BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1602|
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THIRD READING
Bill No: AB 1602
Author: John A. Perez (D), et al
Amended: 8/20/10 in Senate
Vote: 21
SENATE HEALTH COMMITTEE : 6-2, 6/30/10
AYES: Alquist, Cedillo, Leno, Negrete McLeod, Pavley,
Romero
NOES: Strickland, Aanestad
NO VOTE RECORDED: Cox
SENATE APPROPRIATIONS COMMITTEE : 7-4, 8/12/10
AYES: Kehoe, Alquist, Corbett, Leno, Price, Wolk, Yee
NOES: Ashburn, Emmerson, Walters, Wyland
ASSEMBLY FLOOR : 49-26, 6/1/10 - See last page for vote
SUBJECT : Health care coverage
SOURCE : Author
DIGEST : This bill implements Section 1311 of the
Affordable Care Act related to the establishment of an
American Health Benefit Exchange in California and its
administrative authority. The bill specifies that the
activities related to the provision of health coverage
within the Exchange. It would also be contingent on the
enactment of SB 900 (Alquist), which would create the
California Health Benefit Exchange and establish details
related to its governance.
CONTINUED
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Senate Floor Amendments of 8/20/10 authorize the California
Health Facilities Financing Authority to provide start-up
loans to the Exchange, require an annual audit and contains
other fiscal accountability provisions, require the
Exchange Board to hire specified positions exempt from
civil service, and make specified changes to the health
insurance provisions of this bill.
ANALYSIS : 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.
Existing federal law:
Exchange Provisions
1.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
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between 100 percent and 400 percent of the federal
poverty level.)
2.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.
California Health Benefits Exchange
This bill establishes the California Health Benefits
Exchange (Exchange) as an independent public entity with an
appointed executive board of 5 members and an executive
director to purchase health insurance on behalf of
Californians above 100 and up to 400 percent of the federal
poverty level and employees of small businesses.
Individuals and small businesses would be eligible for a
tax credit that would offset premium costs. The tax credit
would only be available to those individuals and small
businesses purchasing insurance through the Exchange.
Estimates place Exchange enrollment up to 9 million
individuals. The ACA, requires states that elect to
establish exchanges either through a governmental entity or
a non-profit organization, in lieu of the federal
government establishing it for a state, to have the
Exchange be operational by January 1, 2014.
This bill requires the board to apply for federal funds
that are provided for in federal health reform. Section
1311 of the ACA states that the federal government will
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award grants to states beginning in 2011, not later than
one year after PPACA's enactment, in annual, unspecified
amounts to assist states in establishing state Health
Benefits Exchanges. If the federal funds do not cover the
costs of implementation prior to the collection of fees on
premiums, there could be General Fund cost pressure to make
up the difference. By January 1, 2015, the federal
government expects exchanges to be fully self-funded.
Additionally, if a state chooses not to establish its own
exchange, the federal government would run the state's
exchange either directly or through a non-profit.
Initial start-up costs would likely be in the millions of
dollars for staff and, in addition to the ongoing duties of
the Exchange, could include information technology (IT)
investments that could be in the millions of dollars in
procurement. Federal law requires exchanges to, among
other duties: 1) certify qualified health plans, 2)
provide for a toll-free consumer hotline, 3) maintain a
website with standardized comparative information on such
plans, 4) assign a rating to each qualified health plan, 5)
present health plan information in a standardized format,
6) establish a calculator to determine the actual cost of
coverage, and, 7) grant a certification attesting that an
individual is exempt from the individual responsibility
requirement. Several of these requirements would likely be
instituted and met during the Exchange start-up and some
would be maintained as part of the exchange's ongoing
operations.
This bill further requires the Exchange to: 1) determine
eligibility, enrollment, and disenrollment criteria and
processes for enrollees, 2) determine the minimum
requirements a health plan must meet to be considered for
participation in the exchange, 3) determine when an
enrollee's coverage commences, the extent and scope of
coverage, and determine and approve cost-sharing provisions
for qualified health plans, 4) employ necessary staff, 5)
authorize expenditures, as necessary, from the California
Health Trust Fund (Fund) to pay program expenses to
administer the Exchange, 6) establish the Small Business
health Options Program, 7) report to the Legislature no
later than December 1, 2018, on whether to merge or keep
separate the individual and small group markets, 8)
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maintain enrollment, collect premiums, and submit
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, among other
duties. This bill would permit that any regulations adopted
by the board until January 1, 2014, to be adopted as
emergency regulations.
This bill also does the following:
1. Requires, beginning January 1, 2016, the Exchange board
to conduct an annual audit.
2. Requires the Exchange board to annually prepare a
written report on the implementation and performance of
the Exchange functions during the preceding fiscal year,
including, at a minimum, the manner in which funds were
expended and the progress toward, and the achievement
of, the requirements of this bill. Requires this report
to be transmitted to the Legislature and the Governor,
and to be made available to the public on the website of
the Exchange.
3. Requires the Exchange to be responsive to requests for
additional information by the Legislature, including
testifying and commenting on proposed state legislation
or policy issues. Makes legislative findings and
declarations that these activities, including but not
limited to, responding to Legislative or Executive
inquiries, tracking and commenting on legislation and
regulatory activities, preparing reports on the
implementation of this bill and the performance of the
Exchange, are necessary state requirements and distinct
from the promotion of legislative or regulatory
modifications referred to in this bill.
4. Requires the Exchange Board, if at the end of any fiscal
year, the California Health Trust Fund has unencumbered
funds in an amount that equals, or is more than, the
operating budget of the Exchange for the next fiscal
year, to reduce the assessments authorized by this bill
during the following fiscal year in an amount that will
reduce any surplus funds of the Exchange to an amount
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less than the Exchange's operating budget for the next
fiscal year. This requirement takes effect January 1,
2016.
5. Modifies the selective contracting standards and
criteria in this bill, including requiring the Exchange
Board to consistently and uniformly apply those
requirements, standards, and criteria to all carriers.
6. Narrows and clarifies the requirement that health plans
and insurers not participating in the Exchange offer the
standardized products that are offered in the Exchange
to specify that plans and insurers offer at least one
standardized product designed by the Exchange, and
applies this requirement only if the Exchange
standardizes products. Prohibits the standardization
requirement from requiring health plans and health
insurers that do not participate in the individual or
small employer market from being required to sell
standardized products in those markets.
7. Permits the California Health Facilities Financing
Authority (CHFFA) to provide a working capital loan of
up to $5 million to assist in the establishment and
operations of the Exchange. Permits CHFFA to require
any information it deems necessary and prudent prior to
consideration of a loan to the Exchange, and to require
any term, condition, security or repayment provision it
deems necessary in the event CHFFA chooses to make a
loan. Prohibits CHFFA from being required to authorize
a loan to the Exchange.
8. Requires any supplemental coverage offered in the
Exchange to be subject to the charge imposed under the
provisions of this bill requiring the Exchange to assess
a charge on qualified health plans offered by carriers
that is reasonable and necessary to support the
development, operations and prudent cash management of
the Exchange.
9. Requires the Exchange to only collect information from
individuals necessary to administer the Exchange and
consistent with the federal health care reform bill,
rather than being consistent with a specific section of
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that bill.
10.Clarifies the requirement that the Exchange has the
authority to standardize products to be offered through
the Exchange.
11.Conditions the authority under this bill for the
Exchange Board to have additional appeals by requiring
the Board to determine that any additional appeals
requirement results in no cost to the General Fund and
no increase in the charge imposed under this bill.
12.Requires a majority of the Exchange Board to be
constituted prior to consideration of the loan by CHFFA,
and requires the Exchange Board to demonstrate to the
satisfaction of CHFFA, that the federal planning and
establishment grants to the Exchange made available by
the federal Secretary of Health and Human Services, are
insufficient or will not be released in a timely manner
to allow the Exchange to meet the necessary requirements
of PPACA. Requires the Exchange to repay the loan no
later than June 30, 2016, and to pay interest at the
rate paid by moneys in the Pooled Money Investment
Account.
13.Requires the Exchange Board to hire a chief fiscal
officer, a chief operations officer, a director for the
SHOP (small business) Exchange, a director of health
plan contracting, a chief technology and information
officer, a general counsel, and other key executive
positions, as determined by the Board, and exempts these
positions from civil service. Exempts these positions
from otherwise applicable provisions of the Government
Code or the Public Contract Code and, for those
purposes, prohibits the Exchange from being considered a
state agency or public entity. Requires the Board to
set the salaries for these exempt positions and for the
Exchange executive director in amounts that are
reasonably necessary to attract and retain individuals
of superior qualifications. Requires the salaries to be
published by the Board in the Board's annual budget, and
requires the Board's annual budget to be posted on the
Internet Website of the Exchange.
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14.Requires the Exchange Board, to determine the
compensation for these positions, to use independent
outside advisors and salary surveys of both of the
following:
? Other state and federal health insurance
exchanges which are most comparable to the Exchange.
? Other relevant labor pools.
1. Prohibits the salaries established by the Exchange Board
from exceeding the highest comparable salary for a
position of that type, as determined by the surveys.
Requires the Department of Personnel Administration to
review the methodology used in the surveys conducted.
2. Exempts from disclosure under the Public Records Act
records of the Exchange that reveal any of the
following:
? The deliberative processes, discussions,
communications, or any other portion of the
negotiations with entities contracting or seeking to
contract with the Exchange, entities with which the
Exchange is considering a contract, or entities with
which the Exchange is considering or enters into any
other arrangement under which the Exchange provides,
receives, or arranges services or reimbursement.
? The impressions, opinions, recommendations,
meeting minutes, research, work product, theories,
or strategy of the Board or its staff, or records
that provide instructions, advice, or training to
employees.
1. Requires, except for the portion of a contract that
contains the rates of payment, contracts entered into by
the Exchange under this bill to be open to inspection
one year after their effective dates.
2. Requires, if a contract entered into under this bill is
amended, the amendment to be open to inspection one year
after the effective date of the amendment.
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3. Requires the Exchange Board to ensure that the
establishment, operation, and administrative functions
of the Exchange do not exceed the combination of federal
funds, private donations, and other non-General Fund
moneys available for this purpose. Prohibits state
General Fund (GF) money from being used for any purpose
under this bill without a subsequent appropriation.
Prohibits any liability incurred by the Exchange or any
of its officers or employees from being satisfied using
moneys from the GF.
4. Makes the implementation of the provisions of this bill
contingent on a determination by the Exchange Board that
sufficient financial resources exist or will exist in
the fund, except for specified provisions. Requires the
Exchange Board determination to be based on at least the
following:
? Financial projections identifying that
sufficient resources exist or will exist in the fund
to implement the Exchange.
? A comparison of the projected resources
available to support the Exchange and the projected
costs of activities required by this bill.
? The financial projections demonstrate the
sufficiency of resources for at least the first two
years of operation under this bill
1. Requires the Exchange Board to provide notice to the
Joint Legislative Budget Committee and the Director of
Finance that sufficient financial resources exist in the
fund to implement this bill.
2. Requires the Exchange Board, if it determines that the
level of resources in the fund cannot support the
actions and responsibilities, to provide the Department
of Finance and the Joint Legislative Budget Committee a
detailed report on the changes to the functions,
contracts, or staffing necessary to address the fiscal
deficiency along with any contingency plan should it be
impossible to operate the Exchange without the use of GF
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moneys.
3. Requires the Exchange Board to assess the impact of the
Exchange's operations and policies on other publicly
funded health programs administered by the state and the
impact of publicly funded health programs administered
by the state on the Exchange's operations and policies.
Requires this assessment to include, at a minimum, an
analysis of potential cost shifts or cost increases in
other programs that may be due to Exchange policies or
operations. Requires the assessment to be completed on
at least an annual basis and submitted to the Secretary
of Health and Human Services and the Director of
Finance.
4. Exempts products offered in Medi-Cal and Healthy
Families from the requirement that health plans and
insurers meet specified offer and marketing requirements
established by this bill.
5. Makes the Exchange Board's authority to accept gifts,
grants and donations subject to compliance with conflict
of interest provisions to be adopted by the Board at a
public meeting.
6. Add definitions for purposes of the Exchange-related
provisions of this bill.
7. Add Senators Alquist and Steinberg as principal
co-authors.
Background
The federal Act requires each state, by no later than
January 1, 2014, to establish an American Health Benefit
Exchange that:
1. Facilitates the purchase of qualified health plans, and,
2. 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.
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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
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.
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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
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.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
Exchange initial start-up costs
likely in the millions of dollars
General/*
annually through January 1, 2014Federal
Ongoing Exchange
likely to start January 1, 2014, in the
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Special**
administration tens of millions of dollars
annually
*Unspecified amount of federal funds available likely in
2011; General Fund pressure if total expenses not met by
federal funds grant
**California Health Trust Fund-fully supported with
consumer premiums
SUPPORT : (Verified 8/23/10)
American Federation of State, County and Municipal
Employees
California Chiropractic Association
California Retired Teachers Association
California Welfare Director's Association
Children Now
Consumer's Union
Health Access
Local Health Plans of California
Pico CA
Service Employees International Union
The Children's Partnership
United Way
Western Center for Law and Poverty
OPPOSITION : (Verified 8/23/10)
Anthem Wellpoint
Association of California Life & Health Insurance Co.
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Bass, Beall, Block, Blumenfield,
Bradford, Brownley, Buchanan, Caballero, Charles
Calderon, Carter, Chesbro, Coto, Davis, De La Torre, De
Leon, Eng, Evans, Feuer, Fong, Fuentes, Furutani,
Galgiani, Hall, Hayashi, Hernandez, Hill, Huffman, Jones,
Lieu, Bonnie Lowenthal, Ma, Mendoza, Monning, Nava, V.
Manuel Perez, Portantino, Ruskin, Salas, Saldana,
Skinner, Solorio, Swanson, Torlakson, Torres, Torrico,
Yamada, John A. Perez
NOES: Adams, Anderson, Bill Berryhill, Blakeslee, Conway,
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Cook, DeVore, Emmerson, Fuller, Gaines, Garrick, Gilmore,
Hagman, Harkey, Huber, Jeffries, Knight, Logue, Miller,
Nestande, Niello, Nielsen, Norby, Silva, Smyth, Tran
NO VOTE RECORDED: Tom Berryhill, Fletcher, Audra
Strickland, Villines
CTW:nl 8/23/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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