BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: SB 57
S
AUTHOR: Aanestad
B
AMENDED: As Introduced
HEARING DATE: April 22, 2009
5
CONSULTANT:
7
Park/
SUBJECT
California Major Risk Medical Insurance Program:
Health care service plans: individual heath care coverage
SUMMARY
Reforms the Major Risk Medical Insurance Program (MRMIP),
the state's program to insure those who cannot obtain
insurance in the private market, by: imposing a surcharge
on health plans and insurers to support the program;
increasing deductible and maximum out-of-pocket expenses
for subscribers; requiring an option to purchase a health
benefit plan with a health savings account; and requiring
three declinations in the private market or proof of a
qualified medically uninsurable condition, to be determined
by the Managed Risk Medical Insurance Board (MRMIB), which
operates MRMIP. Reforms rules governing the individual
health insurance market by allowing health plans and health
insurers to exclude coverage for certain health conditions
in the individual market, and changing rates charged to
federally eligible defined individuals, as defined, for
health coverage in the individual market. Makes other
changes relative to the operation of MRMIP.
CHANGES TO EXISTING LAW
Existing law establishes the MRMIP, administered by MRMIB,
to provide health coverage for individuals unable to
purchase coverage because they have been denied health
Continued---
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 2
coverage by at least one private health plan or are offered
only limited coverage or coverage significantly above
standard average individual rates, as determined by MRMIB.
Existing law requires MRMIB to provide health coverage to
subscribers in the MRMIP through participating private
health plans licensed by either the Department of Managed
Health Care (DMHC) or the California Department of
Insurance (CDI).
Funding
Existing law provides MRMIP with a $30 million continuous
appropriation accompanied by an annual budget act
Proposition 99 appropriation of $10 million to subsidize
the premiums paid by MRMIP enrollees. Existing law caps
premiums that health plans and insurers can charge MRMIP
enrollees at 125 percent to 137.5 percent of standard
market rates, as specified.
This bill would increase the continuous appropriation to
$40 million to replace the annual budget act appropriation.
This bill would add a surcharge, beginning with $0.35 per
member, per month, on health plans and health insurers in
the individual market, and increasing over five years to
$1.00 per member, per month, in the individual market. The
bill would allow the surcharge to be paid in two
installments, and would exclude the surcharge from being
included in the computation of "administrative expense," as
defined in law. The bill would suspend the surcharge the
following fiscal years in which the state appropriation to
MRMIP fell below $40 million. The bill would require
revenues derived from the surcharge to be excluded from
inclusion into the General Fund, and would require any
increase in this surcharge to be enacted by a vote of
two-thirds of the Legislature. The bill would sunset the
surcharge on January 1, 2015.
Benefit options and design
Existing law allows MRMIP to authorize required copayments
and deductibles, but limits copayments to 25 percent of the
cost of the service and deductibles to $500 per household,
or if deductibles are not used, allows $25 copayments for
office visits. Existing law sets the aggregate amount of
deductible and copayments payable annually at a maximum of
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 3
$2,500 for an individual and $4,000 for a family.
Existing regulation establishes an annual cap on coverage
in MRMIP at $75,000 per subscriber, or subscriber's
enrolled dependent, with a lifetime limit of $750,000.
Existing regulation requires the basic minimum scope of
benefits in MRMIP to comply with all requirements of the
Knox-Keene Health Care Service Plan Act of 1975 as well as
other benefits, including family planning services;
specified reconstructive surgery; prescription drugs;
durable medical equipment; specified human organ
transplants; and mental health benefits, not included in
mental health parity law, subject to limitations. Existing
regulation allows MRMIP's subscriber contributions to be
based on the following risk categories: 6 geographic
regions; 12 age groups (with five year increments beginning
at age 30, up to age 74).
This bill would require MRMIB to offer at least four
different options in MRMIP, including at least one health
savings account (HSA) compatible option, that provide for
varying deductibles ranging from $500 to $2,500 per person
and $1,000 to $4,000 per family, and varying out-of-pocket
maximums ranging from $2,500 to $5,000 per person and
$4,000 to $7,500 per family. The bill would require MRMIP
to make available to eligible applicants sufficient
information to make an informed choice among these plan
options.
This bill would require MRMIP coverage to have an annual
limit of $150,000 per subscriber, but allows MRMIB, if
MRMIB determines that sufficient funds are available, to
adopt regulations that become effective on or before
January 1, 2011, to eliminate this limit. This bill would
require MRMIP coverage to have a lifetime limit for each
subscriber of $1 million. This bill would sunset these
limits on January 1, 2015.
This bill would allow MRMIB to develop additional risk
categories based on
morbid obesity and tobacco use, and would require the risk
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 4
categories, if developed, to set objectives for the
reduction of morbid obesity and tobacco use and allow for
rate reductions if those objectives are achieved. The bill
would sunset this authority and the regulations under them
on January 1, 2015.
Health savings accounts (HSAs) and reinsurance
Existing law, the federal Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (Public Law
108-173) established Health Savings Accounts (HSAs)
beginning in tax year 2004 and provided that HSAs are
tax-exempt trusts to which individuals may contribute to
pay for current and future out-of-pocket medical expenses.
Federal law provides that individuals are eligible for an
HSA only if they choose to be insured through a high
deductible health plan (HDHP). Existing state law does not
conform to federal HSA provisions.
This bill would require MRMIB to offer at least one
HSA-compatible option in MRMIP. The bill would allow MRMIB
to subsidize HSA-compatible options on a sliding scale, if
sufficient funding is available.
This bill would also allow MRMIB to participate, on a
sliding scale based on income, in deductible and
out-of-pocket maximum reinsurance using products including,
but not limited to, health reimbursement arrangements,
critical insurance policies, and accident insurance
policies. This bill would sunset this authority on January
1, 2015.
Eligibility
Existing law allows a California resident who is unable to
secure adequate private health coverage to apply for MRMIP,
if he or she was rejected for health care coverage by at
least one private health plan. Existing law deems an
applicant to have been rejected if the only private health
coverage an applicant could secure would: (1) impose
substantial waivers that the program determines would leave
a subscriber without adequate coverage for medically
necessary services; (2) afford limited coverage that the
program determines would leave the subscriber without
adequate coverage for medically necessary services; or, (3)
afford coverage only at an excessive price, which the board
determines is significantly above standard average
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 5
individual coverage rates.
Existing law allows members of federally recognized
California Indian tribes to be eligible, regardless of the
individual's state of residence.
This bill would condition eligibility for MRMIP on an
applicant receiving declinations from at least three
different private health plans, or upon proof that the
applicant has a qualified, medically uninsurable condition,
as documented by a physician and surgeon. The bill would
require MRMIB to determine, by regulation, which conditions
are qualified for the purposes of the section. The bill
would also define a resident as a person who has resided
continuously in the state for at least six months
immediately prior to applying to the program, or is present
in the state and provides documentation of recent
participation in a high-risk health insurance program in
another state.
This bill would subject members of federally recognized
California Indian tribes to the same residency requirements
as others.
Exclusions and riders
Existing law provides for the regulation of private health
care service plans by DMHC, and health insurance policies
by CDI.
Existing law requires health plans and health insurers to
file with the appropriate regulatory authority a general
description of underwriting criteria, policies, procedures,
or guidelines, including automatic declinable health
conditions, health conditions that may lead to a coverage
decline, height and weight standards, health history,
health care utilization, lifestyle, or behavior that might
result in a decline of coverage or severely limit the
health insurance products for which they would be eligible.
Existing law requires health plans and health insurers that
offer coverage to individuals to limit exclusions of
preexisting conditions (where coverage for a certain
medical condition is excluded) to no longer than 12 months
following the effective date of coverage. Existing law
requires that preexisting condition provisions may only
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 6
relate to conditions for which medical advice, diagnosis,
care, or treatment was recommended or received from a
licensed health practitioner during the 12 months
immediately preceding the effective date of coverage.
This bill would allow MRMIB to create, until January 1,
2015, a "rider pool," consisting of applicants with no more
than two "qualifying conditions." The bill would define
qualifying condition as a health condition that made the
individual uninsurable in the private market, as determined
by the board, and that the board determines, by regulation,
is eligible for purposes of these provisions. The bill
would prohibit "qualifying condition" from including a
condition likely to require chronic, ongoing care. This
bill would require MRMIB to issue documentation of
membership to each member of the rider pool and require the
documentation to identify the member's qualifying condition
or conditions.
This bill would allow an individual health care service
plan contract or individual health insurance policy issued
to a member of the rider pool to permanently or temporarily
exclude coverage for the member's qualifying condition or
conditions, until January 1, 2015.
Individual insurance market
Existing law requires health care service plans and health
insurers in the individual market to issue, without
underwriting, the two most popular products or two most
representative products, as defined, to "federally eligible
defined individuals," defined as persons who have had 18
months of prior group coverage, are not eligible for
coverage under a group health plan, Medicare, or Medi-Cal,
were not terminated from their most recent coverage for
nonpayment of premiums or fraud, and who have exhausted any
COBRA or Cal-COBRA benefits. For contracts and policies
that offer services through a preferred provider
arrangement, existing law requires that the premium to
federally eligible defined individuals not exceed the
average premium paid by a similar subscriber of MRMIP, as
specified. For all other contracts and policies, existing
law requires that the premium not exceed 170 percent of the
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 7
standard premium charged to an individual of the same age,
in the geographic region in the individual market.
This bill would require that the premium for all contracts
and policies issued to federally eligible defined
individuals not exceed 170 percent of the standard premium
charged to a similar individual, as specified, regardless
of whether services are offered through a preferred
provider arrangement, and would make related changes.
Additional provisions
This bill would require MRMIB to release all program
actuarial data for 2004 through 2007 to the Legislative
Analyst's Office, as requested by that office.
This bill would require MRMIB to adopt regulations to allow
participating health plans to incorporate wellness
programs, disease management services, and case management
services and reward enrollees based on health risk
reduction. The bill would sunset these regulations and the
requirement for regulations on January 1, 2015.
FISCAL IMPACT
Unknown.
BACKGROUND AND DISCUSSION
Author's statement
The author states that, although MRMIP's purpose is to help
Californians who are medically uninsurable, the program is
chronically underfunded with an expensive plan design and
inadequate benefits. The author states that MRMIP premiums
are increasingly unaffordable, especially for lower income
individuals, pointing out that annual surveys show that
price is a key reason for voluntarily leaving the program.
The author believes that, by using a combination of plan
design changes, as well as products that lower both
premiums and total out-of-pocket costs, benefits can be
improved while expanding choice for enrollees.
The author notes that, while the maximum individual
deductible in the bill ($2,500) is the same as the
out-of-pocket maximum for program enrollees currently, the
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 8
bill would potentially offer matching funds for health
savings accounts and financial assistance for out-of-pocket
costs on a sliding scale basis. The author contends that
HSAs are not associated with delays in necessary care or
lower disease screening, citing a July 2007 survey that
found that 84 percent of HSA-compatible plans did not
require enrollees to meet their deductibles before covering
preventive services. The author believes that
HSA-compatible policies are appropriate for people with
pre-existing conditions, citing a 2006 Commonwealth Fund
study that HSAs lower out-of-pocket costs for enrollees
with high medical spending.
The problem of the medically uninsurable
An individual is "medically uninsurable" if a prior health
condition, a history of receiving health care services, a
genetic predisposition to illness, or other health-related
factors prevent the individual from finding an insurer that
will issue him or her a policy, or prevent the individual
from obtaining an affordable policy.
Currently, health plans and insurers selling coverage in
the individual heath insurance market may screen potential
policyholders for medical conditions (a process known as
medical underwriting), and may decline to provide coverage
or charge higher premiums for persons with prior medical
conditions. Carriers in the individual market state that
they must be able to control for "adverse selection," in as
much as a person actively searching for health insurance is
more likely to be in need of medical care (and, therefore,
more expensive for an insurer) than someone who receives
insurance more or less passively through an employer.
Medical underwriting practices render some Californians
uninsurable in the individual health insurance market,
including some who are unable to purchase coverage at any
price. According to a report by Harbage Consulting,
approximately 600,000 uninsurable people reside in
California, and this number could grow to more than 1
million by 2010.
A September 2006 Commonwealth Fund national survey found
that 89 percent of working-age adults who sought coverage
in the individual market during the past three years ended
up never buying a plan. A majority (58 percent) found it
very difficult or impossible to find affordable coverage.
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 9
One-fifth of those who sought to buy coverage were turned
down, were charged a higher price because of a pre-existing
condition, or had a health problem which was excluded from
coverage.
MRMIP and the Guaranteed Issue Pilot program
MRMIP began covering enrollees in 1991, providing
comprehensive health insurance benefits to individuals who
are unable to purchase private coverage because they were
denied individual coverage or were offered it at high
rates. Subscribers are charged a monthly premium ranging
from 125 percent to 137.5 percent of their plan's standard
average individual rate. Premiums for the program are
subsidized with Proposition 99 cigarette and tobacco tax
funds, and enrollment into the program is capped.
There are currently four carriers participating in MRMIP:
Kaiser HMO (54 percent of enrollment); Blue Cross PPO (45
percent); Blue Shield HMO (1 percent); and Contra Costa
Health Plan (less than one-half percent). Carriers'
participation in MRMIP is voluntary, and the program is
designed so that participating carriers do not lose money,
despite the fact that they are insuring a population with a
higher risk profile than they would normally insure in the
private market.
According to data published in March 2006, subscriber
premiums cover about 62 percent of MRMIP's cost. The
average premium was $466 per month in 2005. According to
MRMIB, 60 percent of MRMIP subscribers have incomes of
below $60,000 per year. These subscribers pay between 13
percent and 36 percent of their annual income on MRMIP
coverage. Due to the cap on subscriber premiums and the
set amount of available Proposition 99 monies, MRMIP has
historically been unable to meet the demand for the
program. In its first year of operation, MRMIP had a
waiting list of nearly 3,500 persons. By 2001, the waiting
list had grown to 7,098 people.
In order to address the growing waiting list for MRMIP, the
Legislature passed AB 1401 (Thomson) in 2002, which
established the Guaranteed Issue Pilot (GIP) program.
Under the GIP, subscribers were automatically disenrolled
from MRMIP after 36 months. At that time, subscribers
could select guaranteed continued coverage from insurers in
the individual market. Plans were required to offer the
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 10
same benefit packages as those available under MRMIP, but
with a higher annual benefit cap ($200,000 versus $75,000),
and a lifetime cap of $750,000.
Although the program sunset at the end of 2007, by law GIP
enrollees may retain their coverage indefinitely and pay an
additional 10 percent above the MRMIP rates for similar
coverage. The three health plans covering the bulk of MRMIP
subscribers also dominate in the GIP coverage market. The
state subsidizes 50 percent of carrier losses for GIP out
of the $40 million Prop 99 appropriation. The state pays
these costs first, and then estimates the number of MRMIP
subscribers who can be enrolled with remaining funds.
Current issues with MRMIP
This committee's analysis of AB 1971 (Chan) of 2006 and AB
2 (Dymally) of 2007-08, prior measures which sought to
reform MRMIP but failed, highlighted a number of problems
with the MRMIP/GIP programs, including the high premiums
that stand as likely barriers to medically uninsurable
individuals who cannot afford high-cost insurance; and the
$75,000 annual cap on benefits in MRMIP, which is low
relative to the commercial health insurance market and
which does not adequately serve the health care needs of
many persons with pre-existing health conditions. The
$75,000 annual cap also disqualifies the state from drawing
down federal funds that could be used to reduce MRMIP's
operational costs, reduce subscriber premiums, and increase
program benefits. In 2006, MRMIB estimated that the funding
loss was estimated to be between $4 and $8 million.
On April, 11, 2009, there were 265 on the waiting list, 62
of whom were satisfying a 3-month post-enrollment waiting
period.
High risk pools in other states
State-sponsored high risk pools for uninsurable persons
have been implemented in 34 states. Of these, 27 use
assessments on health insurers to fund at least a portion
of the program costs, in addition to participant premiums.
California is one of only three states that subsidize high
risk programs exclusively with state funds and which,
therefore, have capped program enrollment. MRMIP is the
third largest pool in the country, exceeded only by
Minnesota and Texas.
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 11
High deductible health plans and HSAs
A HDHP is a type of health plan designed to encourage
consumers to actively participate in decisions about their
health care spending. By requiring enrollees to pay for
routine health expenses, either directly out-of-pocket or
from contributions made to a medical savings account, such
as an HSA, HDHPs provide consumers with an incentive to
become aware of the actual costs of care and to explore
less costly health care alternatives.
HSAs are tax-exempt accounts created solely for the
purposes of paying for qualified medical expenses incurred
by the account holder, his or her spouse and his or her
dependants. Because HSAs are individually owned and
controlled, an individual may choose the level at which to
fund the account, which medical expenses to pay for, and
which investments to make. HSAs are also fully portable;
an individual keeps his or her HSA even if he or she
changes jobs, moves to a different state, or becomes
unemployed. There are no income limits for participation
in an HSA.
To be eligible to contribute to an HSA, individuals must be
covered by a HDHP. Under federal law, an HDHP must have a
deductible of at least $1,100 for individuals and $2,200
for families. Furthermore, the annual out-of-pocket
expenses under the HDHP may not exceed $5,500 for
individuals and $11,000 for families. With certain
exceptions, including accident, disability, dental care,
vision care, or long-term care insurance, an individual may
have no other health plan other than a HDHP. The maximum
annual HSA contribution, regardless of the HDHP deductible,
is $2,850 for an individual and $5,650 for families.
Existing California law does not conform to any of the
federal HSA provisions. However, existing California law
conforms to the federal rules for Archer Medical Savings
Accounts (MSAs), and allows a deduction equal to the amount
deducted on the federal return. California imposes a 10
percent additional tax (rather than the federal 15 percent
additional tax) on distributions from an MSA not used for
qualified medical expenses. Existing California law does
not allow a rollover from an MSA to an HSA.
California tax payers face limitations in funding their
HSAs, as they cannot make a tax-free rollover from an MSA
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 12
to an HSA, or a tax-free distribution from an IRA to an
HSA, or a pre-tax contribution to an HSA under California
law.
A U.S. Government Accountability Office reported that the
median annual income of tax filers reporting an HSA
contribution in 2004 was $133,000. Additionally, 51
percent of those tax filers contributing to an HSA had an
income of $75,000 or more. According to the report,
"HSA-eligible plan enrollees had higher incomes than
comparison groups."
A December 2006 survey of health consumers by the
Commonwealth Fund found that, while the law that created
HSAs allows people to have HDHPs which cover the cost of
preventive services (i.e., preventive services are excluded
from the deductible), more than half of the enrollees in
consumer directed health plans, such as HDHPs, are in plans
with deductibles that apply to all health care services.
Survey results also indicated that individuals in HDHPs
exhibit more cost-conscious behavior in their health care
decision-making than individuals with more comprehensive
health insurance, but that individuals in HDHPs are more
likely than those with comprehensive health insurance to
report that they delayed or avoided needed care because of
cost. The survey also found that despite the emphasis on
informed choice surrounding consumer-driven health care,
people in HDHPs were less likely to report that their
health plans provided information on the cost and quality
of providers than those in more comprehensive plans. The
survey also found that those enrolled in HDHPs reported a
lower satisfaction than individuals enrolled in more
comprehensive plans.
According to a report issued by the California HealthCare
Foundation (CHCF), individuals enrolled in an HDHP that is
not linked to a medical savings account, such as an HSA,
spend, on average, 4 to 15 percent less on medical care
than what the same individuals would spend in a traditional
health care service plan or health insurance policy. The
report notes that the lower spending may prevent access to
appropriate and necessary care with consequent health
effects, especially among the poor who are sick.
Underwriting in the individual market
According to DMHC, each health plan has its own
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 13
underwriting guidelines in the individual market. Health
plans must file the information with the DMHC regarding
health conditions that would automatically not be approved,
health conditions that may not be approved, height and
weight standards, health history, health care service
utilization, and lifestyle or behavior that may cause the
plan to deny insurance or limit the products they offer.
DMHC may not disclose health plan specific guidelines.
DMHC's web site states that, in the individual market, a
plan may automatically deny an application based on health
problems for which the individual has not seen a doctor;
health problems that a doctor can not explain; health
problems for which an individual has not completed
treatment, as well as a number of health conditions such as
AIDS, cancer under treatment, cirrhosis, current
infertility treatment, diabetes with complications, heart
disease, hemochromatosis, hepatitis, history of transplant,
lymphedema, multiple sclerosis, muscular dystrophy,
pregnancy, planned surrogacy or adoption in process; renal
failure or kidney dialysis, severe mental disorders, sleep
apnea, or systemic Lupus erythematous.
DMHC's web site further states that health plans will offer
individual insurance at a higher premium and/or limit the
benefit packages or products, like PPOs, if an applicant
has had a health problem in the past but has recovered or
has been without symptoms for some time. The web site lists
a number of conditions for which a health plan may charge a
higher premium or limit the products they offer, including
but not limited to: allergies, while testing is in process;
breast implants (non-silicone); ear infections, controlled
with medications; joint sprain or strain, recovered and no
restrictions; Lyme's disease, without symptoms after one
year; migraine headache, mild and infrequent with no
emergency room visits; mild depression; ringworm; stroke,
after 10 years with no reoccurring problems. Additionally,
DMHC's web site notes that health plans usually look at
height and weight when they decide to offer insurance and
may offer insurance at a higher premium rate or refuse to
insure if an applicant is overweight or obese.
Related legislation
SB 227 (Alquist) would require health plans and health
insurers in the private market to either provide health
coverage for a portion of individuals who are considered
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 14
"medically uninsurable" or elect to pay a fee to help MRMIP
provide health coverage for these individuals. The bill
would require MRMIB to base the fee, if elected, on a
health plan or health insurer's market share in California,
but creates an exemption for groups that already serve
high-risk and retiree populations, and also reduces the fee
for specified market segments. The bill would require MRMIB
to create a sliding scale of premiums charged to MRMIP
subscribers, so that those on the lower end of the income
scale will pay less than they currently do, and those on
the higher end of the income scale will pay more, and make
other program changes and make related benefit design
changes that would make the program eligible for potential
federal funding. To be heard on April 22nd in the Senate
Health Committee.
SB 347 (Harman) would authorize a credit against those
taxes for each taxable year beginning on or after January
1, 2009, and before January 1, 2015, in an amount equal to
15 percent of the amount paid or incurred by a qualified
taxpayer, as defined, during the taxable year for qualified
health insurance, as defined, for employees of the
taxpayer. This bill would also require the Legislative
Analyst to report to the Legislature on or before March 1,
2014, on the effectiveness of the credit, as specified.
Pending in the Senate Health Committee.
Prior legislation
AB 2 (Dymally) of 2008 would have restructured the MRMIP,
including eligibility, benefits, and premium rates for the
program, and would have required all health care service
plans and disability insurers selling health insurance in
the individual market to share in the costs of MRMIP, by
either paying a fee to the state to support MRMIP costs, or
by accepting MRMIP-eligible individuals assigned to them by
MRMIB. Vetoed by Governor.
SB 1669 (McClintock) of 2008 would have allowed health plan
contracts and health insurance policies that cover one or
two individuals to use, in lieu of a pre-existing condition
provision, a waivered condition provision with no time
limit on coverage exclusions. The bill would also have
allowed a waivered condition provision to relate to
conditions for which medical advice, diagnosis, care, or
treatment, including use of prescription drugs, was
recommended or received from a licensed health practitioner
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 15
during the 10 years, as opposed to 12 months, immediately
preceding the effective date of coverage. Failed in the
Senate Health Committee.
AB 1971 (Chan) of 2006, would have extended MRMIP and GIP,
which provide health insurance coverage to medically
uninsurable individuals, until December 31, 2007, and would
have, effective January 1, 2008, reformed and restructured
MRMIP. This bill would have secured additional funding for
the MRMIP by requiring all health plans and health insurers
in the state to share in the costs of the program, either
as a participating health plan in MRMIP or, in lieu of
participation, by paying a fee to the state to support
MRMIP program costs. Died on the Assembly Floor on
concurrence.
SB 1702 (Speier), Chapter 683, Statutes of 2006, extended
the GIP until December 31, 2007 and provided a one-time
appropriation of $4 million in Proposition 99 funds to
allow MRMIP to enroll an additional 1,160 individuals then
on the waiting list for MRMIP.
AB 1401 (Thomson), Chapter 794, Statutes of 2002, made
various changes in the individual health insurance market
in California and established the GIP pilot project.
Arguments in support
The California Chiropractic Association states that the
bill would expand MRMIP by providing financing through an
assessment, and that without serious reform of MRMIP, many
Californians will have to wait a long time before they can
purchase the only health insurance option available to
them.
Arguments in opposition
Health Access writes that while the bill recognizes that
MRMIP is an important program, with financing and
structural issues that need to be addressed, the bill
offers many policy prescriptions that go in the wrong
direction. Specifically, Health Access points to the
increased barriers for eligibility, the exclusion of
specific conditions through "riders," the higher cost
sharing, which would make the least insurable consumers
more liable for the cost of their expensive care, and
health savings accounts, which are insufficient for the
high medical costs of MRMIP enrollees.
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 16
The California Association of Health Underwriters (CAHU) is
supportive of aspects of this bill, such as expanded
product choices for individuals, increased transparency in
establishing a premium for each product, and inclusion of
wellness benefits. CAHU writes that it opposes the increase
in the number of carrier declinations required for
eligibility, and the creation of separate risk categories
based on tobacco use and morbid obesity, as these are not
used in the commercial market today. CAHU is also strongly
opposed to "rider pools" for specified conditions under any
circumstances. CAHU also believes that fees should be
spread across all individuals with health insurance,
including the self-funded and partially self-funded, and
that to do otherwise raises premiums for only a limited
number of individuals.
The California Professional Firefighters (CPF) writers that
HSAs do nothing to reduce the number of uninsured, and
that, given that the primary difference between a regular
savings account and an HSA is that HSA income isn't taxed,
the only attraction of an HSA is its tax-deductibility,
which more than half the uninsured would not benefit from.
CPF believes that such accounts benefit only high wage
earners and do nothing to make health care more affordable
for the uninsured and low-income earners. CPF also points
out that such tax deductions result in revenue losses that
could ultimately impact revenues that are otherwise made
available for critical firefighting and public safety
services.
COMMENTS
1.High deductible options may lead to greater losses for
MRMIP. The bill's requirement that MRMIP provide at least
four plan options with varying levels of deductibles may
encourage undesirable risk segmentation, with relatively
sicker enrollees choosing plans with relatively lower
deductibles and healthier enrollees choosing plans with
relatively higher deductibles. Because the latter
enrollees would pay less in premiums than they currently
do, there may be a revenue loss to the pool. At the same
time, because premiums for MRMIP coverage are tied to
standard rates in the marketplace, and because the standard
rates for high deductible plans are driven by the fact that
predominantly healthy persons purchase them, premiums would
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 17
likely cover a smaller percentage of coverage costs for
these plans when offered by MRMIP than is currently the
case (according to MRMIB, enrollees' premiums now cover
nearly 2/3 of the total premium costs of the plans
offered), and a correspondingly higher amount of subsidy
funds (Prop. 99, plan assessments, and fine revenues) would
be required to make up the difference. It is worth noting
that no research has been done to evaluate the impact of
high deductible coverage on health status and utilization
of medically uninsurable persons. To the extent that high
risk pool enrollees delay access to necessary health care
services to avoid out-of-pocket costs, the proposal could
worsen the health status of these enrollees, resulting in
higher costs of their care and ultimately of their
coverage.
2.Rider pool language unclear; rider pool may fragment health
coverage. While the author has indicated that the intent of
the rider pool is to create a class of individuals who may
obtain coverage in the private market, except for coverage
that relates to one or two "qualifying conditions," the
language of the bill may be construed to mean that, in
addition, MRMIB may establish a separate coverage pool for
only those conditions that qualify. It is unclear,
whether, in the former case, no coverage for certain
conditions would lead to more expensive or more extensive
care in the future, and, in the latter case, such coverage
arrangement could compound problems of fragmented delivery
of health care services. The author has suggested the
following may be considered "qualifying conditions:" acne,
allergies, asthma, osteoarthritis, bronchitis, irritable
bowel syndrome, otitis media (under three episodes),
gallbladder (inflammation or stones), mild acid reflux,
endometriosis, hernia, abnormal Pap smear showing mild or
moderate cervical dysplasia, pelvic inflammatory disease,
hernia, unilateral kidney stones, sexually transmitted
diseases (with no episodes in the past two years), mild low
back pain, history of brief mental health counseling,
history of broken bone without complications, among others.
Left to self-fund health care services for "qualifying
conditions," it is possible that patients will avoid seeing
a doctor, skip treatments and necessary prescription drugs
related to these conditions.
3.Residency requirement may be unconstitutional. In December
2008, the San Francisco Superior Court struck down a state
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 18
law requiring that low-income working women must have
resided in California for at least six months before they
can be eligible to receive prenatal and other medical care
services through California's Access for Infants and
Mothers (AIM) insurance program. While there is evidence
that some other states impose durational residency
requirements for their high risk pools (Minnesota imposes a
6-month residency requirement, and Texas imposes a 30-day
residency requirement), it is not clear that they are
constitutional, given the Supreme Court's stance on
durational residency requirements. The author may wish to
request an opinion from Legislative Counsel on whether a
residency requirement for the purposes of eligibility for
MRMIP, a health benefit program, is constitutional, before
enacting a law that may be overturned.
4.Current cap not in statute. Current regulation establishes
an annual cap on coverage in MRMIP at $75,000 per
subscriber (or enrollee), with a lifetime limit of
$750,000. According to MRMIB, these caps were put into
place due to limitations in program funding. Placing a cap
in statute, albeit a higher one than current regulation,
that may only be removed upon sufficient funding and
through regulation prior to or by January 1, 2011, would
impede opportunities to receive federal funding for MRMIP,
and eliminate that opportunity should MRMIB fail to find
sufficient funding and promulgate regulations prior to
January 1, 2011.
5.Rating for morbid obesity and tobacco use would be
administratively difficult. Currently, MRMIP premium rates
vary according to age, family size, and geography. Rating
for morbid obesity and tobacco use, with rate reduction for
goals achieved, would require additional administration,
either through self-certification, which may be
ineffective, or verification from a third party, which may
be cumbersome.
6.Three declinations appear onerous. While plans and insurers
have variable underwriting guidelines, it is unclear why
three declinations would be necessary to be eligible for
the program. According to MRMIB, most states' high risk
pools require one declination, while a handful of states
may require two. Three would lengthen the time it would
take to enroll in MRMIP. While the author appears to
attempt to counterbalance the burden of three declinations
STAFF ANALYSIS OF SENATE BILL SB 57 (Aanestad)Page 19
with a list of medically insurable conditions created by
MRMIB, it is unclear how comprehensive a list this might
be.
7.Disease management and wellness programs already offered by
MRMIP. According to MRMIB, when MRMIB contracts with
health plans, health plans offer these types of programs,
to the extent these services are already offered in the
commercial markets.
8.Reinsurance provisions are unclear and untested. The
provisions that confer authority for MRMIB to purchase
reinsurance offer little guidance or demonstration as to
how the program would benefit from these purchases.
9.Two-thirds vote requirement; diversion of revenue under
Proposition 98, and limitations on taxing insurers. The
bill provides that any future increases in the surcharge,
authorized by the bill, to require a two-thirds vote of the
Legislature. It is unclear whether a future vote
requirement on a measure can legally be encumbered in such
a way. The author may wish to consult with Legislative
Counsel on this provision, as well as whether the surcharge
authorized by this measure may legally be excluded from the
requirements of Proposition 98, and whether the surcharge
to be paid by health insurers is an acceptable exception to
the Constitutional provision that the gross premiums tax
imposed by Article 13, Section 28, is "in lieu of all other
taxes and licenses, state, county, and municipal, upon such
insurers and their property?"
POSITIONS
Support: California Chiropractic Association
Oppose: California Association of Health Underwriters
(unless amended)
California Professional Firefighters
Health Access California
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