BILL ANALYSIS
AB 803
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Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Ed Hernandez, Chair
AB 803 (Duvall) - As Amended: April 13, 2009
SUBJECT : Health care coverage: state employees and legislative
employees: cash payments.
SUMMARY : Requires the state, as of July 1, 2010, to provide a
state or legislative employee the option of receiving a cash
payment in lieu of coverage in a health benefit plan.
Specifically, this bill :
1)States that it is the intent of the Legislature, in an effort
to increase flexibility and adaptability of the employment
benefits of state and legislative employees, to provide those
employees with the option of receiving cash in lieu of health
care coverage from the state.
2)Specifies that, upon appropriation by the Legislature of the
necessary funds, the state will provide state and legislative
employees who are currently able to elect coverage in a health
plan, the option of taking a cash payment in lieu of that
coverage.
3)Specifies that the amount of the cash payment will be equal to
67% of the average benefit for which the employee is eligible.
4)Specifies that these provisions become effective July 1, 2010.
EXISTING LAW establishes the Public Employees' Medical and
Hospital Care Act (PEMHCA) under the administration of the
California Public Employees' Retirement System (CalPERS). Under
PEMHCA, health coverage is available to state employees,
including legislative employees, as well as local public agency
and school employees if their employer contracts with CalPERS to
provide these benefits. The CalPERS Board of Administration
reviews health plan contracts annually to determine the specific
health plans available, as well as covered benefits, monthly
health premiums, and co-payments.
Under existing law, state employees who have medical or dental
insurance through their spouses have the option to receive cash
AB 803
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in lieu of their state-sponsored benefits. This option, the
FlexElect Cash Option Program, allows an employee to receive
$128 per month in lieu of health benefits. This money is
treated as taxable income, reported on the W-2, and is not
considered compensation for retirement purposes. This program
is administered by the Department of Personnel Administration.
FISCAL EFFECT : Unknown.
COMMENTS : CalPERS is the third largest purchaser of health care
in the nation, providing benefits to more than 1.3 million
public employees, retirees, and their families. The size of the
underwriting pool allows CalPERS to average the risk throughout
the membership, which provides an overall lower average cost
than the individual plans currently available. In addition, the
volume of the purchase provides some reduction in market costs,
and helps reduce administrative costs for the plans.
According to the author, "The cash benefit for health insurance
coverage is insufficient in its ability to purchase coverage
remotely similar in quality to what is provided to state and
legislative employees through CalPERS. This is a disincentive
to employees who would like to obtain their own coverage on the
private market so that they can maintain coverage should they
leave or lose their state/legislative job, and have developed
some type of health condition in the interim that would prevent
them from securing their own coverage at that time."
The author concludes, "This legislation will liberate those
employees concerned about their future health who want to make
sure they will always have coverage, since once a private
company takes on an insured, they cannot drop them. AB 803 will
also save the state money through administrative cost savings,
as well as principal cost saving, since the CoBen (FlexElect)
allowance will remain only a fraction - though now a more
sizable one - of the cost of these employees' group premiums."
Opponents state, "By allowing individual employees to opt out of
the employer-based coverage and take cash, AB 803 virtually
assures adverse selection that will increase the health care
costs for all those who choose to remain covered under the state
plans. Healthier, younger employees will likely opt out leaving
only the older, less healthy employees, with coverage at rapidly
increasing premiums to the state and individuals contrary to the
stated intent of the bill.
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"Also, AB 803 does not require the cash payments be spent on an
alternative health care plan. Employees would be allowed to
spend that money as they saw fit and then reenroll in the state
coverage when necessary. The only incentive to participate in
the current state offered plan would be the guaranteed coverage
for all those who might already be ill or expecting costly
medical treatment."
Opponents conclude, "In the long run, AB 803 may very well end
up costing the state more money by creating these adverse
selection incentives in addition to having the state, local
agencies and health providers pick up the cost for a newly
created uninsured population."
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
California Association of Professional Scientists
California Association of Psychiatric Technicians
California Professional Firefighters
California School Employees Association
California State Employees Association
CDF Firefighters Local 2881
Glendale City Employees Association
Organization of SMUD Employees
Peace Officer's Research Association of California
Professional Engineers in California Government
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
Service Employees International Union
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957