BILL ANALYSIS
AB 23
Page 1
Date of Hearing: April 1, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 23 (Jones) - As Amended: March 19, 2009
Policy Committee: Health Vote:17-0
Urgency: Yes State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill conforms California law to federal American Recovery
and Reinvestment Act (ARRA) (Public Law 111-5, 2009)
requirements for continuation health coverage under the
California Consolidated Omnibus Budget Reconciliation Act
(Cal-COBRA) statutes. Cal-COBRA provides the option of
continuation coverage for workers at small firms (two to 19
employees). Specifically, this bill:
1)Requires employers, health insurers, and administrators to
provide notice to qualified beneficiaries eligible for
Cal-COBRA coverage on or after September 1, 2008 through
December 31, 2009 about the availability of premium
assistance.
2)Requires notification to include information about the
availability of a 65% of total premium subsidy funded by the
federal government, the duration of the subsidy (nine months),
and the additional (second-chance) opportunity to elect
Cal-COBRA coverage. The 35% share of the premium will remain
the obligation of the former employee accepting coverage.
FISCAL EFFECT
One-time federal funding of $250 million to $400 million in
Cal-COBRA premium assistance to 60,000 to 100,000 unemployed
individuals and their families. This estimate assumes 10% to 20%
of premium assistance notices will result in new continuation
coverage, in addition to the 10% of individuals who have chosen
coverage in the absence of premium subsidies. Absorbable
workload during 2009 for the California Department of Insurance
(CDI) and the Department of Managed Health Care (DMHC).
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1)Federal Premium Assistance
a) The ARRA provides $30 billion (federal funds) nationally
to pay 65% of the premium cost for COBRA coverage. More
than $3 billion (federal funds) will be available to
California individuals and families. However, not all
individuals who qualify for the federal subsidy will choose
to accept (take-up) the premium assistance. This bill
addresses about 30% of the unemployed, those who worked at
small firms (two to 19 employees). Among former employees
of larger firms (20 or more employees) the ARRA may result
in up to $1 billion in federal subsidies to California
families. Former employees of large firms are not addressed
by this bill.
b) In the absence of premium assistance, only 10% of
individuals accept continuation coverage due to prohibitive
costs during a period of unemployment. The average monthly
health premium is approximately $400 for an individual and
$1,100 for a family. The average unemployment insurance
(UI) benefit is $1,300 monthly, meaning non-subsidized
health premiums account for 30% to 85% of UI benefits. The
ARRA subsidy is phased out for higher income individuals
with adjusted gross income above $125,000 and couples with
adjusted gross income above $250,000.
2)Absorbable Workload to CDI and DMHC to continue oversight of
ARRA and Cal-COBRA.
3)Tax Credits Mechanism for Subsidy . Instead of hundreds of
million dollars changing hands on behalf of tens of thousands
of Cal-COBRA subsidy beneficiaries, ARRA creates a mechanism
by which health plans and insurers may offset subsidized
premium costs with tax credits against current payroll
liabilities. Subsidy beneficiaries will only pay 35% of total
costs, but health plans must treat the partial payment as a
full payment. In return, health insurers are entitled to a
credit for the other 65% of the COBRA cost on their payroll
taxes.
COMMENTS
1)Rationale . This bill implements ARRA provisions related to
health coverage for unemployed workers. The changes in state
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law contained in this bill provide more 300,000 unemployed
workers from small firms and their families the option of
accepting health coverage with major support from the federal
government. By enabling a 65% federal subsidy, this bill
reduces a barrier to health coverage significantly. The
federal subsidies addressed in this bill mean that monthly
premiums will drop to $140 for individuals and $385 for
families.
2)Proposed Author's Amendments add an urgency clause and require
CDI and DMHC regulations authorized by the bill to be
substantially similar and completed in consultation with the
other regulatory agency. In addition, the amendments narrow
the bill to require only health plans and insurers to provide
subsidy notices. The amendments also modify the content of the
notice and authorize a Cal-COBRA beneficiary to elect
different health coverage than they chose as an employee.
3)COBRA , a federal law enacted in 1985, provides workers at
larger firms (20 or more employees) continuity of health
coverage by allowing former employees to choose to pay the
full premium cost (capped at 102% for COBRA) otherwise paid by
the employer. For workers at small firms (two to 19
employees), California has Cal-COBRA (capped at 110% of full
premium cost). COBRA is available for up to 18, 29, or 36
months and Cal-COBRA is available for up to 36 months
depending on eligibility. In addition, individuals who exhaust
18 months of COBRA also have access to continuity coverage
through Cal-COBRA. Individuals who exhaust Cal-COBRA coverage
have access to continuation coverage under the federal Health
Insurance Portability and Accountability Act (HIPAA).
4)Highest Unemployment Rate in Decades Erodes Health Coverage .
Approximately 6.6 million people in California lack health
coverage. In addition to a high rate of uninsured individuals,
California is facing devastating rates of unemployment
statewide, surpassing 10% in recent weeks. In many
communities, rates of unemployment are even higher than 10%.
These factors mean that access to health coverage has eroded
further over the past year. A recent study by the Kaiser
Family Foundation indicates that along with 10% unemployment
nationally, 13.2 million people will lose employer coverage,
5.4 million will be added to Medicaid, and the number of
uninsured will increase by 5.8 million, or 13%. In California,
a 13% increase in the uninsured means more than 850,000 people
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will lose coverage.
5)Related Legislation . SB 796 (Alquist), pending in the Senate
Health Committee, deletes the requirement that a person must
elect and exhaust COBRA or Cal-COBRA coverage in order to
qualify for access to guaranteed issue individual health care
coverage under HIPAA .
Analysis Prepared by : Mary Ader / APPR. / (916) 319-2081