BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 1471 (Hernandez) - Health professions development: loan repayment ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: April 21, 2016 |Policy Vote: HEALTH 7 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: May 9, 2016 |Consultant: Brendan McCarthy | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 1471 would change the allocation of funds from the Managed Care Administrative Fines and Penalties Fund that are transferred each year to the Medically Underserved Account for Physicians and the Major Risk Medical Insurance Fund. Fiscal Impact: Unknown potential future cost pressure due to the reduction in funding for the Major Risk Medical Insurance Program (General Fund or Proposition 99 funds). Under current law, the cost of operating the Program is funded with subscriber premiums and state funds. The state has used Proposition 99 (Tobacco Tax) funds and transfers from the Managed Care Administrative Fines and Penalties Fund to subsidize the program. Enrollment in the Program has declined significantly in recent years, from 4,782 in January 2014 to a projected enrollment of 1,400 in 2018. The declining Program enrollment (and the existing Program fund balance) should reduce the need for additional state funds in the future. However, as long as the Program is active there is a potential need for additional SB 1471 (Hernandez) Page 1 of ? state funding. It is also important to note that final reconciliation of expenditures in the Program takes several years, so there is some uncertainty about future Program funding needs, even with declining enrollment. Background: Under current law, health plans in the state are regulated by the Department of Managed Health Care, under the Knox-Keene Health Care Service Act of 1975. The Department is authorized to assess administrative fines and penalties on health plans for violations of the Knox-Keene Act. Current law requires the first $1 million in fines and penalties to be transferred to the Medically Underserved Account for Physicians (within the Health Professions Education Fund) to support the Stephen M. Thompson Physician Corps Loan Repayment Program. Any remaining fines and penalties are transferred to the Major Risk Medical Insurance Fund, to support the Major Risk Medical Insurance Program. Under Current law, the Steven M. Thompson Physician Corps Loan Repayment Program provides up to $105,000 in loan repayments for physicians who agree to work in medically underserved areas for at least three years Under current law, the state operates the Major Risk Medical Insurance Program, which provides health care coverage to individuals who are unable to purchase coverage in the individual market due to a pre-existing condition. Premiums in the Program are set at 100 percent of what an equivalent policy would cost in the private market. Because individuals in the program have a preexisting condition, the cost of providing coverage for this population is significantly larger than the costs of the broader population. Therefore, the premiums paid by the state to participating health plans are higher than normal market rates. The state funds the gap between the cost coverage and the premiums charged to subscribers. Under current law, the first $1 million in fines and penalties assessed by the Department of Managed Health Care is transferred to the Steven M. Thompson program. Any funds above the initial $1 million are transferred to support the Major Risk Medical Insurance Program. The amount of funding transferred to the Major Risk Medical Insurance Program has varied from less than $100,000 to over $8,000,000 depending on the fines and penalties SB 1471 (Hernandez) Page 2 of ? levied by the Department in any given year. Proposed Law: SB 1471 would change the allocation of that funds in the Managed Care Administrative Fines and Penalties Fund that are transferred each year to the Medically Underserved Account for Physicians and the Major Risk Medical Insurance Fund. Specifically, the bill would: Continue to require the first $1 million in fines and penalties in the Managed Care Administrative Fines and Penalties Fund to be transferred to the Steven M. Thompson Program; Require the second $1 million in fines and penalties in the Managed Care Administrative Fines and Penalties Fund to be transferred to the Major Risk Medical Insurance Fund; Require any funds beyond $2 million in fines and penalties in the Managed Care Administrative Fines and Penalties Fund to be transferred to the Steven M. Thompson Program; Authorize up to one-half of the funds (over $2 million) transferred under the bill to be used for loan repayments for psychiatrists under the Steven M. Thompson Program. Related Legislation: SB 20 (Hernandez, 2013) would have required all the fines and penalties assessed by the Department of Managed Health Care to be available for support of the Steven M. Thompson Physician Corps Loan Repayment Program, once the Major Risk Medical Insurance Program becomes inoperative. That bill was held on the Assembly Appropriations Committee's Suspense File and subsequently amended for another purpose. SB 635 (Hernandez, 2011) would have transferred fine and penalty revenues generated by the Department of Managed Health Care to another account for the support of medical education. That bill was held in the Assembly Appropriations Committee. AB 860 (Perea and Bocanegra) would have required certain fine and penalty revenues to be transferred for use in a related program to support medical education. That bill was held in the Assembly Appropriations Committee. SB 1471 (Hernandez) Page 3 of ? Staff Comments: While fines and penalties assessed by the Department of Managed Health Care are deposited in the Managed Care Administrative Fines and Penalties Fund, under law fines and penalties are General Fund revenues. The Major Risk Medical Insurance Program was created to allow individuals who are unable to purchase health care coverage in the private market because of a pre-existing condition to purchase affordable coverage. Beginning in 2014, the federal Affordable Care Act (and implementing state legislation) require insurance plans and health plans to provide "guaranteed issue" coverage to individuals as long as the individual pays his or her premiums. Individuals who have a pre-existing condition can no longer be denied coverage in the private market. Therefore, demand for coverage for the Major Risk Medical Insurance Program has declined significantly since January 1, 2014. However, state law authorizing the program has no sunset and there may be certain individuals (such undocumented immigrants or uninsured women who become pregnant) who may wish to participate in the program. At this time it is difficult to predict when demand for program funding will end absent legislative action. -- END --