BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
838 (Strickland)
Hearing Date: 4/12/2010 Amended: 4/6/2010
Consultant: Katie Johnson Policy Vote: Health 9-0
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BILL SUMMARY: SB 838, an urgency measure, would conform the
state Cal-COBRA health insurance law to the federal statute that
recently extended federal assistance for individuals choosing to
purchase health care coverage through Cal-COBRA after being
involuntarily terminated from employment.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
DIR oversight $0 up to $40 - $64 $0 up to $241 - $383
$0 up to $241 - $383
Special*
*Labor Enforcement and Compliance Fund
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
At this time it is unknown whether or not this bill would cause
a significant number of additional complaints to the Department
of Industrial Relations (DIR) and whether or not DIR would need
to take enforcement action in the event of a non-compliant
employer. If an investigation were necessary, however, the issue
of determining whether the employer complied or not would be
relatively uncomplicated-did the employer send the information
about eligible former employees to the health plan or insurer or
did the employer not send the information-when compared with
other Labor Code violations and DIR investigations such as
payroll violations.
If relatively few complaints are logged, DIR enforcement costs
could be minor and absorbable. However, if a sufficient number
of complaints were registered, it is possible that DIR would
need up to two Deputy Labor Commissioners at $70,000 - $86,000
each and a staff attorney at $101,000 - $125,000 to investigate
the complaints for a total cost of approximately $241,000 -
$383,000 annually in monies from the Labor Enforcement and
Compliance Fund. Assuming an effective date of May 1, 2010,
$40,000 - $64,000 could be incurred in the last 2 months of FY
2009-2010, and the full annual cost could be incurred in FY
2010-2011 and beyond if the federal government chooses to extend
the COBRA premium assistance to individuals who are eligible for
premium assistance as a result of a loss in hours after
September 1, 2008, and were subsequently terminated beyond March
31, 2010. All costs to DIR would depend on the number of
complaints filed and the number and complexity of subsequent
investigations.
The language in this bill generally references the section in
ARRA that pertains to COBRA and mini-COBRA premium assistance
and does not specify the dates within which a qualifying event
must occur. If the federal government were to extend the premium
assistance beyond March 31, 2010, in that section of federal
law, which is
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SB 838 (Strickland)
likely, state law would not need to be updated. If there were an
extension beyond March 31, 2010, the fiscal impact on DIR is
discussed above and would depend on the length of the extension.
As part of the state government trailer bill Chapter 12,
Statutes of 2009 (AB 12X4, Evans), the Director of Industrial
Relations would be authorized to levy a separate surcharge upon
all employers, as defined, for the purposes of deposit in the
newly created Labor Enforcement and Compliance Fund. The trailer
bill provides that the surcharge levied shall not exceed
$37,000,000 in FY 2009-2010, adjusted for as appropriate to
reconcile any over/under assessments from previous fiscal years,
and shall not be adjusted each year thereafter by more than the
state-local government deflator. The $37,000,000 cap represents
the amount expended by the Division of Labor Standards
Enforcement (DSLE) in 2008-2009 for the enforcement of wage and
hour violations.
With this cap, the DLSE will be forced to begin prioritizing
enforcement activities if enforcement duties and costs exceed
the cap as adjusted by the deflator. For FY 2009-2010, the
deflator was 0.003 percent. For FY 2010-2011, the deflator is
estimated to increase to 0.014 (1.4 percent) for an increase of
$518,000 in additional enforcement funding. For FY 2011-2012,
the deflator is estimated to increase to 0.016 (1.6 percent) for
an increase of $600,288. Thus, even if there is a minor to
significant increase in enforcement, the enforcement budget
appears to grow by an amount sufficient to cover the potential
annual costs of this bill.
Any costs to the Department of Managed Health Care (DMHC) and
the California Department of Insurance (CDI) to enforce these
provisions or to develop model notices in FY 2009-2010 and
ongoing would be minor and absorbable.
Existing Law
Existing federal law creates the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA). COBRA provides certain
former employees the option to temporarily retain health
coverage at the group premium rate that they paid while
employed. COBRA applies to large businesses that employ 20 or
more employees. The eligible companies are required to inform
eligible former employees upon termination of employment or
another qualifying event. 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.
Existing federal law allows and state law provides for
Cal-COBRA, or a "mini-COBRA" program, for small businesses with
2 to 19 employees. Cal-COBRA allows a former employee to
purchase health coverage for 36 months after a qualifying event
such as a reduction of hours or termination. If a former
employee chooses to maintain group health coverage under either
COBRA or Cal-COBRA, he or she pays 102 percent or up to 110
percent of the premium, respectively. While employed, it is
likely that the employer had subsidized the individual's
coverage.
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SB 838 (Strickland)
Existing federal law, the American Reinvestment and Recovery Act
(ARRA), provides for 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. Beginning on or after February 17, 2009, eligible
individuals would pay 35 percent of the full premium for 9
months and then be eligible to continue on with COBRA at the
full premium rate. The employer or coverage provider, depending
on the individual situation, would pay the other 65 percent up
front and would be reimbursed through a tax credit.
AB 23 (Jones and Fletcher), Chapter 3, Statutes of 2009,
implemented the initial Cal-COBRA federal premium assistance.
An analysis from Hewitt Associates found that COBRA enrollment
has doubled since the enactment of premium assistance. Similar
data is unavailable for Cal-COBRA.
Premium Assistance Extensions
Two recent federal extensions of premium assistance have been
enacted: 1) the federal Department of Defense Appropriations Act
(DOD Act) in December 2009, and 2) the Temporary Extension Act
of 2010 (TEA) on March 2, 2010. The DOD Act extended premium
assistance to individuals involuntarily terminated between
January 1, 2010, and February 28, 2010, and extended the
duration of premium assistance for an additional 6 months, for a
total of 15 months of subsidies.
TEA extended the COBRA premium assistance eligibility period for
one additional month-February 28, 2010, through March 31, 2010.
It also expanded eligibility of premium assistance to
individuals who had had their work hours reduced, which resulted
in a loss of health care coverage, between September 1, 2008,
and March 31, 2010, and who were then involuntarily terminated
on or after March 2, 2010, through March 31, 2010. Those
individuals who did not elect Cal-COBRA continuation coverage
when it was first offered, or who elected Cal-COBRA and
subsequently discontinued COBRA, would have a second opportunity
to sign up and to make use of the subsidy.
This Bill
The premium assistance and extensions also apply to state
"mini-COBRA" laws, such as Cal-COBRA, thus it is necessary to
update California's Cal-COBRA law.
This bill would amend Cal-COBRA law to conform with the DOD and
TEA COBRA provisions that, 1) extend premium assistance to
individuals involuntarily terminated between September 1, 2008,
and March 31, 2010, instead of September 1, 2008, to December
31, 2009, and 2) expand eligibility to employees who had had
their work hours reduced, which resulted in a loss of health
care coverage, between September 1, 2008, and March 31, 2010,
and were then involuntarily terminated on or after March 2,
2010, through March 31, 2010.
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SB 838 (Strickland)
This bill would permit an eligible person's coverage to begin
prospectively, if permitted by federal law, meaning that a
person would pay premiums going forward. If federal law does not
permit prospective coverage, a person would pay premiums
retroactively back to the period of coverage beginning
immediately after his or her employment termination. As of this
date, the federal government has yet to issue any guidance on
this subject.
As in federal law, this bill would require health plans and
insurers to send notices informing people of their eligibility
for the recent extension and expansion of Cal-COBRA premium
assistance. For health plans and insurers to identify and send
notices to those people who had had their hours reduced and were
subsequently laid off, they would need to be notified by the
employer that an employee was eligible.
Thus, this bill would also require employers to send contact
information to health plans and insurers for any former employee
who had had their work hours reduced, which resulted in a loss
of health care coverage, between September 1, 2008, and March
31, 2010, and were then involuntarily terminated on or after
March 2, 2010, through March 31, 2010, so that the health plans
and insurers may send out required notices informing these
individuals of their eligibility for federal premium assistance.