BILL ANALYSIS                                                                                                                                                                                                    



                                                                     SB 145


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          Date of Hearing:  September 9, 2015


                            ASSEMBLY COMMITTEE ON HEALTH


                                  Rob Bonta, Chair


          SB  
          145 (Pan) - As Amended August 31, 2015


          SENATE VOTE:  Not relevant.


          SUBJECT:  Robert F. Kennedy Farm Workers Medical Plan.


          SUMMARY:  Requires the Department of Health Care Services (DHCS)  
          to annually reimburse the Robert F. Kennedy Farmworkers Medical  
          Plan (RFK Medical Plan) for claim payments that exceed $70,000.   
          Specifically, this bill: 


           


          1)Requires DHCS to annually reimburse the RFK Medical Plan for  
            claim payments that exceed $70,000 made by the plan on behalf  
            of an eligible employee or dependent for a single episode of  
            care on or after September 1, 2016.  

          2)Limits reimbursement to the RFK Medical Plan by the state to  
            no more than $3 million.
          
          3)Requires the RFK Medical Plan, commencing after September 1,  
            2017, and annually thereafter, to submit to DHCS completed  
            data, verified by an independent certified public accountant,  








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            for claims paid by the plan for services during the preceding  
            year.  
          
          4)Requires DHCS to analyze the data to determine the aggregate  
            amount of claims that exceed $70,000 paid the plan on behalf  
            of an eligible employee or dependent for any separate episode  
            of care, and reimburse the plan that amount, up to $3 million,  
            within 60 days.
          


          EXISTING LAW: 


           


          1)Provides for the regulation of health insurers by the  
            California Department of Insurance (CDI) under provisions of  
            the Insurance Code.



          2)Establishes, pursuant to the state Insurance Code, regulatory  
            requirements for stop-loss insurance for small employers,  
            including on or after January 1, 2016, setting an individual  
            attachment point of $40,000 or greater and an aggregate  
            attachment point of the greater of $5,000 times the total  
            number of group members, 120% of expected claims, or $40,000;  
            and, exempts small employer stop-loss insurance issued prior  
            to September 1, 2013, from these attachment point  
            requirements. 



          3)Establishes, pursuant to federal law, the Employee Retirement  
            Income Security Act of 1974 (ERISA), which sets minimum  
            standards for most voluntarily established pension and health  
            plans in private industry, including Taft-Hartley  








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            Multi-Employer Health and Welfare Plans (Taft-Hartley plans).   
            Such plans are generally exempt from state insurance  
            regulation. 



          4)Establishes, pursuant to federal law, the Patient Protection  
            and Affordable Care Act (ACA) numerous insurance market  
            reforms in the individual and group markets, including  
            prohibitions on pre-existing condition exclusions, coverage of  
            dependents up to the age of 26, and prohibitions against  
            health insurers imposing annual and lifetime benefit limits.
          FISCAL EFFECT:  This bill, as amended, has not been analyzed by  
          a fiscal committee.





          COMMENTS:





          1)PURPOSE OF THIS BILL.  According to the author, 15 months ago,  
            the Legislature determined we could avoid state General Fund  
            (GF) Medi-Cal costs by $3.6 million if we made a one-time  
            appropriation of $3.2 million to the RFK Medical Plan, a farm  
            worker's health trust fund, to purchase stop-loss insurance.   
            The author states, through a second one-time appropriation to  
            the RFK Medical Plan in this year's state budget, we saved the  
            state's GF $4.1 million.  The author states that this bill  
            reflects a longer-term strategy that will allow the state to  
            keep agricultural employer and farm worker contributions  
            flowing into health care, thereby allowing 13,000 farmworkers  
            and their families to preserve privately funded insurance.   
            The author argues that will save the state money in avoided  
            Medi-Cal costs.  As such, the author concludes that this bill  








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            provides for good public and fiscal policy for both farm  
            workers and taxpayers. 
          
          2)BACKGROUND.  





             a)   RFK Medical Plan.  One way private sector unionized  
               employees obtain health and other benefits is through a  
               Taft-Hartley plan.  Taft-Hartley plans are subject to the  
               federal ERISA, and thus are exempt from state insurance  
               laws.  The RFK Medical Plan is a self-funded, self-insured  
               Taft-Hartley Plan that is subject to a collective  
               bargaining agreement between the United Farm Workers (UFW)  
               and multiple agricultural employers.  According to the UFW,  
               the RFK Medical Plan provided health insurance to more than  
               13,000 people living in California farm worker families.  



               The ACA sets forth new standards for employer-sponsored  
               health coverage.  Plans that were in existence prior to the  
               enactment of the ACA may be exempt from some ACA  
               requirements.  These plans are referred to as  
               "grandfathered plans" and Taft-Hartley plans like the RFK  
               Medical Plan may obtain grandfathered status.  However, all  
               employer-sponsored plans, including grandfathered plans,  
               are required to comply with certain provisions of the ACA,  
               including a prohibition on annual and lifetime benefit  
               limits.  





               The RFK Medical Plan had previously imposed annual limits  
               on benefits at $70,000.  The purpose of the limit was to  








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               protect the financial solvency of the plan against high  
               claims costs that exceeded $70,000.  In light of the ACA's  
               prohibition on annual limits, the RFK Medical Plan sought a  
               waiver from the federal government to keep the $70,000  
               limit in place.  A waiver was granted, allowing the plan to  
               continue this benefit structure, but only until 2014.   
               Without the annual limit in place, the RFK Medical Plan is  
               at risk of claims costs that exceed $70,000.





               According to the UFW, in addition to the federal waiver,  
               the RFK Medical Plan took other steps to sustain the plan  
               in light of the financial risk associated with the  
               high-cost claims.  Specifically, the plan worked with both  
               union and employer partners to increase employer and  
               employee contributions to the RFK Medical Plan within the  
               maximum allowable limits for grandfathered Taft-Hartley  
               plans.  Additionally, UFW states that the RFK Medical Plan  
               has continuously searched the market to try to purchase  
               stop-loss insurance in the private market, and is building  
               financial reserves through increasing the number of  
               beneficiaries, increasing contributions within allowable  
               limits, modifying benefits, and maintaining administrative  
               costs below 5% within the goal of eventually withstanding  
               larger claims.





             b)   Stop-loss insurance and previous budget actions.   
               Stop-loss insurance is commonly sold to employers that  
               self-insure their employee's health coverage.   
               Self-insurance involves greater risk to the employer since  
               employee health care costs could exceed expected estimates.  
               








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          In order for employers to minimize the risk involved with  
          self-insurance, insurance carriers sell stop-loss insurance  
          which covers claims in excess of a maximum dollar amount of  
          liability incurred by an employer for health care expenses.   
          This maximum dollar amount of employer liability is referred to  
          as an "attachment point."  Attachment points can be based on the  
          health care claims of an individual employee or dependent, or  
          the aggregate health care claims for all covered employees and  
          dependents, or both.  

          The 2014-15 state budget included $3.2 million (special fund)  
          appropriation to the RFK Medical Plan for the purchase of  
          stop-loss insurance for any claims over the amount of $70,000.   
          Another one-time appropriation of $2.5 million was included in  
          the 2015/16 Budget for the same purpose.  According to the  
          Assembly Budget Subcommittee #1, to secure the budget  
          appropriations, the RFK Medical Plan argued that there would be  
          off-setting savings in the Medi-Cal program.  These arguments  
          were based on an assumption that the plan would not be  
          financially viable and dissolve without financial assistance to  
          purchase stop-loss insurance.  If this occurred, the RFK Medical  
          Plan 's consultants assumed 50% of its members would be eligible  
          for Medi-Cal at a state cost of $4.7 million.  Additionally, the  
          RFK Medical Plan argued that if it were to cease operating,  
          those insured by the plan not eligible for Medi-Cal would become  
          uninsured.

               Rather than appropriating state funds to the RFK Medical  
               Plan for the purchase of stop-loss insurance, this bill  
               would require the state to instead reimburse the plan for  
               the claims that exceed the $70,000 attachment point for an  
               individual employee or dependent for a single episode of  
               care up to a total of $3 million.  In other words, the  
               state would act as the stop-loss insurer for the RFK  
               Medical Plan.  According to the UFW, the RFK Medical Plan  
               has one year of claims experience since it began to pay  
               claims above $70,000, and in the 2014 plan year (September  
               2014 to August 2015), 17 cases exceeded the $70,000  








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               threshold.  The total payments made for these 17 cases were  
               $1.4 million.  
               


             c)   Estimated Medi-Cal costs.  According to the UFW, the  
               California Endowment estimated that, based on the number of  
               RFK Medical Plan enrollees eligible for Medi-Cal during the  
               2014 plan year, state costs to cover these enrollees would  
               be approximately $6.6 million.   



               According to DHCS, after reviewing the estimates, it could  
               not validate the assertions regarding the population that  
               would be eligible for Medi-Cal, or the overall savings  
               projected.





          3)SUPPORT.  The UFW is the sponsor of this bill, and states in  
            support that it ensures farm workers and their families who  
            are currently covered by the RFK Medical Plan continue to  
            obtain health benefits.  The UFW argues that the ACA actually  
            reduced health care coverage for farm workers, and threatens  
            the UFW RFK Medical Plan, which has employer and union  
            trustees.  The UFW states that by focusing on primary and  
            preventive care, the RFK Medical Plan has significantly  
            alleviated the burden on publicly-funded health resources in  
            its coverage areas.  The UFW also argues that the Legislature  
            has determined that the RFK Medical Plan is the most efficient  
            and least expensive means to deliver health services to farm  
            workers and their families within the plan's coverage and that  
            it is in the state's interest to ensure these health services  
            continue.










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          4)PREVIOUS LEGISLATION.  


             a)   SB 75 (Committee on Budget and Fiscal Review), Chapter  
               18, Statutes of 2015, requires DHCS to allocate $2.5  
               million from the Major Risk Medical Insurance Fund, on a  
               one-time basis, to the RFK Medical Plan for purposes of  
               purchasing stop-loss insurance.


             b)   SB 870 (Committee on Budget and Fiscal Review), Chapter  
               40, Statutes of 2014, provides $3.2 million in one-time  
               funds from the Major Risk Medical Insurance Fund to the RFK  
               Medical Plan for purposes of purchasing stop-loss  
               insurance.


             c)   SB 161 (Ed Hernandez), Chapter 414, Statutes of 2013,  
               establishes regulatory requirements for stop-loss insurance  
               for small employers, including on or after January 1, 2016,  
               setting an individual attachment point of $40,000 or  
               greater and an aggregate attachment point of the greater of  
               $5,000 times the total number of group members, 120% of  
               expected claims, or $40,000; and, exempts small employer  
               stop-loss insurance issued prior to September 1, 2013, from  
               these attachment point requirements.   


             d)   SB 1431 (De Leon) of 2012 would have set the stop-loss  
               insurance attachment point for small employers on policies  
               issued on or after January 1, 2012, at $45,000 for  
               individuals and the greater of $15,000 times the total  
               number of covered employees and dependents, 130% of  
               expected claims, or $60,000.  SB 1431 died in the inactive  
               file on the Assembly Floor.


          5)POLICY COMMENTS









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             a)   This bill sets a precedent for the state to act as a  
               stop-loss insurer.  Under this bill, the state would act as  
               the stop-loss insurer for one single plan.  This sets a new  
               precedent for the state and raises policy questions as to  
               whether or not it is the state's role to act as a stop-loss  
               insurer, and whether or not this policy should extend to  
               other plans that may be similarly situated as the RFK  
               Medical Plan.  


             b)   Should the bill have a sunset date?  Unlike previous  
               one-time budget actions appropriating funds to the RFK  
               Medical Plan to purchase stop-loss insurance on the private  
               market, this bill shifts the responsibility for direct  
               payment of claims exceeding $70,000 on the state in  
               perpetuity.  The Committee may wish to amend the bill to  
               add a sunset date, perhaps a five-year sunset date, to  
               prevent the state from becoming the default payer of  
               high-cost claims for this plan on a permanent basis.  A  
               sunset date also offers the RFK Medical Plan a timeline  
               under which it can continue to strive toward  
               self-sustainment, and report back its progress to the  
               Legislature.  








             c)   Other proposed amendments.


               i)     Amend intent language.  The proposed intent language  
                 in the bill states that the Legislature has made a  
                 determination that the RFK Medical Plan is the "most  
                 efficient and least expensive means to deliver health  








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                 care to farmworkers and their families?" However, while  
                 the Legislature may have evaluated previous budget  
                 actions and the current provisions proposed in this bill  
                 in terms of costs as compared to the Medi-Cal program, it  
                 is unclear that the Legislature has made this specific  
                 determination.  As such, the Committee may wish to  
                 clarify the language as follows to more accurately  
                 reflect the legislative intent associated with the bill's  
                 provisions: 


                 Proposed Section 1 (e):


                 The Legislature has determined that the plan is  the most   
                  an  efficient and  least expensive   cost-effective  means to  
                 deliver health care services to farm workers and their  
                 families within the plan's coverage areas. Thus, it is in  
                 the state's interest to  expand   maintain  the range of  
                 health care services provided by the plan without  
                 threatening the plan's financial viability.


               ii)    Technical amendment.  The Committee may wish make  
                 the following technical amendment for consistency  
                 throughout the bill:


                 Proposed Health and Safety Section 100235 (c) (1):

                 If the department receives claims data from the plan  
                 pursuant to subdivision (b), the department shall analyze  
                 that data to determine the aggregate amount of claims  
                 that exceed seventy thousand dollars ($70,000) paid by  
                 the plan on behalf of an eligible employee or dependent  
                 for any  separate   single  episode of care.
          










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          REGISTERED SUPPORT / OPPOSITION:




          Support


          United Farm Workers




          Opposition


          None on file.


          
          Analysis Prepared by:Kelly Green / HEALTH / (916)  
          319-2097