BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1887 (Villines)
Hearing Date: 6/17/2010 Amended: 6/10/2010
Consultant: Katie Johnson Policy Vote: Health 6-2
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BILL SUMMARY: AB 1887, an urgency measure, would establish and
continuously appropriate the Federal Temporary High Risk Health
Insurance Fund in the State Treasury for purposes of covering
program administration and claims payments for the California
Federal Temporary Health High Risk Pool. The bill is contingent
upon the enactment of SB 227 (Alquist).
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
CHRP administration up to $761 million from date ofFederal*
and claims payments enactment until January 1, 2014
*These funds would be accessed to the extent subscriber premiums
do not cover the full cost of administration and claims
payments.
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Federal law, Section 1101 of the Patient Protection and
Affordable Care Act (Public Law 111-148) (PPACA), requires the
Secretary of the Department of Health and Human Services (HHS)
to establish a temporary high risk health insurance pool program
to provide health insurance coverage for individuals during the
period on the date on which such program is established and
ending on January 1, 2014. PPACA permits the Secretary to
contract directly with a state or nonprofit entity to administer
the program. PPACA requires that, commencing January 1, 2014, a
health plan or insurer not deny coverage for an individual on
the basis of a preexisting health condition. In April 2010,
Governor Schwarzenegger submitted a letter to HHS stating his
intent to contract with HHS to administer the high risk pool on
the condition that it be 100 percent federally funded.
This Bill
This bill would establish and continuously appropriate the
Federal Temporary High Risk Health Insurance Fund in the State
Treasury for purposes of covering program administration and
claims payments for the California Federal Temporary Health High
Risk Pool (CHRP), which would be established by SB 227 (Alquist)
of this session.
This bill would state that the state would not be liable beyond
the assets of the fund for any obligations incurred, or
liabilities sustained, in the operation of the program and would
require that the Managed Risk Medical Insurance Board (MRMIB)
establish a prudent reserve for the program. This bill would
also exempt MRMIB from California's Public Records Act when the
board is negotiating with its contractors for purposes of CHRP.
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AB 1887 (Villines)
SB 227
SB 227 would establish the California Federal Temporary Health
High Risk Pool (CHRP) under the California Health and Human
Services Agency (CHHS). Contingent upon an agreement with HHS
and the receipt of sufficient federal funding, the Managed Risk
Medical Insurance Board (MRMIB) would be required to administer
CHRP.
MRMIB would cease to offer coverage under CHRP on January 1,
2014, and would also cease to operate the program except to the
extent necessary to transition subscribers into a health
benefits exchange, pursuant to PPACA, or to complete payments to
or reconciliations with participating health plans and other
contractors. The provisions of this bill and of SB 227 would
remain in statute until January 1, 2020.
Funding
Federal law appropriates $5 billion, without regard to fiscal
year, for the payment of claims under the program and, in the
case of a funding deficiency, grants the Secretary authority to
make necessary adjustments to eliminate the deficit, including
closing program enrollment. According to an HHS fact sheet, it
is the intent of the federal government that this program be
entirely federally funded. California's allotment is expected to
be $761 million and would be spent on program administration and
claims payments over the life of the program, or approximately
3.5 years. MRMIB would likely claim approximately $217 million
federal funds per fiscal year. Due to program start-up and
depending on uptake, the amount claimed in FY 2010-2011 would be
less than the following years.
In his April 2010 letter to HHS stating his intent to contract
with the federal government to administer a high risk pool,
Governor Schwarzenegger said, "The application I will submit is
shaped by your assurances that 100 percent of the costs will be
provided by the federal government for the duration of the
program until other key reform provisions are enacted January 1,
2014. I am also encouraged by comments from your staff on the
most recent weekly call with the states indicating that your
department will be flexible with the program and benefit design
to minimize state implementation challenges."
According to a draft contract HHS provided to states, MRMIB
would be permitted up to 10 percent of allotted funds for
program administration and would receive cost-based
reimbursement payments form HHS for allowable administrative
costs and claims costs incurred in the development and operation
of CHRP. These administrative costs include costs incurred prior
to the effective date of the contract. MRMIB would be required
to report the amount of premiums billed to and collected from
enrollees and the amount of Federal funds drawn down from HHS
each month. MRMIB could submit a request for payment from HHS
for the claims as often as daily. These provisions would be
subject to negotiations between HHS and MRMIB.
The number of people expected to obtain coverage through CHRP is
unknown, but is likely to be in the tens of thousands. Estimates
indicate that several hundreds of thousands of Californians may
be in need of such coverage. To the extent that MRMIB did not
have sufficient funding to provide health care coverage to all
eligible Californians, there would be pressure on the limited
program funding. If sufficient funds
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AB 1887 (Villines)
were unavailable to cover the cost of the program, this bill
would require the board to institute appropriate measures to
limit enrollment.
SB 227 would require that the board ensure that the program
subsidy amount does not exceed the federal funds available to
California for this purpose and that no state funds are spent
for the medical coverage provided by and administration for
CHRP. MRMIB would have the flexibility to control program costs.
SB 227 would also permit MRMIB to obtain loans from the General
Fund for all necessary and reasonable expenses related to the
administration of the fund and the program, upon approval of the
Department of Finance (DOF). While the amount and timing of the
loans is unknown, SB 227 would require that they be repaid with
interest no later than July 1, 2014, six months after the
program would end.
California is one of 34 states to currently administer a high
risk health insurance program. The Major Risk Medical Insurance
Program (MRMIP) caps enrollment at 7,100 individuals due to
limited funding. The program is funded with a combination of
subscriber premiums and approximately $30 million of Proposition
99 funds that are continuously appropriated to MRMIP annually.
PPACA requires that states agree, as a maintenance of effort
(MOE), to not reduce the annual amount the State expended for
the operation of one or more state high risk pools during the
year preceding the year in which such contract is entered into.
In FY 2008-2009 and FY 2009-2010, in addition to its $30 million
appropriation, MRMIP received one-time fund transfers from the
Department of Managed Health Care (DMHC) as a result of lawsuit
settlements. MRMIP's fund balance for FY 2010-2011 is $37
million, approximately $28 million less than the FY 2009-2010
fund balance of $65 million. If the federal government were to
require that California maintain the FY 2009-2010 MRMIP fund
balance as the MOE through January 1, 2014, there would be
pressure of up to approximately $28 million annually. It is
unknown whether or not the federal government would discount
these one-time fund transfers and any year-to-year roll-over
funds from the MOE requirement, but it appears from the
Governor's letter that HHS would be flexible in its negotiations
with the state.