Officers Research Association of California


          None received


          According to the sponsor:

               AB 1031 requires an employer that contracts with CalPERS  
               for health care pursuant to the Public Employees' Medical  
               and Hospital Care Act (PEMHCA) to continue to meet its  
               obligation to provide any collectively bargained,  
               statutorily required or vested post-retirement healthcare  
               contribution, including reimbursement of Medicare Part B  
               premiums that are owed to an annuitant when that annuitant  
               becomes eligible for Medicare.
               Some California public agencies currently provide a  
               guaranteed post-retirement health care contribution to  
               their retired annuitants through a collectively bargained  
               agreement, a statutory requirement or a vesting schedule  
               that has been adopted by the agency.   In some cases, that  
               mutually-agreed upon or statutorily required,  
               post-retirement health care contribution is intended to pay  
               for 100% of an annuitant's health care premium costs.
               If a firefighter, or any employee, who is not covered by  
               Social Security or Medicare, but is covered by a statute or  
               agreement that extends an employer-paid, post-employment  
               health care contribution, their employer  pays their full  
               premium cost, or proportion thereof, directly to the health  
               plan, as obligated by that statute or agreement. 
               However, if a firefighter is Medicare eligible and enrolled  
               in a Medicare Part A and B plan (as required by PEMHCA),  
               the Medicare Part B premium must be taken directly out of  


          AB 1031 (Thurmond)                                 Page 6 of ?
               the firefighter's Social Security warrant.  Additionally,  
               in cases where the firefighter is in Medicare only then the  
               retired firefighter is directly billed for the Part B  
               premium.  In these cases, the firefighter should be  
               reimbursed by the employer for the amount of the Part B  
               premium, or whatever amount is consistent with the employer  
               contribution obligation.
               Because some firefighters participate in Medicare and  
               others do not, a disparity exists in the way that  
               post-employment healthcare premiums are paid.  In instances  
               where a retiree is promised a post-employment healthcare  
               contribution from his or her employer that would cover some  
               or all of their Part B premium, the retiree is entitled to  
               reimbursement for that obligated amount.