BILL ANALYSIS Ó AB 1031 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1031 (Thurmond) As Amended June 22, 2015 Majority vote -------------------------------------------------------------------- |ASSEMBLY: | 79-0 | (May 11, |SENATE: |33-6 | (September 3, | | | |2015) | | |2015) | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: P.E., R., & S.S. SUMMARY: Specifies that an employer who contracts with the California Public Employees' Retirement System (CalPERS) for health care coverage pursuant to the Public Employees' Medical and Hospital Care Act (PEMHCA) is required 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, as specified. The Senate amendments are technical and clarifying. EXISTING LAW: AB 1031 Page 2 1)Establishes PEMHCA under the administration of CalPERS. 2)Requires a public agency that elects to participate in PEMHCA to adopt a resolution and forward it to CalPERS. CalPERS does not currently collect, nor does it maintain records of bargaining agreements between the employer and its employees' exclusive representatives as they relate to health benefits. 3)Provides the following three vesting options for contracting agencies under PEMHCA: a) A contracting agency could opt to make the employer contribution amount equal for both active employees and annuitants. Under this option, an employee who retires and meets the definition of annuitant becomes 100% vested and 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 amount for annuitants than for active employees provided the agency increases its contribution for annuitants each year, over a 20-year period, until it equals the agency's contributions for active employees. c) A contracting agency has the option to establish a pre-set "vesting schedule" which establishes specific percentages of employer contributions based on an employee's credited years of service. Under this option, an employee must have 10 years of CalPERS service, with at least five of those years performed with the contracting agency to qualify for a 50% employer contribution toward annuitant health care, increasing 5% for each year of service, until the employee is 100% vested at 20 years of service. AB 1031 Page 3 4)Provides for eligible annuitants to receive health care coverage in any of the CalPERS basic health plans available to active employees until they are eligible for Medicare, whereupon they are able to enroll in Medicare and elect one of the CalPERS coordinated Medicare health plans. FISCAL EFFECT: Unknown. This bill is keyed non-fiscal by the Legislative Counsel. COMMENTS: 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. 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. 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. 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. AB 1031 Page 4 CalPERS annuitants must have Medicare Part B in order to participate in a CalPERS Medicare health plan. Existing statute requires CalPERS to reimburse State of California and California State University retirees enrolled in a CalPERS 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. According to the author, "If a firefighter, or any employee, who is NOT in Social Security or Medicare and is covered by a statute or agreement providing an employer paid post-employment health care contribution, then the employer would directly pay to the health plan the full premium cost or proportion thereof 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 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. However, a problem arises when the employer fails to provide that reimbursement." The author concludes, "AB 1031 ensures equal treatment of all firefighter retirees under the Public Employees' Medical and Hospital Care Act (PEMHCA) with respect to an employer's AB 1031 Page 5 participation in the payment of an annuitant's post-retirement health care contribution." In the Fiscal Year 2015-16 state budget, the SSA is proposing trailer bill language, 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, as specified. Analysis Prepared by: Karon Green / P.E., R., & S.S. / (916) 319-3957 0001093