BILL ANALYSIS �
AB 2601
Page 1
Date of Hearing: April 22, 2014
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
AB 2601 (Conway) - As Amended: April 21, 2014
SUBJECT : California Health Benefit Exchange: charge on
qualified health plans.
SUMMARY : Effective January 1, 2016, removes the Exchange's
authority to assess or increase a charge on health plans to
support its development, operations, and cash management unless
that charge is enacted as a statute.
EXISTING LAW :
1)Establishes the Exchange as an independent entity in state
government. Requires the Exchange 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). Under the ACA, allows
individuals with income under 400% of the federal poverty
level, provided certain conditions are met, to receive a
federal subsidy in the form of a refundable tax credit toward
the purchase of an Exchange plan.
3)Authorizes the Exchange to assess a charge on QHPs offered
through the Exchange to support the development, operations,
and prudent cash management of the Exchange. Requires the
Exchange 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. Requires the Exchange 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.
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4)Creates the California Health Trust Fund, which is
continuously appropriated to allow the Exchange 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 the Exchange to reduce the
charges assessed on QHPs during the following fiscal year, as
specified.
5)Requires the Exchange 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 the
Exchange 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,
Democrat, Republican, and Independent voters want their
elected representatives to work hard to ensure greater
accountability and transparency in the operation of state
government. The author contends that current state law
doesn't adequately provide legislators with opportunities each
year, in public hearings, to evaluate and make suggestions on
how to improve the operations of Covered California. Instead,
the author opines that state law assumes only the five Covered
California board members should be making decisions that
impact millions of Californians seeking affordable health care
coverage. The author states this bill, by requiring
legislative approval for any proposal by Covered California to
levy a charge on QHPs, will actively involve all the members
of the Legislature in evaluating and scrutinizing the
operations of Covered California.
2)BACKGROUND . Since 2010, Covered California has been funded
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
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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 is operations by
assessing fees on participating health plans. To support its
operations going forward, 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 the
Exchange.
3) COVERED CALIFORNIA BUDGET . In its 2013-14 budget
proposal released in June 2013, the Exchange lays out a
multi-year forecast for its operating budget through
2016-17. The Exchange 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, the Exchange 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. Actual
Exchange enrollment to date, recently reported at nearly
1.4 million, has far surpassed the enhanced enrollment
scenario.
4)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
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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 the exchange,
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.
5)OPPOSITION . SEIU California, in opposition, argues that this
bill could, under challenging and divided political dynamics,
create an opportunity to deny or reduce the amount Covered
California could claim from health plans and hamper its
ability to make the management decisions needed to ensure the
Exchange's success. Moreover, SEIU California writes that it
is unnecessary to require a further parallel review through
the Legislature and the Governor, given the fact that the
Legislature and Governor currently appoint all members of the
Covered California governing board. Finally, SEIU argues that
current board operations are transparent, with an opportunity
for stakeholders, including health plans, to weigh in on key
decisions.
6)RELATED LEGISLATION .
a) AB 1560 (Gorell) prohibits the Exchange from disclosing
an individual's personal information to third parties for
the purpose of eligibility or enrollment in health care
coverage unless the individual confirms specified
information and provides prior written consent. AB 1560 is
pending in this Committee and is set to be heard April 22,
2014.
b) AB 1829 (Conway) prohibits the Exchange from hiring or
contracting with a person who has been convicted of
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specified crimes if the person would be facilitating
enrollment or have access to enrollees' financial or
medical information. AB 1829 is pending in this Committee
and is set to be heard April 22, 2014.
c) AB 1830 (Conway) prohibits the Exchange and its
employees from using or disclosing personal information
except as necessary to carry out specified functions under
the ACA and creates a civil penalty of up to $25,000 per
individual or entity, per use or disclosure. AB 1830 is
pending in this Committee and is set to be heard April 22,
2014.
d) AB 2456 (Melendez) requires the Exchange to submit to
the Department of Finance and the Legislative Analyst's
Office a complete and detailed budget using
performance-based budgeting. AB 2456 is pending in this
Committee and is set to be heard April 29, 2014.
e) AB 2601 (Conway) prohibits the Exchange 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 is pending in this Committee and is set to be heard
April 22, 2014.
f) SB 20 (Ed Hernandez) authorizes the Exchange to modify
the open enrollment period for specified health plans and
insurance policies for the 2015 plan year and makes several
changes to reporting requirements for the Exchange and for
health plans and insurers. SB 20 is in the Assembly
Committee on Rules.
g) SB 332 (Emmerson and DeSaulnier), Chapter 446, Statutes
of 2013, eliminates an exemption from the Public Records
Act (PRA) for contracts entered into by the Exchange and
instead requires contracts between health plans or insurers
and the Exchange 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.
h) SB 974 (Anderson) prohibits the Exchange from disclosing
an individual's personal information to any other person or
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entity without explicit permission and requires the
Exchange to report a disclosure in violation of this
provision within five business days. SB 974 is pending in
the Senate Appropriations Committee.
i) SB 1052 (Torres) requires health plans offered in the
Exchange to post a current formulary for the plan on their
websites, requires the Exchange to provide a direct link to
the posted formularies, and requires the Exchange to
provide a web search tool that allows searching by drug or
by therapeutic condition. SB 1052 is pending in the Senate
Health Committee.
7)PREVIOUS LEGISLATION . AB 1602 (John A. P�rez), Chapter 655,
Statutes of 2010, and SB 900 (Alquist), Chapter 659, Statutes
of 2010, establish the Exchange and its powers and duties.
8)POLICY COMMENT . Beginning in January 2015, Covered
California's sole revenue source is expected to be
participation fees charged to QHPs. In light of the
unpredictability of health plan enrollment, Covered
California's financial sustainability depends, in part, on its
ability to adjust revenue by altering the fee charged to QHPs.
By reducing Covered California's ability to adjust revenue,
this bill could place its sustainability and stability at
risk.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
Service Employees International Union, California State Council
Health Access California
Analysis Prepared by : Ben Russell / HEALTH / (916) 319-2097