BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 728|
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THIRD READING
Bill No: SB 728
Author: Hernandez (D)
Amended: 5/31/11
Vote: 21
SENATE HEALTH COMMITTEE : 5-2, 04/13/11
AYES: Hernandez, Alquist, De Le�n, DeSaulnier, Rubio
NOES: Strickland, Anderson
NO VOTE RECORDED: Blakeslee, Wolk
SENATE APPROPRIATIONS COMMITTEE : 6-2, 05/26/11
AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
NOES: Walters, Runner
NO VOTE RECORDED: Emmerson
SUBJECT : Health care coverage
SOURCE : Author
DIGEST : This bill requires the board of the California
Health Benefit Exchange to develop a risk adjustment system
for health insurance products sold in and outside of the
Exchange in the individual and small group insurance
market, as specified.
ANALYSIS : Existing federal law:
1.Requires, under the federal Patient Protection and
Affordable Care Act (PPACA), as amended by the Health
Care Education and Reconciliation Act of 2010, each
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state, by January 1, 2014, to establish an American
Health Benefit Exchange that makes qualified health
insurance products available to qualified individuals and
qualified employers. If a state does not establish an
Exchange, the federal government administers the
Exchange.
2.Requires states to implement risk adjustment with regard
to health insurance products sold in the individual or
small group market, inside and outside of the Exchange,
with the exception of grandfathered plans.
3.Defines risk adjustment as the process by which:
A. The state assesses a charge on health care service
plans and health insurers if the actuarial risk of the
enrollees of such plans or coverage for a year is less
than the average actuarial risk of all enrollees in
all health plans or insurance coverage products in the
state for the year.
B. The state provides a payment to health plans and
insurers if the actuarial risk of the enrollees of
such plans or coverage for a year is greater than the
average actuarial risk of all enrollees in all health
plans or insurance coverage products in the state for
the year.
1.Requires states to use criteria and methods established
by the federal Secretary of Health and Human Services
when carrying out risk adjustment activities.
2.Exempts grandfathered plans from risk adjustment. A
"grandfathered plan" is any group or individual health
insurance product that was in effect on March 23, 2010.
Existing state law establishes the California Health
Benefit Exchange within state government, and specifies the
duties and authority of the Exchange.
This bill:
1.Requires the Exchange board, in collaboration with the
Office of Statewide Health Planning and Development, the
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Department of Insurance, and the Department of Managed
Health Care, to develop a risk adjustment system for
health insurance products sold in and outside of the
Exchange, pursuant to federal law.
2.Requires the board to comply with criteria and methods
specified in PPACA, and subsequent regulations adopted
pursuant to that law.
3.Directs the board to consider various data collection
processes for the purposes of the risk adjustment system.
4.Defines risk adjustment in accordance with PPACA.
Background
Risk adjustment is used by Medicare to adjust payments to
health plans participating in Medicare Advantage and
Medicare Part D prescription drug plans, and by state
Medicaid programs to adjust payments to health plans
covering Medicaid managed care members. Commercial
insurers also use risk adjustment payment systems to adjust
provider reimbursement. There are also emerging uses for
risk adjustment in new delivery models, including
accountable care organizations and patient-centered medical
homes.
California's Medicaid program, Medi-Cal, risk adjusts
capitation payments for Medi-Cal managed care plans, under
the two-plan and geographic managed care models to develop
county average capitation rates. Medi-Cal uses a risk
adjustment model specifically designed for Medicaid
programs using pharmacy data to classify individuals by
diagnosis categories in order to measure anticipated risk.
Pharmacy data was determined to be the most accurate and
complete source of claims-level information for the
Medi-Cal managed care program. Adjustments based on member
demographics (age and gender) are also made.
In 1995 and 1996, the California Managed Risk Medical
Insurance Board developed a risk-adjustment mechanism that
was applied to group health insurance plans selling to
small employers in the Health Insurance Plan of California
(HIPC), the first statewide health insurance purchasing
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cooperative for small employers (those with 3 to 50
employees). The risk-adjustment mechanism was used by HIPC
in its 1996 and 1997 rate negotiations with participating
health plans and insurers and was based on demographic
information (gender, family size, health condition, and
age), and also reflected the presence of higher-cost
diagnoses. When an insurer's aggregated risk varied more
than five percent from the average, funds were collected
and redistributed from the lowest risk plans to high risk
plans.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
Exchange staff to develop likely in the
hundreds of Special*
risk adjustment system
thousands to low millions of dollars
Exchange staff to likely in the
hundreds of Special*
maintain the systemthousands of dollars, ongoing
Payments to carriers likely in the millions of dollars
annually Special*
commencing January 1, 2014
Charges received
likely in the millions of dollars annually
Special*
from carriers commencing January 1, 2014
OSHPD, CDI, DMHC
potentially minor and absorbable to the Special**
staff collaborationhundreds of thousands of dollars
* California Health Trust Fund-would consist of
beneficiaries' premiums, any available federal funds,
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fees assessed on health plans and insurers
**California Health Data Planning Fund, Insurance Fund,
Managed Care Fund
Note: No General Fund monies will be used.
SUPPORT : (Verified 5/27/11)
Health Access
ARGUMENTS IN SUPPORT : According to the author's office,
this bill implements a provision in federal health reform
that requires all states to risk adjust across all
individual and small group health insurance products. Risk
adjustment is a mechanism which adjusts payments to health
plans and insurers to reflect the actual health status or
recent medical experience of enrollees. By equalizing risk
and fostering productive competition between plans and
insurers, in other words, removing the incentive for health
plans and insurers to compete by attracting healthier
enrollees and discouraging enrollment by less healthy
enrollees, risk adjustment ensures that plans have a
financial incentive to serve all populations.
The author's office argues that risk adjustment could
create an insurance market where plans and insurers compete
to offer better health care at lower cost, which is
particularly important in the context of building a
successful state health benefits exchange. For exchanges
to function effectively, the exchange must fairly adjust
payments to plans and insurers participating in the
exchange based on the health status of the members each
plan or insurer attracts. Otherwise, plans and insurers
may shy away from participating in the exchange because of
concerns about adverse selection, or may design their
products to only attract the healthiest people.
CTW:nl 5/31/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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