BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
727 (Cox)
Hearing Date: 5/11/2009 Amended: 4/30/2009
Consultant: Katie Johnson Policy Vote: Health 11-0
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BILL SUMMARY: SB 727, an urgency measure, would require that
health care service plans and health insurers offer continuation
health coverage to employees whose employer terminated a group
benefit plan and did not provide a successor plan. The bill
would apply to employees of small businesses with 2 to 19
employees.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
CDI oversight minor and absorbable Special*
and regulations
DMHC oversight up to $155 $22 $22
Special**
and regulations
Increased Medi-Cal, unknown, but potentially over
$50General/
Healthy Families, and General Fund and over $150 Federal/
CalPERS premiums Special FundsSpecial
*Insurance Fund
**Managed Care Fund
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Existing law provides for the licensure and regulation of health
care service plans by the Department of Managed Health Care
(DMHC). Existing law provides for the regulation of health
insurers by the California Department of Insurance (CDI).
Costs to the CDI to oversee and regulate the provisions in this
bill would be minor and absorbable. It is estimated to cost the
DMHC $155,000 in the first year of implementation to promulgate
regulations and $22,000 for ongoing oversight to implement this
bill.
This bill would require health plans and insurers to offer
continuation health coverage for no less than 18 months to
employees whose employer discontinued a group health plan and
did not provide a successor health plan option. This bill would
require that the continuation coverage be offered under the same
terms, conditions, and rates as the former group plan. This type
of continuation coverage is not a product that plans and
insurers currently offer.
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SB 727 (Cox)
Under the employer-sponsored group plan, it is likely that an
enrollee paid no share or only a fraction of the plan or policy
premium and that the employer covered the other
share. In continuation coverage, it would be likely that the
employee would pay the full cost of the premium. Since this is
likely to be expensive, the employees that have existing health
issues would potentially be the only employees out of the
original group plan to take up the continuation coverage. Since
the plan or insurer would be required to offer this continuation
coverage at the same group rate, but with fewer people in the
group and with individuals more likely to use the health care
coverage, the plan or insurer would incur a higher cost of
providing services, but would be unable to increase premium
rates accordingly.
Thus, to recoup the losses resulting from this bill, the plan or
insurer could potentially increase premiums on other insurance
products that they offer, including large group plans that they
offer to the state for the Medi-Cal and Healthy Families
Programs, which provide free or low-cost comprehensive coverage
to low-income Californians, and to the California Public
Employees Retirement System (CalPERS), which provides health
care coverage for public employees. These possible premium
increases could result in costs to the state General Fund of
potentially over $50,000 and to other state funds of over
$150,000.
The Healthy Families Program is funded with 65 percent federal
funds and 35 percent General Funds. The state funds CalPERS with
approximately 55 percent General Funds and 45 percent other
state funds. Medi-Cal, California's Medicaid program, is funded
with 50 percent federal funds and 50 percent General Funds.
However, in February of 2009, President Obama signed the
American Reinvestment and Recovery Act (ARRA) into law. As a
result, the Federal Medical Assistance Percentage (FMAP)
increased from 50 percent to 61.59 percent for Medi-Cal. Thus,
retroactively from October 1, 2008, through December 31, 2010,
the federal government would pay for approximately 62 percent
and the state General Fund would pay for 38 percent of
benefit-related Medi-Cal expenditures.
There are several types of continuation health coverage provided
for in existing law, such as the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA), the California COBRA Program
(Cal-COBRA), and insurance pursuant to the Health Insurance
Portability and Accountability Act (HIPAA).
COBRA provides certain employees who were terminated from
employment the option to temporarily retain health coverage at
the group premium rate that they paid while employed, provided
the individual's former employer continues to offer a group
health plan. COBRA applies to companies with 20 or more
employees. The eligible companies are required to inform former
employees of their eligibility for COBRA upon termination of
employment. The former employees are eligible for coverage for
18 months. If a former employee refuses COBRA coverage upon
being informed, he or she is no longer eligible.
Cal-COBRA is a program similar to COBRA, but for companies that
employ 2 to 19 employees. Cal-COBRA allows a former employee to
purchase health coverage for 36
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SB 727 (Cox)
months, provided the individual's former employer continues to
offer a group health plan. Former employees purchasing health
coverage through COBRA may also continue coverage with Cal-COBRA
for an additional 18 months after their COBRA benefits expire.
Existing federal law, the ARRA, provides COBRA and Cal-COBRA
premium assistance of 65 percent for up to 9 months to employees
who were involuntarily terminated from their employment between
September 1, 2008, and December 31, 2009. The former employee
would pay 35 percent of the full premium for 9 months and then
be eligible to continue on with COBRA or Cal-COBRA at the full
premium rate. The coverage provider would pay the other 65
percent and would be reimbursed through a payroll tax credit.
For an individual to receive health care coverage under both
COBRA and Cal-COBRA, it is necessary for the individual's former
employer to maintain an active group health care contract with a
health plan or insurer. If the employer were to discontinue the
contract and not provide a successor group benefits plan, the
former employee would no longer be eligible for either program.
The provisions in this bill differ from the continuation
benefits offered under the COBRA and Cal-COBRA programs in that
this bill would require health plans and insurers to offer
health benefits at a group rate to individuals who would
continue to be employed by an employer, but whose employer would
no longer maintain a group benefits contract with a plan or
insurer.
An individual may also obtain continuation health coverage
through an individual health insurance plan under HIPAA,
provided he or she: has been covered by a plan for 18 months
and that coverage has not lapsed more than 63 days, has
exhausted any COBRA or Cal-COBRA coverage, had an
employer-sponsored group plan as his or her most recent health
insurance coverage, is not eligible for other health insurance,
and did not lose his or her prior insurance due to deceiving the
insurance provider or a failure to pay premiums.