BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 1262
Lou Correa, Chair Hearing date: April 12, 2010
SB 1262 (Aanestad) as introduced 2/19/10FISCAL: YES
CALPERS: HIGH DEDUCTIBLE HEALTH PLANS AND HEALTH SAVINGS
ACCOUNTS
HISTORY :
Sponsor: author
Prior legislation: SB 353 (Dutton) 2009
Died in Senate Revenue and Taxation
AB 326 (Garrick) 2009
Died in Assembly Revenue and Taxation
AB 2609 (Richman) 2002
Died in Assembly Health
SUMMARY :
1) Amends the Public Employees' Medical and Hospital Care
Act (PEMHCA), administered by the California Public
Employees' Retirement System (CalPERS) to:
a)require that PEMHCA include a high deductible health plan
and corresponding Health Savings Accounts (HSA) as one of
the options that employees and annuitants who participate
in PEMHCA may choose,
b) require that the employer contribution rates in effect
for existing plans be paid for the high deductible plan and
corresponding HSAs, as specified, and
c) require that participating employees and annuitants who
opt for the high deductible plan pay their required
contributions and also contribute a minimum of $50 per
month to their HSA accounts.
2) This bill also amends the Revenue and Taxation Code to
make various changes and clarifications to the Revenue and
Taxation Code, effective January 1, 2010, to allow taxable
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deductions, as specified, in connection with HSA accounts,
and create conformity between state and federal laws with
regard to HSA accounts.
BACKGROUND AND ANALYSIS :
1)Existing state law :
a) Creates PEMHCA, administered by CalPERS and
continuously appropriated for the exclusive benefit of
participating public employees and annuitants. Local
contracting agencies and school districts may contract with
CalPERS to participate in PEMHCA. In addition, PEMHCA
provides the state-sponsored health care plan for state
employees and annuitants.
PEMHCA provides HMO and PPO health plans. Participating
employees and annuitants may choose from among these plans.
PEMHCA does not currently offer a high deductible health
care plan with corresponding HSAs.
b) Requires participating public employers to pay a
percentage of the costs of the health care plans. In
general, the State pays up to 85% of the weighted premium
cost for active employees and 80% for dependents, depending
on employee bargaining agreement. The State pays 50% to
100% of the weighted premium for annuitants, depending on
length of service and date of hire. Annuitants' dependents
receive 90% of the annuitant premium. The formula for
annuitants and their dependents is sometimes referred to as
the 100/90 formula.
Contracting local agencies and school districts may be
subject to the 100/90 formula for annuitants or a lesser
percentage contribution rate, depending on contract option
and the employee's length of service.
c) Requires that participating employees and annuitants
pay a percentage of health care costs, which may vary
depending on labor agreement, CalPERS contract, and length
of service.
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2) Existing federal laws allow tax deductions for employer
and employee contributions to HSA accounts that are used
for qualified medical expenses. State tax laws do not
currently conform to federal laws in this regard.
3) This bill :
a) requires the CalPERS board to offer a high deductible
health plan and corresponding HSA option, designed and
administered in compliance with federal IRS standards, to
all employees and annuitants who participate in PEMHCA,
b) requires an eligible employee or annuitant who elects
participation in a high deductible health plan and HSA to
contribute the cost of coverage less any portion paid by
the employer,
c) requires participating employees and annuitants to
designate at least $50 per month, deducted from salary or
retirement allowance, to be placed in the Public Employees'
Health Savings Fund, in an HSA in the employee's name, for
the payment of qualified medical expenses,
d) requires an employer of a participating employee or
annuitant who elects participation in an HSA to pay
employer contributions as currently required in PEMHCA,
e) requires the employer to also pay into the
participating employee's or annuitant's health savings
account an amount equal to the difference between the
employer cost for the high deductible plan and the cost of
the weighted average of the plan premiums the employer
would have paid if the employee had elected one of the
other health plans,
f) creates the Public Employees' Health Savings Fund in
the State Treasury under the exclusive control and
administration of CalPERS, for the exclusive benefit of
participants, and makes the fund continuously appropriated,
and
g) amends state tax laws, retroactively to January 1,
2010, to allow tax deductions for contributions to HSA
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accounts and otherwise conform to federal tax laws
governing HSAs and high deductible plans.
FISCAL EFFECT :
With regard to SB 353 (Dutton, 2009), the Senate Revenue and
Taxation Committee identified approximately $60 million
annually in lost revenue due to allowing qualified deductions
for contributions to HSAs.
Regarding AB 2609 (Richman, 2002), which was substantially
the same as this bill with regard to requiring a high
deductible plan and HSAs for public employees, CalPERS noted
that negative selection (i.e., healthy employees migrating to
the high deductible plan and leaving the other plans with
higher percentages of sicker participants) could likely
increase the costs of the regular plans. In addition,
CalPERS noted that administrative costs would increase due to
the burden of maintaining the HSA accounts, including
collections, account maintenance, and authorized
disbursements. Specifically, CalPERS stated it would have to
design and maintain the technological systems necessary for
the program and devote up to 12 full-time positions to
maintain data, work with employers, and approve medical claim
disbursements.
COMMENTS :
1)Arguments in support :
According to the author, "SB 1262 lowers the cost
for CalPERS health care coverage, expands affordable
coverage options for recipients, and remedies the unfair
tax treatment of consumers who help fund their own care."
In addition, "The federal government and 46 other
states do not tax these accounts-neither should
California."
2) Arguments in opposition :
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The California Labor Federation states that high
deductible plans "discourage sick workers and their
families from seeking care for routine illnesses,
potentially leading to subsequent health care costs that
are much higher than they would have been with early
treatments." They note that those who benefit most from
high deductible health plans are the "wealthiest
employees who can stash money away at a very low cost to
cover expensive medical procedures."
The California Professional Firefighters state that
creating these new tax deductions would "result in
revenue losses that could ultimately impact revenues that
are otherwise available for critical firefighting and
public safety services."
Health Access California notes that it is not necessary
to require CalPERS to provide high deductible plans and
HSAs because CalPERS already has the authority to do so.
3) OPPOSITION :
American Federation of State, County and Municipal
Employees, AFL-CIO (AFSCME)
California Labor Federation (CLF)
California Professional Firefighters (CPF)
California Retired Teachers Association (CalRTA)
Health Access California
Service Employees International Union, Local 1000 (SEIU)
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