(September 21, 2010) Two California Chamber of Commerce-opposed bills to implement the federal health care law go far beyond what the law requires and potentially add hundreds of millions in General Fund costs, according to an analysis by former state Finance Director Michael Genest.
Moreover, the two “job killer” bills put the state’s purse strings in the hands of an unelected, unaccountable board that would operate outside the state’s normal budget process, the analysis concludes.
Now awaiting action by the Governor are AB 1602 (John A. Pérez; D-Los Angeles) and SB 900 (Alquist; D-Santa Clara).
AB 1602, together with SB 900, prematurely creates overly broad and expansive governance and guidelines without oversight for the state health benefit exchange, which could lead to unnecessary cost increases and limited choice for employers.
The federal Patient Protection and Affordable Care Act (PPACA) requires states to implement health insurance exchanges by 2014 and creates federal subsidies for qualified individuals that can be used to purchase health coverage in the exchange. The federal government is drafting regulations for all aspects of the act, including those involved with developing and implementing state exchanges and the specifics of the essential benefits that will be required in all plans.
The Genest analysis was featured in a column by Dan Walters of The Sacramento Bee who wrote on September 20, “the Health Benefit Exchange would be an independent entity exempt from many legislative oversight, open-records and civil service rules that a state agency would have to follow. Thus, it could collect and directly or indirectly spend tens – perhaps hundreds – of billions of dollars in semi-secrecy.”
Read the analysis.
General Fund Risk
Genest comments that the bills would result in an unknown General Fund risk —potentially exceeding $1 billion annually— because they allow the exchange to establish benefits in excess of the federal “essential health benefits package.” Specifically, AB 1602 “virtually guarantees that the board will require coverage that will exceed federal requirements, without regards to costs.” Federal law requires that the state pay costs associated with those extra benefits in excess of the “essential benefits package.” Since the federal government has yet to define “essential services,” Genest explains that this unknown makes it “impossible to set any upper bound on the costs that the state’s General Fund will bear.” At a minimum, it is likely that the benefits covered would be those currently mandated under state law. However, even this minimum is difficult to evaluate in the absence of more specific federal guidelines, Genest says.
Additional Medi-Cal Costs
The bills also create a substantial risk of increased Medi-Cal fraud and eligibility errors that could result in hundreds of millions of new annual General Fund costs, according to Genest’s analysis.
Under federal law, the state exchange that would be created by SB 900 and AB 1602 would be required to screen applicants for eligibility for Medi-Cal. Genest explains that “granting such a board the power under state law, not only to screen and refer clients to the Medi-Cal program, but to actually enroll them in the program sets up a major potential for eligibility error and applicant fraud.”
Study Conclusions
The analysis concludes it would be “premature to create any state exchange prior to the promulgation of various federal regulations that will have a profound impact on the policy and fiscal conditions under which the exchange is to operate.”
Genest explains that since the individual mandate, premium subsidies and small employer tax credits do not take effect under federal law until January 1, 2014, “the state has ample time to do a better job of designing a state exchange tailored to implement the federal law in a more cost-effective and responsible manner.”
Additional CalChamber Concerns
SB 900 and AB 1602 create a new state agency that would allow unrestrained governance authority — virtually unprecedented for a state agency. CalChamber is concerned that this expansive regulatory authority for selective contracting, plan design and determination of costs sharing provisions for health plans would result in limited choice, increased costs, and harm to California employers.
Action Needed
Contact Governor Schwarzenegger and urge him to veto AB 1602 and SB 900.
Staff Contact: Marti Fisher