BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 2142 (Furutani) - Public Employees' Health Benefits
Amended: July 2, 2012 Policy Vote: PE&R 5-0
Urgency: No Mandate: No
Hearing Date: August 6, 2012 Consultant: Maureen Ortiz
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 2142 authorizes the CalPERS Board of
Administration to implement and administer risk adjustment
procedures for health benefit plan premiums, and to adjust
premiums as part of its programs for health promotion and
disease prevention.
Fiscal Impact:
CalPERS will incur administrative costs associated with
promulgating regulations, implementing the risk adjustment
procedures and administering necessary adjustments, as well
as developing health promotion and disease prevention
programs. Exact costs are unknown, but likely to exceed
$150,000 annually (Special).
The proposed risk-adjustment model could potentially save money
to the extent that it encourages members to select the most
cost-efficient health plans. Any savings will depend on several
factors including: the adjustment methodology; the speed at
which member behavior changes as a result; and the contribution
formulas for the various participating employers and their
employees/retirees.
Background: Existing law authorizes the CalPERS Board to
administer the Public Employees' Medical and Hospital Care Act
(PEMHCA) which provides health benefits for the state and for
more than 1,100 local and government agency and school
employers. The Board annually determines health plan
availability, coverage benefits, health premiums, and
out-of-pocket payments for over 1.3 million participants at an
annual cost of nearly $7 billion.
PEMHCA authorizes the Board to contract with health plan
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providers, to contract with providers based on performance, and
to credit premiums to an employer for expenditures that are
likely to improve the health status of employees and annuitants.
It also authorizes the Board to contract for, or approve,
health benefit plans that charge a contracting agency and its
employees and annuitants rates based on regional variations in
the costs of health care services, and to contract for, or
approve, health benefit plans exclusively for the employees and
annuitants of contracting agencies. Current law also specifies
that the premiums charged for health plan participants must
reasonably reflect the cost of the benefits provided.
CalPERS currently administers three Health Maintenance
Organization (HMO) plans: Blue Shield of California Net Value;
Blue Shield Access+, and Kaiser Permanente. It also manages
three self-funded Preferred Provider Organization (PPO) plans
which are PERS Select, PERS Choice, and PERSCare. There are
additionally three plans only offered to association members for
CCPOA, CHP, and PORAC.
CalPERS Health Benefits Purchasing Review
CalPERS recently conducted a Health Benefits Purchasing Review
(HBPR) to evaluate its current health benefits program design
and purchasing strategies, and to identify and to implement
potential cost reduction measures and quality of care
improvements. The HBPR examined health benefit cost drivers for
CalPERS and California, initiatives in the federal Affordable
Care Act, comparisons of health benefit plans and structures,
best practices, market trends and legal constraints. CalPERS
staff met with labor, retiree and employer group stakeholders,
California Health Benefit Exchange staff, health plans and
provider groups to gain a better understanding of their
priorities and preferences for health benefits.
The HBPR report to the Board provided information on market
trends, risk adjustment, evidence-based medicine, and wellness
strategies and initiatives related to health care delivery,
improving health outcomes, and delivering sustainable programs.
The Board adopted 21 strategies designed to address these
issues. The Board will consider in the near future proposed
regulations relating to: health promotion and disease prevention
programs; premium tiers; dependent eligibility audits; and
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Medicare supplemental plans.
Proposed Law: Specifically, AB 2142 does the following:
a) Authorizes CalPERS to implement risk adjustment procedures
that adjust and redistribute payments across its health plans
based on rules and regulations established by the CalPERS board.
b) Specifies these risk adjustment procedures be designed to
encourage health plans to offer benefits based on medical and
administrative efficiency as well as quality of care, rather
than on an employee's or annuitant's health status or on service
areas with low-risk populations.
c) Allows the Board to adjust premiums, as part of its programs
for health promotion and disease prevention.
d) Includes within the Public Employees' Health Care Fund any
moneys from a health benefit plan for risk adjustment, and
permits the board to use reserves generated by one or more
self-funded plans for risk adjustment programs and procedures.
Staff Comments: AB 2142 is intended to improve participant
health outcomes, encourage health plan competition, maintain
plan choices, and reduce employer health care costs.
The risk-adjustment process allows for the adjustment of health
plan payments, health care provider payments and individual or
group premiums, so that they reflect the health status of
members. The process involves the following two steps:
1) Risk assessment - measuring the risk of each person in a
group relative to the average risk; and,
2) Premium/payment adjustment - modifying of premiums/payments
to health plans to reflect differences in risk.
Risk adjustment encourages health plan providers to compete on
the basis of medical and administrative efficiency and quality
of care, rather than on their ability to select risk. It
equitably compensates providers for the participant health risks
they assume, and maintains participant choice from among
multiple health plans based on premiums that reflect plan design
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differences and relative efficiencies, rather than participants'
health status.
The federal Affordable Care Act authorized the establishment of
risk adjustment programs as part of the newly created statewide
health insurance exchange to transfer funds from health plans
enrolling the lowest-risk individuals to health plans enrolling
the highest-risk individuals in order to reduce or eliminate
premium differences among health plans. CalPERS is not subject
to participation in the statewide insurance exchange, but is
seeking the authority to adopt methodologies through regulations
similar to those developed by the federal Department of Health
and Human Services for risk adjustment.
How Risk Adjustment Works
All CalPERS health plans would be required to participate in
risk adjustment. The CalPERS Board would adopt risk-adjusted
premiums for each of the health plans at the beginning of each
plan year. Currently, the premiums for the Kaiser and Blue
Shield health plans offered by CalPERS go directly to them, and
that would continue; while the premiums for the CalPERS
self-funded PPO plans would go into the CalPERS Health Care Fund
(HCF). At the end of the plan year, CalPERS would evaluate the
risk-adjusted premiums for each health plan to determine how
accurately they reflected the actual enrollment and experience
of each plan. This evaluation might result in requiring one or
more of the plans to return premiums, and be redistributed to
one or more of the other plans.
Under current law, all premiums for the self-funded plans go
into the HCF, which earns income and also pays for benefits and
claim costs. Under AB 2142, funding for risk programs and
procedures would come from reserves generated by one or more of
the CalPERS self-funded health-benefit plans. In order to
capture the fully insured plans, the HCF was selected because
premium dollars from the self-funded plans are already deposited
there. Should Kaiser or Blue Shield need to return premiums,
they would do so by sending a check to CalPERS, which would be
deposited into an account in the HCF. The money would then be
redistributed by CalPERS. Should one of the self-funded PPO
plans need to return premiums, that money would be pulled from
their reserves and be redistributed.
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Premium Adjustments for Disease Prevention and Health Promotion
Wellness and disease management incentives improve participants'
health outcomes by increasing participation in wellness program
to prevent disease, and in disease management programs to slow
or halt disease progression. While existing law provides
authority for the CalPERS Board to implement cost containment
and cost reduction incentive programs, AB 2142 will give the
Board broad authority to develop wellness and risk adjustment
programs that include the adjustment of premiums, including the
provision of incentives for disease management and tobacco
cessation. These changes could be incorporated into the Board's
next health benefits plan procurements for 2014.