BILL ANALYSIS Ó SB 145 Page 1 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, SB 145 Page 2 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 SB 145 Page 3 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 SB 145 Page 4 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 SB 145 Page 5 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. SB 145 Page 6 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 SB 145 Page 7 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. SB 145 Page 8 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 SB 145 Page 9 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 SB 145 Page 10 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 isthe mostan efficient andleast expensivecost-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 toexpandmaintain 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 anyseparatesingle episode of care. SB 145 Page 11 REGISTERED SUPPORT / OPPOSITION: Support United Farm Workers Opposition None on file. Analysis Prepared by:Kelly Green / HEALTH / (916) 319-2097