Existing federal law, the federal Patient Protection and Affordable Care Act (PPACA), enacts various health care coverage market reforms that took effect January 1, 2014. Among other things, PPACA requires each state, by January 1, 2014, to establish an American Health Benefit Exchange that facilitates the purchase of qualified health plans by qualified individuals and qualified small employers. Existing state law establishes the California Health Benefit Exchange, also known as Covered California, within state government for the purpose of facilitating the enrollment of qualified individuals and qualified small employers in qualified health plans.

This bill would establish the Advisory Panel on Health Care Delivery Systems and Universal Coverage in the California Health and Human Services Agency and would require the advisory panel to develop a plan to achieve universal coverage and a unified publicly financed health care system. The bill would require the Secretary of California Health and Human Services to appoint members to the advisory panel, as provided, and would require the advisory panel to convene public meetings at least quarterly. quarterly, beginning on or before March 1, 2019.

The bill would require the plan developed by the advisory panel to include a timeline of the benchmarks and steps necessary to implement a universal and unified publicly financed health care system. The bill would require the plan to include, among other things, a multiyear financial model, a consideration of requirements necessary to seek federal waivers or federal statutory changes, and a consideration of the requirements for state constitutional amendments. The bill would require the advisory panel to submit a report detailing its progress in developing the plan to the health committees of the Senate and the Assembly on or before January 1, 2020, and to submit a followup progress report every 6 months thereafter. The bill would also require the plan to be posted on the agencys Internet Web site. also set deadlines for the advisory panel to submit proposals to implement certain portions of the plan to the Legislature for approval or review. The bills provisions would be repealed on January 1, 2024.

Existing federal law, the federal Patient Protection and Affordable Care Act (PPACA), enacts various health care coverage market reforms that took effect January 1, 2014. Among other things, PPACA requires each state, by January 1, 2014, to establish an American Health Benefit Exchange that facilitates the purchase of qualified health plans by qualified individuals and qualified small employers. Existing state law establishes the California Health Benefit Exchange (the Exchange), Exchange, also known as Covered California, within state government for the purpose of facilitating the enrollment of qualified individuals and qualified small employers in qualified health plans, and specifies the powers and duties of the board governing the Exchange. plans.

Existing federal law, the federal Patient Protection and Affordable Care Act (PPACA), enacts various health care coverage market reforms that took effect January 1, 2014. Among other things, PPACA requires each state, by January 1, 2014, to establish an American Health Benefit Exchange that facilitates the purchase of qualified health plans by qualified individuals and qualified small employers. Existing state law establishes the California Health Benefit Exchange (the Exchange), also known as Covered California, within state government for the purpose of facilitating the enrollment of qualified individuals and qualified small employers in qualified health plans, and specifies the powers and duties of the board governing the Exchange.

This bill would express the intent of the Legislature to enact legislation to improve affordability of health coverage offered through Covered California to those who are now eligible for financial assistance in the form of advance premium tax credits.

ASSEMBLY THIRD READING

ATR Bill Id:AB 2517

Author:(Wood and Arambula)

As Amended Ver:

Majority vote

SUMMARY: Establishes the Advisory Panel on Health Care Delivery Systems and Universal Coverage (Advisory Panel), within the California Health and Human Services Agency (CHHSA), as an independent body, to develop a plan to achieve universal coverage and a unified publicly financed health care system. Specifically, this bill:

1. Requires the Advisory Panel to develop a plan that includes a timeline of the benchmarks and steps necessary to implement a universal coverage and unified publicly financed health care system. Requires the plan to, at a minimum, include all of the following:
   1. A stakeholder engagement and analytical process by which key design features are developed, including covered benefits, eligibility, service delivery, provider payments, and quality improvement;
   2. The establishment of data collection and reporting systems to support management, evaluation, transparency, and public accountability;
   3. A multiyear financial model that includes state budgetary implications, an assessment of options for raising revenues and managing costs, and identification of the size and potential revenue sources for a prudent reserve;
   4. Consideration of the requirements necessary for the state to seek federal waivers and federal statutory changes by which funds currently managed by the federal government, but used on behalf of Californians, may be consolidated with other funding sources, including preparation of federal waivers necessary to maximize federal financial participation in a universal coverage and unified publicly financed health care system;
   5. Consideration of the requirements for state constitutional amendments, including an analysis of the impact of the People's Initiative to Limit Property Taxation, an initiative measure approved by the voters as Proposition 13 at the June 6, 1978, statewide primary election, and the Classroom Instructional Improvement and Accountability Act, an initiative measure approved by the voters as Proposition 98 at the November 8, 1988, statewide general election, on creating a unified publicly financed health care system;
   6. An initial scope and recommendations to build an information technology system and a financial management system capable of administering a universal coverage and unified publicly financed health care system; and,
   7. A feasible financing system and an analysis of the need for voter approval of any financing mechanism.
2. Establishes the following Legislative findings:
   1. Health care is a human right and it is in the public interest that all Californians have guaranteed access to health care through a system of unified public financing that improves health outcomes, manages and lowers health care costs for the state and its residents, and reduces health disparities;
   2. With the implementation of the federal Patient Protection and Affordable Care Act (ACA) (Public Law 111-148) and other state efforts, California has reduced the uninsured share of its population by more than one-half to less than 7%;
   3. As of 2016, nearly three million Californians remained uninsured, 21% of Californians remained underinsured, and 11% of California adults went without health care because of cost;
   4. The United States spends twice as much per capita as any other industrialized nation, and simultaneously has the lowest ranking and performing health care system based on many metrics, including access to care, equity, efficiency, and healthy lives;
   5. California is experiencing a primary care physician shortage due to geographic maldistribution of physicians across California; and,
   6. According to the federal Centers for Medicare and Medicaid Services (CMS), national health spending is projected to grow 5.5% annually, on average, through 2026, representing 19.7% of the economy in 2026.
3. Establishes the intent of the Legislature:
   1. To establish universal coverage and a unified publicly financed health care system;
   2. That the health care system ensure that all Californians have timely access to necessary health care, including access that addresses language and geographic barriers;
   3. To achieve the goal of a universal and unified publicly financed health care system, diverse stakeholders must be brought together to develop a sense of shared purpose and mutual responsibility for a health care system that works well for all Californians;
   4. That, in order to achieve the goal of a universal and unified publicly financed health care system, data must be collected and analyzed to better understand the status quo, to explore how a new system may be monitored and managed, and to examine options for containing or reducing health care costs and improving efficiency in health care delivery;
   5. That, in order to achieve the goal of a universal and unified publicly financed health care system, state budgetary implications must be modeled and financial risks must be assessed and mitigated; and,
   6. That, in order to achieve the goal of a universal and unified publicly financed health care system, all legal obstacles, including federal permissions and waivers, federal statutory changes, state constitutional issues, and necessary voter approvals, would need to be addressed before any implementation may occur.
4. Requires the Advisory Panel to convene meetings at least quarterly at locations that are easily accessible to the public in accordance with the Bagley-Keene Open Meeting Act.
5. Requires the Secretary of CHHSA to appoint members to the Advisory Panel. In making appointments, requires the Secretary to consider both of the following:
   1. The expertise of each member of the Advisory Panel so that the Advisory Panel's composition reflects a diversity of expertise; and,
   2. The cultural, ethnic, and geographical diversity of the state so that the Advisory Panel's composition reflects the communities of California.
6. Permits the Advisory Panel to establish advisory committees that include members of the public with knowledge and experience in health care. Specifies that a member of an advisory committee need not be a member of the advisory panel.
7. Requires the Advisory Panel and each advisory committee to keep official records of all of their proceedings.
8. Requires the Advisory Panel to submit the plan developed as required by this bill to the health policy committees of the Senate and the Assembly on or before January 1, 2020, and to submit a follow-up progress report to those committees every six months thereafter.
9. Requires the reports to be submitted in accordance with existing law regarding reports to the Legislature, as specified, and to also be posted on CHHSA's Internet website.
10. Specifies that this bill must not be construed to authorize the Advisory Panel to implement any provision of the plan developed until all necessary laws are enacted.
11. Sunsets the provisions of this bill on January 1, 2024.

FISCAL EFFECT: According to the Assembly Appropriations Committee, staff and contract costs to CHHSA potentially in excess of $1 million General Fund for two years, depending on the scope and ambition of the planning effort and uncertain, likely minor costs to the Department of Finance, Department of Health Care Services, the Legislative Analyst’s Office, and other agencies to consult with the panel (various funds).

COMMENTS: According to the authors, health care is a right. As health care providers, the authors strongly believe that every Californian has a right to access necessary health care services. However, substantial work needs to be done to ensure that all Californians have access to high quality, affordable, health care. To study how to achieve this goal, the authors, as Co-Chairs of the Assembly Select Committee on Health Care Delivery Systems and Universal Coverage (Select Committee), convened a series of hearings beginning last fall, to hear from a variety of experts about where we are now, where we need to go, and how to get there. Any extensive future health care policy change cannot be made in a vacuum. As we dug deep into this policy issue, we recognize that in order to be successful defining a pathway to universal coverage, we must address some obvious and potential challenges related to state and federal law. Medicare is funded through a protected Medicare Trust Fund and federal law establishes the rules for how that money can be spent. Accessing those funds would require Congressional action. Additionally, in California, Prop 98 amended the constitution to require 40% of state general fund revenues to go to K-14 education. The Gann Limits, from Propositions 13 and 4, amended the constitution to impose spending limits on the state to ensure that revenue in excess of those limits would be returned to the taxpayers. Currently, almost 6 million Californians get coverage through self-insured or self-funded plans and are subject to the Employee Retirement Income Security Act (ERISA), administered by the United States (U.S.) Department of Labor. They are exempt from state-specific health insurance regulations.

In addition to federal and state statutory challenges, as was discussed in our Select Committee hearings, any meaningful change to the current system must have a mechanism to predict and manage the extraordinary rise in health care costs and address existing shortages in physicians and allied health professionals. This significant task will require on-going attention with a wide variety of stakeholders. The Advisory Panel established by this bill will be tasked with creating concrete proposals to overcome these real hurdles and ultimately create the path to universal health care coverage and a unified publicly financed health care system.

Under the ACA, the number of Californians without health insurance fell dramatically from nearly 7 million in 2013 to about 3 million today. The majority of the remaining uninsured population, about 1.8 million, is not eligible for public coverage programs due to immigration status. Various factors including affordability and awareness contribute to others remaining uninsured. Health care spending across California from all sources totals about $400 billion. Of this total, more than half comes from public sources of which the largest are Medi-Cal (more than $100 billion) and Medicare ($75 billion). Employer-sponsored coverage remains the dominant source of coverage in the state and accounts for the largest share of private health care spending (between $100 billion and $150 billion). In addition to the portion of the $100 billion to $150 billion in employer-sponsored insurance premiums that is paid by employees, consumers pay $10 billion for premiums for individual insurance and $25 billion to $35 billion in out-of-pocket spending. The health insurance market in California is relatively competitive and includes multiple national, state-based and local health plans. Health plans are responsible for health care provider contracting and payment and, to varying extents, plan contracts establish rules and incentives for providers to meet quality standards and achieve positive health outcomes. California has a long history of managed care arrangements within both private and public health plans. The settings in which Californians receive health care vary depending on their source of coverage: employer-sponsored, Covered California or remaining individual market, Medi-Cal, or Medicare.

1. University of California Report (UC Report). In March 2017, California Assembly Speaker Anthony Rendon appointed a Select Committee to identify the best and quickest path to universal coverage for California and to explore strategies for improving the health care system. The California State Assembly contracted with the University of California San Francisco in order to provide a report (UC report) to the Select Committee summarizing the Select Committee's hearings, including any findings and potential recommendations.

The UC report states that California has made great progress in reducing the number of uninsured but has not yet achieved universal coverage. In high-performing health care systems around the globe, universal coverage is essential for ensuring access to care, improving outcomes and controlling costs. A strong primary care system, a comprehensive basic benefit package, provider payments that reward better health outcomes, a strong social safety net and administrative simplicity are other important ingredients for high performance. The UC report contends that California could take short-term steps and establish a longer term plan, or "roadmap" for system transformation.

• 1. Short-term steps toward universal coverage. The UC report recommended several short-term steps to improve our current health care system that could further the goal of achieving universal coverage. Working within California’s current fragmented financing system, various approaches are available. California could:
     1. Improve coverage by using state funds to expand Medi-Cal coverage to income-eligible undocumented adults and extend Covered California premium tax credit assistance to undocumented individuals.
     2. Improve affordability by addressing affordability and participation for those already eligible for Medi-Cal and Covered California, and limiting out-of-network prices for hospitals benchmarked to a specified ratio of the price paid by Medicare for similar services.
     3. Improve access by increasing the amount of Medi-Cal payment rates and exploring a Medicaid public option.
     4. Simplify the consumer choice process by requiring each fully insured product in the large group market to be either a bronze, silver, gold or platinum plan as defined by Covered California.
     5. Increase transparency by requiring hospitals and larger medical groups to post information on the average prices received from people covered by employer sponsored insurance (ESI), Covered California, Medicare and Medi-Cal, and establishing an all-payer claims database.

Short-term approaches can be evaluated against several criteria: their potential benefits for consumers and the delivery system, state fiscal cost, potential to preserve gains under the ACA, and the extent to which they either lay a foundation for, or undermine, potential future heath reforms.

• 1. Long-term steps toward universal coverage and a unified publicly financed system. The UC report also recommended that California embrace a goal of guaranteed access to health care for all through unified public financing that improves health outcomes and keeps costs for the state and its residents in check. To achieve that goal, several preconditions would need to be satisfied:
     1. Diverse stakeholders must develop a sense of shared purpose and mutual responsibility to advance a health system that works well for all Californians;
     2. Data must be collected and analyzed to better understand the status quo and to explore how a new system could be monitored and managed;
     3. State budgetary implications must be modeled; financial risks must be assessed and mitigated;
     4. A detailed proposal would need to be developed and the Legislature would need to enact enabling legislation;
     5. State constitutional amendments would need to be approved by the voters; and,
     6. Federal statutory changes and waivers would need to be obtained.

The UC report further recommended that the California Legislature could demonstrate leadership by establishing a planning commission responsible for advancing progress toward universal coverage and unified health care financing. The Legislature would establish the governance structure of the planning commission, provide its charge and appropriate funding. The commission would:

• • 1. Convene a stakeholder engagement and analytic process by which key design features are refined and vetted;
    2. Establish data collection and reporting efforts to support management, evaluation, transparency, and public accountability;
    3. Model state budgetary implications and assess options for raising and managing funds;
    4. Make recommendations to the Legislature on the design of a system of unified public financing and work with the Legislature to draft necessary state enabling legislation and any necessary ballot propositions;
    5. Prepare the state to seek federal waivers and statutory changes by which funds managed by the federal government, but used on behalf of Californians, can be consolidated with other funds;
    6. Explore operational requirements related to information technology and financial management; and,
    7. Establish partnerships to coordinate activities with nongovernment entities.

This bill seeks to fulfill and implement the recommendations by the UC report for a long-term planning process to achieve these large goals.

1. Rising health care costs. According to CMS National Health Expenditures Highlights, in 2016, U.S. health care spending increased 4.3% or 1.5 percentage points faster than the growth in the gross domestic product (GDP) and reached $3.3 trillion, or $10,348 per person. In California, CHCF states that healthcare per capita spending is $7,549 and reached $292 billion. CHCF points out that from 2009 to 2014, spending growth averaged 4.9% per year in total and 4.0% per capita. This was faster than average US spending growth (3.9% total health spending, 3.1% per capita) during the same period. It also exceeded California’s average annual five-year growth in GDP (4.2%), consumer price index (1.9%), and median wages (1.0%). In California, as in the rest of the U.S., average prices for most health care services are much higher than in other developed nations. Further, prices vary substantially by type of coverage. Nationally, the prices paid consumer price index for hospital services for people covered by ESI are approximately 75% higher than the prices paid by Medicare, and Medicaid pays hospitals substantially less than Medicare. The same is true in California, where Medi-Cal’s hospital payment rates are similar to the national average. Relatively high prices reflect, in part, relatively high costs of producing care, and part of those high costs reflect the high costs borne by providers in collecting money from private insurers, Medicare, and Medi-Cal. Billing and insurance related costs in California have been estimated at 13.9% of the total costs of physician practices and at 6.6%-10.8% of the cost of hospital services. In a simplified system in which hospitals and physicians could employ fewer people whose job it was to collect money from third party payers, prices could be lower without any reduction in the bottom line for hospitals, or in the net income of physicians. In addition, the cost of health insurance includes the administrative costs and profits of health insurers, estimated to average approximately 7.9% of premium costs.
2. Federal Waivers and Barriers. A unified publicly financed approach to health care coverage would eliminate the differences between Medicare, Medi-Cal, and employer sponsored insurance in consumer cost-sharing and benefits. A unified publicly financed approach would reduce the considerable administrative burden that today's financing arrangements impose on purchasers, consumers and providers. Taken together, these changes would create a more equitable health care system. It would likely increase efficiency and produce better health outcomes, although these results would depend on how well the system was managed and on mechanisms of accountability. However, to accomplish such a sweeping transition would require substantial and unprecedented changes in federal and state law as well as decisions regarding many design parameters. As the UC report notes, the public and private funding streams that support health care and coverage today are accompanied by many requirements not readily eliminated nor easily reconciled. Pooling funds to pay for health care for all residents depends on navigating those requirements and either renegotiating their terms or working around them. The federal government is the largest source of funds for health care in California today. Federal funds flow via:
   1. Medicare, the federal program that serves most people aged 65 and over and certain people with disabilities;
   2. Medi-Cal – California's Medicaid program-- the jointly funded state-federal program available to people who meet income eligibility criteria;
   3. The provision of subsidies under the Affordable Care Act for income-eligible individuals and families who obtain insurance through Covered California;
   4. The exclusion from federal taxable income of employer and employee premiums for employer-sponsored health insurance; and,
   5. A variety of additional federally funded coverage programs such as Tricare (for the dependents of active duty military and military retirees).

To redirect funds from these sources to a unified state-based pool would require federal action. For example:

• 1. Because existing federal law does not grant the federal Secretary of Health and

Human Services authority to redirect Medicare's funding streams or trust fund dollars to states, bringing Medicare funds into a unified state-based public financing pool would require federal statutory changes;

• 1. Federal Medicaid requirements tie federal matching funds to the services provided to Medicaid-enrolled individuals. To claim federal Medicaid funds for use through a unified financing pool, California would either need a change in federal law, or would have to continue to track eligibility and expenditures related to individuals who meet complex eligibility criteria. Some steps required for continued compliance with federal Medicaid rules might well be in conflict with the simplicity and equity principles of unified public health care finance in California;
  2. Subsidies through Covered California might be redirected to a unified financing pool under existing Section 1332 waiver authority, if ACA statutory guardrails including federal deficit neutrality are met;
  3. If California moved away from employer-based financing of health insurance, and wages were increased in California to compensate for the elimination of employer contributions to health care, federal income tax revenues would increase. To capture the resources associated with the current federal tax subsidy for ESI, Congress would need to pass legislation providing for a direct payment to California in the amount of the estimated increase in federal tax revenues; and,
  4. To redirect federal funds that currently support special populations such as Tricare enrollees and veterans would involve revisiting long-standing expectations regarding benefits.

1. State Statutory and Constitutional Barriers. Provisions of the State Constitution require California to enact a balanced budget each year and strictly limit the state’s ability to engage in deficit spending. Many forces and factors could introduce volatility into revenue streams and expenses associated with state managed universal coverage. It will be important to establish and finance reserves upon which the health fund can draw in periods when costs are unexpectedly high or revenues fall short of projections. Provisions of the State Constitution also constrain the Legislature's ability to substantially raise taxes and dedicate the proceeds exclusively to universal health coverage. Proposition 98 of 1988, as amended by Prop. 111 of 1990, guarantees a minimum funding level for K- 12 schools and community colleges. Prop. 4 of 1979 (the "Gann limit"), as amended by both Prop. 98 and Prop. 111, sets limits on certain state appropriations. The scope and cost of a program to finance all health care throughout the state would trigger both provisions, rendering it prudent to seek explicit ballot initiative approval to dedicate new funds to health care.

Health Access California (Health Access) states in support that Health Access has long supported universal health care reforms, including those envisioning a single-payer, Medicare-for-all-type structure, or other form of unified public financing. Such a system has the potential to be not just universal, but also more efficient and cost-effective, simpler to understand and navigate, more comprehensive, more responsive and accountable to patients and the public, and more progressive in its financing. Health Access states that over the organization's three decades, we have run into and recognized the barriers to such health reforms, and a process that develops a policy proposal and plan to address those barriers would be a welcome step forward. Health Access states that a main concern with the bill is that it would not want this process to be a distraction from the work of moving forward with policies that benefit health consumers now. California must continue to make progress on what can be done in the short term to help Californians better afford coverage, to expand coverage to those currently excluded from public programs, such as the undocumented, and to control health care costs while improving quality and health equity. Health Access concludes that as the bill moves forward, it is interested in working on the specifics of the process, as well as the substance.

Analysis Prepared by: Paula Villescaz / HEALTH / (916) 319-2097 FN: 0003284

Date of Hearing: May 16, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 2517

Author:(Wood) – As Amended Ver:April 30, 2018

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill establishes, within the California Health and Human Services Agency, the independent Advisory Panel on Health Care Delivery Systems and Universal Coverage. Specifically, this bill:

1. Requires the panel to develop a plan that includes a timeline of the benchmarks and steps necessary to implement a universal and unified publicly financed health care system.
2. Specifies components of the plan, including the following: a stakeholder engagement process by which key design details are developed; establishment of data collection and reporting systems; a financial model covering the decade beginning January 1, 2021; consideration of the requirements necessary for the state to seek federal waivers and federal statutory changes; a feasible financing system; analysis of legal and constitutional changes subject to voter approval; and an initial scope and recommendations to build an information technology system; and a financial management system capable of administering a universal and unified publicly financed health care system.
3. Requires the panel to meet for the first time on or before March 1, 2019, and to submit a progress report to the Legislature by January 1, 2020, and every six months thereafter.
4. Requires the panel to submit the following to the Legislature:
   1. By March 1, 2020, a proposal to control health care costs using the multiyear financial model.
   2. By March 1, 2021, and contingent upon the submission of the cost control proposal, a proposal to seek necessary federal waivers and federal statutory changes need to leverage federal funds for a publicly financed health system.
   3. By December 1, 2022, and contingent upon the submission of the first two proposals, a proposal of the state constitutional and statutory amendments necessary to create a publicly financed health care system, along with a proposal to submit to the voters at the next statewide primary or general election.

FISCAL EFFECT:

1. Staff and contract costs to CHHSA potentially in excess of $1 million GF for two years, depending on the scope and ambition of the planning effort.
2. Uncertain, likely minor costs to the Department of Finance, Department of Health Care Services, the Legislative Analyst’s Office, and other agencies to consult with the panel (various funds).

COMMENTS:

1. Purpose. According to the authors, health care is a right. As health care providers, the authors strongly believe that every Californian has a right to access necessary health care services. However, substantial work needs to be done to ensure that all Californians have access to high quality, affordable, health care. To study how to achieve this goal, the authors, as co-chairs of the Assembly Select Committee on Health Care Delivery Systems and Universal Coverage (select committee), convened a series of hearings beginning last fall to hear from a variety of health care experts.
2. Background. Under the federal Affordable Care Act (ACA), the number of uninsured Californians declined dramatically. The majority of the remaining uninsured population, about 1.8 million, is not eligible for public coverage programs due to immigration status. Various factors including affordability and awareness contribute to others remaining uninsured. Health care spending across California from all sources totals about $400 billion. Of this total, more than half comes from public sources of which the largest are Medi-Cal (more than $100 billion) and Medicare ($75 billion). Employer-sponsored coverage remains the dominant source of coverage in the state. Various approaches to universal coverage and financing have been considered over the years, but none have come to fruition.
3. Select Committee. The Assembly contracted with the University of California San Francisco to provide a report to the select committee summarizing the select committee's hearings, including any findings and potential recommendations. The UC report recommended several short-term steps that could further the goal of achieving universal coverage, including enhancing health care affordability and access and improving price transparency. On a long-term basis, the UC report recommended California embrace a goal of guaranteed access to health care for all through unified public financing that improves health outcomes and keeps costs for the state and its residents in check. This bill requires a panel to examine numerous aspects of implementing such a system. These include constitutional issues such as the Gann limit on total state expenditures and the Proposition 98 school funding formula, federal rules on Medicare and Medicaid funding, cost controls, and information technology needs.
4. Staff Comment. According to the California Department of Public Health, chronic conditions account for 80% of health care expenditures and 80% of hospital admissions. 60% of health expenditures are on behalf of individuals with multiple chronic conditions. Many chronic conditions are preventable. To control long-term health care costs, the author might consider whether this panel should also examine approaches to prevent obesity and chronic disease. Large-scale chronic disease reduction could potentially reduce demand on health care systems and workforce, improve health outcomes, reduce disabilities and health disparities, and boost economic productivity—all of which would enhance the likelihood of achieving a universal, sustainable, cost-effective health care system.

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: April 24, 2018

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:AB 2517

Author:(Wood and Arambula) – As Amended Ver:April 2, 2018

SUBJECT: Health care coverage.

SUMMARY: Establishes the Advisory Panel on Health Care Delivery Systems and Universal Coverage (Advisory Panel), within the California Health and Human Services Agency (CHHSA), as an independent body, to develop a plan to achieve universal coverage and a unified publicly financed health care system. Specifically, this bill:

1. Requires the Advisory Panel to develop a plan that includes a timeline of the benchmarks and steps necessary to implement a universal coverage and unified publicly financed health care system. Requires the plan to, at a minimum, include all of the following:
   1. A stakeholder engagement and analytical process by which key design features are developed, including covered benefits, eligibility, service delivery, provider payments, and quality improvement;
   2. The establishment of data collection and reporting systems to support management, evaluation, transparency, and public accountability;
   3. A multiyear financial model that includes state budgetary implications, an assessment of options for raising revenues and managing costs, and identification of the size and potential revenue sources for a prudent reserve;
   4. Consideration of the requirements necessary for the state to seek federal waivers and federal statutory changes by which funds currently managed by the federal government, but used on behalf of Californians, may be consolidated with other funding sources, including preparation of federal waivers necessary to maximize federal financial participation in a universal coverage and unified publicly financed health care system;
   5. Consideration of the requirements for state constitutional amendments, including an analysis of the impact of the People’s Initiative to Limit Property Taxation, an initiative measure approved by the voters as Proposition 13 at the June 6, 1978, statewide primary election, and the Classroom Instructional Improvement and Accountability Act, an initiative measure approved by the voters as Proposition 98 at the November 8, 1988, statewide general election, on creating a unified publicly financed health care system;
   6. An initial scope and recommendations to build an information technology system and a financial management system capable of administering a universal coverage and unified publicly financed health care system; and,
   7. A feasible financing system and an analysis of the need for voter approval of any financing mechanism.
2. Establishes the following Legislative findings:
   1. Health care is a human right and it is in the public interest that all Californians have guaranteed access to health care through a system of unified public financing that improves health outcomes, manages and lowers health care costs for the state and its residents, and reduces health disparities;
   2. With the implementation of the federal Patient Protection and Affordable Care Act (ACA) (Public Law 111-148) and other state efforts, California has reduced the uninsured share of its population by more than one-half to less than 7%;
   3. As of 2016, nearly three million Californians remained uninsured, 21% of Californians remained underinsured, and 11% of California adults went without health care because of cost;
   4. The United States spends twice as much per capita as any other industrialized nation, and simultaneously has the lowest ranking and performing health care system based on many metrics, including access to care, equity, efficiency, and healthy lives;
   5. California is experiencing a primary care physician shortage due to geographic maldistribution of physicians across California; and,
   6. According to the federal Centers for Medicare and Medicaid Services (CMS), national health spending is projected to grow 5.5% annually, on average, through 2026, representing 19.7% of the economy in 2026.
3. Establishes the intent of the Legislature:
   1. To establish universal coverage and a unified publicly financed health care system;
   2. That the health care system ensure that all Californians have timely access to necessary health care, including access that addresses language and geographic barriers;
   3. To achieve the goal of a universal and unified publicly financed health care system, diverse stakeholders must be brought together to develop a sense of shared purpose and mutual responsibility for a health care system that works well for all Californians;
   4. That, in order to achieve the goal of a universal and unified publicly financed health care system, data must be collected and analyzed to better understand the status quo, to explore how a new system may be monitored and managed, and to examine options for containing or reducing health care costs and improving efficiency in health care delivery;
   5. That, in order to achieve the goal of a universal and unified publicly financed health care system, state budgetary implications must be modeled and financial risks must be assessed and mitigated; and,
   6. That, in order to achieve the goal of a universal and unified publicly financed health care system, all legal obstacles, including federal permissions and waivers, federal statutory changes, state constitutional issues, and necessary voter approvals, would need to be addressed before any implementation may occur.
4. Requires the Advisory Panel to convene meetings at least quarterly at locations that are easily accessible to the public in accordance with the Bagley-Keene Open Meeting Act.
5. Requires the Secretary of CHHSA to appoint members to the Advisory Panel. In making appointments, requires the Secretary to consider both of the following:
   1. The expertise of each member of the Advisory Panel so that the Advisory Panel’s composition reflects a diversity of expertise; and,
   2. The cultural, ethnic, and geographical diversity of the state so that the Advisory Panel’s composition reflects the communities of California.
6. Permits the Advisory Panel to establish advisory committees that include members of the public with knowledge and experience in health care. Specifies that a member of an advisory committee need not be a member of the advisory panel.
7. Requires the Advisory Panel and each advisory committee to keep official records of all of their proceedings.
8. Requires the Advisory Panel to submit the plan developed as required by this bill to the health policy committees of the Senate and the Assembly on or before January 1, 2020, and to submit a follow-up progress report to those committees every six months thereafter.
9. Requires the reports to be submitted in accordance with existing law regarding reports to the Legislature, as specified, and to also be posted on CHHSA's Internet website.
10. Specifies that this bill must not be construed to authorize the Advisory Panel to implement any provision of the plan developed until all necessary laws are enacted.
11. Sunsets the provisions of this bill on January 1, 2024.

EXISTING LAW:

1. Establishes the federal Patient Protection and ACA, which enacts various health care coverage market reforms including the availability of health insurance exchanges.
2. Establishes, pursuant to federal law, the Employee Retirement Income Security Act of 1974 (ERISA), which sets minimum standards for most voluntarily established pension and health plans in private industry, including Taft-Hartley Multi-Employer Health and Welfare Plans. Exempts these plans from state insurance regulation.
3. Establishes, in state government, the Exchange (or Covered California), as an independent public entity not affiliated with an agency or department, and requires the Exchange to compare and make available through selective contracting health insurance for individual and small business purchasers as authorized under the ACA. Specifies the powers and duties of the board governing the Exchange, and requires the board to facilitate the purchase of qualified health plans though the Exchange by qualified individuals and small employers.
4. Requires the board in 3) above to determine the criteria and process for eligibility, enrollment, and disenrollment of enrollees and potential enrollees in the Exchange and coordinate that process with state and local government entities administering other specified health care coverage programs, as specified.
5. Establishes the Medi-Cal program, administered by the Department of Health Care Services (DHCS), under which low-income individuals are eligible for medical coverage.
   
6. Makes adults and parents with incomes up to 138percent of the federal poverty level (FPL) who are under age 65 eligible for Medi-Cal, and makes children with incomes up to 266% of the FPL eligible for Medi-Cal, including providing full-scope Medi-Cal benefits to undocumented children through age 18.
7. Makes undocumented individuals ages 19 and above, who are otherwise eligible for Medi-Cal services, eligible only for care and services that are necessary for the treatment of an emergency medical condition and medical care directly related to the emergency, as defined in federal law.
8. Makes low-income undocumented individuals eligible for Medi-Cal for pregnancy coverage, breast and cervical cancer-related treatment services, family planning services and long-term care services.
9. Establishes the Department of Managed Health Care to regulate health plans under the Knox-Keene Health Care Services Plan Act of 1975 in the Health and Safety Code; the California Department of Insurance to regulate health insurers under the Insurance Code; and, Covered California to compare and make available through selective contracting qualified health plans for individual and small business purchasers as authorized under the ACA.

FISCAL EFFECT: This bill has not yet been analyzed by a fiscal committee.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the authors, health care is a right. As health care providers, the authors strongly believe that every Californian has a right to access necessary health care services. However, substantial work needs to be done to ensure that all Californians have access to high quality, affordable, health care. To study how to achieve this goal, the authors, as Co-Chairs of the Assembly Select Committee on Health Care Delivery Systems and Universal Coverage (Select Committee), convened a series of hearings beginning last fall, to hear from a variety of experts about where we are now, where we need to go, and how to get there. Any extensive future health care policy change cannot be made in a vacuum. As we dug deep into this policy issue, we recognize that in order to be successful defining a pathway to universal coverage, we must address some obvious and potential challenges related to state and federal law. Medicare is funded through a protected Medicare Trust Fund and federal law establishes the rules for how that money can be spent. Accessing those funds would require Congressional action. Additionally, in California, Prop 98 amended the constitution to require 40% of state general fund revenues to go to K-14 education. The Gann Limits, from Propositions 13 and 4, amended the constitution to impose spending limits on the state to ensure that revenue in excess of those limits would be returned to the taxpayers. Currently, almost 6 million Californians get coverage through self-insured or self-funded plans and are subject to ERISA, administered by the U.S. Department of Labor. They are exempt from state-specific health insurance regulations.

In addition to federal and state statutory challenges, as was discussed in our Select Committee hearings, any meaningful change to the current system must have a mechanism to predict and manage the extraordinary rise in health care costs and address existing shortages in physicians and allied health professionals. This significant task will require on-going attention with a wide variety of stakeholders. The Advisory Panel established by this bill will be tasked with creating concrete proposals to overcome these real hurdles and ultimately create the path to universal health care coverage and a unified publicly financed health care system.

1. BACKGROUND. Under the ACA, the number of Californians without health insurance fell dramatically from nearly 7 million in 2013 to about 3 million today. The majority of the remaining uninsured population, about 1.8 million, is not eligible for public coverage programs due to immigration status. Various factors including affordability and awareness contribute to others remaining uninsured. Health care spending across California from all sources totals about $400 billion. Of this total, more than half comes from public sources of which the largest are Medi-Cal (more than $100 billion) and Medicare ($75 billion). Employer-sponsored coverage remains the dominant source of coverage in the state and accounts for the largest share of private health care spending (between $100 billion and $150 billion). In addition to the portion of the $100 billion to $150 billion in employer-sponsored insurance premiums that is paid by employees, consumers pay $10 billion for premiums for individual insurance and $25 billion to $35 billion in out-of-pocket spending. The health insurance market in California is relatively competitive and includes multiple national, state-based and local health plans. Health plans are responsible for health care provider contracting and payment and, to varying extents, plan contracts establish rules and incentives for providers to meet quality standards and achieve positive health outcomes. California has a long history of managed care arrangements within both private and public health plans. The settings in which Californians receive health care vary depending on their source of coverage: employer-sponsored, Covered California or remaining individual market, Medi-Cal, or Medicare.
   1. University of California Report (UC Report). In March 2017, California Assembly Speaker Anthony Rendon appointed a Select Committee to identify the best and quickest path to universal coverage for California and to explore strategies for improving the health care system. The California State Assembly contracted with the University of California San Francisco in order to provide a report (UC report) to the Select Committee summarizing the Select Committee's hearings, including any findings and potential recommendations.

The UC report states that California has made great progress in reducing the number of uninsured but has not yet achieved universal coverage. In high-performing health care systems around the globe, universal coverage is essential for ensuring access to care, improving outcomes and controlling costs. A strong primary care system, a comprehensive basic benefit package, provider payments that reward better health outcomes, a strong social safety net and administrative simplicity are other important ingredients for high performance. The UC report contends that California could take short-term steps and establish a longer term plan, or "roadmap" for system transformation. The UC report identified short term steps California can take within our current health care system as a potential path towards universal coverage, including to address affordability and participation for those already eligible for Medi-Cal and Covered California. This bill intends to establish a longer term roadmap for system transformation.

• • 1. Short-term steps toward universal coverage. The UC report recommended several short-term steps to improve our current health care system that could further the goal of achieving universal coverage. Working within California’s current fragmented financing system, various approaches are available. California could:
       1. Improve coverage by using state funds to expand Medi-Cal coverage to income-eligible undocumented adults and extend Covered California premium tax credit assistance to undocumented individuals.
       2. Improve affordability by addressing affordability and participation for those already eligible for Medi-Cal and Covered California, and limiting out-of-network prices for hospitals benchmarked to a specified ratio of the price paid by Medicare for similar services.
       3. Improve access by increasing the amount of Medi-Cal payment rates and exploring a Medicaid public option.
       4. Simplify the consumer choice process by requiring each fully insured product in the large group market to be either a bronze, silver, gold or platinum plan as defined by Covered California.
       5. Increase transparency by requiring hospitals and larger medical groups to post information on the average prices received from people covered by employer sponsored insurance (ESI), Covered California, Medicare and Medi-Cal, and establishing an all-payer claims database.

Short-term approaches can be evaluated against several criteria: their potential benefits for consumers and the delivery system, state fiscal cost, potential to preserve gains under the ACA, and the extent to which they either lay a foundation for, or undermine, potential future heath reforms.

• • 1. Long-term steps toward universal coverage and a unified publicly financed system. The UC report also recommended that California embrace a goal of guaranteed access to health care for all through unified public financing that improves health outcomes and keeps costs for the state and its residents in check. To achieve that goal, several preconditions would need to be satisfied:
       1. Diverse stakeholders must develop a sense of shared purpose and mutual responsibility to advance a health system that works well for all Californians;
       2. Data must be collected and analyzed to better understand the status quo and to explore how a new system could be monitored and managed;
       3. State budgetary implications must be modeled; financial risks must be assessed and mitigated;
       4. A detailed proposal would need to be developed and the Legislature would need to enact enabling legislation;
       5. State constitutional amendments would need to be approved by the voters; and,
       6. Federal statutory changes and waivers would need to be obtained.

The UC report further recommended that the California Legislature could demonstrate leadership by establishing a planning commission responsible for advancing progress toward universal coverage and unified health care financing. The Legislature would establish the governance structure of the planning commission, provide its charge and appropriate funding. The commission would:

• • • 1. Convene a stakeholder engagement and analytic process by which key design features are refined and vetted;
      2. Establish data collection and reporting efforts to support management, evaluation, transparency, and public accountability;
      3. Model state budgetary implications and assess options for raising and managing funds;
      4. Make recommendations to the Legislature on the design of a system of unified public financing and work with the Legislature to draft necessary state enabling legislation and any necessary ballot propositions;
      5. Prepare the state to seek federal waivers and statutory changes by which funds managed by the federal government, but used on behalf of Californians, can be consolidated with other funds;
      6. Explore operational requirements related to information technology and financial management; and,
      7. Establish partnerships to coordinate activities with nongovernment entities.

This bill seeks to fulfill and implement the recommendations by the UC report for a long-term planning process to achieve these large goals.

• 1. ESI and managed care. Coverage through employment continues to be the dominant source of coverage for Californians, accounting for about 17.5 million people. About 6 million Californians with employer-sponsored coverage are in self-insured arrangements subject to the federal ERISA statute and over which the state has limited regulatory oversight. ERISA prevents states from directly regulating private employer health insurance arrangements. In particular, ERISA prevents states from imposing a mandate that private employers offer or pay for health insurance. ERISA also prevents states from imposing taxes on private employer-sponsored plans. California has a long history of heavy reliance on managed care arrangements – including incentives or restrictions related to provider network -- in both public and private health plans. More than 60% of insured Californians are enrolled in Health Maintenance Organization (HMO) plans, a higher share than most other states. Among California Medicare enrollees, 41% are in Medicare Advantage managed care plans, and approximately 80% of Medi-Cal enrollees are in managed care plans.
  2. Medicaid/Medi-Cal. The Medicaid program, Medi-Cal in California, is jointly funded by the federal government and states. The federal government pays states for a specified percentage of program expenditures. State must ensure that they can fund their share of Medicaid expenditures for the care and services available under their state plan. Funding for the nonfederal or state share of Medicaid comes from a variety of sources, and each state makes its own decisions, within federal requirements, regarding how to finance its share of the Medicaid program. Counties, municipalities, and other units of local government, including providers operated by local governments, contribute to the non-federal share of Medicaid spending in many states. The Medi-Cal program was projected to cover 14.1 million Californians each month in FY 2016-17, at a cost of $100 billion in total funds ($19.6 billion General Fund [GF]). DHCS administers Medi-Cal through two types of delivery systems: managed care (MCMC) and fee-for-service.
     
     DHCS contracts with 22 MCMC plans across California, 56 county specialty mental health plans, and two primary care case management plans (AIDS Healthcare Foundation and Family Mosaic). Approximately 79% of the 14.1 million Medi-Cal beneficiaries (11 million) receive care through a MCMC plan, a significant shift from December 2011, when only approximately 45% of beneficiaries were enrolled in MCMC.
  3. Medi-Cal Coverage for Immigrants. According to the Insure the Uninsured Project, the largest remaining group of uninsured Californians is undocumented immigrants. To be Medi-Cal eligible, an individual must be a state resident and generally must be low-income. Recent legal immigrants and undocumented immigrants who meet income and residency requirements are Medi-Cal eligible, but the scope of that coverage depends on the immigration status of the immigrant and the age of the individual. Undocumented children were made eligible for full-scope Medi-Cal services pursuant to SB 75 (Committee on Budget and Fiscal Review), Chapter 18, Statutes of 2016, the health budget trailer bill. As of December 2017, a total of 218,571 undocumented children have enrolled in full-scope Medi-Cal, in two distinct populations:
     1. Restricted-scope Medi-Cal beneficiaries. As of December 2017, 120,614 undocumented children previously enrolled in restricted-scope Medi-Cal coverage transitioned into full-scope Medi-Cal coverage; and,
     2. Not previously enrolled. DHCS estimated 130,924 undocumented children that were eligible for, but not enrolled in, restricted-scope Medi-Cal were eligible for full-scope coverage under the expansion of eligibility. As of December 2017, 97,957 children in this category enrolled in full-scope benefits.

Undocumented immigrants age 19 and above are not eligible for full scope services, and are instead eligible for “limited scope” Medi-Cal benefits. Limited scope services are long-term care, pregnancy-related benefits, and emergency services. Medi-Cal also provides coverage for undocumented individuals needing breast and cervical cancer treatment, family planning services through the Family PACT (Planning, Access, Care and Treatment) program, and through temporary presumptive eligibility programs. Undocumented adults are not eligible (with very few exceptions) for enrollment in Medi-Cal managed care plans.

• 1. ACA.  Enacted in March 2010, the ACA provides the framework, policies, regulations and guidelines for implementation of comprehensive health care reform by the states.  The ACA expands access to quality, affordable insurance and health care.  As of January 1, 2014, insurers are no longer able to deny coverage or charge higher premiums based on preexisting conditions (under rules referred to as guaranteed issue and modified community rating, respectively).  These aspects of the ACA, along with tax credits for low- and middle-income people buying insurance on their own in new health benefit exchanges, make it easier for people with preexisting conditions to gain insurance coverage.

Consumers must be enrolled in a plan that qualifies as minimum essential coverage (MEC) to avoid the penalty for not having insurance. All Covered California health plans (including minimum coverage or catastrophic plans) meet MEC requirements.  Most people with health coverage today have a plan that counts as MEC. The following types of health coverage meet MEC requirements, including but not limited to:  employer-sponsored coverage (including coverage through the Consolidated Omnibus Budget Reconciliation Act of 1985 and retiree coverage); coverage purchased in the individual market, including a qualified health plan offered by Covered California; Medicare Part A coverage and Medicare Advantage plans; and, full-scope Medi-Cal coverage.

There are two forms of federal financial assistance available to consumers to help keep their coverage affordable:

• • 1. Federal tax credits, advance premium tax credits (APTCs), that eligible consumers use to help pay their monthly plan premium; and,
    2. Cost-sharing reductions (CSRs), that lower-income consumers use to lower copays, deductibles and other out-of-pocket (OOP) costs they pay when they receive a health care service.

First, subsidized health coverage through Covered California is available to individuals between 138% and 400% of the FPL and nearly 90% of enrollees receive federal premium subsidies (approximately 1,484,537 individuals in 2016). ACA tax credits are available in advance, based on income information provided to the Exchange, household size, age, and the cost of coverage in the area where individuals live. APTC are reconciled based on actual income when a person files income taxes. Covered California enrollees benefited from $4.2 billion in tax credits in 2016. Enrollees receive an average of $5,300 per household and more than $3,500 per individual, per year in tax credits to help them pay for the cost of coverage in 2016. Twelve percent of enrollees receive more than $10,000 per household, and 16% of individuals receive more than $6,000 per year in tax credits, playing a critical role in bringing health care coverage within reach to many who need it most (more than $833 and $500 per month, respectively).

Eligibility under the ACA is calculated by the household modified adjusted gross income (MAGI) which is governed by the Internal Revenue Service, Medicaid and Treasury regulations. Income includes wages, salaries, tips, business or self-employment income, rental income, interest received or accrued, lottery and gambling income, capital gains, pensions, Social Security retirement benefits, foreign-earned income, alimony income and bartering income (i.e., exchange of goods or services without exchanging money). For the purposes of determining eligibility for APTC and CSR, Covered California will use an individual’s MAGI. For most taxpayers, MAGI is the same as adjusted gross income, which can be found on line 4 of a Form 1040EZ, line 21 of a Form 1040A or line 37 of a Form 1040.

Second, under the ACA, in addition to APTC, low-income enrollees (those with incomes below 250% of FPL) qualify for additional subsidies that reduce OOP costs, including deductibles and copays. In California, these CSRs total over $700 million. Half of Covered California enrollees receive cost sharing reductions (approximately 829,998 individuals in 2016) that on average reduce out-of-pocket expenses by more than $1,500 per household per year or more than $1,000 for an individual.

Prior to the ACA, covered benefits under a health plan or insurance policy varied from policy to policy. The ACA changed this to require all health insurance plans offered in the individual and small group markets to provide a comprehensive package of items and services, known as essential health benefits (EHBs), with no dollar limits. These benefits fit into the following 10 categories: i) ambulatory patient services (outpatient care); ii) emergency services; iii) hospitalization; iv) maternity and newborn care; v) mental health and substance use disorder services, including behavioral health treatment; vi) prescription drugs; vii) rehabilitative and habilitative services and devices; viii) laboratory services; ix) preventive and wellness services and chronic disease management; and, x) pediatric services, including dental and vision care. The ACA establishes the EHBs as the minimum standard for all Exchange plans and for those in the Medicaid expansion population.

The ACA also establishes various metal tiers of health insurance coverage. These tiers are used for three primary purposes: i) set the minimum amount of coverage many people must have to satisfy the requirement that they be insured or pay a federal tax penalty beginning in 2014; ii) establish standardized levels of insurance individuals and small businesses can buy in exchanges or in the outside market; and, iii) as benchmarks for premium and cost-sharing subsidies provided to lower and middle income people buying their own insurance in exchanges.

The goal of these tiers is to make it easier for consumers to compare health plans. The four metal tiers required are as follows: i) Platinum, where the actuarial values (AV) is 90% or more; ii) Gold, with an AV of 80% to 90%; iii) Silver, where the AV is 70% to 80%; and, iv) Bronze, with an AV of 60% to 70%. Health plans in the highest tier pay the highest percentage of an individual’s expected medical costs (90%) and have higher premiums and lower copays and deductibles. Health plans in the lowest tier pay the lowest allowable percentage of medical expenses (60%) and have lower premiums and higher copays and deductibles.

According to data from the Centers for Disease Control and Prevention's National Health Interview Survey, the rate of Californians without insurance has declined from 17.2% in 2012 to 6.8% in the first six months of 2017. According to preliminary data from the UC Berkeley Center for Labor Research and Education (UC Berkeley) and the UCLA Center for Health Policy Research (UCLA) for 2017, there are over three million remaining uninsured ages 0 to 64 in California as follows:

According to the UC Berkeley and UCLA model, an estimated 1.2 to 1.3 million undocumented adults have income at or below 138% of the FPL (at or below $16,643 in 2017), including nearly one million enrolled in restricted scope Medi-Cal which covers emergency- and pregnancy-related services only.

• 1. Individual Market Changes.  On October 12, 2017, the federal government announced it would no longer provide federal funding for CSR.  Covered California planned ahead to protect consumers from higher rates resulting from the possible elimination of CSR funding. Rather than rely on federal funding to pay for CSR, Covered California plans added an additional CSR “surcharge” to silver plan rates for 2018. Covered California structured the surcharge in a way that protects as many consumers as possible from having to pay higher rates. Most Covered California consumers will be protected from the added surcharge. Consumers who receive APTC to help them pay their premiums will receive an even higher amount of tax credit that will offset the surcharge. This means that most consumers will not see a difference in the amount they pay towards their monthly premium.  Covered California enrollees who do not receive APTC for their premiums will have plan options that do not include the surcharge. These consumers can avoid paying the surcharge by switching to a different bronze, gold, or platinum plan or purchasing a nearly identical silver plan outside of Covered California that does not include the surcharge.  A March 8, 2018 Covered California report indicated that recent health care actions taken by Congress and the federal administration, such as the elimination of the insurance mandate penalty, proposing greater flexibility to allow for association and short-term, limited-duration plans, are expected to draw consumers out of the individual market, resulting in market instability and raising the specter of large premium increases in 2019 and beyond. The effects of these policies will vary by state. However, absent federal policies to stabilize the individual marketplace, a previous Covered California report found the statewide average premium increases in 2019 could range from 12% to 32%, with some carriers in certain states having even higher rate increases, depending on state factors.
  2. Underinsurance. Even among the 93% of Californians who have health coverage, many continue to face challenges in affording health care and may curtail health service use as a result. Underinsurance, defined as having high cost burden or exposure to high health cost sharing, affects 21% of insured Californians. The UC Berkeley Center for Labor Research and Education classifies households as underinsured if their OOP costs excluding premiums are at least 5% of household income under 200% of the FPL or 10% for those over 200% FPL, or if an individual's deductible is at least 5% of household income. Although state-specific data are unavailable, the subpopulations most affected by underinsurance across the U.S. are those enrolled in Medicare (47%) and the individual market (44%).
     
  3. Rising health care costs. According to CMS National Health Expenditures Highlights, in 2016, U.S. health care spending increased 4.3% or 1.5 percentage points faster than the growth in the gross domestic product (GDP) and reached $3.3 trillion, or $10,348 per person. In California, CHCF states that healthcare per capita spending is $7,549 and reached $292 billion. CHCF points out that from 2009 to 2014, spending growth averaged 4.9% per year in total and 4.0% per capita. This was faster than average US spending growth (3.9% total health spending, 3.1% per capita) during the same period. It also exceeded California’s average annual five-year growth in GDP (4.2%), consumer price index (1.9%), and median wages (1.0%). In California, as in the rest of the U.S., average prices for most health care services are much higher than in other developed nations. Further, prices vary substantially by type of coverage. Nationally, the prices paid consumer price index for hospital services for people covered by ESI are approximately 75% higher than the prices paid by Medicare, and Medicaid pays hospitals substantially less than Medicare. The same is true in California, where Medi-Cal’s hospital payment rates are similar to the national average. Relatively high prices reflect, in part, relatively high costs of producing care, and part of those high costs reflect the high costs borne by providers in collecting money from private insurers, Medicare, and Medi-Cal. Billing and insurance related costs in California have been estimated at 13.9% of the total costs of physician practices and at 6.6%-10.8% of the cost of hospital services. In a simplified system in which hospitals and physicians could employ fewer people whose job it was to collect money from third party payers, prices could be lower without any reduction in the bottom line for hospitals, or in the net income of physicians. In addition, the cost of health insurance includes the administrative costs and profits of health insurers, estimated to average approximately 7.9% of premium costs.
  4. Federal Waivers and Barriers. A unified publicly financed approach to health care coverage would eliminate the differences between Medicare, Medi-Cal, and employer sponsored insurance in consumer cost-sharing and benefits. A unified publicly financed approach would reduce the considerable administrative burden that today’s financing arrangements impose on purchasers, consumers and providers. Taken together, these changes would create a more equitable health care system. It would likely increase efficiency and produce better health outcomes, although these results would depend on how well the system was managed and on mechanisms of accountability. However, to accomplish such a sweeping transition would require substantial and unprecedented changes in federal and state law as well as decisions regarding many design parameters. As the UC report notes, the public and private funding streams that support health care and coverage today are accompanied by many requirements not readily eliminated nor easily reconciled. Pooling funds to pay for health care for all residents depends on navigating those requirements and either renegotiating their terms or working around them. The federal government is the largest source of funds for health care in California today. Federal funds flow via:
     1. Medicare, the federal program that serves most people aged 65 and over and certain people with disabilities;
     2. Medi-Cal - California’s Medicaid program-- the jointly funded state-federal program available to people who meet income eligibility criteria;
     3. The provision of subsidies under the Affordable Care Act for income-eligible individuals and families who obtain insurance through Covered California;
        
     4. The exclusion from federal taxable income of employer and employee premiums for employer-sponsored health insurance; and,
     5. A variety of additional federally funded coverage programs such as Tricare (for the dependents of active duty military and military retirees).

To redirect funds from these sources to a unified state-based pool would require federal action. For example:

• • 1. Because existing federal law does not grant the federal Secretary of Health and

Human Services authority to redirect Medicare’s funding streams or trust fund dollars to states, bringing Medicare funds into a unified state-based public financing pool would require federal statutory changes;

• • 1. Federal Medicaid requirements tie federal matching funds to the services provided to Medicaid-enrolled individuals. To claim federal Medicaid funds for use through a unified financing pool, California would either need a change in federal law, or would have to continue to track eligibility and expenditures related to individuals who meet complex eligibility criteria. Some steps required for continued compliance with federal Medicaid rules might well be in conflict with the simplicity and equity principles of unified public health care finance in California;
    2. Subsidies through Covered California might be redirected to a unified financing pool under existing Section 1332 waiver authority, if ACA statutory guardrails including federal deficit neutrality are met;
    3. If California moved away from employer-based financing of health insurance, and wages were increased in California to compensate for the elimination of employer contributions to health care, federal income tax revenues would increase. To capture the resources associated with the current federal tax subsidy for ESI, Congress would need to pass legislation providing for a direct payment to California in the amount of the estimated increase in federal tax revenues; and,
    4. To redirect federal funds that currently support special populations such as Tricare enrollees and veterans would involve revisiting long-standing expectations regarding benefits.
  1. State Statutory and Constitutional Barriers. Provisions of the State Constitution require California to enact a balanced budget each year and strictly limit the state’s ability to engage in deficit spending. Many forces and factors could introduce volatility into revenue streams and expenses associated with state managed universal coverage. It will be important to establish and finance reserves upon which the health fund can draw in periods when costs are unexpectedly high or revenues fall short of projections. Provisions of the State Constitution also constrain the Legislature’s ability to substantially raise taxes and dedicate the proceeds exclusively to universal health coverage. Proposition 98 of 1988, as amended by Prop. 111 of 1990, guarantees a minimum funding level for K- 12 schools and community colleges. Prop. 4 of 1979 (the “Gann limit”), as amended by both Prop. 98 and Prop. 111, sets limits on certain state appropriations. The scope and cost of a program to finance all health care throughout the state would trigger both provisions, rendering it prudent to seek explicit ballot initiative approval to dedicate new funds to health care.
     
  2. Workforce shortages. According to a report commissioned by the California Health Care Foundation, the number of primary care physicians actively practicing in California is at the very bottom range of, or below, the state's need. The distribution of these physicians is equally as poor. In 2008, there were 69,460 actively practicing physicians in California (this includes Doctors of Medicine and Doctors of Osteopathic Medicine) with only 35% of these physicians reported practicing primary care. This equates to 63 active primary care physicians per 100,000 persons. According to the Council on Graduate Medical Education, a range of 60 to 80 primary care physicians is needed per 100,000 persons to adequately meet the needs of the population. When the same metric is applied regionally, only 16 of California’s 58 counties fall within the needed supply range for primary care physicians. In order to adequately serve the health care needs of Californians, additional steps would be needed to overcome physician workforce shortages in underserved areas. The UC report notes that some of this might be addressed by producing more physicians, but this is a lengthy and expensive process. There is also no guarantee at the end of that training that these newly minted clinicians would enter primary care or work in a rural area. Nurse practitioners and other mid-level clinicians may be a part of the solution but the same issues arise in terms of a long training period and a disincentive to enter into primary care or to work in rural areas. To overcome workforce shortages California needs a comprehensive strategy, utilizing incentives to overcome the market forces that discourage physicians and other clinicians from specializing in primary care and practicing in underserved areas. Such an approach could include incentives: i) to ensure that the physician training pipeline includes individuals who are interested and prepared for these roles; ii) to reduce the financial and practice barriers for individuals to enter in these roles; and, iii) through physician payment policies which can sustain them in these roles over time.

1. SUPPORT. Health Access California (Health Access) states in support that Health Access has long supported universal health care reforms, including those envisioning a single-payer, Medicare-for-all-type structure, or other form of unified public financing. Such a system has the potential to be not just universal, but also more efficient and cost-effective, simpler to understand and navigate, more comprehensive, more responsive and accountable to patients and the public, and more progressive in its financing. Health Access states that over the organization's three decades, we have run into and recognized the barriers to such health reforms, and a process that develops a policy proposal and plan to address those barriers would be a welcome step forward. Health Access states that a main concern with the bill is that it would not want this process to be a distraction from the work of moving forward with policies that benefit health consumers now. California must continue to make progress on what can be done in the short term to help Californians better afford coverage, to expand coverage to those currently excluded from public programs, such as the undocumented, and to control health care costs while improving quality and health equity. Health Access concludes that as the bill moves forward, it is interested in working on the specifics of the process, as well as the substance.
2. RELATED LEGISLATION.
   1. AB 2275 (Arambula) requires DHCS to establish a quality assessment and performance improvement program for all MCMC plans, through which the MCMC plans, commencing January 1, 2021, would be required to meet a minimum performance level that improves quality and reduces health disparities, as specified. Requires MCMC plans that meet the performance targets to receive specified financial incentives. AB 2275 passed out of the Assembly Health Committee on a 12-3 vote and is pending in the Assembly Appropriations Committee.
   2. AB 2427 (Wood) requires DHCS to terminate or decline to renew or award a contract, in whole or in part, of a for-profit health plan or insurer, if a determination is made that the for-profit health plan or insurer engaged or engages in anticompetitive conduct, as defined, or has a pattern or practice of not complying with the medical loss ratio, as specified. AB 2427 is pending in the Assembly Health Committee and scheduled for a hearing on April 24, 2018.
   3. AB 2430 (Arambula) changes the income eligibility in the Aged and Disabled Federal Poverty Level Program from 100% of the FPL, plus the individual or couple standard disregard, to 138% of the FPL. AB 2430 passed out of the Assembly Health Committee on a 15-0 vote and is pending in the Assembly Appropriations Committee.
   4. AB 2459 (Friedman) allows a credit under the Personal Income Tax Law in an amount equal to the cost of health insurance premiums, as specified, for the qualified individual or the qualified individual’s dependent that exceeds 8% of the qualified individual’s MAGI, as specified. Contains an urgency clause to ensure the provisions of this bill go into enactment upon signature. AB 2459 passed out of the Assembly Health Committee on a 14-0 vote and is pending in the Assembly Appropriations Committee.
   5. AB 2499 (Arambula) increases the minimum medical loss ratio percentages applicable to health care service plans (health plans) and health insurers by 5%, as specified. AB 2499 passed out of the Assembly Health Committee on a 10-4 vote and is pending in the Assembly Appropriations Committee.
   6. AB 2502 (Wood) requires the Secretary of the CHHSA to establish, implement, and administer the California Health Care Payments Database. AB 2502 is pending in the Assembly Health Committee and is scheduled for a hearing on April 24, 2018.
   7. AB 2565 (Chiu) requires the board governing Covered California, to offer enhanced premium assistance to individuals who enroll in health care coverage through Covered California. AB 2565 passed out of the Assembly Health Committee on a 14-1 vote and is pending in the Assembly Appropriations Committee.
   8. AB 2579 (Burke) revises and recasts existing law that applied to the former Healthy Families Program (now the Children’s Health Insurance Program or CHIP) which requires DHCS to establish an automated enrollment gateway system to allow children applying to the California Special Supplemental Nutrition Program for Women, Infants, and Children to simultaneously obtain express lane eligibility for Medi-Cal. AB 2579 passed out of the Assembly Health Committee on a 15-0 vote and is pending in the Assembly Appropriations Committee.
   9. AB 2597 (Arambula) appropriates $9.3 million from the GF to the Regents of the University of California for allocation to the University of California to support Programs in Medical Education (PRIME), and would require the university, as a condition of receipt of this appropriation, to fully fund, at minimum, the 2018–19 level of full-time student enrollment in PRIME for the 2019–20 academic year. Requires the university, as a condition of receipt of future appropriated moneys for PRIME, to expand full-time student enrollment in PRIME for the 2020–21, 2021–22, and 2022–23 academic years by 25%, 50%, and 100%, respectively, from the 2018–19 level. AB 2597 is pending in the Assembly Higher Education Committee and scheduled for a hearing on April 24, 2018.
   10. AB 3087 (Kalra) establishes the Health Care Cost, Quality, and Equity Commission, to among other functions, control in-state health care costs and set the amounts accepted as payment by health plans, hospitals, physicians, physician groups, and other healthcare providers. AB 3087 is pending in the Assembly Health Committee and scheduled for a hearing on April 24, 2018.
3. PREVIOUS LEGISLATION.
   1. SB 562 (Lara and Atkins) enacts the Healthy California program, which is required to provide comprehensive universal single-payer health care coverage system for all California residents. SB 562 is pending in the Assembly Rules Committee.
   2. SB 810 (Leno) of 2011 was substantially similar to SB 840 of 2007. SB 810 failed passage on the Senate Floor in 2012.
   3. SB 840 (Kuehl) of 2007 would have created the California Healthcare System, a single-payer health care system, administered by the California Healthcare Agency, to provide health insurance coverage to all California residents. SB 840 was vetoed by Governor Schwarzenegger. In his veto message, the Governor cited a Legislative Analyst's Office analysis that estimated the bill to cost $210 billion in its first full year of implementation and cause annual shortfalls of $42 billion, and he could not support a bill that placed an annual shortfall of over $40 billion on California’s economy.
4. AUTHORS' AMENDMENTS.
   1. The authors propose amendments that bolster intent language to reflect short-term efforts necessary in order to achieve the goal of improved health care coverage, access, and affordability.
      1. Cost containment: It is the intent of the Legislature to control health care costs so that California is able to achieve a sustainable health care system with more equitable access to quality health care.
      2. Excessive profits: It is the intent of the Legislature that rising health care costs should be mitigated and excessive health insurer profits and administrative costs should be limited, so that more money is spent on direct care to patients and less on insurance company profits and overhead.
      3. Reducing disparities: It is the intent of the Legislature that all Californians receive the same, high-quality health care, and have the same positive health care outcomes, regardless of age, income, race, ethnicity, immigration status, gender or gender non-conforming status, sexual orientation, geographic location, health status, or ability.
      4. Underinsured: It is the intent of the Legislature that all Californians have access to affordable health coverage, including health coverage with reasonable out-of-pocket costs relative to household income, or being eligible for appropriate cost-sharing assistance.
      5. Workforce: It is the intent of the Legislature that California train and employ an adequate number of primary care physicians, specialty care physicians, mental and behavioral health professionals, and allied health care professionals to meet the health care needs of the State.
   2. The authors further propose amendments to establish more timelines for the Advisory Panel, with contingency clauses:
      1. Establishes a deadline for the first Advisory Panel meeting of March 1, 2019;
      2. Requires that, by March 1, 2020, the Advisory Panel to submit to the Legislature, for approval, a cost-control plan;
      3. Upon the fulfilment of ii), requires the Advisory Panel to submit to the Legislature a proposal that includes the necessary federal waivers, by March 1^st, 2021.
      4. Upon the fulfillment of ii) and iii), requires the Advisory Panel to submit to the Legislature a proposal, by December 1^st, 2022, that includes the necessary constitutional and statutory changes to be submitted to voters for the subsequent primary or general election ballot.

REGISTERED SUPPORT / OPPOSITION:

Support

Health Access California

Silicon Valley Leadership Group

Western Center on Law and Poverty

Opposition

None on file.

Analysis Prepared by: Paula Villescaz / HEALTH / (916) 319-2097