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 --