BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 703 (Hernandez)
Hearing Date: 5/26/2011 Amended: 3/30/2011
Consultant: Katie Johnson Policy Vote: Health 6-3
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BILL SUMMARY: SB 703 would establish the Basic Health Program
and would require the Managed Risk Medical Insurance Board to
administer it, in accordance with the basic health program
option created by federal health care reform.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Start-up funding unknown, likely in the millions
ofGeneral*
dollars annually
Ongoing cost to likely in the billions of dollars
annually Federal/**
operate BHP Private
*Permits a General Fund loan to be repaid by July 1, 2016, with
interest.
**BHP funded by federal funds and subscriber premiums.
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STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
This bill would establish the Basic Health Program (BHP) and
would provide that it would be administered by the Managed Risk
Medical Insurance Board (MRMIB). Enrollment would commence
January 1, 2014. MRMIB would be required to, among other duties,
do the following:
1) Determine eligibility criteria for, participation
requirements of eligible individuals in, and the scope of
coverage for individuals enrolled in BHP;
2) Determine participation requirements of participating
health plans;
3) Determine, through negotiation with health plans,
premium and cost-sharing amounts, and collect premiums;
4) Maintain enrollment and expenditures to ensure that
expenditures do not exceed amounts available in the fund,
and if sufficient funds are not available to cover the
estimated cost of the program, institute appropriate
measures to reduce costs;
5) Issue rules and regulations; until January 1, 2016, any
rules and regulations may be adopted as emergency
SB 703 (Hernandez)
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regulations;
6) Make application assistance payments to Certified
Application Assistants who successfully enroll eligible
individuals in BHP.
MRMIB currently administers several health care coverage
programs, including the Healthy Families Program (Healthy
Families). This bill would provide that the BHP be administered
in conjunction with Healthy Families; MRMIB would be required to
provide an eligibility and enrollment process that would permit
an individual or his or her parent or guardian, as specified, to
enroll in the BHP at the same time an individual or his or her
parent or guardian applies for enrollment in Healthy Families.
On May 16, Governor Brown released his May Revision of the
proposed FY 2011-2012 state budget. In it, he proposes to
dissolve MRMIB and provide that all of the existing MRMIB
programs be administered by the Department of Health Care
Services, California's Medicaid agency. If that change is
adopted, this bill would need to be amended to designate an
administrator for BHP.
Federal Law-Basic Health Program Option
Existing federal law, section 1331of the Patient Protection and
Affordable Care Act (Pub. L. 111-148), as amended by the federal
Health Care and Education Reconciliation Act of 2010 (Public Law
111-152), grants states the option to establish a Basic Health
Program that would provide health care coverage for low-income
individuals. Eligibility would be limited to individuals who:
1) Are not eligible for Medicaid, aged 65 or over;
2) Have family incomes between 133 and 200 percent of the
federal poverty level (FPL);
3) Are legal aliens with family incomes below 133 percent
FPL; or,
4) Have access to employer-sponsored insurance that does
not provide minimum essential coverage or is unaffordable,
as specified.
Federal law provides that the federal government would provide
the following monetary subsidies to states with BHPs:
1) 95 percent of premium subsidies that the federal
government would have paid to individuals with incomes
SB 703 (Hernandez)
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between 133 and 200 percent FPL purchasing health care
coverage within state Health Benefit Exchanges;
2) The cost-sharing subsidy that would otherwise go to
members of the Exchange.
Basic Health Programs must:
1) Cover at least the minimum essential health benefits
specified in the ACA;
2) Provide that member premiums cannot exceed the premium
of the second-lowest-cost silver plan offered in the
Exchange;
3) Cost-sharing may not exceed that of platinum level plans
for individuals with incomes between 133 and 150 percent
FPL and gold level for individuals with incomes between 151
and 200 percent FPL.
State Basic Health Program Benefit and Financial Design
The federal government would provide California generous
monetary assistance were it to establish a BHP pursuant to this
bill; however, there could be significant financial risk to the
state in the event that the following components are not
properly balanced.
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|Source of Funds |Uses of Funds |
|-----------------------------+-----------------------------------|
|95% of federal premium |Service cost for BHP coverage |
|credits | |
|-----------------------------+-----------------------------------|
|Federal cost-sharing subsidy |Risk charge |
|-----------------------------+-----------------------------------|
|BHP member premium |BHP administration |
|-----------------------------+-----------------------------------|
|BHP member cost-sharing |Additional benefits or higher |
| |provider payments |
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*Figure 1, Page 3, Healthcare Reform and the Basic Health
Program Option, Jeremy Palmer, FSA, MAAA of Milliman.
The "state risk" equals �Cost of State BHP - (95 percent of
federal premium credits + federal cost-sharing subsidy + member
premium + member cost-sharing)]. Since this bill prohibits the
use of General Fund monies for the purposes of BHP, it is
SB 703 (Hernandez)
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unclear which state fund would cover the cost of California's
BHP in the event that it exceeds the federal subsidies and
member contributions.
On May 12, 2011, the California HealthCare Foundation (CHCF)
released the, "State of California Financial Feasibility of a
Basic Health Program Option." CHCF concluded that federal
subsidies, with appropriate subscriber premiums, would be
sufficient to cover the cost of BHP up to 20 percent - 25
percent of current Medi-Cal provider reimbursement rates at no
extra cost to the General Fund. CHCF assumed 70 percent of an
estimated 723,418 eligible individuals would enroll in BHP.
This bill would create the Basic Health Program Trust Fund and
would continuously appropriate it for the purposes of these
provisions. Since there is a potential financial risk to the
state in the event that the cost of the BHP exceeds the
available federal and member contributions, staff recommends
that the monies in the fund be made available upon appropriation
by the Legislature.
The proposed committee amendments would:
1) Delete the continuous appropriation and make monies in
the fund available upon appropriation by the Legislature;
2) Permit federal funds and subscriber premiums to be
available for expenditure when the annual Budget Act is not
enacted by June 30 of any given year to ensure that
individuals receiving coverage through the BHP are able to
comply with the requirement in the ACA to maintain minimum
essential coverage;
3) Require participating health plans to assume full risk
for the cost of care for the contract period and would
prohibit the board from contracting with a health plan if
such a contract would result in costs exceeding the funds
available.