BILL ANALYSIS
AB 1904
Page 1
Date of Hearing: April 20, 2010
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 1904 (Villines) - As Introduced: February 16, 2010
SUBJECT : Out-of-state carriers.
SUMMARY : Allows a health plan or health insurer domiciled in
another state to offer, sell, or renew a health plan or health
insurance policy in California without holding a license issued
by the Department of Managed Health Care (DMHC) or a certificate
of authority issued by the California Department of Insurance
(CDI), and without meeting specified requirements for a license
or certificate, if the plan or insurer is authorized to issue a
plan or policy in the domiciliary state and complies with that
state's requirements.
EXISTING LAW :
1)Provides for regulation of health plans by DMHC under the
Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene)
and regulation of health insurers by the CDI under the
Insurance Code.
2)Requires health plans under Knox-Keene to cover a number of
basic health care services and permits DMHC to define the
scope of the services and exempt plans from the requirement
for good cause.
3)Defines, under Knox-Keene, basic health care services to
include: physician services; hospital inpatient and outpatient
services, including outpatient physical, occupational, and
speech therapy; diagnostic laboratory and X-ray services;
preventive and routine care, such as vaccinations and routine
checkups; emergency and urgent care services, including
ambulance and out-of-area emergency services; and, medically
appropriate home health services. There is no requirement for
health insurers subject to regulation by CDI to cover
medically necessary basic services or any specific minimum
basic benefits.
4)Requires, subject to specified exceptions, a health insurer to
obtain a certificate of authority from CDI in order to
transact business in this state and to operate in accordance
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with specified requirements.
5)Requires health plans and health insurers to comply with
certain requirements governing administrative policies,
premiums, patient protections, fiduciary responsibilities, and
provider access, and to provide certain mandated benefits to
enrollees and insureds respectively.
FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, with
healthcare costs skyrocketing, California must take seriously
its critical role in determining whether or not the state's
consumers have access to affordable healthcare options. The
author asserts that Californians are currently limited to
purchasing California-based health plans at top prices due to
state mandates that they may not need, or simply cannot
afford. The author states that this bill is intended to
maximize choice, decrease cost, and increase access for
consumers by allowing health plans and health insurers
licensed in other states to sell their products in California.
2)CURRENT STATE REGULATION . California's two regulatory
agencies, DMHC and CDI, have oversight over roughly 200 health
care service plans and health insurers, which collectively
provide coverage for 27 million people.
DMHC enforces the provisions of Knox-Keene, which governs
requirements for mandatory basic services; financial
stability; provider availability and accessibility; review of
provider contracts; cost sharing; on-site medical surveys;
and, consumer disclosure and grievance requirements. In
addition, these plans are mandated to cover or offer to cover
various specified benefits, including, among other, mental
health, contraception, cancer screening, and diabetic
supplies.
Knox-Keene licensed plans must also submit for review and
approval all of the types of contracts it will offer, as well
as its standard provider contracts and payment methods,
audited financial statements, administrative structure,
financial viability, actuarial analyses, proposed advertising
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and marketing materials, and proposed service areas.
Additionally, plans must designate a medical director to
oversee the plan's policy, retain legal responsibility for
ensuring that a contracted provider has the administrative and
financial capacity to handle the contract, and pay an annual
assessment based on plan size and enrollees in addition to
paying the corporate tax rate.
Knox-Keene plans also provide a number of patient protections,
including guaranteed coverage for second opinions, time limits
on utilization review, mandated disclosure to DHMC of the
criteria used in denying coverage, independent external
medical review for disputes, and a right to sue an HMO for
damages related to denials or delays in care.
CDI generally has fewer requirements and less oversight of
insurers that underwrite health insurance through preferred
provider networks and traditional indemnity insurance, but CDI
also requires products to comply with various consumer and
provider protections as well as benefit coverage mandates.
3)DOMICILED PLANS AND INSURERS . Currently, about two-thirds of
privately insured Californians have health insurance through a
state-regulated health plan or insurance policy offered by a
California domiciled carrier, meaning that the insurance
company must be headquartered in the state. Four of the seven
major carriers offering coverage in California are currently
domiciled outside the state. These carriers are
Wellpoint/Blue Cross of California (Indianapolis, IN); United
Health Group/PacifiCare of California (Minnetonka, MN); Aetna
(Hartford, CT); CIGNA (Philadelphia, PA). With the exception
of Wellpoint/Blue Cross, these carriers are licensed to sell
products in all 50 states and the District of Columbia.
Carriers domiciled in California include: Kaiser
Permanente/Kaiser Foundation Health Plan; Blue Shield of
California/Blue Shield of California Life and Health
Insurance, and Health Net.
4)CALIFORNIA HEALTH BENEFITS REVIEW PROGRAM . AB 1996 (Thomson),
Chapter 795, Statutes of 2002, requests the University of
California to assess legislation proposing a mandated benefit
or service, and prepare a written analysis with relevant data
on the medical, economic, and public health impacts of
proposed health plan and health insurance benefit mandate
legislation. CHBRP was created in response to AB 1996 and
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extended for four additional years in SB 1704 (Kuehl), Chapter
684, Statutes of 2006. In its analysis of AB 1904, CHBRP
notes that the federal Patient Protection and Affordable Care
Act and the Health Care and Education Reconciliation Act,
collectively referred to as Federal Health Care Reform,
recently signed into law on March 30, 2010, establishes
state-based health insurance exchanges for the small-group and
individual markets and makes available subsidies for
low-income individuals to purchase into the exchanges. CHBRP
points out that how these provisions are implemented in
California will depend on regulations to be promulgated by
federal agencies, and statutory and regulatory actions to be
undertaken by the California state government. With regard to
its analysis of this bill, CHBRP reports that it relied in
part on its analysis of two prior bills, SB 92 (Aanestaad) of
2009 and SB 365 (McClintock) of 2007, which contained similar
provisions to this bill's provisions regarding out-of-state
carriers:
a) Medical Effectiveness . Findings regarding the medical
effectiveness of specific health care services addressed by
the mandates and mandated offerings for which coverage
could be excluded under this bill are as follows:
CHBRP finds that many of the mandates and mandated offerings
addressed by this bill require health insurance products to
provide coverage for health care services for which there
is strong evidence of effectiveness. CHBRP notes that
there is clear and convincing evidence for medical
effectiveness from multiple, well-designed, randomized
controlled trials of the following currently mandated
services: screening for breast, cervical, and colorectal
cancers; diagnostic procedures and treatment for breast
cancers; screening tests for the human immunodeficiency
virus (HIV); diabetes management medications, services, and
supplies; diagnosis and treatment of osteoporosis; medical
and psychosocial treatment for severe mental illness and
alcoholism; some preventive services for children and
adolescents; prescription contraceptive devices; diagnosis
and treatment of infertility; and, home care services for
elderly and disabled adults.
CHBRP finds that there is also a preponderance of evidence
for the medical effectiveness of the following tests and
treatments: liver and kidney transplants for persons with
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HIV; medical formulas and foods for persons with
phenylketonuria (PKU); prosthetic devices; orthotic devices
for some conditions; special footwear for persons with
rheumatoid arthritis; acupuncture; pain management
medication for persons with terminal illnesses; pediatric
asthma management; prenatal diagnosis of genetic disorders;
expanded alpha-fetoprotein screening; and, surgery for the
jawbone and associated bone joints.
According to CHBRP, there is insufficient evidence to
determine whether the following are effective: tests for
screening and diagnosis of lung cancer, oral cancer, and
skin cancer; orthotic devices for some conditions; general
anesthesia for dental procedures; screening the blood lead
levels of children at increased risk for lead poisoning;
orthodontic services for persons with oral clefts;
reconstructive surgery for clubfoot and craniofacial
abnormalities; and, home care for children. CHBRP
clarifies that insufficient evidence indicates that
available evidence is not sufficient to determine whether
or not a health care service is effective. It is not the
same as evidence of no effect. A health care service for
which there is insufficient evidence might or might not be
found to be effective if more evidence were available.
CHBRP further reports a preponderance of evidence indicating
that screening for bladder cancer, ovarian cancer,
pancreatic cancer, and testicular cancer, and screening
blood lead levels of children at average risk for lead
poisoning are not medically effective.
b) Utilization, Cost, and Coverage Impacts . CHRBP notes
that because this bill is identical to provisions in SB 92
of 2009 and SB 365 of 2007, it drew heavily from its
previously published reports to produce this analysis, with
information updated to reflect recent federal activities.
CHBRP indicates this section of the analysis is intended to
summarize the existing literature and expert opinion on the
premium savings associated with limited-mandate plans sold
across state lines. Limited-mandate plans would be
expected to exclude coverage for some benefits required by
California state law, or change the scope of coverage for
some benefits, such as annual or life-time benefit limits
or cost-sharing. While individual benefit mandates
typically raise premiums by less than 1%, the cumulative
annual cost of the state's mandated benefits is between 5%
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and 19% of the total premium for the health insurance
product. Studies of the marginal cost of benefit mandates
(i.e., the cost of the benefit minus the cost of the
benefit that would be covered in the absence of the legal
requirement imposed by the mandate) indicate that the
marginal costs are lower than the total cumulative annual
costs, ranging from 2% to 5% of premiums.
According to CHBRP, potential market responses include the
following: in-state carriers may move their base or
"domicile" to another state if they consider it
advantageous to compete with other carriers that offer
products not subject to California regulations in the group
market; out-of-state carriers who hold a license from DMHC
or certificate of authority from CDI would be able to sell
their limited-mandate policies after the passage of this
bill; and, out-of-state carriers not currently licensed in
California would be permitted to sell limited-mandate
policies after the passage of this bill.
Furthermore, in order to model the potential effects of this
bill on costs in the health care market, CHBRP provides
three hypothetical scenarios presenting a potential
maximum, low-impact, and very low impact cost estimate
because of the uncertainty of how insurers would respond to
this bill if it were enacted. The first scenario assumes
that out-of-state carriers would have an immediate impact
on all market segments. The second scenario assumed that
out-of-state carriers would have a limited impact on the
low-income segment, below 350% of the 2010 Federal Poverty
Level (FPL), enrolled in the individual market only. The
third scenario assumes that out-of-state carriers would
have a more limited impact on the very low-income segment,
below 200% of FPL, enrolled in the small groups and
individual markets. This scenario is similar to the second
scenario and assumes that limited-mandate policies would
only have an impact on the most price-sensitive segment of
the market - the small groups and individual markets.
Under all the scenarios, people who are currently
uninsured, but will purchase insurance as a result of this
bill, are assumed to purchase the cheapest available plans.
i) Under the first scenario, with 100% of currently
insured switching to limited-mandate plans, total
expenditures among the currently insured population would
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decline by about $2 billion, or a reduction of 2.62%.
This overall reduction in expenditures includes a shift
in costs from insurer to insured of about $1.5 billion
for benefits currently mandated that would no longer be
covered but that would still be utilized. CHBRP states
that an estimated 87,000 Californians would become
insured as a result of the reduced premiums in this
scenario, representing a 1.31% decrease in the number of
uninsured. These newly insured individuals would account
for an increase in overall expenditures of about $210.9
million. Therefore, the combined effect on overall
health expenditures of this scenario would be a net
savings of about $1.8 billion, or 2.01%.
ii) Under the second scenario, in which a specified
percentage of currently insured individuals with incomes
below 350% FPL switch to limited-mandate policies, CHBRP
estimates total expenditures among the currently insured
population would decline by about $35 million, or a
reduction of .05%. This overall reduction in
expenditures includes a shift in costs from insurer to
insured of about $20.1 million for currently mandated
services that would no longer be covered. CHBRP
estimates about 12,000 Californians would become insured
as a result of the reduced premiums in this scenario,
representing a .18% decrease in the number of uninsured.
These newly insured individuals would account for an
increase in overall expenditures of about $15.6 million.
Therefore, the combined effect on overall health
expenditures of this scenario would be a net savings of
about $19.4 million, or .02%.
iii) Under the third scenario, specified percentages of
those individuals currently insured with high deductible
health plans in the CDI-regulated individual market and
specified percentages of those currently insured in small
groups, with incomes below 200% FPL, would switch to
limited-mandate policies. In this scenario, total
expenditures among the currently insured population would
decline by about $31 million, or a reduction of .04%.
This overall reduction in expenditures includes a shift
in costs from insurer to insured of about $19.4 million
for benefits currently mandated that would no longer be
covered but would still be utilized. CHBRP reports that
an estimated 28,000 Californians would become insured as
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a result of the reduced premiums in this scenario,
representing a .42% decrease in the number of uninsured.
These newly insured individuals would account for an
increase in overall expenditures of about $55.2 million.
Therefore, the combined effect on overall health
expenditures of this scenario would be a net increase of
about $24.2 million, or .03%.
Lastly, CHBRP notes that the first scenario is highly
unlikely, while the second and third ones are within the
range of possibilities. Therefore, it is possible that
implementation of this bill will result in a small change
(increase or decrease) in overall health expenditures but
this change would be highly dependent on the pattern and
extent of switching from full-mandate plans to limited
mandate plans.
iv) Public Health Impacts . Using the projections from
the hypothetical scenarios discussed above, CHBRP states
that the primary health benefit of this bill could be an
expansion of the insured population to an estimated
12,000 to 87,000 persons. Compared to the insured,
uninsured individuals obtain less preventive, diagnostic,
and therapeutic care, are diagnosed at more advanced
stages of illness, have a higher risk of death, and have
poorer self-reported health. As a result, the 12,000 to
87,000 persons who are expected to no longer be uninsured
due to this bill would likely realize improved health
outcomes and reduced financial burden for medical
expenses.
CHBRP indicates that having less comprehensive or
limited-mandate health insurance exposes individuals to
the financial and health risks of becoming underinsured
if insurers drop coverage for effective health services
currently mandated in California. This bill could result
in at least 266,000 previously insured persons moving
from a plan with mandated benefits to one where coverage
of mandated benefits is no longer required. CHBRP notes
that, with out-of-pocket expenditures for non-covered
benefits expected to increase by at least $19.4 million,
these insured persons have an increased risk of foregoing
treatment for services no longer covered under
limited-mandate policies. In particular, the absence of
coverage for effective preventive services could result
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in diagnosis at more advanced stages of disease, more
costly illness, and premature death. Additionally, CHBRP
points out that it is possible that persons moving to
limited-mandate plans could develop a preexisting medical
condition that would exclude them from moving back to a
plan with full coverage for these health problems.
CHBRP categorizes public health impacts of this bill as
mortality-related vs. morbidity-related, and as having
broad, moderate, or limited scope. CHBRP estimates that
excluding coverage of the following benefits would have
mortality impacts of broad scope, meaning that they could
affect more than 1 in 20 persons: cancer screening tests
for breast, cervical, and colorectal cancers; diagnostic
tests and treatments for breast cancer; diabetes
management medications, services, and supplies;
medication and psychosocial treatments for severe mental
illness and alcoholism; preventive services for children
and adolescents; and, pediatric asthma management. CHBRP
reports that excluding benefits for prescription
contraceptive devices would have a morbidity impact of
broad scope.
CHBRP indicates that excluding coverage for services for
HIV testing, the diagnosis and treatment of osteoporosis
and prenatal diagnosis of genetic disorders could have
mortality impacts of moderate public health scope;
meaning more than 1 in 2,000 persons could be affected.
CHBRP also finds that excluding coverage of the following
benefits could have a morbidity impact of moderate scope:
prosthetic devices; orthotic devices for some conditions;
special footwear for persons with rheumatoid arthritis;
pain management medication for persons with terminal
illnesses; acupuncture; diagnosis and treatment of
infertility; and, surgery for the jawbone and associated
bone joints.
The exclusion of coverage for the following benefits would
cause public health impacts of limited scope, meaning
fewer than 1 in 2,000 persons would be affected: medical
formulas and foods for persons with PKU, and expanded
alpha-fetoprotein screening. Excluding coverage of
benefits for home care services for elderly and disabled
adults, and hospice care would have morbidity impacts of
limited public health scope.
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CHBRP concludes that the medically effective mandated
benefits that are most likely to be dropped as a result
of this bill include: alcoholism treatments and parity in
coverage for severe mental illness/coverage for mental
and nervous disorders, PKU treatment with medical formula
and foods, expanded alpha-fetoprotein screening,
prescription contraceptive devices, acupuncture,
infertility treatments, jawbone or associated bone joint
surgery, orthotics and prosthetics, special footwear for
persons with rheumatoid arthritis, and home care services
for elderly and disabled adults.
CHBRP further points out that, in California, racial and
ethnic minorities are more likely to be low income and
more likely to be uninsured compared to whites in
California. An estimated 12,000 to 87,000 of these
people may gain insurance by purchasing it from an
out-of-state vendor. Among the newly insured, a larger
proportion of minorities compared to whites could change
from being uninsured to insured under this bill. CHBRP
reports that it is important to note, however, that
coverage under this bill's policies would likely attract
low-risk enrollees rather than those uninsured with
chronic or high-risk conditions.
c) Impact of Exempting Out-of-State Policies from
California's Consumer Protections and Financial Solvency
Requirements . CHBRP indicates that this bill would exempt
out-of-state policies from California consumer protection
requirements, and enrollees of such plans would have to
contact the domicile state's insurance commissioner to deal
with denied claims or other disputes. If disputes were to
escalate, enrollees would have to seek resolution in an
out-of-state court. Depending on the state, resource
constraints, such as time, number of employees, and budget,
may prevent regulators from providing assistance to
out-of-state consumers and prevent regulators from
enforcing policies. CHBRP adds that, given the size and
population of California, its regulatory agencies' capacity
is far greater than those of other states in terms of
personnel, budget, and resources. Additionally, CHBRP
notes that the insurance departments in some states have
taken the position that it is not in their jurisdiction to
assist out-of-state consumers. For example, with regard to
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marketing practices, out-of-state policies, depending on
where they are domiciled, may be prohibited from being
solely marketed to a younger and healthier population, but
again, CHBRP reports that enforcing such activities across
state lines would be resource intensive.
Regarding impacts of financial reporting and solvency
requirements, CHBRP points out that all states require
insurance products to maintain adequate reserves to be
financially solvent and able to pay claims. However, these
requirements and the capacity to monitor solvency of their
carriers vary across states. In addition, funds that are
set up to pay for claims if a carrier becomes insolvent may
not cover out-of-state consumers or may not be adequate to
pay for all eligible consumers (for example, if the carrier
is domiciled in a small state with few insurers paying into
the insolvency fund). If a claim is denied by an
out-of-state carrier, the consumer would need to work with
the out-of state carrier, per their arbitration rules, and
potentially the out-of-state regulatory agency if there are
applicable external grievance processes in place.
Finally, CHBRP states that this bill would exempt
out-of-state policies from complying with
California-specific requirements governing unfair payment
practices to providers. CHBRP reports that, although all
states require insurance products to pay claims in a timely
manner, it is unclear whether other states have protections
similar to California.
5)OPPOSE UNLESS AMENDED . The California Medical Association
opposes this bill unless it requires plans to comply with
state regulatory and statutory protections for physicians and
patients; does not significantly weaken community rating laws;
and, includes protections against adverse selection and
unaffordable health insurance for older and less healthy
patients. The California Academy of Family Physicians opposes
this bill unless it is amended to ensure all plans sold in
California adhere to current minimum standards.
6)OPPOSITION . Opponents, representing labor, provider, teacher,
and consumer groups, contend that this bill would give an
unfair advantage to out-of-state carriers and encourage
California-domiciled ones to move out of state, taking their
jobs and benefits with them. The California Labor Federation
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writes that exempting out-of-state insurers from California's
stringent consumer protections would put millions of
Californians at risk of purchasing junk insurance with
substandard coverage that may put their health in jeopardy or
leave them in medical debt. Blue Shield of California states
that California already has one of the most competitive health
insurance markets in the county and this bill could cause harm
to consumers by allowing out-of-state insurers to circumvent
minimum benefit levels and other consumer protections.
Moreover, Blue Shield points out that authorizing carriers to
sell insurance without meeting California standards would put
health plans that do business only in California at a
competitive disadvantage that translates into a loss of
California jobs. The California Psychological Association
notes that providers and consumers of mental health services
in California have fought and won hard battles to ensure
access to mental health parity and, by allowing out-of-state
carriers who may or may not have state laws providing mental
health parity to sell insurance in California, this bill could
erode all gains made by mental health advocates. Finally,
Health Access California objects to this bill, stating that it
eviscerates basic protections, creates confusion among
regulators, results in lower premiums for shoddier coverage,
and violates federal law governing interstate compacts.
7)RELATED LEGISLATION .
a) AB 2259 (Galgiani) exempts a health plan operated by a
joint venture formed by two or more non-profit
organizations, as defined, from licensure and regulation by
DMHC and creates a single health insurance purchasing pool
for California non-profit organizations, as specified. AB
2259 is set to be heard in this committee on April 20,
2010.
b) AB 2587 (Tom Berryhill) prohibits health plans and
health insurers from complying with existing law mandating
coverage of certain health care benefits until DMHC and
CDI, respectively, declare that the state unemployment rate
has been no more than 5.5% for four consecutive quarters.
AB 2587 is set to be heard in this committee on April 20,
2010.
8)PRIOR LEGISLATION .
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a) SB 92 (Aanestaad) of 2009 contained, among other things,
provisions identical to this bill. SB 92 failed passage in
the Senate Health Committee.
b) AB 1214 (Emmerson) of 2007 would have established the
Freedom to Choose Health Benefits Act to authorize health
plans and health insurers to offer, sell, and renew health
plan contracts or health insurance policies, respectively,
that excluded coverage for specified benefits otherwise
mandated in law, provided the applicant or policyholder
waived those benefits by signing a disclosure form. AB
1214 was set for a hearing in the Assembly Health Committee
but the hearing was cancelled at the request of the author.
c) AB 1644 (Niello) of 2007 would have allowed a carrier
domiciled outside California to offer, sell, or renew an
essential health benefit plan in California without holding
a license issued by DMHC or a certificate of authority
issued by CDI, and would have exempted the essential health
benefit plan from requirements otherwise applicable to
plans and insurance policies providing health care coverage
in this state. AB 1644 was set for a hearing in the
Assembly Health Committee but the hearing was cancelled at
the request of the author.
d) SB 365 (McClintock) of 2007, identical to this bill,
failed passage in the Senate Health Committee.
e) SB 16 X1 (McClintock) of 2007, identical to this bill,
failed passage in the Senate Health Committee.
f) AB 8 X1 (Villines) of 2007 included, among other things,
a provision substantially similar to this bill. AB 8 X1
failed passage in the Assembly Health Committee.
g) AB 1 X1 (Nunez) would have enacted the Health Care
Security and Cost Reduction Act, a comprehensive health
reform proposal, to, among other things, create the
California Cooperative Health Insurance Purchasing Program,
a state health care purchasing program to provide coverage
to specified employees, individuals eligible for new
expanded public coverage, and individuals newly eligible
for a tax credit to defray health insurance costs. AB 1X 1
failed passage in the Senate Health Committee.
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REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Oppose unless amended
California Academy of Family Physicians
California Medical Association
Opposition
American College of Emergency Physicians, California Chapter
American Federation of State, County and Municipal Employees,
AFL-CIO
Blue Shield of California
California Association of Dental Plans
California Labor Federation, AFL-CIO
California Psychological Association
California Teachers Association
Disability Rights California
Health Access California
Western Center on Law and Poverty
Analysis Prepared by : Cassie Rafanan / HEALTH / (916)
319-2097