BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: AB 1602
A
AUTHOR: John A. P?rez
B
AMENDED: June 24, 2010
HEARING DATE: June 30, 2010
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CONSULTANT:
6
Bain/
0
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SUBJECT
Health care coverage
SUMMARY
Establishes the California Health Benefits Exchange
(Exchange) in state government, and specifies the duties
and authority of the Exchange. Requires the Exchange be
governed by a board that includes the Secretary of the
Health and Human Services Agency (Agency) and four members
with specified expertise who are appointed by the Governor
and the Legislature. Requires the Exchange to determine
the minimum requirements health plans must meet for
participation in the Exchange and the standards and
criteria for selecting health plans to be offered in the
Exchange. Requires the Exchange to provide in each region
of the state a choice of qualified health plans, at each of
the five levels of coverage contained in federal law (a
platinum, gold, silver, bronze and catastrophic level
benefit plan). Enacts federal health insurance reform
requirements allowing individuals to stay on their parents'
health coverage until age 26, prohibiting pre-existing
condition exclusions for children, requiring health plans
to cover specified preventive services, and prohibiting
annual and lifetime benefit limits.
Continued---
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CHANGES TO EXISTING LAW
Existing state law:
Establishes the Managed Risk Medical Insurance Board
(MRMIB), which administers the Healthy Families program,
the Major Risk Medical Insurance Program, and the Access
for Infants and Mothers Program. MRMIB is a seven-member
board in the Agency with three gubernatorial appointments,
two legislative appointments and two ex officio non-voting
members. MRMIB administers three programs (the Healthy
Families program, the Access for Infants and Mothers
Program and the Major Risk Medical Insurance program),
under which it has authority to contract with health plans.
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Existing federal law:
Exchange Provisions
Requires, under the federal Patient Protection and
Affordable Care Act (PPACA), (Public Law 111-148), each
state, by January 1, 2014, to establish an American Health
Benefit Exchange that makes qualified health plans
available to qualified individuals and qualified employers.
Federal law establishes requirements for the Exchange, for
health plans participating in the Exchange, and defines who
is eligible to receive coverage in the Exchange.
Effective January 1, 2014, the federal Act allows
individual taxpayers whose household income equals or
exceeds 100 percent, but does not exceed 400 percent of the
federal poverty level, a refundable tax credit for a
percentage of the cost of premiums for coverage under a
qualified health plan offering in the Exchange. The
federal Act also requires reductions in the maximum limits
for out-of-pocket expenses for individuals enrolled in
qualified health plans whose incomes are between 100
percent and 400 percent of the federal poverty level.
Allows "qualified small employers" to elect, beginning in
2010, a tax credit worth up to 35 percent of a small
business' health insurance premium costs in 2010. On
January 1, 2014, this rate increases to 50 percent (35
percent for tax-exempt employers). A qualifying employer
must cover at least 50 percent of the cost of health care
coverage for some of its workers based on the single rate.
A qualifying employer must have less than the equivalent of
25 full-time workers (for example, an employer with fewer
than 50 half-time workers may be eligible) and must pay
average annual wages below $50,000. Both taxable
(for-profit) and tax-exempt firms qualify. The credit
phases out gradually for firms with average wages between
$25,000 and $50,000 and for firms with the equivalent of
between 10 and 25 full-time workers. After January 1,
2014, the tax credit is only available for coverage
purchased through the Exchange, and only for two
consecutive years.
Health insurance reforms in PPACA
Requires health plans and health insurers that provide
dependent coverage of children to continue to make such
coverage available until the child turns age 26. This
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requirement takes effect September 23, 2010.
Prohibits health plans and health insurers from
establishing:
Any lifetime limits on the dollar value of essential
health benefits for any participant or beneficiary,
effective September 23, 2010; or,
Annual limits on the dollar value of essential health
benefits for any participant or beneficiary, except that
until January 1, 2014, health plans and insurers can
establish a "restricted annual limit" on the dollar value
of benefits for any participant or beneficiary with
respect to essential health benefits required under
PPACA.
Prohibits health plans and health insurers from imposing
any pre-existing condition exclusion. This requirement
takes effect September 23, 2010 for children, and on
January 1, 2014 for adults.
Requires, effective September 23, 2010, health plans and
health insurers to, at minimum, provide coverage for and
not impose any cost sharing requirements for:
Evidence-based items or services that have, in effect, a
rating of 'A' or 'B' in the current recommendations of
the United States Preventive Services Task Force (Task
Force);
With respect to women, such additional preventive care
and screenings not described above as provided for in
comprehensive guidelines supported by the Health
Resources and Services Administration (HRSA);
Immunizations that have in effect a recommendation from
the Advisory Committee on Immunization Practices (ACIP)
of the Centers for Disease Control and Prevention (CDC)
with respect to the individual involved;
With respect to infants, children, and adolescents,
evidence-informed preventive care and screenings provided
for in the comprehensive guidelines supported by HRSA;
and,
Requires the current recommendations of the Task Force
regarding breast cancer screening, mammography, and
prevention to be considered the most current other than
those issued in or around November 2009.
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This bill:
Exchange governance
Establishes in state government the Exchange, and requires
the Exchange be governed by a board with four-year terms
comprised of the Secretary of the Health and Human Services
Agency and four members appointed by the Governor and the
Legislature.
Requires each individual appointed to the Exchange board to
have demonstrated and acknowledged expertise in at least
two of the following areas:
The health care coverage market;
The small group health care coverage market;
Health benefits plan administration;
Health care finance;
Administering a public or private health care delivery
system; and,
Health plan purchasing.
Requires each member of the board to have the
responsibility and duty to meet the requirements of this
bill and PPACA, to serve the public interest of the
individuals and small businesses seeking health care
coverage through the Exchange, and to ensure the
operational well-being and fiscal solvency of the Exchange.
Prohibits a member of the board or of the staff of the
Exchange from being employed by, a consultant to, a member
of the board of directors of, affiliated with an agent of,
or otherwise a representative of, a carrier or other
insurer, an agent or broker, a health care provider, or a
health care facility or health clinic.
Prohibits a board member from receiving compensation for
his or her service on the board, but permits receipt of per
diem and reimbursement for travel and other necessary
expenses while engaged in the performance of official board
duties.
Requires the board to hire an executive director to
organize, administer, and manage the operations of the
Exchange and to serve as secretary to the board. Requires
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the executive director to serve as an ex officio,
non-voting member of the board.
Requires the board to be subject to the state open meeting
law (the Bagley-Keene Open Meeting Act), but permits the
board to hold closed sessions when considering matters
related to litigation, personnel, contracting, and rates.
Requires the board to apply for planning and establishment
grants made available to the
Exchange under PPACA. Requires the Agency Secretary, upon
the request of the board, if an executive director has not
been hired when the federal Secretary of the Department of
Health and Human Services (DHHS) makes the initial planning
and establishment grants available, to submit the initial
application for planning and establishment grants to DHHS.
Requires the board to be responsible for using funds
awarded by the DHHS for the planning and establishment of
the Exchange, consistent with PPACA.
Requires the board to take specified actions required of
Exchanges by PPACA by placing federal requirements for
Exchanges into state law. These requirement include
certifying health plans, requiring plans to submit
justifications prior to premium increases, allowing
individuals to learn about cost-sharing through an internet
website, providing a toll-free telephone number, assigning
quality ratings to health plans, informing individuals of
eligibility requirements for Medi-Cal and Healthy Families
or any state or local public program, and after screening,
enrolling that individual in the program, providing an
online calculator to determine the actual cost of coverage
after federal tax subsidies are considered, granting
exemptions from the individual mandate, and establishing
the "navigators" program to conduct public education and
facilitate in qualified health plans.
Requires the Exchange to establish the Small Business
Health Options Program (SHOP), but requires it to be
separate from the activities of the board related to the
individual market.
Requires the Exchange, in addition to meeting the PPACA
requirements, to do all of the following:
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Determine eligibility, enrollment, and disenrollment
criteria and processes for enrollees and potential
enrollees in the Exchange.
Determine the minimum requirements a health plan must
meet to be considered for participation in the Exchange
as a qualified health plan, and the standards and
criteria for selecting qualified health plans to be
offered through the Exchange. In the course of
selectively contracting for health care coverage offered
to qualified individuals and qualified small employers
through the Exchange, requires the board to seek to
contract with carriers to provide health insurance
choices that offer the optimal choice, value, quality,
and service.
Provide, in each region of the state, a choice of
qualified health plans at each of the five levels of
coverage (platinum, gold, silver, bronze and catastrophic
plans) contained in PPACA.
Require, as a condition of participation in the Exchange,
carriers to:
o Fairly and affirmatively offer, market,
and sell in the Exchange the five levels of
coverage contained in PPACA.
o Fairly and affirmatively offer, market,
and sell all products made available to
individuals in the Exchange to individuals
purchasing coverage outside the Exchange.
o Fairly and affirmatively offer, market,
and sell all products made available to small
employers in the Exchange to small employers
purchasing coverage outside the Exchange.
Determine when an enrollee's coverage commences and the
extent and scope of coverage, provide for the processing
of applications and the enrollment and disenrollment of
enrollees, and determine and approve cost-sharing
provisions for qualified health plans.
Develop and maintain an electronic clearinghouse of
information regarding all health benefits products
offered by carriers in the individual and small employer
markets to facilitate fair and affirmative marketing of
all individual and small employer plans inside and
outside the Exchange. Requires the board, in performing
this function, to routinely monitor individual and small
employer benefits filings with the Department of Managed
Health Care and the Department of Insurance and
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complaints submitted by individuals and small employers
with those regulatory agencies, and to use any other
available means to maintain the clearinghouse.
Undertake activities necessary to market and publicize
the availability of health care coverage through the
Exchange.
Select and set performance standards and compensation for
navigators.
Employ necessary staff.
Assess a charge as a part of the premium, at the lowest
possible rate, on carriers participating in the Exchange,
to support the development, operations, and prudent cash
management of the Exchange.
Authorize expenditures, as necessary, from the California
Health Trust Fund to pay program expenses to administer
the Exchange.
Keep an accurate accounting of all activities, receipts,
and expenditures, and annually submit to the Secretary of
DHHS a report concerning that accounting.
Maintain enrollment and expenditures to ensure that
expenditures do not exceed the amount of revenue in the
fund, and if sufficient revenue is not available to pay
estimated expenditures, institute appropriate measures to
ensure fiscal solvency.
Exercise all powers reasonably necessary to carry out the
powers and responsibilities expressly granted or imposed
by this bill.
Facilitate the purchase of qualified health plans by
qualified individuals and qualified small employers no
later than January 1, 2014.
Permits the board to do the following:
Collect premiums and assist in the administration of
subsidies.
Report, or contract with an independent entity to report,
to the Legislature on whether to adopt the federal option
in PPACA to provide a single exchange for providing
services to both qualified individuals and qualified
small employers in the Exchange. Requires the board, in
its report, to provide data on the potential impact on
rates paid by individuals and by small employers in a
merged individual and small group market, as compared to
the rates paid by individuals and small employers if a
separate individual and small group market is maintained.
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Enter into contracts.
Sue and be sued.
Receive and accept gifts, grants, or donations of moneys
from any agency of the United States, any agency of the
state, any municipality, county, or other political
subdivision of the state.
Receive and accept gifts, grants, or donations from
individuals, associations, private foundations, or
corporations, subject to the adoption by the board at a
public meeting of conflict of interest provisions.
Adopt rules and regulations, as necessary. Until January
1, 2014, allows any necessary rules and regulations to be
adopted as emergency regulations.
Creates the California Health Trust Fund in the State
Treasury for the Exchange, and requires all moneys in the
fund to be continuously appropriated without regard to
fiscal year for the purposes of the Exchange-related
provisions of this bill. Permits any moneys in the fund
that are unexpended or unencumbered at the end of a fiscal
year to be carried forward to the next succeeding fiscal
year. Prohibits moneys deposited in the fund from being
loaned to, or borrowed by, any other special fund or the
General Fund, or a county general fund or any other county
fund. Requires the board of the exchange to establish and
maintain a prudent reserve in the fund. Prohibits the
board or staff of the Exchange from utilizing any funds
intended for the administrative and operational expenses of
the Exchange for staff retreats, promotional giveaways,
excessive executive compensation, or promotion of federal
or state legislative or regulatory modifications. Requires
all interest earned on the moneys that have been deposited
into the fund to be retained in the fund and used for
purposes consistent with the fund.
Conforming state health insurance law to PPACA
Conforms state health insurance law to PPACA on prohibiting
annual and lifetime benefit limits, requiring health plans
and health insurers to cover preventive services,
prohibiting pre-existing condition exclusions for children,
and requiring health plans and health insurers to allow
dependent children to stay on their parents' policy until
age 26.
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FISCAL IMPACT
According to the Assembly Appropriations Committee
analysis:
1)This bill establishes the California Health Benefits
Exchange Fund as a continuously appropriated special fund
used to support the administrative workload of the
Exchange and to facilitate the purchase of health
coverage for several million Californians. This bill
authorizes unexpended or unencumbered funds at the end of
a fiscal year to be carried forward and requires any
interest earned to be retained by the California Health
Benefits Exchange Fund. This bill requires the
California Health Benefits Exchange Fund to include a
prudent reserve.
2)Federal funding to establish the Exchange will be
available from 2011 until January 1, 2015, at which time
the Exchange must be self-sustaining, for which this bill
provides the funding authority. Details about the amount
of federal funding available to California to support
establishing the Exchange over the next four years is not
yet available.
3)According to estimates, by 2016, between three million
and eight million individuals and employees of small
firms will be purchasing coverage through the Exchange.
About three million of these individuals will be eligible
for coverage subsidies either because of income (family
income of less than 400 percent of federal poverty level)
or because they work for small firms benefiting from a
related tax credit. The actual number of people
accessing health coverage through the Exchange will
depend on a number of factors, including access to
subsidies and tax credits, the kind of benefits and
prices offered in the Exchange, administrative savings
generated by purchasing economies of scale, and other
market factors.
4)Unknown, fee-supported special fund costs to DMHC and the
California Department of Insurance to implement insurance
market reforms contained in this bill. There are several
other bills in the current session implementing related
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market reforms. Actual implementation costs to these two
departments for this bill and others in the current
session will depend on how well market reforms function
for the purposes of regulator workload and oversight.
BACKGROUND AND DISCUSSION
According to the author, given the recent passage of PPACA,
California must begin the important task of implementing
federal law. Several of the federal health reform
provisions take effect this year, including the change in
the limiting age, the ban on lifetime limits, and the end
of pre-existing condition exclusions for children. The
author argues this bill is a necessary first step toward
enacting these important insurance market reforms.
Additionally, federal health reform tasks the states with
establishing the new, organized marketplaces where
individuals and small businesses can more readily identify
and compare coverage choices; purchase value-based
coverage, and access premium credits and cost-sharing
subsidies. This bill establishes the California Health
Benefit Exchange to enact these key changes, and sets in
motion the necessary duties to ensure California can
quickly use the federal planning dollars and commence
operations by January 1, 2014.
Background on the Exchange
The federal Act requires each state, by no later than
January 1, 2014, to establish an American Health Benefit
Exchange that:
Facilitates the purchase of qualified health plans, and,
Provides for the establishment of a Small Business Health
Options Program or "SHOP Exchange" that is designed to
assist small employers in facilitating the enrollment of
their employees in qualified health plans offered in the
small group market in the state.
The Secretary of DHHS is required (through regulation) to
establish criteria for the certification of health plans
qualified to participate in the Exchange. Those
requirements include meeting marketing requirements;
ensuring a sufficient choice of providers; and requiring
plans to consider all enrollees in the individual market
(except for grandfathered in plans), both in and outside
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the Exchange, to be considered members of a single risk
pool, and all enrollees in the small group market (except
for grandfathered in plans), both in and outside the
Exchange to be members of a single risk pool.
The Act also sets forth the requirements for an Exchange,
including that an Exchange must be a governmental agency or
nonprofit entity that is established by a state. The
Exchange is also charged with several duties, including
screening and enrolling individuals in other public
programs, establishing a toll-free hotline and website,
assigning a quality and price rating to each health plan,
granting exemptions from the federal requirement to have
health insurance, providing an online calculator to
determine the actual cost of coverage after federal tax
subsidies are considered, and awarding grants to
"navigators" to conduct public education and facilitate in
qualified health plans.
Enrollment in the Exchange is open to any "qualified
individual" who seeks to enroll in a qualified health plan
in the individual market offered through the Exchange and
who resides in the state that established the Exchange.
Individuals who are incarcerated (except for incarceration
pending the disposition of charges) are ineligible for the
Exchange, as are undocumented immigrants.
The Exchange is also open to a "qualified employer," which
is defined as a small employer that elects to make all
full-time employees of such an employer eligible for one or
more qualified health plans offered in the small group
market through an Exchange.
Federal health care reform establishes, for qualified small
employers , a tax credit for up to 50 percent of their
employee health care coverage expenses beginning in 2010.
In 2014, federal health care reform allows individual
taxpayers whose household income equals or exceeds 100
percent but does not exceed 400 percent, of the federal
poverty level (FPL) a refundable tax credit for a
percentage of the cost of premiums for coverage under a
qualified health plan. The Act also requires reductions in
the maximum limits for out-of-pocket expenses for
individuals enrolled in qualified health plans whose
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incomes are between 100 percent and 400 percent of FPL.
The Exchange is the only place where tax credits for health
coverage are available to individuals. Beginning in 2014,
the tax credits for small employers are also only available
through the Exchange, and small employers can claim the
credit only for two consecutive taxable years.
Because the tax credits are only being made available
through the Exchange, the Exchange is projected to have a
sizable number of individuals, and a significant impact on
the health insurance marketplace. A UC Berkeley estimate,
following the enactment of federal health care reform,
estimates 8.4 million Californians will be eligible for the
Exchange, with 2.9 million (35 percent) of those
individuals eligible for the Exchange with a subsidy. Of
the 2.9 million individuals eligible for a subsidy in the
Exchange, the UC Berkeley estimate is that 2,450,000 (84
percent) are individuals and 545,000 are employees of small
employers.
Support and requests amendments
Health Access California (HAC) writes in support of this
measure and seeks multiple amendments. HAC seeks to have
as part of the mission of the Exchange the promotion of
prevention and wellness, placing the bill's provisions in
state code (the language is currently uncodified), and
deleting from the expertise requirements an individual must
meet to be eligible to be on the Exchange board the word
"market" (as used in expertise in the "health care coverage
market" and the "small group health care coverage market")
as HAC argues this focuses on the "market" rather than
putting purchasers first. HAC also seeks amendments to add
a sixth category of expertise (public health, including
population or community health) that individuals could meet
to be on the Exchange.
HAC writes that it supports the provisions of this bill
that bars representation on the governing board by
providers, insurers and brokers because the exchange will
be negotiating with providers, insurers and brokers as a
purchaser of coverage that bargains on price, quality and
prevention. HAC seeks two "revolving door" amendments that
would prevent an individual from being able to quit Anthem
Blue Cross one day and be on the Exchange board the next,
and that would prevent an individual from quitting the
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Exchange board one day and going to work at the California
Hospital Association on managed care issues the next day.
HAC seeks to impose a two-year "revolving door" ban on
these types of employment transfers. HAC also seeks
amendments to require those enrolled in the Exchange to be
regarded as members to whom the board and the staff owe a
duty. HAC argues this creates the imperative to grow, but
for the benefit of the members. Additionally, HAC writes
members should pay their share of premiums to the Exchange,
rather to the carrier. HAC also seeks amendments requiring
the Exchange to provide services and materials in languages
other than English, and to require carriers to provide
language access, including assuring interpretive services
at the provider level. HAC also seeks amendments to
emphasize maximizing enrollment and retention as part of
the Exchange, and to emphasize prevention and wellness in
negotiating with health plans for participation in the
Exchange. HAC also seeks numerous requirements for
customer service (24-hour hotline staffed by state
employees, walk-in customer service centers, formal
grievance and appeals, web access, cooperative working
relationships with navigators), to require the Exchange to
offer dental and vision coverage at no state or federal
cost, to reconcile the rate review provisions in this bill
and HAC-sponsored SB 1163 (Leno), and to have the Exchange
open early on a limited basis in 2012 or 2013 to allow the
program to ramp up and encourage individuals and small
business to obtain coverage in the Exchange.
Concerns and requests amendments
The Association of California Life and Health Insurance
Companies (ACLHIC) writes with concerns and requests
amendments. ACLHIC writes there are provisions that may
have unintended consequences, or that would be inconsistent
with federal law, and cites as an example giving the
Exchange the power to negotiate rates for the products sold
within the Exchange, and at the same time, requiring
participating carriers to offer the same products outside
the Exchange. ACLHIC is concerned that these negotiated
rates may not be actuarially sound, and would place
participating carriers at a market disadvantage with
nonparticipating carriers. ACLHIC also writes that
extensive criteria for carrier certification to participate
in an Exchange are already included in PPACA, which will be
further expanded when federal rules come forward. ACLHIC
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argues that any carrier that can meet those criteria should
be eligible to participate in the Exchange, and additional
and potentially conflicting state standards may serve to
limit the choice of plans in the Exchange. Finally, ACLHIC
writes the latest amendments appear to give the Exchange
the authority to determine whether a participating
carrier's rate increases would disqualify their
participation in the Exchange, and ACLHIC's understanding
is that PPACA gives the Secretary of the federal Health and
Human Services Agency this authority. ACLHIC writes it is
concerned that the Exchange not become a third state
regulator, or that it subject carriers to potentially
conflicting state and federal standards.
Related bills
SB 890 (Alquist) would enact a number of changes to the
individual health insurance market, including requiring
health plans and health insurers to meet the annual and
lifetime limits and medical loss ratio requirements of
PPACA. This bill is in the Assembly Health Committee and
is set for hearing on June 29th.
SB 900 (Alquist) establishes in the Health and Human
Services Agency the California Health Benefits Exchange,
and specifies the duties and authority of the Exchange. SB
900 would require the Exchange to be governed by a
five-member board with four-year terms whose members are
appointed by the Governor and the Legislature, and would
require the Exchange to negotiate and enter into contracts
with health plans. The Exchange would be required to offer
a choice of health plans in each region of the state,
including a choice in each region of the state between the
five levels of coverage contained in federal law (a
platinum, gold, silver, bronze and catastrophic level
benefit plan). AB 1602 and SB 900 have many provisions in
common but additional amendments are needed to the measures
to conform their provisions. This bill is in the Assembly
Health Committee and is set for hearing on June 29th.
SB 1088 (Price) would prohibit the limiting age for
dependent children covered by health care service plan
contracts and individual and group health insurance
policies from being less than 26 years of age, except as
specified. This bill would require health plans and
insurers to notify certain dependents who have lost or been
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denied coverage that they are eligible to enroll, as
specified. This bill is in the Assembly Health Committee
and is set for hearing on June 29th.
AB 2244 (Feuer) requires guaranteed issue of health plan
and health insurance products for children in 2011 and
adults in 2014. AB 2244 also prohibits, effective January
1, 2011, health plans and health insurers offering
contracts to children from excluding or limiting coverage
due to any pre-existing condition, and prohibits, effective
January 1, 2014, health plans/insurers offering contracts
to adults from excluding or limiting coverage due to any
pre-existing condition. This bill is in the Senate
Appropriations Committee but is not yet for hearing.
Prior legislation
AB1X 1 (Nunez) of 2007 among its many provisions, would
have established the California Cooperative Health
Insurance Purchasing Program (Cal-CHIPP) as a state
purchasing program, or health insurance purchasing pool,
administered by MRMIB, to negotiate and contract with
carriers to offer health coverage to eligible persons.
ABX1 1 would have established the duties, authority and
responsibility for MRMIB in the operation of Cal-CHIPP.
Cal-CHIPP would have been operational on January 1, 2009
and would have been required to provide health care
coverage beginning July 1, 2010. Failed passage in Senate
Health.
AB 8 (Nunez) of 2007 was similar to ABX1 1, including that
it would have established a purchasing pool. Vetoed by
the Governor.
PRIOR ACTIONS
Assembly Health: 12-5
Assembly Appropriations: 12-5
Assembly Floor: 49-26
COMMENTS
Federal law places a number of specific requirements on the
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Exchange and on health plans that participate in the
Exchange, but leaves several policy decisions up to states
for implementation. Those policy choices include what type
of entity administers the Exchange, whether to combine the
individual and small employer SHOP Exchange into one
Exchange, whether to have a regional exchange with another
state or allow multiple exchanges within a state, whether
to allow large employers to participate in the Exchange,
how to provide ongoing funding for the Exchange, the scope
of benefits in the Exchange, and the number of products and
health plans offered through the Exchange. Policy
questions for the Legislature to consider in establishing
an Exchange include the following:
1. What entity should be the Exchange? Federal law
requires the Exchange to be a governmental agency or
nonprofit entity that is established by a state. If a
state fails to establish an Exchange, the Secretary of
HHS must (either directly or through agreement with a
not-for-profit entity) establish and operate the Exchange
within the state, and the Secretary must take actions
necessary to implement these other requirements. This
bill establishes the Exchange in state government,
requires the Exchange be governed by a five-member board
with four-year terms that includes the Secretary of HHS
and the other four members appointed by the Governor and
the Legislature. Because the Exchange will be competing
with the private market, this bill requires individuals
on the Exchange board to have demonstrated and
acknowledged expertise in at least two of the following
areas:
o The health care coverage market;
o The small group health care coverage market;
o Health benefits plan administration;
o Health care finance;
o Administering a public or private health care
delivery system; and,
o Health plan purchasing.
In addition, because the Exchange will be negotiating
with and purchasing health care services from health care
providers, health plans, and health insurers, this bill
prohibits Exchange board members from being employed by,
affiliated with, or a representative of, any of these
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entities.
2. The Exchange as active purchaser, passive clearinghouse
or hybrid market
organizer? This bill requires the Exchange to
determine the minimum requirements a health plan must
meet to be considered for participation in the Exchange,
and the standards and criteria for selecting health plans
to be offered through the Exchange. When selectively
contracting for health care coverage, the Exchange is
required to seek to contract with carriers to provide
health insurance choices that offer the optimal choice,
value, quality, and service.
According to a California HealthCare Foundation issue brief
entitled, "Building a National Insurance Exchange:
Lessons from California" released in July 2009, the basic
concept of an insurance exchange is not new, but there
are several variations on the idea:
a. Active purchaser. The model for this approach is
large employers who negotiate and selectively contract
with insurers that offer a high-value product in
exchange for a large volume of enrollees. Where this
exchange model has operated in the past, there has been
a market both within and outside the exchange seeking
to attract the same customers. The Health Insurance
Plan of California (HIPC) and its successor
PacAdvantage are examples of this model.
b. Passive clearinghouse. An exchange built on this
model is merely a "price taker" willing to accept all
health plans, a place where employers and individuals
can go to find a range of coverage offerings and
compare price, quality, and service levels.
Participating plans compete for exchange enrollees on
the basis of cost and quality. The Federal Employees
Health Benefit Program is an approximate example of
this model.
c. Hybrid market organizer. An entity built on this
model does not directly negotiate prices or selectively
contract; however, it may define standard benefit
packages, provide some degree of endorsement, and
otherwise indirectly encourage health plans to offer
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high-value coverage. The Massachusetts Connector is an
example.
Among the findings of the issue brief are: (a) that
any exchange that actively enters the market for health
insurance will have a very difficult time achieving its
objectives if it is not the exclusive source of
coverage for some populations, such as small employers
or individual purchasers; (b) if there is competition
for the same customers inside and outside the exchange,
the exchange will be unable to offer lower prices on a
sustained basis; and (c) without sufficient numbers of
health plans, the exchange cannot offer meaningful
choice or enhance the portability of coverage.
3. Should the state operate one exchange for both
qualified individuals and small employers? Should the
state have more than one exchange within the state, or
form a regional exchange with another state? Federal law
requires states to establish an Exchange that facilitates
the purchase of qualified health plans and provides for
the establishment of a SHOP. Federal law allows states
to elect to provide only one Exchange for providing both
Exchange and SHOP Exchange services to both qualified
individuals and qualified small employers, but only if
the Exchange has adequate resources to assist such
individuals and employers.
This bill is silent on forming more than one Exchange in
the state and authorizing a regional Exchange, in effect
not authorizing these entities. This bill requires the
Exchange to establish the Small Business Health Options
Program (SHOP), but requires it to be separate from the
activities of the board related to the individual market.
The rationale for keeping the SHOP and individual market
exchange separate is a lack of data on how rates in each
of these respective markets would be affected by merging
the two markets. To obtain this information, this bill
authorizes the Exchange to report (or contract with an
independent entity to report) to the Legislature on
whether to adopt the federal option to provide a single
exchange for both individuals and small employers in the
Exchange. In its report, the board would be required to
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provide data on the potential impact on rates paid by
individuals and by small employers in a merged individual
and small group market, as compared to the rates paid by
individuals and small employers if a separate individual
and small group market is maintained.
4. How should the Exchange be funded on an ongoing basis?
Federal health care reform requires there be appropriated
an amount necessary to enable the Secretary to make
awards to states not later than one year after the date
of enactment of the federal Act. States are required to
use the amounts awarded for activities (including
planning activities) related to establishing an Exchange.
The Secretary can renew a grant, but federal law
prohibits a grant from being awarded after January 1,
2015.
In establishing an Exchange, federal law requires states to
ensure that the Exchange is self-sustaining beginning on
January 1, 2015. Federal law permits the Exchange to
charge assessments or user fees to health plans and
insurers participating in the Exchange, or to otherwise
generate funding, to support its operations.
This bill requires the Exchange to assess a charge as a
part of the premium, at the lowest possible rate, on
carriers participating in the Exchange, to support the
development, operations, and prudent cash management of
the Exchange.
5. Should the Exchange include large employers? Beginning
in 2017, each state can allow health insurers offering
coverage in the large group market to offer such health
plans in the Exchange. In determining whether to offer
health plans in the large group market through an
Exchange, states must take into account any excess
premium growth outside of the Exchange as compared to the
rate of such growth inside the
Exchange. Plans are also not required to offer such
products in the Exchange. This bill is silent on
including large employers in the Exchange after 2017, in
effect not authorizing the inclusion of large employers.
Similar to the decision to not merge the individual and
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small group markets, it is unclear what effect allowing
large employers into the Exchange would have on the rates
of small employers, particularly because large employers
can choose between buying insurance or self-insuring. If
large employers with expensive claims experience elected
to purchase coverage in the Exchange, this could
adversely affect the rates of other Exchange purchasers.
6. Health plan benefits beyond required federally required
"essential health benefits." Federal law requires health
plans and health insurers, effective January 1, 2014, to
ensure health plans provide coverage for "essential
health benefits," as defined by the Secretary of HHS.
The statutory list of essential health benefits in the
federal Act is generally broader than state law
requirements (two exceptions are the requirement that
DMHC plans cover home health services and hospice care),
although the scope of essential health benefits will
depend upon the federal regulations.
Exchanges can require that a qualified health plan offer
benefits in addition to the federal essential health
benefits. However, a state must assume the cost of doing
so by making payments to an individual eligible for the
premium tax credit and any cost-sharing reduction under
the Act to defray the cost to the individual of any
additional benefits which are not eligible for such
credit or reduction. Following the regulatory
publication of what is and what is not included in the
federal definition of "essential health benefits," the
Legislature may need to determine whether to continue
existing benefit mandates that exceed federal minimums,
or determine how to fund the cost to the individual for
benefits that are not eligible for the federal credit or
cost-sharing reduction.
POSITIONS
Support (prior version):
American Federation of State, County and Municipal
Employees, AFL-CIO
CALPIRG
California Retired Teachers Association (CalRTA)
Support: Health Access California (with amendments)
STAFF ANALYSIS OF ASSEMBLY BILL 1602 (John A. P?rez) Page
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Oppose: None received
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