BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 8|
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THIRD READING
Bill No: AB 8
Author: Nunez (D), et al
Amended: 9/5/07 in Senate
Vote: 21
SENATE HEALTH COMMITTEE : 7-4, 7/11/07
AYES: Kuehl, Alquist, Cedillo, Negrete McLeod,
Ridley-Thomas, Steinberg, Yee
NOES: Aanestad, Cox, Maldonado, Wyland
SENATE APPROPRIATIONS COMMITTEE : 10-7, 8/30/07
AYES: Torlakson, Cedillo, Corbett, Florez, Kuehl, Oropeza,
Ridley-Thomas, Simitian, Steinberg, Yee
NOES: Cox, Aanestad, Ashburn, Battin, Dutton, Runner,
Wyland
ASSEMBLY FLOOR : 47-32, 6/7/07 - See last page for vote
SUBJECT : Health care coverage: employers and employees
SOURCE : Author
DIGEST : This bill is a comprehensive health reform
proposal intended to substantially expand affordable health
coverage throughout the state. The bill expands
eligibility for public health insurance programs for
children and their parents and seeks to improve access to
private insurance through major insurance market reforms.
The bill seeks to improve access to the individual
insurance market by standardizing medical underwriting and
CONTINUED
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enhancing coverage and eligibility for high risk
individuals. The bill contains a number of insurance
marketing reforms and imposes cost containment measures
such as required preventive services, evidence based care
and administrative expenditure caps. The bill creates a
statewide purchasing pool, the California Cooperative
Health Insurance Purchasing Program. The bill requires
employers to elect to spend at least 7.5 percent of Social
Security payroll on health care expenditures, or pay an
equivalent fee to a trust fund, and requires employees to
either accept the employer's health expenditures, or enroll
in coverage through the purchasing pool, as specified.
Senate Floor Amendments of 9/5/07 add provisions relating
to health care cost and quality transparency, and
authorization for joint ventures among health plans
administered by county boards, commissions and county
health authorities. The amendments also modify provisions
of the bill relating to employer requirements, insurance
market reforms, participation in the California Cooperative
Health Insurance Purchasing Program (Cal-CHIPP), public
program coverage through Cal-CHIPP, and Medi-Cal and
Healthy Families benchmark plans. The amendments also make
numerous technical and clarifying changes.
ANALYSIS : Historical Footnote - The idea of establishing
a health insurance system statewide was passed by the
Legislature of 1917 through SCA 26 (Kehoe). It would have
established a health insurance system applicable to
persons, and their dependents, whose incomes it deemed
insufficient to meet the hazards of sickness and
disability, support for such a system would have been
through contributions, voluntary or compulsory, from such
persons, from employers and by state appropriation. It
would have conferred upon any commission or count so
created by the Legislature. The purpose of the amendment
was to give the same status which workers' compensation had
constitutionally. It appeared on the 1918 ballot as
Proposition 20 and failed by 133,858 to 358,324. Governor
Earl Warren in 1945 proposed universal health insurance
through AB 800 (Wollenberg) , which died in the committee
after a motion to withdraw from the Assembly policy
committee failed. A competing bill was AB 449 (Vincent
Thomas) which also died in committee after a motion to
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withdraw failed.
Existing law:
1. Requires employers to pay unemployment insurance taxes
on the first $7,000 of wages per employee each year.
2. Requires employers to pay an annual employment
training tax of 0.1 percent on the first $7,000 of
each employee's wages, and to withhold state
disability insurance contributions and personal income
taxes from each employee's wages. Tax payments and
employee withholdings are remitted to the Employment
Development Department in varying frequencies
depending upon the size of the employer's payroll.
3. Existing federal law establishes the Medicaid program,
which provides comprehensive health benefits to
low-income children; their parents or caretaker
relatives; pregnant women; elderly, blind or disabled
persons; nursing home residents; and refugees who meet
specified eligibility criteria.
4. Establishes the State Children's Insurance Fund
(SCHIP) which provides a fixed allocation for each
state that can be used to match state expenditures for
state health insurance programs. Existing federal
assistance programs, including Medicaid and SCHIP, are
limited to U.S. citizens and selected legal
immigrants.
5. Provides specific guidance for determining eligibility
for Medicaid and SCHIP while preserving flexibility
for states to administer these programs according to
state needs.
6. The Deficit Reduction Act (DRA), permits states to
vary the benefit packages they offer to some groups of
Medicaid and SCHIP beneficiaries.
7. Allows states, subject to federal approval, to require
most children and parents to enroll in "benchmark"
benefit packages that are not required to provide all
the benefits covered by states' existing Medicaid
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programs. The DRA allows states flexibility to modify
premiums, copayments, and coverage in benchmark plans,
with exceptions for certain beneficiaries, as
specified.
8. Establishes the Medi-Cal program, California's
Medicaid program, which is administered by the
Department of Health Services.
9. Establishes the Healthy Families program, which is
administered by the Managed Risk Medical Insurance
Board (MRMIB) to provide low-cost insurance, including
health, dental, and vision coverage, to children who
do not have such coverage and do not qualify for no
cost, full scope Medi-Cal.
10. Requires MRMIB to expand Healthy Families eligibility
to uninsured parents and responsible adults under a
SCHIP waiver, provided that federal financial
participation is available and state funds have been
appropriated specifically for this purpose.
11. Provides for state-only Medi-Cal and Healthy Families
programs, which are funded solely by the state and
which serve immigrants who are not eligible for
federal assistance programs.
12. Sets income eligibility for children in Medi-Cal at
200 percent of the federal poverty level (FPL) for
infants to age one, 133 percent of the FPL for
children ages one through five, and at 100 percent of
the FPL for children ages six through nineteen.
13. Authorizes the County Health Initiative Matching Fund,
administered by MRMIB, to fund local health coverage
programs for children of families with incomes between
250 and 300 percent of FPL by using local funds as the
state match to draw down SCHIP dollars.
14. Provides for the regulation of private health care
service plans by the Department of Managed Health Care
(DMHC), and health insurance policies by the
California Department of Insurance.
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15. Requires all health care service plans licensed by the
DMHC to provide basic health care services.
16. Requires health care service plans and health insurers
to fairly and affirmatively offer, market, and sell
all of the plan's or insurer's health care plans that
are sold to small employers, defined as an employer
having between two and 50 eligible employees, with
certain exceptions.
17. Requires all health care service plan contracts, and
health insurance plans offered to small employers, to
be renewable by all eligible employees or dependents
except for specified reasons.
18. Restricts permissible risk categories for small
employer plans to age, geographic region and family
size, as specified.
19. Requires an eligible employee's premium to be
determined based on the rate applicable to the
employee's risk category, plus an adjustment factor of
not more than, and not less than, ten percent.
20. Prohibits health care service plans from expending
excessive amounts of the payments they receive for
providing services on administrative costs, as
defined.
21. Provides that the definition of administrative costs
shall take into consideration such factors as the
plan's stage of development, and if administrative
costs exceed 15 percent for an established plan, or 25
percent for a plan in a development phase, the plan
may be required to justify its administrative costs
and/or show that it is taking effective action to
reduce administrative costs.
22. Requires the Commissioner to withdraw approval of an
individual or mass-marketed policy of disability
insurance if the Commissioner finds that the benefits
provided under the policy are unreasonable in relation
to the premium charged.
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23. Defines a standard of "reasonableness" for the ratio
of medical benefits to the premium charged for
individual health insurance, and sets this ratio at 70
percent, as of July 1, 2007.
24. Requires all applications for individual health
coverage, issued by health care service plans and
insurers, that include health-related questions, to
base those questions on medical information that is
reasonable and necessary for medical underwriting
purposes.
25. Requires all full-service health care service plans
and health insurance policies in the individual market
to have written policies, procedures, or underwriting
guidelines establishing the criteria and process under
which the plan makes its decision to provide or to
deny coverage to individuals applying for coverage and
sets the rate for that coverage.
26. Requires health care service plans and health insurers
to file with the appropriate regulatory authority a
general description of those criteria, policies,
procedures, or guidelines.
27. Requires health care service plans and health insurers
that offer coverage to individuals to limit
preexisting condition exclusions (where coverage for a
certain medical condition is excluded) to no longer
than 12 months, and requires health care service plans
and health insurers to credit the time during which a
person had individual coverage from another plan or
insurer towards that preexisting condition exclusion,
provided that no more than 62 days elapse between the
time of termination of prior coverage and the time
when eligibility for new coverage begins.
28. Allows health care service plans and health insurers
that do not invoke preexisting condition exclusions to
impose a waiting period of up to 60 days.
29. Prohibits the application of preexisting condition
exclusions to certain individuals and conditions.
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30. Requires health care service plans and health insurers
in the individual market to issue coverage to
"federally eligible defined individuals," defined as a
person who has had 18 months of prior group coverage,
is not eligible for coverage under a group health
plan, Medicare, or Medi-Cal, was not terminated from
his or her most recent coverage for nonpayment of
premiums or fraud, and who has exhausted any COBRA or
Cal-COBRA benefits.
31. Allows individuals to retain group health coverage for
a period of time when experiencing a qualifying event,
as defined.
32. Requires health care service plans and health insurers
to allow employees or members whose group coverage was
terminated by the employer to convert to non-group or
conversion coverage.
33. Requires all individual benefit plans to be renewable
by all eligible individuals or dependents except for
nonpayment of premiums, as well as fraud or
intentional misrepresentation, among other reasons.
This bill is intended to both expand access to health care
and bring greater efficiency to the insurance market. The
bill establishes a minimum spending requirement for
employers and provides options to meet the requirement.
The bill substantially expands public health care programs
for children and adults. The bill gives insurance coverage
to an estimated 3.4 million currently uninsured individuals
or roughly two thirds of all uninsured Californians. The
bill extends coverage through the Healthy Families and
Medi-Cal programs, but overall participation in these
public programs are projected to decline by one million
people. Insurance market reforms such as guaranteed issue
and medical-loss ratios are expected to reduce the rate of
premium cost increases and assure coverage to high risk
individuals. The full program will expend $8.3 billion
financed through a combination of employer contributions,
employee contributions, state and federal funding. In
total, the new system is expected to save $235 million in
public expenditures and a total of $420 million while
providing comprehensive coverage to 2/3rds of the state's
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uninsured.
Employers are required to elect to spend 7.5 percent of
Social Security wages on health care expenditures for
full-time and part-time employees and dependents, or pay an
equivalent amount into a trust fund. All employers are
required to establish Section 125 plans to allow pre-tax
payments for health insurance contributions. As proposed,
the bill will apply to employers of any size (except for
self-employed) and for both part and full time employees.
The bill exempts recipients of In-Home Supportive Services
(IHSS) from the definition of "employer" and specifies that
county public authorities are the employer of record for
IHSS providers.
The bill establishes a statewide purchasing pool, the
California Cooperative Health Insurance Purchasing Program,
known as "Cal-CHIPP", administered by the MRMIB where
specified employees can purchase health coverage for
themselves and their dependents under 23 years of age.
MRMIB is required to offer a variety of benefit plan
designs in Cal-CHIPP, including low-cost plans for adults
with family incomes below 300 percent of the federal
poverty level who are ineligible for Medi-Cal or Healthy
Families. At least one of the benefit plan designs must be
a Cal-CHIPP Medi-Cal plan that provides the same amount,
duration, scope and level of coverage as Medi-Cal, and one
must be a Cal-CHIPP Healthy Families that provides either
the same amount, duration, scope, and level of coverage as
the Healthy Families program for individuals less than 19
years of age, or coverage that meets the requirements of
federal law and the Knox-Keene Act plus prescription drugs
for parents of Medi-Cal or Healthy Families-eligible
children. The Cal-CHIPP Medi-Cal and Healthy Families
plans are available only to enrollees meeting certain
eligibility requirements.
The bill requires health plans and health insurers with one
million or more enrollees in California to submit a good
faith bid to MRMIB to participate in Cal-CHIPP.
Public programs and support for low income individuals are
expanded under this bill. The Healthy Families program,
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now principally serving children, will be expanded to cover
families up to 300 percent of the federal poverty level.
Medi-Cal and Healthy Families eligibility standards will be
simplified, and both programs will expand coverage of
parents. The comprehensive coverage available in the
public programs would also be provided to Cal-CHIPP
participants through benchmark policies. The employee
contributions for lower income individuals would be limited
through a number of mechanisms to create an affordable
sliding scale rate. County governments would remain
responsible for indigent care, but at reduced levels due to
the significant overall reduction of the uninsured. Federal
responsibilities would remain unchanged. The total cost of
public health programs will be reduced by $1.5 billion,
from $10.9 billion to $9.4 billion.
The bill seeks a number of health insurance reforms
intended to improve access and reduce premium cost growth.
By 2011, all health plans will be required to guarantee
issue and use community rating in the individual market.
Further, the state would establish a high risk pool funded
by assessments on insurers for persons with unusual health
risks (contained in AB 2, Dymally), would simplify medical
underwriting and require insurers to offer comparable
health plans. The bill requires health plans to spend 85
percent of their premium income on health care services.
The bill also applies existing requirements relating to the
offering, marketing, and selling of health care service
plan contracts and insurer health benefit plans, including
guaranteed renewal, and use of risk adjustment factors, to
mid-size employers with 51 to 100 employees.
Cost containment is addressed through a number of new
policies. The bill establishes the California Health Care
Cost and Quality Transparency Commission to adopt a health
care cost and quality transparency plan that will result in
the transparent public reporting of safety, quality, and
cost efficiency information at all levels of the health
care system, thereby providing usable information that
allows health care purchasers, consumers, and data sources
to identify and compare health plans and providers on the
extent to which they provide safe, cost-effective, high
quality health care services.
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The bill establishes the California Health Benefits Service
to solicit and assist prepaid health plans and county
authorities in forming joint ventures to create integrated
networks of public health plans, and to develop networks to
provide health service in counties without prepaid health
plans.
Cal-CHIPP benefit packages under this legislation will
include coverage for primary and preventative care. Plans
and providers will be required to establish electronic
health records and to implement evidence-based preventive
care. The bill requires centralized assessment of new
technology. The Cal-CHIPP purchasing pool would be
authorized to negotiate and purchase group coverage rates
for its members.
Background
Uninsured Californians
According to the California Health Care Foundation (CHCF),
approximately 6.6 million people are uninsured in
California, and the number of uninsured continues to rise
as employer-sponsored health insurance declines. Although
families with incomes below the poverty level are most
likely to be uninsured, more than 30 percent of the
uninsured have family incomes of more than $50,000. Nearly
75 percent of uninsured children are in families where the
head of the household has a full-time job. CHCF also
reports that Latinos represent more than half of
California's uninsured population and are more likely to be
uninsured than any other ethnic group. Of the total number
of uninsured, 20 percent are Asian, 18 percent are African
American, and 13 percent are Caucasian.
The cost of health care
According to CHCF, health care spending in California
reached $169 billion in 2004, or 11 percent of the state's
economy. Current projections indicate that health care
spending could exceed 20 percent of the gross domestic
product by 2025. According to a recent survey by the
Kaiser Family Foundation, one in four Americans say their
family had a problem paying for health care sometime during
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the past year, and 28 percent say someone in their family
has delayed health care in the past year. Studies show
that, compared to persons with health insurance, people
without health insurance are more apt to postpone seeking
care because of cost, more apt to fail to fill
prescriptions due to cost, more apt not to receive
preventive care, and more apt to have trouble paying
medical bills. Because they are uninsured, reports show
that individuals are often billed for hospital care at the
hospital's full charges, which are typically three to four
times higher than the costs paid by insurance plans.
Employer-sponsored and individual health coverage
The CHCF reports that approximately 40 percent of uninsured
workers are employed by small businesses, and the number of
uninsured workers in mid-size firms continues to rise.
From 1999 to 2005, premiums for employer-provided health
insurance in California increased by 112 percent, while the
general cost of living increased by 29 percent. Average
premium increases in California in 2006 were 8.7 percent,
more than twice the California inflation rate of 4.2
percent, and higher than the national increase rate of 7.7
percent. At the same time, of employers offering any kind
of health insurance coverage, over one-third, and nearly
half of employers with less than 200 employees, experienced
premium increases of over 10 percent.
A recent study by the CHCF found that small group and
individual health coverage in California are becoming less
affordable due to rising premiums and increasing cost
sharing. According to the study, small group premiums paid
by employers in California increased 53 percent between
2003 and 2006, with their actuarial value remaining fairly
steady, paying for roughly 83 percent of medical expenses
across the three-year period. Individual health coverage
premiums rose 23 percent between 2003 and 2006, but the
actuarial value of the coverage declined significantly,
paying for 75 percent of medical costs in 2003, but only 55
percent in 2006.
Nearly 90 percent of working age adults who lacked employer
coverage and attempted to obtain it in the individual
market over the past three years were rejected either for
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health reasons or for past prescription drug use, or found
it too expensive to obtain coverage, according to a recent
study. Other studies indicate that individual insurers
reject 12 to 18 percent of the applications they receive.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
Specification Cal-CHIPPGeneral
FundTotal
(Total) (Increase)
Cost of Coverage: $8,075 $(1,510)$6,565
Cost of Premium Assistance: $1,850
$1,850
State Income Tax Revenue Loss: $410$410
TOTAL COSTS: $8,075 $750 $8,825
Less Revenues:
Individual Contributions: $2,580
$(65)$2,515
Federal Matching Funds: $940 $90$1,030
Employer Payroll Fees: $5,700 $5,700
(Transfer*): $(960) $960 $ -
TOTAL REVENUES: $8,260 $985 $9,245
NET STATE COST (savings) $(185) $(235)$(420)
*Transfer = the lesser of (1) the available pool surplus or
(2) payroll fee revenue paid with respect to workers or
dependents receiving Medi-Cal for Healthy Families
coverage.
SUPPORT : (Verified 8/31/07)
100% Campaign (a collaborative of The Children's
Partnership, Children's Defense Fund California, Children
NOW, PICO California) (April 10, 2007)
Insure the Uninsured Project (July 9, 2007)
California Optometric Association (April 25, 2007)
Children's Health Initiative of Greater Los Angeles (July
6, 2007)
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First 5 Marin Children and Families Commission (May 11,
2007)
Support With Recommendations
California Association of Public Hospitals and Health
Systems (April 18, 2007)
Support If Amended
Amalgamated Transit Union (April 23, 2007)
American Cancer Society (July 10, 2007)
American Federation of Television and Radio Artists (April
23, 2007)
Association of California Healthcare Districts (July 9,
2007)
California Budget Project (May 11, 2007)
California Chapter of the American College of Emergency
Physicians (July 16, 2007)
California Conference of Machinists (April 23, 2007)
California Federation of Teachers (July 5, 2007)
California Labor Federation (July 9, 2007)
California Medical Association (July 9, 2007)
California Teamsters Public Affairs Council (April 23,
2007)
Children's Specialty Care Coalition (August 2, 2007)
Congress of California Seniors (July 9, 2007)
Consumers Union (July 10, 2007)
Engineers and Scientists of California, IFPTE Local 20
(April 23, 2007)
Health Access California (July 3, 2007)
IFPTE Local 21 (April 23, 2007)
International Longshore and Warehouse Workers' Union (April
23, 2007)
JERICHO (July 10, 2007)
Kaiser Permanente Medical Care Program (July 9, 2007)
Service Employees International Union (July 5, 2007)
Strategic Committee of Public Employees, Laborers'
International Union of North America (April 23, 2007)
UNITE HERE! (April 23, 2007)
United Food and Commercial Workers Union, Western States
Council (April 23, 2007)
Western Center on Law & Poverty (July 10, 2007)
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OPPOSITION : (Verified 8/31/07)
Adamo Construction, Inc. (July 2, 2007)
Association of California Life and Health Insurance
Companies (August 13, 2007)
Automotive Service Councils of California (July 18, 2007)
California Association of Health Plans (July 11, 2007)
California Chamber of Commerce (July 10, 2007)
California Grocers Association (July 6, 2007)
California Manufacturers & Technology Association (April
12, 2007)
California Nurses Association (August 7, 2007)
California Restaurant Association (May 30, 2007)
California Retailers Association (April 12, 2007)
California Small Business Health Coalition (July 11, 2007)
California Taxpayers' Association (July 12, 2007)
CIGNA (July 10, 2007)
Claremont Golf Course, Inc.
Construction Industry Legislative Council (July 17, 2007)
CSAC Excess Insurance Authority (April 20, 2007)
Duran Human Capital Partners Inc.
Global Economic & Workforce Development Coalition
Greater Riverside Chambers of Commerce (June 19, 2007)
Hamburger Factory, Inc/Po Folks Restaurant Inc
Howard Jarvis Taxpayers Association (April 19, 2007)
League of Placer County Taxpayers (July 7, 2007)
National Federation of Independent Business (July 6, 2007)
Orange Chamber of Commerce & Visitor Bureau (June 1, 2007)
Roofing Contractors Association of California (July 5,
2007)
Russo's Books
Stockdale Optometry
Tuolumne County Chamber of Commerce
United Chambers of Commerce of the San Fernando Valley
(July 9, 2007)
Oppose Unless Amended
Aetna (July 5, 2007)
California Association of Health Underwriters (July 6,
2007)
Coalition to Advance Healthcare Reform (July 10, 2007)
Epilespy California (August 2, 2007)
PacifiCare (July 5, 2007)
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Protection & Advocacy Inc. (July 11, 2007)
The National Association of Insurance and Financial
Advisors-California (July 6, 2007)
Letters with No Position Seeking Amendments
AARP (July 9, 2007)
Alzheimer's Association (July 5, 2007)
Blue Shield of California (April 19, 2007)
California Association of Health Services at Home (June 30,
2007)
California School Employees Association (July 3, 2007)
Christian Science Committee on Publication for Southern
California (April 18, 2007)
Heartwood Health (August 3, 2007)
Strategic Alliance (July 6, 2007)
Santa Clara Valley Water District (June 26, 2007)
Having Our Say (June 28, 2007)
Issues and Concerns
California Association of Health Services at Home
Monterey County Board of Supervisors (July 17, 2007)
ARGUMENTS IN SUPPORT : The 100% Campaign and PICO
California state that approximately 763,000 California
children do not have health coverage, and that this bill
contains provisions that will significantly expand health
coverage for all children throughout the state. The Insure
the Uninsured Project states that this bill would increase
coverage throughout the state, including coverage for all
children, implement shared responsibility, implement health
insurance market reforms that will simplify medical
underwriting, expand the high-risk pool, require standard
uniform benefit designs, and ensure guaranteed issue.
ARGUMENTS IN OPPOSITION : The California Nurses
Association (CNA) and the National Nurses Organizing
Committee state that this bill does not achieve universal
coverage, and contains an employer mandate that will run
afoul of the Employee Retirement Income Security Act. The
organizations oppose the bill's provisions relating to pay
for performance, and state that the bill's cost containment
measures will not result in lower premiums. The
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organizations also question whether the scope of the
high-risk pool would be adequate to properly treat
individuals with serious illnesses.
ASSEMBLY FLOOR :
AYES: Arambula, Bass, Beall, Berg, Brownley, Caballero,
Charles Calderon, Carter, Coto, Davis, De La Torre, De
Leon, DeSaulnier, Dymally, Eng, Evans, Feuer, Fuentes,
Galgiani, Hancock, Hayashi, Hernandez, Huffman, Jones,
Karnette, Krekorian, Laird, Leno, Levine, Lieber, Lieu,
Ma, Mendoza, Mullin, Nava, Parra, Portantino, Price,
Richardson, Ruskin, Salas, Saldana, Solorio, Swanson,
Torrico, Wolk, Nunez
NOES: Adams, Aghazarian, Anderson, Benoit, Berryhill,
Blakeslee, Cook, DeVore, Duvall, Emmerson, Fuller,
Gaines, Garcia, Garrick, Horton, Houston, Huff, Jeffries,
Keene, La Malfa, Maze, Nakanishi, Niello, Plescia, Sharon
Runner, Silva, Smyth, Spitzer, Strickland, Tran,
Villines, Walters
NO VOTE RECORDED: Soto
CTW:nl 9/5/07 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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