Report on the Senate Health Committee

REPORT ON THE COMMITTEE HEARING

Assembly Speaker Fabian Nunez and Health and Human Services Secretary Kim Belshe on Thursday appealed to the 11-member Senate Health Committee to pass ABx1 1 (Nunez/Perata), which could extend health coverage to nearly three-quarters of the state’s uninsured population.

Heading into the hearing, none of the four Republicans on the committee were in support of the bill. Two Democrats – Sens. Sheila Kuehl and Leland Yee had indicated their intent to vote against the measure, potentially leaving ABx1 1 one vote short of passage. A previously scheduled vote for the measure has been postponed until Monday afternoon.

The bill dramatically expands coverage building on top of California ’s current mix of private-employer-provided and public program coverage.

Nunez and Belshe tried to focus committee members and witnesses for and against the measure to consider – not what they’d like to have ideally, but against the current system. “There are poor children walking around California without health insurance. While this isn’t the perfect solution, it’s the right solution because it’s going to provide them with the health insurance they need,’’ Nunez said. ABx1 1 would cover California ’s remaining 800,000 uninsured children, and around 3 million adults. Belshe reiterated: “The status quo is not an option.”

ABx1 1 is the culmination of more than 18 months intense attention from the state’s leaders, which began with the governor and legislative leaders each introducing their own proposals and gradually merging the measures. To read a thorough explanation of what ABx1 1 does, click here and here for previous Health Access updates, fact sheet, and analysis on the measure.

In summary, the measure would raise over $15 billion in new money to expand coverage through:
* Requiring employers to provide a minimum contribution toward their workers’ coverage;
* Getting individual contributions that are related to a family’s income;
* Raising the tobacco tax to $1.75 per pack;
* Imposing a 4 percent hospital fee;
* Drawing down new federal matching funds;
* Reinvesting state and county savings

AB x1 1 would expand existing Medi-Cal and Healthy Families programs to cover an additional 1.5 million low- to moderate-income Californians. All in all, an additional 3.6 million Californians, who would otherwise be uninsured, would have medical coverage – 81% of whom would be in families earning less than 400% of poverty ($70,400 for a family of three)

FISCAL ANALYSIS

In light of the state’s $14.5 billion deficit over the next two years, Senator Perata had insisted on obtaining an analysis from the Legislative Analysts’ Office. The nonpartisan budget analyst’s assessment can be found there.

Among many points, what received the most attention was the analysts’ thoughts on federal funding, and how much the state could drive down premium prices.

Federal funding: Analyst Liz Hill said she believed that while most of the federal funds were attainable through existing rules, she stated that about a quarter — $1.1 billion of $4.4 billion in federal funding–was subject to risk. While most of the federal funding is dictated by formulas that require the government to match the state’s investment into Medi-Cal and Healthy Families, some of it also depended California ’s ability to obtain a waiver from the federal government that would allow for the state to cover low-income adults without children living at home. Proponents pointed out that a number of states (20) already had waivers from the federal government to cover childless adults, and expected the same treatment.

Negotiated premium costs: Much of the fiscal discussion focused on what price the state could actually negotiate for premiums. According to the LAO Analysis, if the state’s new purchasing pool was able to negotiate a starting cost of $250 per month for premiums, the health reform effort would be fairly balanced and be financed for at least five years, although a deficit of $300 million would start to arise in the fifth year. If the state, however, missed that target and negotiated a $300 per month cost, then the reform effort would cost $1.5 billion more than it took in annually.

Rebuttal: Secretary Belshe said she believed the $250 per month figure was attainable as it used Medi-Cal’s current negotiated rate — $103/month – increased it to $187/month to account for higher provider reimbursement rates, and then added another 30%. Healthy Families, a program that MRMIB has already successful negotiated contracts for, is able to buy coverage for only 10% above Medi-Cal. The state would also have more bargaining power than most small and medium-size employers, which was used as the LAO’s basis for comparison. Other proponents also chimed in that the state’s new purchasing pool would be covering a younger, healthier (read: less expensive) population overall and would be twice the size of CalPERS’ negotiating pool, which must leverage on behalf of older, sicker workers and retirees, making costs higher.

Opponents and skeptics wanted assurances from health plans that a $250/month cost could be achieved. Blue Cross volunteered a figure of over $400/month in the CalPERS program, but Belshe again refuted that the pool population and benefit should be likened to Medi-Cal and Healthy Families, not CalPERS, which is a older population.

ELEMENTS OF THE BILL

The all-day hearing was too long to provide a comprehensive report of all the testimony, both in support and opposition. Following is a broad outline of the hearing and a summary of a few points of discussion made in each section.

INDIVIDUAL MANDATE AND MINIMUM CREDITABLE COVERAGE:
Many groups in support said they were accepting an individual mandate only with guarantees that coverage would be affordable (with limits on how much of a low- and moderate-income family’s income is spent on premium, and restrictions on insurers) and available (through guaranteed issue). Others, however, wanted more specificity on what kind of benefit package would be provided.

Some pointed to the the tax credit that allows middle-income Californians to buy coverage at around 5.5 percent of their income, is tied to a package that provides prescription drugs, doctors visits, preventive care and chronic disease management outside of any deductible.

Sen. Darrell Steinberg, D-Sacramento, asked how easy it would be for individuals – or classes of individuals – to seek an exemption from the mandate to have coverage if it proved too financially burdensome. Additionally, he and other lawmakers questioned how aggressive the state would be in enforcing the measure.

Opponents of the measure raised the spectre of wage garnishment and liens on homes. Proponents argued that ABx1 1 says nothing about this kind of heavy-handed enforcement. Additionally, such behavior by a state agency (ie. Franchise Tax Board) would not be permitted until the Legislature approved legislation on that issue and the Legislature approved funding for enforcement. What ABx1 1 does say is if a person does not have coverage after 62 days, they will be told of different options where they could find coverage (public programs, the state purchasing pool). If the individual does not act, they will be automatically enrolled in the least expensive policy. The state will then recover the costs of that coverage through the Franchise Tax Board, but no additional penalties are exacted.

PURCHASING POOL, COVERAGE EXPANSIONS AND PROPOSED TAX CREDITS: Many groups spoke in favor of the public program expansions, which would add nearly 2 million lives, representing the largest increase since the inception of Medicaid 40 years ago. Additionally, a new public pool would negotiate for coverage for an additional 2.5 million Californians, making it an even larger player on the market than CalPERS. A number, however, questioned how well the newly created state-run purchasing pool would work and whether employees would face fee increases if the Legislature is unable to obtain a 2/3rds vote to increase employee fees should funding shortfalls arise. Others were also concerned that out-of-pocket costs were not capped, putting consumers at risk of higher costs.

OUTSIDE THE PURCHASING POOL: Proponents cited the benefits of the plan to those who do not have coverage, including stabilizing the employer-based coverage that over half of Californians currently enjoy, and having the ability to weed out “junk insurance” by defining a minimum benefit. Opponents were concerned about populations that would not be able to join the statewide purchasing pool; Others expressed concern that employers would drop their health spending to the minimum. Proponents argued that like a minimum wage, the setting of a minimum standard doesn’t mean that all employers drop wages to the minimum, but rather it sets a floor from which workers can bargain up from.

INSURANCE MARKET REFORMS: A broad cross-section of proponents embraced insurance market reforms, which include a requirement that health plans sell to all Californians, regardless of pre-existing conditions, and limited health insurers’ ability to charge rates based on health status. Some, however, cited concerns that a provision requiring health plans to dedicated 85 cents for every premium dollar earned on health care was not strong enough.

FINANCING: Aside from fiscal issues previously discussed, the employer mandate portion of the financing was most thoroughly discussed. A number of groups feared that the employer mandate, forcing businesses to pay for worker healthcare, would cause businesses to purposely misclassify their employees as “independent contractors’’ in order to avoid paying benefits, such as Unemployment Insurance and, now, health benefits. Proponents argued that state law already addresses the underground economy with a law that would impose a $20,000 penalty for businesses that willfully misclassify employees, and that could include jail time. Some groups, however, said that the state did not police that provision very aggressively. Businesses, as expected, argued that the employer mandate was too onerous.

MASSACHUSETTS AND BEYOND: The last parts of the hearing, though focused on different issues, often revisited portions that had previously been discussed. Lawmakers heard disparate views on the differences between California’s reform and Massachusetts. To read more about that, see Health Access’ analyses on Massachusetts and California. Lawmakers also heard about cost containment provisions, which were the crux issue for many provider groups, requiring disclosure of quality and cost, essentially shaming providers that did not do a good job to begin providing better service.

AND ON TO MONDAY:
Before closing, Speaker Fabian Nunez made one final appeal to senators.

“In no way, shape or form is AB1x a perfect bill. I never pretended that it was. But, at the end of the day, we have to be practical,’’ he said. “…There are things in here that I might not be too happy about, but it’s a compromise and it’s a darn good compromise…This legislation has a shot of getting the support of voters and will get the support of the governor.’’

The Senate Health Committee will meet Monday afternoon to vote.

Thanks to Hanh Kim Quach for reporting.

Health Access California promotes quality, affordable health care for all Californians.

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