BILL ANALYSIS
AB 8
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Date of Hearing: May 23, 2007
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mark Leno, Chair
AB 8 (Nunez) - As Amended: May 17, 2007
Policy Committee: Health Vote:12-5
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill proposes major health care reforms, including an
expansion of the Medi-Cal and the Healthy Families Program
(HFP), creation of a statewide purchasing pool (the California
Health Insurance Purchasing Pool or Cal-CHIPP), significant
changes in the individual and group insurance markets, and
imposition of a medical loss ratio. This bill imposes a
minimum spending requirement on specified employers equal to at
least 7.5% of Social Security payroll.
FISCAL EFFECT
The fiscal information presented in this analysis is based on
information provided by a micro simulation model of AB 8,
discussed further below.
1)Net annual GF savings of $380 million based on the following
costs and savings:
a) Annual Cal-CHIPP costs of $7.4 billion. Costs are offset
by revenues in the California Health Trust Fund (Health
Fund) consisting of employer fees ($5 billion), employee
fees ($2.8 billion), and federal matching payments ($640
million) for low-income individuals eligible for public
coverage.
b) Annual savings of $950 million ($370 million GF) to
Medi-Cal and HFP due to a net movement of individuals from
public programs.
c) Annual increase of $1.8 billion ($880 million GF) to
provide premium assistance to low-income workers eligible
for public programs under the bill.
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d) Annual reduced GF revenues of $110 million due to a
reduction of state personal income tax collections
associated with employee use of Section 125 plans.
2)Unknown annual administrative costs to the Managed Risk
Medical Insurance Board (MRMIB), the Employment Development
Department (EDD), local human services departments and other
public entities to provide administrative support pursuant to
the requirements of this bill.
SUMMARY CONTINUED :
Specifically, this bill:
1)Expands Medi-Cal and HFP to low-income children and adults up
to 300% of the federal poverty limit (FPL).
2)Establishes an employer election to either:
a) Make health care expenditures equivalent to, at a
minimum, an amount equal to 7.5% of total Social Security
wages (capped at $97,500 in 2007),of both full-time (30
hours or more weekly) and part-time employees (less than 30
hours weekly), or,
b) Pay an equivalent amount to the California Health Trust
Fund.
3)Exempts the following firms from the provisions of the bill:
a) Firms with less than two workers;
b) Firms with annual payrolls of less than $100,000;
c) Firms established within the last three years.
4)Establishes the Cal-CHIPP, to be administered by MRMIB.
Eligibility for Cal-CHIPP includes eligible employees whose
employers have elected to pay the fee rather than making the
specified level of health care expenditures.
5)Provides premium assistance to low-income working families (up
to 300% FPL) to increase affordability of health insurance if
available to them through their employment.
6)Enacts specified reforms in the individual and mid-size
private insurance markets, establishes a medical loss ratio
(MLR) for insurers, requires all employers to establish
Section 125 plans and requires specified activities related to
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health information technology, health and wellness, and cost
containment.
COMMENTS
1)Rationale . This bill enacts comprehensive health care reform,
including requiring insurance market reforms, expanding access
to public sponsored coverage, establishing the election for
employers regarding health expenditures, and addressing health
care cost containment strategies. Recent amendments since this
bill was heard in the Assembly Health Committee specify that
employers must make health care expenditures of at least 7.5%
of Social Security payroll or pay at least 7.5% of Social
Security payroll into the California Health Trust Fund. The
amendments also make some modifications of the premium
assistance program for low-income workers.
2)Impact of Reforms . This bill results in an increase of newly
insured Californians of 3.4 million, reducing the number of
the uninsured statewide by approximately 70%. About 80% of
those gaining access to health coverage under this bill are
adults. The reduction of the number of uninsured is
accomplished by a significant expansion of Medi-Cal and HFP,
an increase in state assistance for low-income workers
previously unable to afford coverage, and the minimum employer
spending level established by this bill. The following
movements of individuals result from provisions of this bill:
a) 800,000 individuals move from Medi-Cal and HFP to other
forms of health insurance.
b) 3.2 million individuals enroll in health coverage
through Cal-CHIPP.
c) 1.5 million individuals enroll in private group health
insurance.
d) 600,000 leave the individual health insurance market for
other forms of health insurance.
3)Economic Simulation Provides Impact and Fiscal Analysis . The
fiscal information presented in this analysis is based on
information provided by a micro simulation model created by
Jonathan Gruber, Ph.D., Professor of Economics at the
Massachusetts Institute of Technology (MIT). Dr. Gruber, in
conjunction with other health economics and policy experts,
has modeled potential impacts of AB 8. The modeling combines
analytics and research about how individuals respond to
choices created by government changes. This approach is
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similar to approaches used by the federal Treasury Department
and the Congressional Budget Office. The model requires the
input of policy parameters (such as eligibility changes in
HFP) and provides outputs about the impacts on public costs,
individual behavior, firm behavior, and the distribution of
insurance coverage and costs.
4)Related Legislation .
a) SB 48 (Perata), pending in the Senate Appropriations
Committee, proposes a major expansion of health coverage
and contains many similar provisions to AB 8, including
public program expansion, establishing an employer election
related to health spending, the creation of a statewide
purchasing pool, and insurance market reforms.
b) The governor's health care reform proposal, which is not
in bill form, contains similar provisions to AB 8 and SB 48
with regards to a minimum employer spending election,
public program expansions, and subsidization of low-income
workers. In addition, the governor's plan provides a $4
billion (all funds) Medi-Cal rate increase to specified
physicians and hospitals, imposes a fee on physicians and
hospitals, and establishes a 4% minimum spending
requirement for employers with 10 or more full time
employees.
c) SB 840 (Kuehl), pending in the Senate Appropriations
Committee, establishes a state-administered single-payer
system to provide coverage to all Californians, without
regard to income or employment status. SB 840 would be
funded by financing as specified in SB 1014 (Kuehl),
pending in the Senate, which imposes a payroll tax on
employers and employees for the purpose of funding a
single-payer health care system.
d) AB 1 (Laird), pending on the Suspense File of this
committee, and SB 32 (Steinberg), pending on the Suspense
File of the Senate Appropriations Committee, are similar to
one another and provide universal health access for all
children in California through expansions of Medi-Cal and
HFP.
e) AB 2 (Dymally), pending on the Suspense File of this
committee, reforms and restructures the Managed Risk
Medical Insurance Program (MRMIP), California's high risk
pool, administered by MRMIB. AB 8 addresses some of the
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issues addressed by AB 2 in relation to individuals with
specified high-cost health conditions.
Analysis Prepared by : Mary Ader / APPR. / (916) 319-2081