BILL ANALYSIS �
AB 2456
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Date of Hearing: April 29, 2014
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
AB 2456 (Melendez) - As Amended: April 24, 2014
SUBJECT : Health care.
SUMMARY : Requires the California Health Benefit Exchange
(Exchange, now called Covered California) to use
performance-based budgeting. Specifically, this bill :
1)Requires Covered California to submit to the Department of
Finance (DOF) and the Legislative Analyst's Office (LAO) a
complete and detailed budget, as prescribed by DOF, that uses
performance-based budgeting to make clear to policymakers and
the public the value and results of existing operations and
proposed changes.
2)Requires Covered California's budget to identify and update
all of the following:
a) The mission and goals of Covered California.
b) The activities and programs focused on achieving those
goals.
c) Performance metrics that reflect desired outcomes for
existing and proposed activities and a targeted performance
level for the following year.
d) Prior year performance data and an explanation of
deviation from previous year targets.
e) Proposed changes in statute, including the creation of
incentives or elimination of disincentives that could
improve outcomes or hold down costs.
f) A description of the impacts and consequences to parties
affected by an activity or program proposed for
modification or elimination.
g) A five-year projection of estimated assessment levels on
health plans to pay for Exchange expenditures.
3)Requires performance-based budgeting to be used by Covered
California to allow the public and policymakers to understand
the effectiveness and efficiency of Covered California.
Requires Covered California to, if necessary, develop a
process for consulting with contractors and stakeholders to
develop performance standards.
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4)Requires DOF to include performance-based budgeting
information for Covered California in the Governor's Budget
and post the information on its Website where DOF routinely
posts budget information.
5)Requires the LAO to review the adequacy of performance metrics
and progress toward targeted outcomes in preparing its review
of the Governor's Budget as it relates to Covered California.
EXISTING LAW :
1)Establishes Covered California as an independent entity in
state government. Requires Covered California to compare and
make available through selective contracting health insurance
for individual and small business purchasers as authorized
under the federal Patient Protection and Affordable Care Act
(ACA).
2)Under the ACA, establishes requirements for qualified health
plans (QHPs) offered through state exchanges, including that
the plan provides essential health benefits and follows
established limits on cost-sharing (deductibles, copayments,
and out-of-pocket maximum amounts).
3)Authorizes Covered California to assess a charge on QHPs
offered through Covered California to support the development,
operations, and prudent cash management of Covered California.
Requires Covered California to ensure that expenditures do
not exceed revenues, and to institute appropriate measures to
ensure fiscal solvency if sufficient revenue is not available
to pay estimated expenditures.
4)Requires Covered California to annually report on its
performance during the preceding fiscal year, including the
manner in which funds were expended and the progress toward,
and the achievement of, its statutory requirements.
5)Creates the California Health Trust Fund, which is
continuously appropriated to allow Covered California to carry
out its functions. Beginning in 2016, if the Fund has a
surplus at the end of a fiscal year in excess of its operating
budget for the next fiscal year, requires Covered California
to reduce the charges assessed on QHPs during the following
fiscal year, as specified. Requires Covered California to
authorize expenditures, as necessary, from the Fund to pay
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program expenses to administer Covered California.
6)Requires Covered California to ensure that the cost of its
establishment, operation, and administrative functions does
not exceed the combination of federal funds, private
donations, and other non-General Fund moneys available for
this purpose. Prohibits the use of state General Fund for
Covered California without a subsequent appropriation.
FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author of this bill,
there is no requirement in state law to ensure that the annual
budget and operations of Covered California is reviewed by the
California Legislature. The author contends that information
about goals, performance, and outcomes should be used in the
annual budget and policymaking process to inform fiscal and
policy decisions and by the Legislature to enhance oversight
of public programs and to ensure results-based accountability.
Covered California will have a large impact on the
affordability and quality of health care coverage for
California residents, and the author contends that there is no
formal and predictable legislative and public oversight
process for examining the operations and the effectiveness of
Covered California.
The author argues, because Covered California is not part of
the annual budget process, legislators don't have an
opportunity to ask its officials specific questions about the
operations of Covered California or make suggestions for
improvements. The author states legislators should be
examining the budgets and operations of Covered California
each year in order to try to keep premiums as low as possible
while ensuring that enrollees receive a high quality of care.
The author suggests that policymakers should review the
operations of Covered California using performance metrics
that ensure transparency and accountability. The author
suggests that, currently, the five-member Exchange Board sets
its own performance metrics, effectively grading its own
performance.
2)BACKGROUND . Since 2010, Covered California has been funded
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through a series of federal grants for planning,
implementation, and program activities through 2014.
According to materials provided at Covered California's March
2014 board meeting, the total of federal grants received is
over $1 billion, with $334 million in expenditures through
January of 2014, and an available balance of $731 million.
The ACA requires state exchanges to be self-sustaining beginning
January 1, 2015. State law authorizes Covered California to
generate funding to sustain its operations by assessing fees
on participating health plans. To support its operations,
Covered California has announced that it will charge health
plans a per member, per month fee based on enrollment in the
carriers' QHPs offered through Covered California.
Covered California's current budget process entails adoption
of a resolution by the board. These budget resolutions
typically include a resolution to adopt a budget presented by
staff, the total amount of expenditures, authority for the
Executive Director to adjust amounts and add positions within
the level of approved expenditures, and a requirement for
these adjustments to be provided to the board in quarterly
expenditure reports. Budget resolutions are adopted at
Covered California's board meetings, which are open to the
public, noticed, and held on a monthly basis.
In its 2013-14 budget proposal adopted in June 2013, Covered
California lays out a multi-year forecast for its operating
budget through 2016-17. Covered California sets the 2013-14
participation fee for QHPs in the individual market at $13.95
per member, per month; for plans sold through the SHOP (the
Small Business Health Options Program, which offers plans to
small businesses), the participation fee is set at $18.90 per
member, per month. Given these fees, Covered California
projects its budget under three enrollment scenarios: low,
base, and enhanced. In the low enrollment scenario for the
individual market, 274,000 individuals would enroll in
2013-14, rising to 1.3 million in 2016-17, and fees would be
increased to $20.86 per member, per month in 2016. In the
high enrollment scenario, 894,000 individuals would enroll in
fiscal year 2013-14, rising to 2.3 million in 2016-17, and the
participation fee would be lowered to $9.44 per member, per
month in 2017. These future year fees are modeled with the
goal of maintaining a three-to-six month reserve of operating
expenses.
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According to materials presented by staff at Covered
California's April 2014 board meeting, Covered California's
current activities include the continued establishment of a
new marketplace, thereby incurring numerous one-time costs in
fiscal year 2013-14. The presentation noted enrollment has
surpassed early estimates, exceeding base projections by 105%
and enhanced projections by 43%. Enrollment reached
approximately 1.4 million in April, 2014, about 1.2 million of
whom are estimated likely to pay their premiums. At that
meeting, Covered California's board approved a budget revision
for fiscal year 2013-14 that provided an additional
expenditure authority of $89 million over the original
expenditure of $400 million that the board approved in June
2013.
State law that created Covered California included a
requirement for Covered California to annually report on its
performance during the preceding fiscal year, including the
manner in which funds were expended and the progress toward,
and the achievement of, its statutory requirements. In its
annual report from November 2013, Covered California presents
its activities and their effect on implementation of the ACA
in California. These activities include creating standard
benefit designs, selectively contracting with health insurance
companies, working with community groups to encourage
enrollment in health coverage, establishment and staffing of
the service center, training and certification of enrollment
counselors and educators, development of the website, consumer
protection initiatives, town hall meetings, stakeholder
advisory groups, and other activities.
The annual report shows actual spending for the 2012-13 fiscal
year at $251 million, about $116 million lower than projected.
The report indicates this is due to the timing of significant
expenditures occurring later than originally anticipated,
which resulted in a delay of some expenditures to fiscal year
2013- 14. Hiring occurred at a much slower pace than
originally budgeted due principally to the delay and
challenges associated with recruiting staff in the Service
Center. Contractual spending also occurred at a slower pace
primarily due to the timing of media campaigns, the timing of
Service Center development, and other activities.
3)COVERED CALIFORNIA IN THE GOVERNOR'S BUDGET . The 2013-14 and
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2014-15 Governor's Budgets include entries for Covered
California. These entries note that since state law authorizes
Covered California to spend as necessary to pay for program
expenses to administer the Exchange, Covered California will
approve its own 2014-15 budget in the spring of 2014, and the
budget data presented in the Governor's Budged is presented
for informational purposes only and is not approved by the
Governor. The 2014-15 Budget includes the mission and goals
of Covered California and provides 3-year projections of
positions and expenditures, detailed budget adjustments,
detailed expenditures by program and by category, and other
budget details.
4)MID-NINETIES EXPERIMENT . In 1993, Governor Wilson initiated a
performance-budgeting pilot program involving four departments
(General Services, Consumer Affairs, Parks and Recreation, and
the California Conservation Corps). In 1996, the LAO
concluded that, "to date performance budgeting has not
realized the fundamental benefits initially envisioned by the
administration." In evaluating the pilot program, the LAO
found that, although the program reoriented the focus of
departmental management and energized the departments and
their staffs, anticipated savings did not materialize and
there were no significant changes in the budget process. The
pilot program was considered by many to be a failure because
it did not result in the more cost-effective and innovative
provision of government services that the enabling legislation
intended.
5)RECENT VETOED LEGISLATION . In 2011, the Legislature passed SB
14 (Wolk, DeSaulnier, and Huff), which would have required the
annual Governor's Budget to be developed under
performance-based budgeting principles, and would have
required each state agency to use performance-based budgeting
for all programs. SB 14 was based on the premise that state
government should focus on the outcomes of public policy
decisions and public programs and ensure access to timely
information relevant to decisions in the design and delivery
of public programs. SB 14 was intended to implement
performance measurements to help ensure that limited public
resources are well spent, to improve effectiveness,
efficiency, transparency, and accountability, and to help
identify programs in need of fundamental reforms or
elimination. This bill's provisions are mostly identical to
those of SB 14, except that it is narrowed to apply only to
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Covered California.
SB 14 was vetoed by Governor Brown, who, in his veto message,
wrote that it would impose a "one size fits all" budget
planning process on every state agency and function, even
functions that aren't actually managed by the state, so long
as they receive any benefit from it. The veto message stated
that SB 14 would have mandated thousands of hours of work at
the cost of tens of millions of dollars with little chance of
actual improvement. The veto message concluded that for many
state agencies, performance based budgeting would be a costly
waste of time.
6)BUREAU OF STATE AUDITS REPORT . Current law authorizes the
State Auditor to establish a high-risk audit program, to issue
reports with recommendations for improving issues it
identifies as high risk, either due to vulnerability to fraud,
waste, abuse, and mismanagement, or because an issue is of
particular interest to the citizens of the state or has
potentially significant effects on public health, safety, and
economic well-being. In July 2013, the State Auditor, due to
potential financial challenges, added Covered California's
operations to its list of high-risk issues. The audit report
finds that, within the limits of the information it currently
has, Covered California appears to have engaged in a
deliberate, thoughtful financial planning effort to anticipate
the several contingencies it may face. The report noted that
Covered California's financial sustainability is wholly
dependent on enrollment in QHPs offered through Covered
California, numbers that could only be estimated at the time
of the report. The report includes a recommendation for
Covered California to conduct regular reviews of enrollment,
costs, and revenue and make prompt adjustments to its
financial sustainability plan as necessary. Covered
California agreed with this recommendation (and the report's
other recommendations) and indicated that it will be
conducting such reviews on at least a quarterly basis. Covered
California further stated that it recognizes that revenue is
highly dependent upon enrollment levels and has built the
capacity to adjust revenue (by altering the participation fee)
and expenses (by closely tracking fixed versus incremental
expenses) to assure self-sufficiency.
7)SUPPORT . The Howard Jarvis Taxpayers Association, in support,
writes it is the obligation of the Legislature to ensure that
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the public has access to information in order to make informed
policy decisions. HJTA argues that, since Covered California
manages billions of dollars of state and federal funds, there
is no reason why the management and operation of this program
should not be brought under closer scrutiny.
8)RELATED LEGISLATION .
a) AB 390 (Logue) contained identical provisions to this
bill. AB 390 died without a hearing in the Assembly Health
Committee.
b) AB 2601 (Conway) prohibits Covered California from
assessing or increasing a charge on health plans, on or
after January 1, 2016, unless the charge is enacted as a
statute. AB 2601 failed passage in this Committee on April
22, 2014.
c) AB 2635 (Olsen) requires DOF to submit a report to the
Legislature on the progress of state agencies that have
utilized performance-based budgeting practices since the
implementation of Executive Order B-13-11. AB 2635 is
pending in the Assembly Budget Committee.
d) SB 332 (Emmerson and DeSaulnier), Chapter 446, Statutes
of 2013, eliminates an exemption from the Public Records
Act (PRA) for contracts entered into by Covered California
and instead requires contracts between health plans or
insurers and Covered California to be open to inspection
one year after the effective date and payment rates to be
open three years after a contract or amendment is open to
inspection. Also deletes a provision which exempts
impressions, opinions, strategy, training, and other
Exchange business from the PRA.
9)PREVIOUS LEGISLATION .
a) SB 14 of 2011 would have required the annual Governor's
Budget and state agencies to utilize performance-based
budgeting. SB 14 was vetoed.
b) AB 1602 (John A. P�rez), Chapter 655, Statutes of 2010,
and SB 900 (Alquist), Chapter 659, Statutes of 2010,
establish the California Health Benefit Exchange (now
Covered California) and its powers and duties.
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c) SB 1020 would have provided a statutory framework for
the implementation of performance based budgeting and for a
systematic program performance review by the Legislature.
SB 1020 died without a hearing in the Assembly Budget
Committee.
d) SB 777 (Wolk and Huff) of 2009 would have required the
budget of every state agency submitted to the Department of
Finance and the Joint Legislative Budget Committee to
utilize a performance-based budgeting method. SB 777 died
without a hearing in the Senate Committee on Budget and
Fiscal Review.
e) AB 1382 (Niello) of 2009 would have required the
Governor's Budget to be developed pursuant to
performance-based budgeting methods for each state agency.
AB 1382 was held on the suspense file in the Assembly
Appropriations Committee.
f) SB 985 (McClintock) of 2004 requires every state agency,
department, and court to submit a budget to DOF utilizing
zero-based and performance-based budgeting methods. SB 985
died without a hearing in the Assembly Appropriations
Committee.
g) SB 500 (F. Hill), Chapter 500, Statutes of 1994,
requires DOF to establish a performance budget pilot
project for at least four state agencies.
10)POLICY COMMENTS .
a) This bill is based on the notion that instituting
performance-based budgeting could lead to lower premiums
for consumers purchasing health insurance through Covered
California. However, due to the costliness of performance
based budgeting and past experience that suggests savings
may not materialize, it could have the opposite effect.
Covered California is required to set the fee charged to
QHPs based on the actual expense of conducting its
activities. By requiring it to undertake a new set of
activities (which might involve reprogramming some of its
newly implemented systems), this bill could increase those
expenses and require Covered California to raise this fee,
resulting in higher premiums for consumers.
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b) Covered California is designed as a fee-supported state
agency. This bill requires Covered California to engage in
various performance-based processes, but it does not change
Covered California's fundamental funding structure.
Although it would be possible for the information Covered
California provides pursuant to this bill to lead to
legislative action, it lacks any direct mechanism to create
accountability for Covered California as a whole, which
will continue to be funded by its fee revenue with no
requirement for legislative appropriation.
c) Covered California's current budget is already, in a
sense, performance-based. Because its sole revenue source
after 2014 will be the per member, per month participation
fees it imposes on QHPs, its total funding will be
determined by how successfully it achieves its mission of
increasing the number of Californians with health
insurance.
REGISTERED SUPPORT / OPPOSITION :
Support
Howard Jarvis Taxpayers Association
Opposition
None on file.
Analysis Prepared by : Ben Russell / HEALTH / (916) 319-2097