BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                       AB 1031|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |

                                   THIRD READING 

          Bill No:  AB 1031
          Author:   Thurmond (D)
          Amended:  6/22/15 in Senate
          Vote:     21  

           SENATE PUBLIC EMP. & RET. COMMITTEE:  3-1, 6/8/15
           AYES:  Pan, Beall, Hall
           NOES:  Morrell
           NO VOTE RECORDED:  Fuller

           ASSEMBLY FLOOR:  79-0, 5/11/15 - See last page for vote

           SUBJECT:   Public Employees Medical and Hospital Care Act:  
                     contracting entities

          SOURCE:    California Professional Firefighters

          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, which may include  
          reimbursement for Medicare Part B premiums.

          Existing law:

          1)Establishes PEMHCA under the administration of CalPERS.

          2)Allows a local public employer to contract with CalPERS for  


                                                                    AB 1031  
                                                                    Page  2

            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 least  
               10 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.

          4)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  
                                                                    Page  3

          5)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.

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

          7)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  

          8)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.

          9)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,  
          which may include 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  
                                                                    Page  4

          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 California State University 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  

          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.

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:    No

          SUPPORT:   (Verified6/23/15)

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


                                                                    AB 1031  
                                                                    Page  5

          OPPOSITION:   (Verified6/23/15)

          None received

          ARGUMENTS IN SUPPORT:                                  

          According to the sponsor, the California Professional  

              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 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  


                                                                    AB 1031  
                                                                    Page  6

              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.

          ASSEMBLY FLOOR:  79-0, 5/11/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,  
            Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,  
            Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,  
            Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,  
            Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,  
            Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder,  
            Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,  
            Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,  
            Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez,  
            Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting,  
            Wagner, Waldron, Weber, Wilk, Williams, Wood
          NO VOTE RECORDED:  Atkins

          Prepared by:Pamela Schneider / P.E. & R. / (916) 651-1519
          6/24/15 15:30:50

                                   ****  END  ****