BILL ANALYSIS �
AB 1921
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Date of Hearing: May 9, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1921 (Hill) - As Amended: April 23, 2012
Policy Committee: HealthVote:13-6
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill establishes a temporary California-specific
transitional reinsurance program, a state-optional program
defined in the Patient Protection and Affordable Care Act (ACA)
to lessen financial risk to insurers covering persons purchasing
insurance in the individual market beginning in 2014.
Specifically, this bill:
1)Provides for joint management of the program between the
California Department of Insurance (CDI) and the Department of
Managed Health Care (DMHC) (regulators).
2)Requires regulators to choose a reinsurance entity.
3)Requires the reinsurance entity to be a nonprofit that will
collect mandatory contributions from contributing entities
(health plans and insurers), process payments, receive and
maintain claims data required for program administration, and
other duties as required.
4)Allows regulators to establish California-specific program
parameters.
5)Requires contributing entities (health plans and insurers) to
remit payments and provide data as will be specified.
6)Provides the DMHC and CDI emergency regulation authority.
7)Sunsets this bill's provisions on January 1, 2018.
8)Defines a number of relevant terms, including "contributing
entity" and "reinsurance entity," as well as terms describing
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program parameters such as "attachment point" and "reinsurance
cap."
FISCAL EFFECT
1)One-time regulatory and program development costs to CDI and
DMHC in the range of $250,000 (Insurance Fund and Managed Care
Fund) over the 2012-13 and 2013-14 fiscal years. Due to the
compressed time frame of this program, these costs will likely
need to be absorbed within existing resources.
2)Staff costs potentially exceeding $100,000 (Insurance Fund) to
CDI annually through fiscal year 2014-15 to perform analytical
work to monitor the effectiveness of the program and recommend
adjustment to state-specific parameters. Some level of
workload would likely be performed by CDI in the absence of
this bill pursuant to federal law establishing the program and
requiring input to federal entities from state Insurance
Commissioners.
3)Ongoing staff costs through fiscal year 2016-17 for staff to
monitor the reinsurance entity contract and enforce compliance
with the program among licensed entities potentially exceeding
$100,000 (Insurance Fund and Managed Care Fund) per year
between CDI and DMHC.
4)Up-front and ongoing administrative costs to the transitional
reinsurance entity for operating the program will be directly
funded by a portion of the contributions collected from plans.
COMMENTS
1)Rationale . According to the author, the purpose of this
program is to help stabilize premiums for coverage in the
individual market during the first three years (2014-2016)
after "guaranteed issue" goes into effect. This legislation
must be effective in 2013 to allow time for the selection of,
and contracting, with a nonprofit entity (per ACA
requirements), which must be fully operational and ready to
implement the program in the last quarter of 2013. Although
federal regulations established a federally administered
option for states through regulation in March of this year,
the author and CDI, the sponsor of this bill, contend that a
California-specific program will be more responsive to the
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unique features of our health insurance marketplace.
2)Transitional Reinsurance Program . Reinsurance is common in the
marketplace today as a means of mitigating catastrophic risk.
For example, insurance companies may purchase reinsurance to
guard against a low-probability risk of significant financial
loss associated with a portfolio of policies.
The ACA requires, beginning in 2014, health plans and insurers
to accept all applicants (guaranteed-issue) at premium rates
that do not reflect the specific individual's health risk
(so-called community rated premiums). In absence of
reinsurance, insurers that attract higher health-risk
individuals would be at risk for high health costs without the
ability to charge premiums that reflect that risk. Due to this
uncertainty, insurers would also be more likely to raise rates
across the board. To stabilize rates and prevent undue
financial risk to insurers, the ACA establishes three risk
mitigation programs that address different market segments.
The transitional reinsurance program, the subject of this
bill, relates to the individual market.
The transitional reinsurance program will collect mandatory
contributions from all licensed health plans and insurers,
including companies that are self-insured, and establish a
pool of money to reimburse plans and insurers that experience
very high health care costs from persons enrolled in
individual policies.
3)Opposition . Health insurance trade groups oppose this bill
because it presupposes that a state-run program is superior to
the federal default option.
Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081