BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
900 (Alquist and Steinberg)
Hearing Date: 5/17/2010 Amended: 5/5/2010
Consultant: Katie Johnson Policy Vote: Health 5-0
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BILL SUMMARY: SB 900 would establish the California Health
Benefits Exchange.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Initial start-up costs unknown, likely in the millions of
dollars General/*
annually through January 1, 2014Federal
Ongoing CHBE administration unknown, likely to start January
1, Special**
2014, in the tens of millions of
dollars annually
CDI oversight, filing review approximately $160 ongoing
onceSpecial***
CHBE is operational
*Unspecified amount of federal funds available likely in 2011;
General Fund pressure if total expenses not met by federal funds
grant
**California Health Benefits Exchange Fund-likely be fully
supported by an assessment on consumer premiums
***Insurance Fund
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
This bill would establish the California Health Benefits
Exchange (CHBE), within the California Health and Human Services
Agency (CHHS), with an appointed governing board to purchase
health insurance on behalf of Californians up to 400 percent of
the federal poverty level and employees of small businesses.
Federal law requires states that elect to establish exchanges
either through a governmental entity or a non-profit
organization, in lieu of the federal government establishing it
for a state, to have the exchange be operational by January 1,
2014.
Start-Up Costs
Initial start-up costs would likely be in the millions of
dollars for staff and would, in addition to the ongoing duties
of the exchange, probably include information technology (IT)
investments that could be in the millions of dollars in
procurement. Federal law requires exchanges to, among other
duties, 1) certify qualified health plans, 2) provide for a
toll-free consumer hotline, 3) maintain a website with
standardized comparative information on such plans, 4) assign a
rating to each qualified health plan, 5) present health plan
information in a standardized format, 6) establish a calculator
to determine the actual cost of coverage, 7) grant a
certification attesting that an individual is exempt
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SB 900 (Alquist and Steinberg)
from the individual responsibility requirement. Several of these
requirements would likely be instituted and met during CHBE
start-up and some would be maintained as part of the exchange's
ongoing operations.
In order to meet these requirements, CHBE could be able to
phase-in staff for each aspect of the exchange as it prepares to
be operational January 1, 2014, which would minimize one-time
start-up costs. CHBE start-up staff would likely include
actuaries, attorneys, accountants, IT consultants, and market
consultants. The creation of CHBE would also increase the
oversight responsibilities of California's two health care
coverage regulators. The California Department of Insurance
(CDI) would likely need up to two staff counsels to review a new
group of insurance policies at an ongoing cost of approximately
$160,000 annually once CHBE is operational. There could be a
similar impact on the Department of Managed Health Care (DMHC)
in the hundreds of thousands of dollars, but it is unknown at
this time.
In addition to meeting the federal exchange requirements
mentioned above, this bill would require CHBE to negotiate and
enter into contracts with carriers. This would make CHBE an
"active" purchaser of health care coverage, similar to the
current functions of the California Public Employees Retirement
System (CalPERS) and the Managed Risk Medical Insurance Board
(MRMIB) on behalf of public employees and subscribers to the
Healthy Families Program, the Access for Infants and Mothers
(AIM) program, and the Major Risk Medical Insurance Program
(MRMIP), respectively.
Federal law and this bill also require state exchanges to enroll
an individual in state and local public programs if he or she
were found to be eligible for those programs through the CHBE
application process. In California, this would include Medi-Cal,
the Healthy Families Program, and county-administered Healthy
Kids programs.
Enrollment systems currently exist within California for these
programs. CHBE would need to be able to interface with public
programs' enrollment systems to meet this bill and federal law's
requirements.
ABX4 7 (Evans), Chapter 7, Statutes of 2009, permitted the
Department of Health Care Services (DHCS), the Department of
Social Services (DSS), and the California Health and Human
Services Agency (CHHS) to develop a statewide eligibility and
enrollment determination process for Medi-Cal, California Work
Opportunity and Responsibility to Kids Program (CalWORKs), and
the Supplemental Nutrition Assistance Program (SNAP). Per ABX4
7, the procurement and implementation of the "centralized
eligibility" process is contingent on Legislative approval of
the comprehensive process plan and an appropriation for its
procurement.
Governance and Ongoing Administration
As noted above, CHBE's governance structure and functions would
likely be similar to that of two existing California
agencies-CalPERS and MRMIB, which negotiate and purchase
benefits for approximately 1.3 million and 900,000 individuals,
respectively. CalPERS' health benefits administrative budget is
about $26 million annually and is fully
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SB 900 (Alquist and Steinberg)
funded by a 0.43 percent assessment on premiums. Existing law
limits the assessment to 2 percent of premiums. MRMIB's state
operations budget is about $12 million annually and is funded by
a combination of state and federal funds.
Based on a recent study, there would likely be 8.4 million lives
eligible for the CHBE for which it would actively purchase
health care coverage. If administrative costs were based on the
number of lives, costs to set up and to maintain the exchange
could range from approximately $12 million to $220 million
annually. The high end of the estimate is unlikely to be
attained due to economies of scale.
According to the testimony of Jon Kingsdale, the Executive
Director of Massachusetts' state exchange, the Health Connector,
which was established in 2006, the state has experienced
economies of scale in administrative costs. In his testimony at
the California Senate and Assembly's Joint Hearing on Health
Reform on May 12, 2010, Mr. Kingsdale stated that as the Health
Connector's enrollment grew, the cost per enrollee went down.
Federal Funds Support
PPACA states that the federal government will award grants to
states beginning in 2011, not later than 1 year after PPACA's
enactment, in annual, unspecified amounts to assist states in
establishing state Health Benefits Exchanges. If the federal
funds do not cover the costs of implementation prior to the
collection of fees on premiums, there could be millions of
dollars in General Fund costs to make up the difference. By
January 1, 2015, the federal government expects exchanges to be
fully self-funded. Additionally, if a state chooses not to
establish its own exchange, the federal government would run the
state's exchange either directly or through a non-profit.