BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: SB 227
S
AUTHOR: Alquist
B
AMENDED: June 21, 2010
HEARING DATE: June 23, 2010
2
CONSULTANT:
2
Bain/
7
PURSUANT TO S.R. 29.10
SUBJECT
Health care coverage
SUMMARY
Requires the Managed Risk Medical Insurance Board (MRMIB)
to enter into an agreement with the federal Department of
Health and Human Services (DHHS) to administer a qualified
high-risk pool to provide health coverage, until January 1,
2014, to individuals who have pre-existing conditions,
consistent with PPACA. Establishes the authority and
requirements for MRMIB in administering the federal pool,
consistent with federal law. Appropriates $761 million
from the Federal Trust Fund to MRMIB. Makes this bill
operative contingent upon enactment of AB 1887 (Villines),
and both bills would sunset on January 1, 2020. Takes
effect immediately as an urgency bill.
CHANGES TO EXISTING LAW
Existing state law:
Establishes the Major Risk Medical Insurance Program
(MRMIP), which is administered by the Managed Risk Medical
Insurance Board (MRMIB), to provide major risk medical
coverage to California residents who have been rejected for
Continued---
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 2
coverage by at least one private health plan, or if the
only private health coverage that the applicant can secure
would:
Impose substantial waivers or provide limited coverage
that the MRMIB determines would leave a subscriber
without adequate coverage for medically necessary
services; or,
Afford coverage only at an excessive price, which MRMIB
determines is significantly above standard average
individual coverage rates.
Caps the premium subscribers in MRMIP pay at 125 to 137.5
percent of the standard average individual rate the
enrollee would pay for comparable coverage.
Establishes the Major Risk Medical Insurance Fund, and,
except for the 2009-10 fiscal year, continuously
appropriates $30 million in Proposition 99 tobacco tax
funds from the Cigarette and Tobacco Products Surtax Fund
to this Fund.
Existing federal law:
The federal health care reform bill, known as the Patient
Protection and Affordable Care Act (PPACA), requires the
federal Secretary of the Department of Health and Human
Services (DHHS) to establish a temporary high-risk health
insurance pool program to provide health insurance coverage
for eligible individuals until January 1, 2014. PPACA
authorizes the Secretary to carry out the program directly
or through contracts with a state or nonprofit entity. To
be eligible for the federal pool, an individual must meet
the following:
Be a citizen or national of the United States (U.S.) or
lawfully present in the U.S.;
Have not been covered under "creditable coverage" (as
defined in federal law) during the six-month period prior
to the date on which such individual is applying for
coverage through the high-risk pool; and,
Have a pre-existing condition, as determined in a manner
consistent with guidance issued by the Secretary of DHHS.
Under PPACA, in order for a high-risk pool to be eligible
for federal funding, the pool must meet the following
criteria:
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 3
Provide health insurance coverage to all eligible
individuals that does not impose any pre-existing
condition exclusion;
Provide health insurance coverage:
o In which the health insurer's share of
the total allowed costs of benefits provided
under the coverage is not less than 65 percent of
such costs; and,
o That has an out-of-pocket limit not
greater than the amount in federal law for a high
deductible health plan offered in conjunction
with a health savings account (except that the
Secretary may modify such limit if necessary to
ensure the pool meets the actuarial value limit).
Require, with respect to the premium rate charged for
health insurance coverage offered to eligible individuals
through the high-risk pool, rates to:
o Vary only for family size (individual or
family), geographic rating area, and tobacco use;
o Vary on the basis of age by a factor of
not greater than 4 to 1;
o Be established at a standard rate for a
standard population; and,
o Meet any other requirements determined
appropriate by the Secretary of DHHS.
PPACA requires the Secretary of DHHS to develop procedures
to provide for the transition of eligible individuals
enrolled in health insurance coverage offered through a
high-risk pool into qualified health plans offered through
an Exchange.
PPACA appropriates to the Secretary of DHHS $5 billion to
pay claims against (and the administrative costs of) the
high-risk pool that are in excess of the amount of premiums
collected from eligible individuals enrolled in the
high-risk pool.
This bill:
Establishes the Federal Temporary High Risk Pool in the
Health and Human Services Agency, and requires the program
to be managed by MRMIB.
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 4
Authorizes MRMIB to take the specified actions, consistent
with the provisions of PPACA establishing a federal pool.
These include the following:
Entering in an agreement with the federal DHHS to
administer the federal pool;
Determining eligibility criteria for the federal pool,
including when coverage begins and ends;
Determining the high-risk medical coverage to be provided
(including the scope of benefits and cost-sharing);
Establishing rates paid by individuals enrolled in the
federal pool;
Providing coverage through health plans or third-party
administrators (TPA);
Determining participation requirements for people
enrolling in the federal pool, and entities contracting
with MRMIB;
Contracting with private and public entities for program
administration;
Issuing rules and regulations;
Initially implementing the provisions of this bill
pursuant to the agreement with DHHS without taking
regulatory action;
Aligning program administration with MRMIP; and,
Authorizing expenditures for the federal pool.
Requires, consistent with PPACA, state and federal law and
contingent on the agreement of the federal DHHS and receipt
of sufficient federal funding, MRMIB to enter into an
agreement with the federal DHHS to administer the federal
temporary high risk pool. Requires MRMIB, if the federal
DHHS and the state enter into an agreement, to take
specified actions to administer the program, including:
Establishing the scope and content of high risk medical
coverage;
Determining standards for participating health plans,
TPAs, and other contractors;
Implementing procedures to transition individuals into
health plans offered through an exchange after the end of
the federal pool; and,
Developing a plan for marketing and outreach.
Prohibits plan rates for high risk medical benefits
approved for the federal pool from being excessive,
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 5
inadequate, or unfairly discriminatory, but requires plans
rates to be adequate to pay anticipated costs of claims or
services and administration.
Requires MRMIB to provide coverage under this bill through
participating health plans or through provider networks
using a TPA, and permits MRMIB to contract for the
processing of applications, the enrollment of subscribers,
and all activities necessary to administer the program.
Exempts any contract entered into under this bill from
provisions of law relating to competitive bidding, and also
exempts contracts from the review or approval of the
Department of General Services.
Permits program decisions concerning an applicant's or
subscriber's eligibility or eligibility date to be appealed
to MRMIB, according to procedures to be established by
MRMIB. Permits coverage determinations to be appealed to
MRMIB, according to procedures established by MRMIB. If
allowed by DHHS, MRMIB is not required to provide an appeal
concerning a coverage determination if the subject of the
appeal is within the jurisdiction of the Department of
Managed Health Care or the Department of Insurance.
Requires hearings to be conducted according to the
requirements of the federal DHHS and, insofar as
practicable and not inconsistent with those requirements,
pursuant to the APA.
Appropriates $761 million in federal funds without regard
to fiscal years from the Federal Trust Fund to MRMIB for
transfer to the Federal Temporary High Risk Health
Insurance Fund created by AB 1887 for covered, medically
necessary services that exceed subscribers' contributions,
program administration, and marketing and outreach.
Permits MRMIB to obtain loans from the General Fund (GF),
subject to the approval of the Department of Finance, for
all necessary and reasonable expenses related to the
administration of the fund and the program. MRMIB must
repay principal and interest to the GF, using the pooled
money investment account rate of interest, no later than
July 1, 2014.
Requires MRMIB to ensure that the program subsidy amount
does not exceed amounts transferred to the fund under this
bill, and that the aggregate amount spent for high risk
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 6
medical coverage and program administration does not exceed
the federal funds available to the state for this purpose,
and that no state funds are spent for the purposes of this
bill.
Requires MRMIB to maintain enrollment and expenditures to
ensure that expenditures do not exceed amounts available in
the fund and that no state funds are spent for purposes of
this bill. If sufficient funds are not available to cover
the estimated cost of program expenditures, MRMIB is
required to institute appropriate measures to limit
enrollment.
Requires health plans and health insurers to inform
applicants rejected for coverage, or offered coverage at
higher than a standard rate, about the temporary high risk
health insurance pool established by this bill, and would
require that the information be provided in accordance with
standards developed by the Department of Managed Health
Care or the Department of Insurance, as specified.
Prohibits any liability in a private capacity from being
imposed on the part of MRMIB or any member of the board, or
any officer or employee of MRMIB for or on account of any
act performed or obligation entered into in an official
capacity, when done in good faith, without intent to
defraud, and in connection with the administration,
management, or conduct of this bill or affairs related to
this bill.
Requires MRMIB to cease to provide coverage through the
program on January 1, 2014, and at that time to cease to
operate the program except as required to complete payments
to, or payment reconciliations with, participating health
plans or other contractors, process appeals, or conduct
other necessary transition activities, including, but not
limited to, transition of subscribers into an exchange or
exchanges established under PPACA.
Makes this bill take effect immediately as an urgency
statute, makes this bill operative contingent upon
enactment of AB 1887 (Villines), and sunsets this bill on
January 1, 2020.
FISCAL IMPACT
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 7
According to the Assembly Appropriations Committee:
1)According to preliminary information provided by the
federal government, California will receive $761 million
(100 percent federal) to administer a state-run high risk
pool until January 1, 2014, when broader insurance market
reforms and coverage expansions occur.
2)Funding will be used to support MRMIB workload as the
pool administrator and to provide premium support to
enrollees whose premium costs exceed a specified level.
The eligibility for the risk pool as well as the product
design of the coverage offered will determine how quickly
the fixed allocation of federal funding is spent.
3)The federal government proposes to allocate state funds
based on a formula used for the Children's Health
Insurance Program, which relies on a combination of
factors including non-elderly population, proportion of
uninsured, and geographic cost variation.
4)Under current law, California's high risk pool has only
7,000 enrollees, due to funding limitations. According to
estimates, several hundred thousand Californians may lack
access to health coverage due to pre-existing conditions.
The risk pool established pursuant to this bill may be
able to support an additional 20,000 to 25,000 enrollees.
5)Per federal requirements, premium pricing in the high
risk pool must be similar to the rates found in the
individual insurance market and cannot vary by a person's
age by more than a four to one ratio.
BACKGROUND AND DISCUSSION
According to the author, if California chooses to
administer its own federal high-risk pool, legislation is
needed to establish a high-risk pool that meets federal
requirements because MRMIP and the federal high-risk pool
program established by Section 1011 of PPACA differ in
their eligibility criteria, benefits and coverage, and
premiums in ways that would prevent MRMIP as it is
currently structured from being used as the federal
high-risk pool. This bill would require MRMIB to enter
into an agreement with DHHS to administer a qualified
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 8
high-risk pool to provide health coverage, until January 1,
2014, to individuals who have pre-existing conditions,
consistent with the PPACA. This bill establishes the
authority of MRMIB and the requirements MRMIB must meet in
administering the federal pool.
The author argues having the federal high risk pool run at
the state level (instead of by
the federal government) by a public board (MRMIB) allows
for better public participation, on-going monitoring and
transparency. MRMIB could provide a single point of
application for people applying for either high risk pool,
and the federal government has not directly administered a
program similar to this before. Additionally, having
similar programs run by different levels of government is
confusing for the public and makes coordination of
enrollment and outreach more difficult.
Background
Although most Californians obtain health insurance through
their employer, many Californians do not have access to
employer-sponsored health coverage and cannot buy private
health insurance because they have a pre-existing medical
condition. Since 1991, California has operated a high-risk
pool known as MRMIP to provide the medically uninsurable
with health coverage. Premiums paid by individuals
receiving coverage are supplemented with state tobacco tax
revenues to fund coverage through the program. MRMIP
currently has approximately 6,800 individuals receiving
coverage in the program, and approximately 4,700
individuals who were previously enrolled in MRMIP under a
pilot program, and whose costs above the amounts they pay
in premiums, are split by health plans in MRMIP and the
state. However, the program's current enrollment is much
lower than the MRMIP's maximum enrollment of 21,900 in June
1998. The 2010-11 proposed budget for MRMIP is $37
million.
In March 2010, President Obama signed into law PPACA
(Public Law 111-148) as amended by the Health Care and
Education Reconciliation Act of 2010 (Public Law 111-152)
to provide coverage for over 90 percent of the presently
uninsured population. Until the implementation of the
health insurance exchanges in 2014, individuals with
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 9
pre-existing conditions, who have not had coverage for the
prior six months and who meet certain citizen or residency
requirements will be eligible for the temporary high-risk
pool program created by PPACA.
PPACA appropriated $5 billion in federal funds to support
the high-risk pool program, of which California is
estimated to receive $761 million. According to an April
2, 2010 letter from the federal DHHS Secretary, states can
choose whether and how they participate in the program. To
be eligible to enter into a contract with the Secretary, a
state must agree to not reduce the annual amount the state
expended for the operation of its high-risk pool.
To date, twenty-nine states plus the District of Columbia
have elected to operate their own pool, eighteen states
have elected to have HHS run the pool, two have deferred
the decision and one has not indicated. In April 2010,
Governor Schwarzenegger indicated in a letter to the
federal DHHS Secretary his intention to contract with the
federal government to operate a temporary health insurance
program for currently uninsured individuals with
preexisting medical conditions. The Governor's indicated
his decision was based on the Secretary's assurances that
100 percent of the costs will be provided by the federal
government for the duration of the program. The Governor
announced the state will apply to operate the federal
high-risk pool alongside the current state high-risk pool,
under the same governance and operational framework.
The federal high-risk pool and the current MRMIP have
different eligibility, benefit and premium requirements, as
illustrated in the chart below, that make a separate
statute necessary for MRMIB to administer the federal high
risk pool program:
------------------------------------------------------------
| Eligibility |
------------------------------------------------------------
|------------------------------+----------------------------|
| Federal High-Risk Pool | State MRMIP |
|------------------------------+----------------------------|
| | |
|------------------------------+----------------------------|
| Citizen or national of the | California resident. |
| US or lawfully present in | |
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 10
| the US. | |
|------------------------------+----------------------------|
| Have no creditable coverage | Unable to secure adequate |
| for the previous 6 months | coverage in the |
| before applying for | individual market within |
| coverage. | the last 12 months, and |
| | ineligible for Medicare, |
| | COBRA or Cal-COBRA. |
|------------------------------+----------------------------|
| Have a pre-existing | No pre-existing condition |
| condition, as determined in | requirement, but denial |
| a manner consistent with | or termination of |
| guidance issued by the | insurance for other than |
| Secretary of DHHS. | nonpayment is one pathway |
| | to eligibility. |
| | |
-----------------------------------------------------------
------------------------------------------------------------
| Benefits/Coverage |
------------------------------------------------------------
-----------------------------------------------------------
| High-risk pool average | Comprehensive benefits |
| share of total costs of | with annual $500 |
| required benefits must be | household deductible. |
| at least 65 percent of | Preventive services |
| costs. | excluded from the |
| |deductible. |
-----------------------------------------------------------
| No pre-existing condition | MRMIP plans have a three |
| exclusion allowed. | month waiting period |
| | (HMO) or pre-existing |
| | condition exclusion |
| |(PPO). |
-----------------------------------------------------------
| Limits out-of-pocket to | Limits out-of-pocket |
| equivalent in | maximum per year to |
| high-deductible plans | $2,500 for individuals |
| linked to health savings | and $4,000 for an entire |
| accounts ($5,950 for an | household covered by the |
| individual/$11,900 for a | MRMIP (must be in network |
| family in 2010). | provider, out-of-plan |
| | charges allowed). |
|------------------------------+----------------------------|
| No specification on caps, | Annual benefit limits of |
| but lifetime and | $75,000 and lifetime |
| unreasonable annual caps | benefit limit of |
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 11
| prohibited under federal | $750,000. |
| health care reform. | |
-----------------------------------------------------------
------------------------------------------------------------
| Premiums |
------------------------------------------------------------
-----------------------------------------------------------
| Rates must be at a standard | Capped at 25 percent to |
| rate for a standard | 37.5 percent higher than |
| population. | the standard average |
| | individual rate that a |
| | plan would charge for |
| | MRMIP benefits in the |
| | commercial market. |
|------------------------------+----------------------------|
| Limits rate variation by | Twelve age variations |
| age to a maximum ratio of 4 | with no limit on |
| to 1. | permissible variation due |
| Rate variations allowed for | to age. |
| whether the plan covers an | Three possible family |
| individual or family, | sizes. |
| geographic regions, and for | Six geographic |
| tobacco use (but limited to |regions. |
| 1.5 to 1). | |
-----------------------------------------------------------
At its June 16th MRMIB meeting, PriceWaterhouseCoopers
(PWC), the actuaries for MRMIB, released estimates on
premiums and enrollment for the new federal pool that
reflect different levels of cost-sharing and out-of-pocket
limits in the benefit package. PWC actuaries assumed the
federal pool would enroll the total number of people
supported by federal funding on its first day of operation
(which it estimated to be September 1, 2010), and that
disenrollments would be immediately replaced by new
enrollees.
PWC modeled enrollment and premiums using the current MRMIP
benefit package, but with no annual or lifetime limit. PWC
modeled different deductibles ($500 to $2,500),
co-insurance (15 percent to 30 percent) and out-of-pocket
limits ($2,500 to $5,000), as well as including a premium
subsidy for low-income enrollees. The analysis compared
the current MRMIP premium rate for a 50-year old individual
residing in San Francisco, which is currently $915 a month,
to estimated monthly premium rates in the new federal pool
for the various benefit options. For the federal pool,
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 12
estimated premiums for such an individual ranged from $545
to $635 a month. For the federal pool, estimated average
enrollment under the options modeled by PWC ranged from a
low-range estimate of 17,000 to a high-range estimate of
44,050, depending upon the benefit plan option selected by
MRMIB and whether the program includes a low-income premium
subsidy.
Arguments in support
Governor Schwarzenegger, as the sponsor of this measure and
AB 1887, writes in support of this bill for several
reasons. First, the Governor states the $761 million
allocated to California is for a time-limited purpose, and
the Governor argues California can maximize these federal
funds in a way that will quickly and capably address the
needs of our state's medically uninsured. Second, the
federal government, which is operating these high-risk
pools in other states, does not have the ability to address
California's unique and diverse needs. Third, the Governor
agues California is in the best position to run a program
for our residents, as we can bring jobs to California by
directing as much work as possible to California-based
companies and vendors. While it is true that the federal
government can step in and run a federal pool for the
states that decline to do so, the Governor argues that he
believes running our own federal high-risk pool allows us
an opportunity to maximize jobs here in California.
Finally, the Governor concludes that these bills have
strong provisions that protect our state's General Fund,
and California will use this federal money responsibly and
without risking our state's own precarious fiscal
resources.
AARP writes in support of SB 227 and AB 1887 that this
issue is very important to AARP members as the individuals
over age 50 are most likely to be denied coverage on the
basis of pre-existing health conditions. AARP states that,
while the federal government will administer the program in
California if the state does not, this is not a good option
for consumers. AARP argues the state currently administers
a high-risk pool for consumers and will be able to
coordinate outreach and enrollment for the two programs so
that it is seamless, much less confusing for consumers, and
much less likely to result in consumers being dropped
between the cracks of the two programs. The danger of
consumers getting lost in the shuffle between two similar
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 13
programs with distinct eligibility requirements is
magnified tremendously by having them administered by two
different entities and levels of government, one of which
have never before administered such a program. AARP writes
it is much more comfortable that consumers will have
meaningful access to state program administrators to deal
with the inevitable glitches in any new program. AARP
concludes that this is such an important benefit for AARP
members who have been denied coverage based on pre-existing
conditions that it does not want to take any chances on a
federal system that has been designed in just a few months.
The California Medical Association (CMA) writes in support
that this bill and its companion measure, AB 1887
(Villines) will provide the statutory authority necessary
for California to access $761 million in federal funds and
provide a vital coverage option to individuals with a
pre-existing medical condition. CMA states it supports
high risk pools, as they provide a critical health
insurance coverage option to those who do not have
employer-sponsored coverage and are otherwise medically
uninsurable in the individual market.
Related bills
AB 1887 (Villines) establishes the Federal Temporary High
Risk Health Insurance Fund (Fund). Requires money in the
Fund to be continuously appropriated to the MRMIB for the
purpose of establishing a federal temporary high-risk pool
established under SB 227 for individuals with a
pre-existing medical condition. Takes effect immediately
as an urgency statute, contingent upon the enactment of SB
227.
PRIOR ACTIONS
Assembly Health 18-0
Assembly Appropriations: 14-0
Assembly Floor: 76-0
POSITIONS
Support: The Schwarzenegger Administration (sponsor)
AARP
Asthma and Allergy Foundation, California Chapter
Blue Shield of California
California Academy of Family Physicians
STAFF ANALYSIS OF SENATE BILL SB 227 (Alquist)Page 14
California Association of Health Plans
California Chronic Care Coalition
California Chiropractic Association
California Hepatitis C Task Force
California Hospital Association
California Medical Association
Consumers Union
Health Access California
TMJ Society of California
Oppose: None received
-- END --