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. ANALYSIS: 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 contribution. 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 plans. 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. Background 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 benefits. 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 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. 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 Firefighters: 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 ****