(1)Under existing law, the Lanterman Developmental Disabilities Services Act, the State Department of Developmental Services is authorized to contract with regional centers to provide services and supports to individuals with developmental disabilities. Existing law requires the state to enter into 5-year contracts with regional centers, subject to an annual appropriation by the Legislature, and specifies the responsibilities of the department and the requirements and qualifications of appropriate agencies for purposes of contracting for regional center services. Among other provisions, existing law requires a regional center contract to include annual performance objectives, as specified, and to provide that the regional center will render services in accordance with applicable laws and regulations.

This bill would require a contract between the State Department of Developmental Services and a private nonprofit association for the operation of a regional center that is entered into or renewed on and after January 1, 2019, to include specified procedures for employee retention, including requiring a successor contractor to agree to retain designated covered employees of the predecessor contractor for a transition period of 90 days, as specified. The bill would prohibit the successor contractor from reducing the compensation of a covered employee, or terminating a covered employee without cause, during the transition period, and would require the successor contractor to provide each covered employee with a written performance evaluation at the end of the transition period. The bill would authorize a successor contractor and a labor organization to supersede those prohibitions by collective bargaining agreement. If a successor contractor violates certain of these requirements with respect to a covered employee, the bill would authorize the employee to bring an action against the successor contractor for back pay and injunctive relief, as specified. The bill would declare that these provisions are severable.

(2)Existing law requires a regional center to include specified information on its Internet Web site for the purpose of promoting transparency and access to public information, including, among other things, contract awards, annual independent audits, and reports on all prior fiscal year expenditures from the regional center operations budget for all administrative services.

This bill would require that information to include the salaries, wages, and employee benefits for all managerial positions for which the primary purpose is the administrative management of the regional center, as specified.

(1)Under existing law, the Lanterman Developmental Disabilities Services Act, the State Department of Developmental Services is authorized to contract with regional centers to provide services and supports to individuals with developmental disabilities. Existing law requires the state to enter into 5-year contracts with regional centers, subject to an annual appropriation by the Legislature, and specifies the responsibilities of the department and the requirements and qualifications of appropriate agencies for purposes of contracting for regional center services. Among other provisions, existing law requires a regional center contract to include annual performance objectives, as specified, and to provide that the regional center will render services in accordance with applicable laws and regulations.

This bill would require a contract between the State Department of Developmental Services and a private nonprofit association for the operation of a regional center that is entered into or renewed on and after January 1, 2019, to include specified procedures for employee retention, including requiring a successor contractor to agree to retain designated covered employees of the predecessor contractor for a transition period of 90 days, as specified. The bill would prohibit the successor contractor from reducing the compensation of a covered employee, or terminating a covered employee without cause, during the transition period, and would require the successor contractor to provide each covered employee with a written performance evaluation at the end of the transition period. The bill would authorize a successor contractor and a labor organization to supersede those prohibitions by collective bargaining agreement. If a successor contractor violates certain of these requirements with respect to a covered employee, the bill would authorize the employee to bring an action against the successor contractor for back pay and injunctive relief, as specified. The bill would declare that these provisions are severable.

(2)Existing law requires a regional center to include specified information on its Internet Web site for the purpose of promoting transparency and access to public information, including, among other things, contract awards, annual independent audits, and reports on all prior fiscal year expenditures from the regional center operations budget for all administrative services.

This bill would require that information to include the salaries, wages, and employee benefits for all managerial positions for which the primary purpose is the administrative management of the regional center, as specified.

(1)Under existing law, the Lanterman Developmental Disabilities Services Act, the State Department of Developmental Services is authorized to contract with regional centers to provide services and supports to individuals with developmental disabilities. Existing law requires the state to enter into 5-year contracts with regional centers, subject to an annual appropriation by the Legislature, and specifies the responsibilities of the department and the requirements and qualifications of appropriate agencies for purposes of contracting for regional center services. Among other provisions, existing law requires a regional center contract to include annual performance objectives, as specified, and to provide that the regional center will render services in accordance with applicable laws and regulations.

This bill would require a contract between the State Department of Developmental Services and a private nonprofit association for the operation of a regional center that is entered into or renewed on and after January 1, 2019, to include specified procedures for employee retention, including requiring a successor contractor to agree to retain designated covered employees of the predecessor contractor for a transition period of 90 days, as specified. The bill would prohibit the successor contractor from reducing the compensation of a covered employee, or terminating a covered employee without cause, during the transition period, and would require the successor contractor to provide each covered employee with a written performance evaluation at the end of the transition period. The bill would authorize a successor contractor and a labor organization to supersede those prohibitions by collective bargaining agreement. If a successor contractor violates certain of these requirements with respect to a covered employee, the bill would authorize the employee to bring an action against the successor contractor for back pay and injunctive relief, as specified. The bill would declare that these provisions are severable.

(2)Existing law requires a regional center to include specified information on its Internet Web site for the purpose of promoting transparency and access to public information, including, among other things, contract awards, annual independent audits, and reports on all prior fiscal year expenditures from the regional center operations budget for all administrative services.

This bill would require that information to include the salaries, wages, and employee benefits for all managerial positions for which the primary purpose is the administrative management of the regional center, as specified.

Existing federal law, the federal Patient Protection and Affordable Care Act, creates various premium stabilization programs, such as the transitional reinsurance program and the risk adjustment program, to stabilize premiums in the individual market inside and outside of the Exchanges. Under the transitional reinsurance program, contributions are collected from contributing entities to fund reinsurance payments to issuers of nongrandfathered reinsurance-eligible individual market plans and the administrative costs of operating the reinsurance program for the 2014, 2015, and 2016 benefit years.

Existing law establishes the California Health Benefit Exchange within state government for the purpose of facilitating the purchase of qualified health plans through the Exchange by qualified individuals and small employers.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law requires a health care service plan, on and after October 1, 2013, to fairly and affirmatively offer, market, and sell all of the plans small employer health care service plan contracts for plan years on or after January 1, 2014, to all small employers in each service area in which the plan provides or arranges for the provision of health care services. Existing law requires a plan to consider the claims experience of all enrollees in all nongrandfathered small employer health benefit plans offered by that plan in this state as a single risk pool for rating purposes in the small employer market. Existing law requires a plan to establish, at least each calendar year, and no more frequently than each calendar quarter, an index rate for the small employer market based on the total combined claims costs for providing essential health benefits, as defined, within the single risk pool and requires the index rate to be adjusted on a marketwide basis based on the total expected marketwide payments and charges under the risk adjustment and reinsurance programs established for the state under the federal provisions described above and the Exchange user fees. Existing law requires the premium rate for all of the nongrandfathered small employer health benefit plans within the single risk pool to use the applicable marketwide adjusted index rate, as specified.

This bill would delete the reference to the federal transitional reinsurance program in these provisions.

SENATE COMMITTEE ON HUMAN SERVICES

Senator Wiener, Chair

2017 - 2018 Regular

Bill No: SB 134

Subject: Regional center contracts.

SUMMARY

This bill requires a contract between the Department of Developmental Services (DDS) and a regional center operator renewed or entered into on and after January 1, 2019, to include procedures for employee retention and requires regional centers to include information certain managers’ salaries and benefits on their Internet Web sites.

ABSTRACT

Existing law:

1. Establishes the Lanterman Developmental Disabilities Services Act, which declares California’s responsibility for providing an array of services and supports to meet the needs of each person with developmental disabilities in the least restrictive environment, regardless of age or degree of disability, and to support their integration into the mainstream life of the community. (WIC 4500, et seq.)
2. Establishes the jurisdiction of DDS over state developmental centers (DCs), including Sonoma, Fairview and Porterville DCs, as specified. (WIC 4440 et seq.)
3. Establishes a system of nonprofit regional centers, which contract with the state to provide fixed points of contact in the community for all persons with developmental disabilities and their families, to coordinate services and supports best suited to them throughout their lifetime, as well as delineates the requirements related these contracts and operations. (WIC 4620 et seq.)
4. States that a regional center is responsible for informing DDS immediately if it finds that it does not expect to fulfill its contractual obligations and further, states that failure to provide this notification in a timely manner constitutes grounds for possible revocation or nonrenewal of the contract. Further requires a regional center to give at least 90 days written notice if it makes the decision to cancel or not renew its contract. (WIC 4635 (a))
5. Requires DDS, if it finds that any regional center is not fulfilling its contractual obligations, to make reasonable efforts to resolve the problem within a reasonable period of time with the cooperation of the regional center, as specified. (WIC 4635 (b)(1))
6. Requires DDS, if its efforts to resolve the problem are not successful, to issue a letter of noncompliance detailing the noncompliant activities and establishing a specific timeline for the development and implementation of a corrective action plan, as specified, and to approve the plan and monitor its implementation. (WIC 4635 (b)(2))
7. Requires DDS, if it finds that any regional center continues to fail in fulfilling its contractual obligations after reasonable efforts have been made, and finds that other regional centers are able to fulfill similar obligations under similar contracts, and finds that it will be in the best interest of the persons being served by the regional center, to take steps to terminate the contract and to negotiate with another governing board to provide regional center services in the area. (WIC 4635 (c))
8. Requires DDS, if it makes a decision to cancel or not renew its contract with the regional center, to give a minimum of 90 days’ written notice of its decision, unless it has determined that the 90 days’ notice would jeopardize the health or safety of the regional center’s consumers, or constitutes willful misuse of state funds, as determined by the Attorney General. As well as permits a regional center, within 14 days after the receipt of a notice from DDS, to make a written protest to DDS of that decision, as provided. (WIC 4635 (d))
9. Establishes steps DDS must take when terminating or not renewing a regional center contract and negotiating with another governing board for a regional center contract, as specified. (WIC 4635 (e))
10. Stipulates that in no event shall the procedures for termination or nonrenewal of a regional center contract limit or abridge the state’s authority to contract with any duly authorized organization for the purpose of service delivery, nor shall these procedures be interpreted to represent a continued contractual obligation beyond the limits of any fiscal year contract. (WIC 4635 (f))
11. Authorizes DDS to directly operate a regional center during the interim period between the termination of its contract with one governing board and the assumption of operating responsibility by a regional center contract with another governing board, but limits this authority to no longer than 120 days before contracting with a new governing board, as specified. (WIC 4636)
12. Requires each regional center to, as expeditiously as possible and in order to promote transparency, include certain information on its Internet Web site, including, among other items, as specified: regional center independent audits, purchase of service policies, and bylaws of the regional center governing board. (WIC 4629.5)

This bill:

1. Makes a number of Legislative findings and declarations related to the critical services provided by regional centers to individuals with developmental disabilities, the importance of continuity of these services, and the stability and continuity of services that a transitional retention period for regional center employees could provide.
2. Requires each regional center to include on its Internet Web site, alongside other information already required to be included by current law, the salaries, wages, and employee benefits for all managerial positions for which the primary purpose is the administrative management of the regional center, as specified.
3. Requires a contract between DDS and a private nonprofit association for the operation of a regional center, as specified, that is entered into on and after January 1, 2019, to include procedures for employee retention, as specified by the provisions of this bill.
4. Defines “change of operator” to mean the replacement of a contractor with a successor contractor by DDS.
5. Defines “contractor” to mean a nonprofit corporation with which DDS contracts to operate a regional center, as specified.
6. Defines “covered employee” to mean an individual who has been employed by a contractor for at least 90 days immediately prior to a change of operator, but not to include: a managerial, supervisory, or confidential employee; a temporary employee; or a part-time employee who has worked less than 20 hours per week for the predecessor contractor for at least 90 days immediately prior to the change of operator.
7. Defines “department” to mean DDS.
8. Defines “predecessor contractor” to mean the contractor prior to the change of operator.
9. Defines “regional center” as defined in current law, as specified.
10. Defines “successor contractor” to mean the contractor subsequent to the change of operator.
11. Defines “total compensation” to mean the combined value of the covered employee’s wages and benefits immediately prior to the change of operator.
12. Specifies that total compensation may be paid entirely as wages or in any combination of wages and fringe benefits, to be determined by the successor contractor, and further, stipulates that total compensation includes the covered employee’s hourly wage rate or per diem value of the covered employee’s monthly salary, and employer payments toward the covered employee’s health and welfare and pension benefits, as specified.
13. Defines “transition period” to mean a period of 90 days immediately following the effective date of a change of operator.
14. Requires DDS to notify a contractor that it has awarded or intends to award the contract to a different entity and, further, requires this notification to include the effective date of the change of operator and the successor contractor’s contact information, as specified.
15. Requires the predecessor contractor to, at least 15 days prior to the effective date of the change of operator, provide a list containing specified information regarding all covered employees to the successor contractor.
16. Subjects a contract entered into or renewed pursuant to the provisions of this bill to all of the following conditions:
    1. Stipulates that the successor contractor:
       1. Shall agree to retain all covered employees for at least 90 days subsequent to a change of operator, with certain exceptions specified in the provisions of this bill;
       2. Shall not reduce total compensation of or terminate without cause a covered employee during the transition period;
       3. Shall retain qualified covered employees by seniority within each job classification in the event that it determines in good faith that it requires fewer employees during the transition period than were required by the predecessor contractor, as specified;
       4. Shall, at the end of the transition period, make a written performance evaluation for each covered employee retained during the transition period; and
       5. May, with a labor organization representing covered employees, by collective bargaining agreement, provide that the agreement supersedes the requirements of provisions of this bill;
    2. Requires the predecessor contractor to, at least 15 days prior to the effective date of a change of operator, cause to be sent to any labor organization representing covered employees and cause to be posted in a conspicuous place at each principal place of employment of any covered employee a public notice containing information regarding the change of operator, as specified; and
    3. Requires a successor contractor to retain all of the following in written or electronic format for at least three years:
       1. The list of all covered employees provided by the predecessor contractor pursuant to the provisions of this bill;
       2. All offers of employment made to covered employees;
       3. All terminations of covered employees during a transition period, including reasons for termination; and
       4. All written performance evaluations of covered employees completed by the successor contractor at the end of the transition period pursuant to the provisions of this bill.
17. Allows a covered employee to bring an action against a successor contractor in any superior court of the state with jurisdiction over the successor contractor if he or she:
    1. Is not offered employment;
    2. Has been discharged in violation of provisions of this bill; or
    3. Has been paid less than the covered employee’s total compensation during the transition period.
18. Authorizes the court, upon finding a violation of provisions of this bill, to award back pay, issue an injunction or appropriate order to cease continued violation of those provisions, and provide any other relief deemed appropriate, as specified.
19. Requires the court to award a covered employee reasonable attorney’s fees and costs, as specified, if that employee is the prevailing party.
20. Prohibits a covered employee from maintaining a cause of action due solely to the failure of a successor contractor to provide a written performance evaluation pursuant to the provisions of this bill, as specified.
21. Stipulates that the rights and remedies provided by provisions of this bill are intended to supplement, and not supplant, any existing rights or remedies.
22. Stipulates that provisions of this bill are severable, as specified.

FISCAL IMPACT

According to the Assembly Committee on Appropriations, as of August 27, 2018 this bill presents the following costs:

1. Although an unusual occurrence, a regional center contract termination could result in significant costs, possibly in the millions of dollars (General Fund [GF]), to DDS due to limitations placed on a regional center’s ability to immediately and effectively address issues that resulted in the termination of the preceding contract. According to DDS, costs could result, for example, from the successor entity’s inability to:
2. Quickly reduce excessive or duplicative employees.
3. Address excessive employee salaries or benefits that may have contributed to the insolvency of its predecessor.
4. Terminate the employment of individuals who have a record of poor performance or who had a role in the fiscal and operational practices resulting in termination of the prior contract.

As a result, a regional center could begin its operation with a significant fiscal deficit it would be unable to effectively address for at least 90 days. This delay would impact the successor entity’s ability to operate within the funding allocation provided by the state, which conflicts with existing statute. The state would be obligated to provide additional GF dollars to bridge the gap in funding.

1. DDS further notes the provisions granting standing to employees to sue and providing for awards of attorneys’ fees and costs could also result in substantial costs.
2. Minor costs to each regional center to post managerial salary, wage, and benefit information on its website.

BACKGROUND AND DISCUSSION

Purpose of the bill:

According to the author, “a regional center’s financial troubles have led to proposals to cut contracts with existing workers, which would cause mass displacement of regional center employees and disrupt vital care to regional center patients since there is no statewide plan to guarantee services. By establishing a transitional retention period for regional center employees, this bill will ensure continuity of services for Californians with developmental disabilities and stability for workers who serve them.”

The Lanterman Act

In 1969, the Lanterman Developmental Disability Services Act established an entitlement to services and supports for Californians with developmental disabilities that are required for those individuals to live independently in the community. The Lanterman Act enumerates the rights of individuals with developmental disabilities, as well as the rights of their families, what services and supports are available and how regional centers and providers work together to provide those supports and services. The Lanterman Act’s intention and structure require that consumers of services and supports, and where appropriate, their parents, legal guardians, or conservators, should be empowered to make choices in all life areas. The term “developmental disability” is defined as a disability that originates before a person reaches 18 years of age, is expected to continue indefinitely, and is a significant disability for those individuals; such disabilities include, among others: epilepsy, autism spectrum disorder, and cerebral palsy.

Regional Centers

The Lanterman Act also created California’s regional center system, comprised of 21 regional centers throughout the state whose primary purpose is to connect individuals with services in the community. Regional centers do not directly provide services to individuals and their families, rather they are nonprofit private corporations that contract with DDS to provide information and coordinate the delivery of an array of services and supports to more than 338,000 consumers’ state wide, as of July 2018. These coordinated services and supports include residential placements, supported living services, respite care, transportation, day treatment programs, work support programs, and various social and therapeutic activities.

Eligibility for regional center services is established through diagnosis and assessment performed by the regional center. To be eligible, a person must be determined to have developmental disability that presents a substantial disability, as defined, that began before the person’s 18th birthday and is expected to continue indefinitely. Regional centers may also provide Early Start services to infants and toddlers who are determined to be at risk of having developmental disabilities or who have a developmental delay and may also qualify for services, if provided criteria are found to be met. If eligible, most, but not all, of the services and supports provided are free to consumers regardless of their age or income.

As of December 1, 2017, regional centers employed close to 7,350 full-time equivalent staff, 4,819 of whom worked in classifications pertaining to service coordination for Early Start and Lanterman Act-eligible individuals. As these numbers show, many regional center staff positions pertain to the coordination of services for consumers. However, employees also perform a range of activities relating to the administration and operation of regional centers.

Oversight of Regional Centers

DDS is responsible for monitoring and overseeing the operations of California’s regional centers. DDS’s oversight ensures that the Lanterman Act is upheld and all contractual, statutory, and regulatory obligations are met. This is done, in part, through the contracting process, DDS places certain requirements and obligations on regional centers through their contracts with each individual regional center. If a regional center is not meeting these obligations, existing law provides for circumstances under, and processes by which DDS is to terminate a contract with a regional center and find a replacement contractor. Existing law also requires DDS to first make reasonable efforts to resolve the problem within an appropriate period of time. If these efforts are unsuccessful, DDS then issues a letter of noncompliance delineating the reasons for noncompliance and establishing a specific timeline for the development and implementation of a corrective action plan.

Since the establishment of DDS in 1977, there have been, as reported by the Association of Regional Center Agencies (ARCA), four terminations of contracts, including:

• In 1979, Loma Prieto Regional Center (in the area now served by San Andreas Regional Center);
• In 1982, Western Regional Center (in the area now served by Westside Regional Center);
• In 1983, North Coast Regional Center (in the area now served by Redwood Coast Regional Center); and
• In 1985, San Gabriel Valley Regional Center (in the area now served by San Gabriel/Pomona Regional Center).

Kern Regional Center

Over the course of the last several years Kern Regional Center (KRC), which serves close to 8,700 consumers in Inyo, Kern, and Mono counties, has faced mounting scrutiny. Concerns were raised to DDS particularly with regards to KRC’s financial practices, their solvency, and the impact their financial issues had on service provision to consumers. Beginning in approximately 2012, KRC faced numerous concerns and complaints on a variety of factors, including mismanagement, organizational status, and potential conflicts of interest. By late 2014, DDS sent the regional center a letter outlining required corrections and calling on KRC to develop a plan to assess and address areas of deficiency.

In May of 2015, the Board of KRC terminated the Executive Director. An Interim Executive Director was then assigned by DDS as a result of a mutual agreement between DDS and the KRC board of directors. Shortly thereafter the Board President and Vice President resigned. In June of 2015, KRC’s Fiscal Year (FY) 2014-15 operational budget was found to have a deficit of approximately $500,000, which DDS then supplemented. By August of 2015, KRC’s board reorganized and selected a new Board Chair. KRC’s operational budget again had a deficit of approximately $500,000 for FY 2015-16. In 2016, the KRC Executive Team and consultants, with help from DDS implemented operational changes to ensure that KRC’s budget was not in deficit for FY 2016-17. DDS’s efforts also included the addition of Special Contract Language to their contract with KRC this added specific action items within the language of KRC’s DDS contract to address the mismanagement and fiscal insolvency. The changes to KRC’s operations were furthered in 2017 when an outside management company was brought in to work with KRC on reviewing its operations and ensuring future financial solvency. DDS has continued to review KRC’s Special Contract Language with requirements aimed at improving performance and operations. In March 2018, KRC notified DDS that KRC has seen acceptable improvement in all items related to Special Contract Language, except fiscal solvency. DDS has confirmed that KRC’s situation has improved and revisions were made to KRC’s Special Contract Language in mid-July of this year to more accurately reflect the center’s current operational and fiscal status. There is an ongoing effort between KRC and DDS to ensure consumers are receiving proper care and services, to address DDS’s concerns, as expressed in the Special Contract Language, and for DRC to obtain ongoing financial solvency.

This bill would require additional information, such as a regional center’s administrative management’s compensation, be posted on the regional center’s internet website to increase transparency. This bill also creates new requirements aimed at ensuring continuity of staff employment and consumer services in the event that operation of a regional center is transferred to a new contractor.

Transparency in Financial Administration of Regional Centers

Existing law requires regional centers post on their Internet Web sites a variety of information to promote transparency, including, but not limited to: independent audits; biannual fiscal audits conducted by DDS; purchase of service policies; board meeting agendas and approved minutes of open meetings of the board; contract awards; and the bylaws of the regional center governing board. Additionally, since each of California’s 21 regional centers are organized as non-profits, as required by Welfare and Institutions Code Section 4620, they, like all non-profits, are required to file Internal Revenue Service (IRS) form 990. A non-profit’s filed IRS form 990 is then a publicly available document that contains a variety of financial information, including the salaries of their officers, directors, trustees, key employees, and highest compensated employees. For regional centers, an IRS form 990 typically includes the salary of their executive director, Chief Financial Officer, and medical services director, as well as their total spent on employee benefits, total compensation for current officers, directors, trustees and key employees, total spent on other salaries and wages, and a variety of other financial details.

California’s regional center structure was created by the Lanterman Act, as was their responsibility to provide services to which qualifying consumers are entitled. Regional center funding is provided for in the state budget, the 2018-19 Budget Act provided for approximately $6.9 billion in regional center funding. The vast majority of this funding is spent on the provision of direct services to consumers through a regional center’s contracts or agreements with service providers, through which they determine the rates paid for the provision of those services. Limitations are set in statutes as to what can be included in those contracts or agreements, and statute prohibits a regional center spending more than 15 percent on either a regional center’s or a service provider’s administrative costs.

This bill would require salaries, wages, and employee benefits for all managerial positions for which the primary purpose is the administrative management of the regional center, including, but not limited to, directors and chief executive officers.

Arguments in Support

SEIU California, sponsor, writes:

SB 134 will expand transparency to families and the public about the true costs of Regional Center operations by requiring additional postings that include compensation packages of the managerial staff of the regional center.

Additionally, SB 134 will expand protections for Regional Center clients by ensuring that if there is a change in the operator of a Regional Center that there will not be wholesale turnover in staff that will disrupt and harm the clients of that regional center.

The California Labor Federation, in support, writes:

SB 134 will expand protections for Regional Center clients by ensuring that if there is a change in the operator of a Regional Center that there will not be wholesale turnover in staff that will disrupt and harm the clients of that regional center. Layoffs of the existing workforce hurt not just clients and working families, but also impact the local economy. Promoting a stable workforce allows workers to invest in and contribute to their communities. It means regional center workers can continue to provide high quality services for clients while retaining the ability to stay in their homes, keep kids in their schools, and their families can keep health insurance.

SB 134 will also expand transparency to families and the public about the true costs of Regional Center operations by requiring additional posting that include compensation packages of the managerial staff of the regional center. When the entire Lanterman system is suffering from under-funding, open disclosure of the individual compensation paid by Regional Centers is critical to both the families and clients and to all California taxpayers so that they can understand all factors stressing the system. California has a compelling interest in preventing turmoil in the lives of its most vulnerable citizens while ensuring transparency and stability in the regional center workforce.

Arguments in Opposition

ARCA, in opposition, writes:

For the past fifty years, the State of California has contracted with non-profits (regional centers) to act as the point of entry into the community-based service system for people with developmental disabilities. Overseen by the Department of Developmental Services, in rare and extreme cases, a contract may need to be terminated. Subsequently, a new legal entity will contract with the state to perform those duties. At all times, all parties place a premium on ensuring minimal disruption to individuals with developmental disabilities, their families, regional center line staff, and service providers who work directly with them.

This bill places significant and unique prohibitions on both the state and the potential future contractor that would drive up costs and hinder operational flexibility. The Department (and the state) has used this option, in rare cases, to provide oversight, ensure adequate fiscal control, and address prior operational issues. However, should the proposals in this bill become law, these abilities will be sharply limited – and creates the potential for endemic issues to be legally unresolvable.

DDS, in opposition, writes:

Current law provides that procedures for termination or nonrenewal of a regional center contract shall not limit or abridge the state’s authority to contract with any duly authorized organization for the purpose of service delivery. (Welf. & Inst. Code Section 4635(f).) The requirements and prohibitions on termination or nonrenewal of a regional center contract that would be required by SB 134 would place significant limitations and restrictions on the state’s authority to contract for purposes of service delivery. SB 134 would result in increased costs, and would limit the state’s ability to effectively and flexibly address regional center fiscal and operational insufficiencies and to ensure compliance with state laws and regulations.

Related legislation:

SB 175 (McGuire, 2018) allows a court, until June 30, 2021, to admit a person with a developmental disability, to a separate and distinct unit at the Canyon Springs Community Facility due to an acute crisis. This bill passed the Legislature and is awaiting the Governor’s decision.

PRIOR VOTES

*Votes from Assembly floor were not available at the time this analysis was published.

POSITIONS

Support:

SEIU California (Source)

California Labor Federation

UDW/AFSCME Local 3930

Oppose:

Association of Regional Center Agencies

California Department of Developmental Services

-- END --

 UNFINISHED BUSINESS  

Bill No: SB 134

Author:

:

Vote:

PRIOR VOTES NOT RELEVANT

SENATE HUMAN SERVICES COMMITTEE: 4-2, 8/31/18 (Pursuant to Senate Rule 29.10)

AYES: Wiener, Leyva, McGuire, Portantino

NOES: Glazer, Nguyen

NO VOTE RECORDED: Berryhill

ASSEMBLY FLOOR: Not available

SUBJECT: Regional center contracts

SOURCE: SEIU California

DIGEST:

This bill requires a contract between the Department of Developmental Services (DDS) and a regional center operator renewed or entered into on and after January 1, 2019, to include procedures for employee retention and requires regional centers to include information certain managers’ salaries and benefits on their Internet Web sites.

Assembly Amendments

remove the original content of this bill and add the language that is the subject of the following analysis.

ANALYSIS:

Existing law:

1. Establishes the Lanterman Developmental Disabilities Services Act, which declares California’s responsibility for providing an array of services and supports to meet the needs of each person with developmental disabilities in the least restrictive environment, regardless of age or degree of disability, and to support their integration into the mainstream life of the community. (WIC 4500, et seq.)
2. Establishes a system of nonprofit regional centers. (WIC 4620 et seq.
3. States that a regional center is responsible for informing DDS immediately if it finds that it does not expect to fulfill its contractual obligations, as provided. (WIC 4635 (a))
4. Requires DDS, if it finds that any regional center is not fulfilling its contractual obligations, to make reasonable efforts to resolve the problem, as specified. (WIC 4635 (b)(1))
5. Requires DDS to issue a letter of noncompliance detailing the noncompliant activities and establishing a specific timeline for the development and implementation of a corrective action plan, as specified, and to approve the plan and monitor its implementation. (WIC 4635 (b)(2))
6. Requires DDS, if it finds that any regional center continues to fail in fulfilling its contractual obligations after reasonable efforts have been made to take steps to terminate the contract and to negotiate with another governing board to provide regional center services in the area. (WIC 4635 (c))
7. Requires DDS, if it makes a decision to cancel or not renew its contract with the regional center, to give a minimum of 90 days’ written notice of its decision. As well as permits a regional center, within 14 days after the receipt of a notice from DDS, to make a written protest to DDS of that decision, as provided. (WIC 4635 (d))
8. Establishes steps DDS must take when terminating or not renewing a regional center contract and negotiating with another governing board for a regional center contract, as specified. (WIC 4635 (e))
9. Stipulates that in no event shall the procedures for termination or nonrenewal of a regional center contract limit or abridge the state’s authority to contract with any duly authorized organization for the purpose of service delivery, as provided. (WIC 4635 (f))
10. Authorizes DDS to directly operate a regional center during the interim period between the termination of its contract with one governing board and the assumption of operating responsibility by a regional center contract with another governing board, as specified. (WIC 4636)
11. Requires each regional center to, as expeditiously as possible and in order to promote transparency, include certain information on its Internet Web site, including, among other items, as specified: regional center independent audits, purchase of service policies, and bylaws of the regional center governing board. (WIC 4629.5)

This bill:

1. Makes a number of Legislative findings and declarations related to the critical services provided by regional centers.
2. Requires each regional center to include on its Internet Web site, alongside other information already required to be included by current law, the salaries, wages, and employee benefits for all managerial positions for which the primary purpose is the administrative management of the regional center, as specified.
3. Requires a contract between DDS and a private nonprofit association for the operation of a regional center, as specified, that is entered into on and after January 1, 2019, to include procedures for employee retention, as specified by the provisions of this bill.
4. Defines specified terms as they pertain to provisions of this bill.
5. Specifies that total compensation may be paid entirely as wages or in any combination of wages and fringe benefits, to be determined by the successor contractor, and further, stipulates that total compensation includes the covered employee’s hourly wage rate or per diem value of the covered employee’s monthly salary, and employer payments toward the covered employee’s health and welfare and pension benefits, as specified.
6. Requires DDS to notify a contractor that it has awarded or intends to award the contract to a different entity and, further, requires this notification to include the effective date of the change of operator and the successor contractor’s contact information, as specified.
7. Requires the predecessor contractor to, at least 15 days prior to the effective date of the change of operator, provide a list containing specified information regarding all covered employees to the successor contractor.
8. Subjects a contract entered into or renewed pursuant to the provisions of this bill to all of the following conditions.
9. Stipulates that the successor contractor shall agree to retain all covered employees for at least 90 days, not reduce total compensation or terminate without cause a covered employee, retain qualified covered employees by seniority, for a set period of time, as provided
10. Requires the predecessor contractor to, at least 15 days prior to the effective date of a change of operator, cause to be sent to any labor organization representing covered employees and cause to be posted in a conspicuous place at each principal place of employment of any covered employee a public notice containing information regarding the change of operator, as specified; and
11. Requires a successor contractor to retain specified employee information in written or electronic format for at least three years.
12. Allows a covered employee to bring an action against a successor contractor in any superior court of the state with jurisdiction over the successor contractor if provisions of this bill are not met.
13. Authorizes the court, upon finding a violation of provisions of this bill, to award back pay, issue an injunction or appropriate order to cease continued violation of those provisions, and provide any other relief deemed appropriate, as specified.
14. Requires the court to award a covered employee reasonable attorney’s fees and costs, as specified, if that employee is the prevailing party.
15. Prohibits a covered employee from maintaining a cause of action due solely to the failure of a successor contractor to provide a written performance evaluation pursuant to the provisions of this bill, as specified.
16. Stipulates that the rights and remedies provided by provisions of this bill are intended to supplement, and not supplant, any existing rights or remedies.
17. Stipulates that provisions of this bill are severable, as specified.

Comments

According to the author, “a regional center’s financial troubles have led to proposals to cut contracts with existing workers, which would cause mass displacement of regional center employees and disrupt vital care to regional center patients since there is no statewide plan to guarantee services. By establishing a transitional retention period for regional center employees, this bill will ensure continuity of services for Californians with developmental disabilities and stability for workers who serve them.”

Regional Centers. The Lanterman Act created California’s regional center system, comprised of 21 regional centers throughout the state whose primary purpose is to connect individuals with services in the community. Regional centers do not directly provide services to individuals and their families, rather they are nonprofit private corporations that contract with DDS to provide information and coordinate the delivery of an array of services and supports to more than 338,000 consumers’ state wide, as of July 2018. These coordinated services and supports include residential placements, supported living services, respite care, transportation, day treatment programs, work support programs, and various social and therapeutic activities. As of December 1, 2017, regional centers employed close to 7,350 full-time equivalent staff.

Oversight of Regional Centers. DDS is responsible for monitoring and overseeing the operations of California’s regional centers. DDS’s oversight ensures that the Lanterman Act is upheld and all contractual, statutory, and regulatory obligations are met. This is done, in part, through the contracting process, DDS places certain requirements and obligations on regional centers through their contracts with each individual regional center. If a regional center is not meeting these obligations, existing law provides for circumstances under, and processes by which DDS is to terminate a contract with a regional center and find a replacement contractor. Existing law also requires DDS to first make reasonable efforts to resolve the problem within an appropriate period of time. If these efforts are unsuccessful, DDS then issues a letter of noncompliance delineating the reasons for noncompliance and establishing a specific timeline for the development and implementation of a corrective action plan.

Since the establishment of DDS in 1977, there have been, as reported by the Association of Regional Center Agencies (ARCA), four terminations of contracts.

Kern Regional Center. Over the course of the last several years Kern Regional Center (KRC), which serves close to 8,700 consumers in Inyo, Kern, and Mono counties, has faced mounting scrutiny. Concerns were raised to DDS particularly with regards to KRC’s financial practices, their solvency, and the impact their financial issues had on service provision to consumers. Beginning in approximately 2012, KRC faced numerous concerns and complaints on a variety of factors, including mismanagement, organizational status, and potential conflicts of interest. By late 2014, DDS sent the regional center a letter outlining required corrections and calling on KRC to develop a plan to assess and address areas of deficiency. There is an ongoing effort between KRC and DDS to ensure consumers are receiving proper care and services, to address DDS’s concerns, as expressed in the Special Contract Language, and for KRC to obtain ongoing financial solvency. For additional information on KRC and DDS’s efforts, please see the Senate Committee on Human Services analysis of this bill.

This bill requires additional information, such as a regional center’s administrative management’s compensation, be posted on the regional center’s internet website to increase transparency. This bill also creates new requirements aimed at ensuring continuity of staff employment and consumer services in the event that operation of a regional center is transferred to a new contractor.

Transparency in Financial Administration of Regional Centers. Existing law requires regional centers post on their Internet Web sites a variety of information to promote transparency, including, but not limited to: independent audits; biannual fiscal audits conducted by DDS; purchase of service policies; board meeting agendas and approved minutes of open meetings of the board; contract awards; and the bylaws of the regional center governing board. Additionally, since each of California’s 21 regional centers are organized as non-profits, as required by Welfare and Institutions Code Section 4620, they, like all non-profits, are required to file Internal Revenue Service (IRS) form 990. A non-profit’s filed IRS form 990 is then a publicly available document that contains a variety of financial information, including the salaries of their officers, directors, trustees, key employees, and highest compensated employees. For regional centers, an IRS form 990 typically includes the salary of their executive director, Chief Financial Officer, and medical services director, as well as their total spent on employee benefits, total compensation for current officers, directors, trustees and key employees, total spent on other salaries and wages, and a variety of other financial details.

California’s regional center structure was created by the Lanterman Act, as was their responsibility to provide services to which qualifying consumers are entitled. Regional center funding is provided for in the state budget, the 2018-19 Budget Act provided for approximately $6.9 billion in regional center funding. The vast majority of this funding is spent on the provision of direct services to consumers through a regional center’s contracts or agreements with service providers, through which they determine the rates paid for the provision of those services. Limitations are set in statutes as to what can be included in those contracts or agreements, and statute prohibits a regional center spending more than 15 percent on either a regional center’s or a service provider’s administrative costs.

This bill would require salaries, wages, and employee benefits for all managerial positions for which the primary purpose is the administrative management of the regional center, including, but not limited to, directors and chief executive officers.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Assembly Committee on Appropriations:

1. Although an unusual occurrence, a regional center contract termination could result in significant costs, possibly in the millions of dollars (General Fund [GF]), to DDS due to limitations placed on a regional center’s ability to immediately and effectively address issues that resulted in the termination of the preceding contract.
2. DDS further notes the provisions granting standing to employees to sue and providing for awards of attorneys’ fees and costs could also result in substantial costs.
3. Minor costs to each regional center to post managerial salary, wage, and benefit information on its website.

SUPPORT: (Verified 8/31/18)

SEIU California (Source)

California Labor Federation

UDW/AFSCME Local 3930

OPPOSITION: (Verified 8/31/18)

Association of Regional Center Agencies

California State Department of Developmental Services

ARGUMENTS IN SUPPORT: The California Labor Federation, in support, writes:

SB 134 will expand protections for Regional Center clients by ensuring that if there is a change in the operator of a Regional Center that there will not be wholesale turnover in staff that will disrupt and harm the clients of that regional center. Layoffs of the existing workforce hurt not just clients and working families, but also impact the local economy. Promoting a stable workforce allows workers to invest in and contribute to their communities. It means regional center workers can continue to provide high quality services for clients while retaining the ability to stay in their homes, keep kids in their schools, and their families can keep health insurance.

SB 134 will also expand transparency to families and the public about the true costs of Regional Center operations by requiring additional posting that include compensation packages of the managerial staff of the regional center. When the entire Lanterman system is suffering from under-funding, open disclosure of the individual compensation paid by Regional Centers is critical to both the families and clients and to all California taxpayers so that they can understand all factors stressing the system. California has a compelling interest in preventing turmoil in the lives of its most vulnerable citizens while ensuring transparency and stability in the regional center workforce.

ARGUMENTS IN OPPOSITION: Association of Regional Center Agencies, in opposition, writes:

For the past fifty years, the State of California has contracted with non-profits (regional centers) to act as the point of entry into the community-based service system for people with developmental disabilities. Overseen by the Department of Developmental Services, in rare and extreme cases, a contract may need to be terminated. Subsequently, a new legal entity will contract with the state to perform those duties. At all times, all parties place a premium on ensuring minimal disruption to individuals with developmental disabilities, their families, regional center line staff, and service providers who work directly with them.

This bill places significant and unique prohibitions on both the state and the potential future contractor that would drive up costs and hinder operational flexibility. The Department (and the state) has used this option, in rare cases, to provide oversight, ensure adequate fiscal control, and address prior operational issues. However, should the proposals in this bill become law, these abilities will be sharply limited – and creates the potential for endemic issues to be legally unresolvable.

Prepared by:

8/31/18 19:55:21

**** END ****

SENATE THIRD READING

STR Bill Id:SB 134

Author:(Hernandez)

As Amended Ver:August 23, 2018

Majority vote

SENATE VOTE: Vote not relevant

SUMMARY: Requires a contract between the Department of Developmental Services (DDS) and a regional center operator renewed or entered into on and after January 1, 2019, to include procedures for employee retention and requires regional centers to include information on certain managers' salaries and benefits on their Internet Web sites.

Specifically, this bill:

1. Makes a number of Legislative findings and declarations related to the critical services provided by regional centers to individuals with developmental disabilities, the importance of continuity of these services, and the stability and continuity of services that a transitional retention period for regional center employees could provide.
2. Requires each regional center to include on its Internet Web site, alongside other information already required to be included by current law, the salaries, wages, and employee benefits for all managerial positions for which the primary purpose is the administrative management of the regional center, as specified.
3. Requires a contract between DDS and a private nonprofit association for the operation of a regional center, as specified, that is entered into on and after January 1, 2019, to include procedures for employee retention, as specified by the provisions of this bill.
4. Defines "change of operator" to mean the replacement of a contractor with a successor contractor by DDS.
5. Defines "contractor" to mean a nonprofit corporation with which DDS contracts to operate a regional center, as specified.
6. Defines "covered employee" to mean an individual who has been employed by a contractor for at least 90 days immediately prior to a change of operator, but not to include: a managerial, supervisory, or confidential employee; a temporary employee; or a part-time employee who has worked less than 20 hours per week for the predecessor contractor for at least 90 days immediately prior to the change of operator.
7. Defines "department" to mean DDS.
8. Defines "predecessor contractor" to mean the contractor prior to the change of operator.
9. Defines "regional center" as defined in current law, as specified.
10. Defines "successor contractor" to mean the contractor subsequent to the change of operator.
11. Defines "total compensation" to mean the combined value of the covered employee's wages and benefits immediately prior to the change of operator.
12. Specifies that total compensation may be paid entirely as wages or in any combination of wages and fringe benefits, to be determined by the successor contractor, and further, stipulates that total compensation includes the covered employee's hourly wage rate or per diem value of the covered employee's monthly salary, and employer payments toward the covered employee's health and welfare and pension benefits, as specified.
13. Defines "transition period" to mean a period of 90 days immediately following the effective date of a change of operator.
14. Requires DDS to notify a contractor that it has awarded or intends to award the contract to a different entity and, further, requires this notification to include the effective date of the change of operator and the successor contractor's contact information, as specified.
15. Requires the predecessor contractor to, at least 15 days prior to the effective date of the change of operator, provide a list containing specified information regarding all covered employees to the successor contractor.
16. Subjects a contract entered into or renewed pursuant to the provisions of this bill to all of the following conditions:
    1. Stipulates that the successor contractor:
       1. Shall agree to retain all covered employees for at least 90 days subsequent to a change of operator, with certain exceptions specified in the provisions of this bill;
       2. Shall not reduce total compensation of or terminate without cause a covered employee during the transition period;
       3. Shall retain qualified covered employees by seniority within each job classification in the event that it determines in good faith that it requires fewer employees during the transition period than were required by the predecessor contractor, as specified;
       4. Shall, at the end of the transition period, make a written performance evaluation for each covered employee retained during the transition period; and
       5. May, with a labor organization representing covered employees, by collective bargaining agreement, provide that the agreement supersedes the requirements of provisions of this bill;
    2. Requires the predecessor contractor to, at least 15 days prior to the effective date of a change of operator, cause to be sent to any labor organization representing covered employees and cause to be posted in a conspicuous place at each principal place of employment of any covered employee a public notice containing information regarding the change of operator, as specified; and
    3. Requires a successor contractor to retain all of the following in written or electronic format for at least three years:
       1. The list of all covered employees provided by the predecessor contractor pursuant to the provisions of this bill;
       2. All offers of employment made to covered employees;
       3. All terminations of covered employees during a transition period, including reasons for termination; and
       4. All written performance evaluations of covered employees completed by the successor contractor at the end of the transition period pursuant to the provisions of this bill.
17. Allows a covered employee to bring an action against a successor contractor in any superior court of the state with jurisdiction over the successor contractor if he or she:
    1. Is not offered employment;
    2. Has been discharged in violation of provisions of this bill; or
    3. Has been paid less than the covered employee's total compensation during the transition period.
18. Authorizes the court, upon finding a violation of provisions of this bill, to award back pay, issue an injunction or appropriate order to cease continued violation of those provisions, and provide any other relief deemed appropriate, as specified.
19. Requires the court to award a covered employee reasonable attorney's fees and costs, as specified, if that employee is the prevailing party.
    Prohibits a covered employee from maintaining a cause of action due solely to the failure of a successor contractor to provide a written performance evaluation pursuant to the provisions of this bill, as specified.
20. Stipulates that the rights and remedies provided by provisions of this bill are intended to supplement, and not supplant, any existing rights or remedies.
21. Stipulates that provisions of this bill are severable, as specified.

EXISTING LAW:

1. Establishes the Lanterman Developmental Disabilities Services Act, which declares California's responsibility for providing an array of services and supports to meet the needs of each person with developmental disabilities in the least restrictive environment, regardless of age or degree of disability, and to support their integration into the mainstream life of the community. (Welfare and Institutions Code Section (WIC) 4500, et seq.)
2. Establishes the jurisdiction of DDS over state developmental centers, including Sonoma, Fairview and Porterville DCs, as specified. (WIC 4440 et seq.)
3. Establishes a system of nonprofit regional centers, which contract with the state to provide fixed points of contact in the community for all persons with developmental disabilities and their families, to coordinate services and supports best suited to them throughout their lifetime. (WIC 4620)
4. Delineates requirements related to regional center contracts and operations. (WIC 4620 et seq.)
5. States that a regional center is responsible for informing DDS immediately if it finds that it does not expect to fulfill its contractual obligations and further, states that failure to provide this notification in a timely manner constitutes grounds for possible revocation or nonrenewal of the contract. (WIC 4635(a))
6. Requires a regional center to, if it makes the decision to cancel or not renew its contract, give at least 90 days' written notice of its decision. (WIC 4635(a))
7. Requires DDS, if it finds that any regional center is not fulfilling its contractual obligations, to make reasonable efforts to resolve the problem within a reasonable period of time with the cooperation of the regional center, as specified. (WIC 4635(b)(1))
8. Requires DDS, if its efforts to resolve the problem are not successful, to issue a letter of noncompliance detailing the noncompliant activities and establishing a specific timeline for the development and implementation of a corrective action plan, as specified, and to approve the plan and monitor its implementation. (WIC 4635(b)(2))
9. Requires DDS, if it finds that any regional center continues to fail in fulfilling its contractual obligations after reasonable efforts have been made, and finds that other regional centers are able to fulfill similar obligations under similar contracts, and finds that it will be in the best interest of the persons being served by the regional center, to take steps to terminate the contract and to negotiate with another governing board to provide regional center services in the area. (WIC 4635(c))
10. Requires DDS, if it makes a decision to cancel or not renew its contract with the regional center, to give a minimum of 90 days' written notice of its decision, unless it has determined that the 90 days' notice would jeopardize the health or safety of the regional center's consumers, or constitutes willful misuse of state funds, as determined by the Attorney General. (WIC 4635(d))
11. Permits a regional center, within 14 days after receipt of a notice from DDS that it will cancel or not renew a contract, to make a written protest to DDS of that decision, and provides for related processes for discussions regarding the decision and dispute resolution, as specified. (WIC 4635(d))
12. Establishes steps DDS must take when terminating or not renewing a regional center contract and negotiating with another governing board for a regional center contract, including, as specified:
    1. Notifying regional center consumers, personnel, providers, and the State Council on Developmental Disabilities that DDS proposes to terminate or not renew the contract with the regional center, and that the state will continue to fulfill its obligations to ensure a continuity of services;
    2. Issuing a request for proposals prior to selecting and negotiating with another governing board for a regional center contract;
    3. Requesting the State Council on Developmental Disabilities and any other community agencies to assist the state by locating or organizing a new governing board to contract with the department to operate the regional center in the area; and
    4. Providing any assistance that may be required to ensure that the transfer of responsibility to a new regional center will be accomplished with minimum disruption to the clients of the service program. (WIC 4635(e))
13. Stipulates that in no event shall the procedures for termination or nonrenewal of a regional center contract limit or abridge the state's authority to contract with any duly authorized organization for the purpose of service delivery, nor shall these procedures be interpreted to represent a continued contractual obligation beyond the limits of any fiscal year contract. (WIC 4635(f))
14. Authorizes DDS to directly operate a regional center during the interim period between the termination of its contract with one governing board and the assumption of operating responsibility by a regional center contract with another governing board, but limits this authority to no longer than 120 days before contracting with a new governing board, as specified. (WIC 4636)
15. Requires each regional center to, as expeditiously as possible and in order to promote transparency, include certain information on its Internet Web site, including, among other items, as specified: regional center independent audits, purchase of service policies, and bylaws of the regional center governing board. (WIC 4629.5)

FISCAL EFFECT: According to the Assembly Appropriations Committee on August 27, 2018:

1. Although an unusual occurrence, a regional center contract termination could result in significant costs, possibly in the millions of dollars (General Fund), to DDS due to limitations placed on a regional center's ability to immediately and effectively address issues that resulted in the termination of the preceding contract. According to DDS, costs could result, for example, from the successor entity's inability to:
2. Quickly reduce excessive or duplicative employees.
3. Address excessive employee salaries or benefits that may have contributed to the insolvency of its predecessor.
4. Terminate the employment of individuals who have a record of poor performance or who had a role in the fiscal and operational practices resulting in termination of the prior contract.

As a result, a regional center could begin its operation with a significant fiscal deficit it would be unable to effectively address for at least 90 days. This delay would impact the successor entity's ability to operate within the funding allocation provided by the state, which conflicts with existing statute. The state would be obligated to provide additional General Fund dollars to bridge the gap in funding.

1. DDS further notes the provisions granting standing to employees to sue and providing for awards of attorneys' fees and costs could also result in substantial costs.
2. This bill may result in minor costs to each regional center to post managerial salary, wage, and benefit information on its website.

COMMENTS:

Developmental services: Developmental disabilities are disabilities that originate before an individual attains 18 years of age, are expected to continue indefinitely, and constitute a substantial disability for that individual; they include intellectual disabilities, cerebral palsy, epilepsy, and autism spectrum disorders (ASD). Other developmental disabilities are those disabling conditions similar to an intellectual disability that require treatment (i.e., care and management) similar to that required by individuals with an intellectual disability.

The Lanterman Act (Welfare and Institutions Code Section 4500 et seq.) declares the state's responsibility for providing an array of services and supports to meet the needs of each person with developmental disabilities in the least restrictive environment, regardless of age or degree of disability, and to support their integration into the mainstream life of the community. The Lanterman Act entitles each eligible individual to treatment and habilitation services and supports in the least restrictive environment. Services provided under the Act are designed to enable all consumers to live more independent and productive lives in the community.

Regional centers: DDS and 21 regional centers – private nonprofit entities established pursuant to the Lanterman Act, that contract with DDS to carry out many of the state's responsibilities under the Act – share responsibility for the implementation of the Lanterman Act service system. The 21 regional centers coordinate the provision of services and supports such as residential placements, supported living services, respite care, transportation, day treatment programs, work support programs, and various social and therapeutic activities; they currently serve over 338,000 consumers.

Regional center staff perform a range of activities related to administration, operations, and, predominantly, coordination of services for consumers. As of December 1, 2017, regional centers employed close to 7,350 full-time equivalent staff; 4,819 of these employees worked in classifications pertaining to service coordination for Early Start and Lanterman-eligible individuals. Total staff sizes at individual regional centers ranged from 118 full-time equivalent employees at Redwood Coast Regional Center to 757 at Inland Regional Center.

DDS monitors and oversees the operations of regional centers in order to ensure that the Lanterman Act is upheld and all contractual, statutory, and regulatory obligations are met. Sections 4635 and 4636 of the Welfare and Institutions Code provide for circumstances under, and processes by, which DDS is to terminate a contract with a regional center and find a replacement contractor in the event that a regional center is not meeting its contractual obligations. Prior to termination, however, DDS is required by these same provisions of state law to make reasonable efforts to resolve the problem within an appropriate period of time. If these efforts are unsuccessful, DDS will issue a letter of noncompliance delineating the reasons for noncompliance and establishing a specific timeline for the development and implementation of a corrective action plan.

Since 1977, when the Health and Welfare Agency was reorganized and DDS was established by SB 363 (Gregorio), Chapter 1252, Statutes of 1977, there have been, as reported by the Association of Regional Center Agencies (ARCA), four terminations of contracts, including:

1. In 1979, Loma Prieto Regional Center (in the area now served by San Andreas Regional Center);
2. In 1982, Western Regional Center (in the area now served by Westside Regional Center);
3. In 1983, North Coast Regional Center (in the area now served by Redwood Coast Regional Center); and
4. In 1985, San Gabriel Valley Regional Center (in the area now served by San Gabriel/Pomona Regional Center).

Kern Regional Center: In recent years, Kern Regional Center (KRC) has faced mounting scrutiny particularly with regards to its financial practices and solvency, and impacts on service provision to consumers. Beginning around 2012, KRC – which serves close to 8,700 consumers in Inyo, Kern, and Mono counties – had numerous concerns and complaints raised about factors such as its management, organizational status, and potential conflicts of interest. By late 2014, DDS sent the regional center a letter outlining required corrections and calling on KRC to develop a plan to assess and address areas of deficiency. In 2015, among other things, the Board of KRC terminated the Executive Director and the regional center's operational budget was found to have a deficit of approximately $500,000, which DDS then supplemented. A similar deficit, also supplemented by DDS, occurred in 2016. In 2017, an outside management company was brought in to work with KRC on reviewing its operations and ensuring future financial solvency. Throughout this time, DDS has continued to revise KRC's Special Contract Language with requirements aimed at improving performance and operations. DDS informed KRC of the most recent revision in mid-July of this year.

Need for this bill: This bill seeks to increase transparency about regional center administrative management's compensation and to ensure continuity of employment and service provision in the event the operation of a regional center is transferred to a new contractor.

According to the author, "Regional centers provide critical access to support services for Californians with developmental disabilities, one of our most vulnerable populations in the state. The crucial services administered to this population, and the workers who provide this quality care, should not be jeopardized due to financial troubles caused by executive mismanagement and poor oversight. These financial troubles have led to proposals to cut contracts with existing workers, which would cause mass displacement of regional center employees and disrupt vital care to regional center patients since there is no statewide plan to guarantee services. By establishing a transitional retention period for regional center employees, this bill will ensure continuity of services for developmentally disabled Californians and stability for workers who serve them."

SEIU California, sponsor of this bill, states that:

"[This bill] will expand transparency to families and the public about the true costs of Regional Center operations by requiring additional postings that include compensation packages of the managerial staff of the regional center.

Additionally, [this bill] will expand protections for Regional Center clients by ensuring that if there is a change in the operator of a Regional Center that there will not be wholesale turnover in staff that will disrupt and harm the clients of that regional center.

When the entire Lanterman system is suffering from under-funding, open disclosure of the individual compensation paid by Regional Centers is critical to both the families and clients and to all California taxpayers so that they can understand all factors stressing the system. [This bill] will provide more open disclosure.

California has a compelling interest in preventing turmoil in the lives of its most vulnerable citizens that would occur if large scale turnover were to occur is the staff of a Regional Center due to a change in operator.

[This bill] will guard against that eventuality by providing a 90 day transition period."

Opposition: Writing in opposition, the Association of Regional Center Agencies (ARCA) states that:

All non-profit (tax-exempt) organizations are required to file IRS form 990 (-N, -EZ, -PF), which include reportable compensation and other compensation for various employees. These industry-standard details provide accountability and transparency, and are readily accessible by the public. This bill's proposals create an unnecessary standard that singles out just one component of the non-profit sector.

Second, this bill proposes to restructure the policies governing certain state contracts. For the past fifty years, the State of California has contracted with non-profits (regional centers) to act as the point of entry into the community-based service system for people with developmental disabilities. Overseen by the Department of Developmental Services, in rare and extreme cases, a contract may need to be terminated. Subsequently, a new legal entity will contract with the state to perform those duties. At all times, all parties place a premium on ensuring minimal disruption to individuals with developmental disabilities, their families, regional center line staff, and service providers who work directly with them.

This bill places significant and unique prohibitions on both the state and the potential future contractor that would drive up costs and hinder operational flexibility. The Department (and the state) has used this option, in rare cases, to provide oversight, ensure adequate fiscal control, and address prior operational issues. However, should the proposals in this bill become law, these abilities will be sharply limited – and creates the potential for endemic issues to be legally unresolvable.

Analysis Prepared by: Daphne Hunt / HUM. S. / (916) 319-2089 FN: 0005010

Date of Hearing: August 27, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SB 134

Author:(Hernandez) – As Amended Ver:August 23, 2018

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

SUMMARY:

This bill requires a contract between the Department of Developmental Services (DDS) and a regional center operator to provide for employee retention and requires regional centers to post information on managers’ salaries and benefits on their internet websites. Specifically, this bill:

1. Requires a contract between DDS and a private nonprofit association for the operation of a regional center that is entered into or renewed on and after January 1, 2019, to stipulate that the successor contractor:
2. Agree to retain all covered employees for at least 90 days subsequent to a change of operator, with certain exceptions.
3. Not reduce total compensation of or terminate without cause a covered employee during the transition period.
4. Retain qualified covered employees by seniority within each job classification if the successor contractor determines in good faith that it requires fewer employees during the transition period than were required by the predecessor contractor, as specified.
5. At the end of the transition period, make a written performance evaluation for each covered employee retained during the transition period.
6. Provide that a collective bargaining agreement supersedes the requirements of this bill.
7. Allows a covered employee to bring an action against a successor contractor in superior court for violations of these provisions and authorizes the court, upon finding a violation, to award back pay, issue an injunction or appropriate order to cease continued violation, and provide any other relief deemed appropriate.
8. Requires each regional center to include on its internet website, alongside other already required information, the salaries, wages, and employee benefits for all managerial positions for which the primary purpose is the administrative management of the regional center.

FISCAL EFFECT:

1. Although an unusual occurrence, a regional center contract termination could result in significant costs, possibly in the millions of dollars (GF), to DDS due to limitations placed on a regional center’s ability to immediately and effectively address issues that resulted in the termination of the preceding contract. According to DDS, costs could result, for example, from the successor entity’s inability to:
2. Quickly reduce excessive or duplicative employees.
3. Address excessive employee salaries or benefits that may have contributed to the insolvency of its predecessor.
4. Terminate the employment of individuals who have a record of poor performance or who had a role in the fiscal and operational practices resulting in termination of the prior contract.

As a result, a regional center could begin its operation with a significant fiscal deficit it would be unable to effectively address for at least 90 days. This delay would impact the successor entity’s ability to operate within the funding allocation provided by the state, which conflicts with existing statute. The state would be obligated to provide additional GF dollars to bridge the gap in funding.

1. DDS further notes the provisions granting standing to employees to sue and providing for awards of attorneys’ fees and costs could also result in substantial costs.
2. Minor costs to each regional center to post managerial salary, wage, and benefit information on its website.

COMMENTS:

1. Purpose. This bill seeks to increase transparency about regional center executives’ compensation and to ensure continuity of employment and service provision in the event the operation of a regional center is transferred to a new contractor.
2. Background. The Lanterman Act declares the state’s responsibility for providing services and supports to meet the needs of each person with developmental disabilities in the least restrictive environment, regardless of age or degree of disability, and to support their integration into the mainstream life of the community.

DDS and 21 regional centers – private nonprofit entities established pursuant to the Lanterman Act, that contract with DDS to carry out many of the state’s responsibilities under the act – share responsibility for the implementation of the Lanterman Act service system. The 21 regional centers coordinate the provision of services and supports such as residential placements, supported living services, respite care, transportation, day treatment programs, work support programs, and various social and therapeutic activities; they currently serve over 338,000 consumers. As of December 1, 2017, regional centers employed close to 7,350 full-time equivalent staff; 4,819 of these employees worked in classifications pertaining to service coordination for Early Start and Lanterman-eligible individuals.

DDS monitors and oversees the operations of regional centers to ensure that the Lanterman Act is upheld and all contractual, statutory, and regulatory obligations are met. Existing law provides for circumstances under, and processes by, which DDS is to terminate a contract with a regional center and find a replacement contractor in the event that a regional center is not meeting its contractual obligations. Since 1977, when DDS was established, the Association of Regional Center Agencies reports there have been four terminations of contracts, most recently in 1985.

1. Kern Regional Center. In recent years, Kern Regional Center (KRC) has faced mounting scrutiny particularly with regards to its financial practices and solvency and to impacts on service provision to consumers. Beginning around 2012, KRC – which serves close to 8,700 consumers in Inyo, Kern, and Mono counties – had numerous concerns and complaints raised about its management, organizational status, and potential conflicts of interest. In late 2014, DDS sent the regional center a letter outlining required corrections and calling on KRC to develop a plan to assess and address areas of deficiency. In 2015, among other things, the board of KRC terminated the executive director and found the regional center’s operational budget had a deficit of approximately $500,000, which DDS then supplemented. A similar deficit, also supplemented by DDS, occurred in 2016. In 2017, an outside management company was brought in to work with KRC on reviewing its operations and ensuring future financial solvency. Throughout this time, DDS has continued to revise KRC’s special contract language with requirements aimed at improving performance and operations. DDS informed KRC of the most recent revision in mid-July of this year.
2. Arguments in Support. SEIU California argues this bill will expand transparency about regional center costs and expand protections for regional center clients by ensuring that a contract change will not result in a wholesale turnover in staff that will disrupt the lives of regional center clients.
3. Arguments in Opposition. The Association of Regional Center Agencies (ARCA) argues that, as a non-profit, a regional center’s compensation information is readily accessible by the public under existing law. They further state that only in rare and extreme cases does a contract need to be terminated. When this occurs, all parties place a premium on ensuring minimal disruption to individuals with developmental disabilities, their families, regional center line staff, and service providers who work directly with them.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: August 27, 2018

ASSEMBLY COMMITTEE ON HUMAN SERVICES

Blanca Rubio, Chair

SBPCA Bill Id:SB 134

Author:(Hernandez) – As Amended Ver:August 23, 2018

SENATE VOTE: Not relevant

SUBJECT: Regional center contracts

SUMMARY: Requires a contract between the Department of Developmental Services (DDS) and a regional center operator renewed or entered into on and after January 1, 2019, to include procedures for employee retention and requires regional centers to include information on certain managers’ salaries and benefits on their Internet Web sites.

Specifically, this bill:

1. Makes a number of Legislative findings and declarations related to the critical services provided by regional centers to individuals with developmental disabilities, the importance of continuity of these services, and the stability and continuity of services that a transitional retention period for regional center employees could provide.
2. Requires each regional center to include on its Internet Web site, alongside other information already required to be included by current law, the salaries, wages, and employee benefits for all managerial positions for which the primary purpose is the administrative management of the regional center, as specified.
3. Requires a contract between DDS and a private nonprofit association for the operation of a regional center, as specified, that is entered into on and after January 1, 2019, to include procedures for employee retention, as specified by the provisions of this bill.
4. Defines “change of operator” to mean the replacement of a contractor with a successor contractor by DDS.
5. Defines “contractor” to mean a nonprofit corporation with which DDS contracts to operate a regional center, as specified.
6. Defines “covered employee” to mean an individual who has been employed by a contractor for at least 90 days immediately prior to a change of operator, but not to include: a managerial, supervisory, or confidential employee; a temporary employee; or a part-time employee who has worked less than 20 hours per week for the predecessor contractor for at least 90 days immediately prior to the change of operator.
7. Defines “department” to mean DDS.
8. Defines “predecessor contractor” to mean the contractor prior to the change of operator.
9. Defines “regional center” as defined in current law, as specified.
10. Defines “successor contractor” to mean the contractor subsequent to the change of operator.
11. Defines “total compensation” to mean the combined value of the covered employee’s wages and benefits immediately prior to the change of operator.
12. Specifies that total compensation may be paid entirely as wages or in any combination of wages and fringe benefits, to be determined by the successor contractor, and further, stipulates that total compensation includes the covered employee’s hourly wage rate or per diem value of the covered employee’s monthly salary, and employer payments toward the covered employee’s health and welfare and pension benefits, as specified.
13. Defines “transition period” to mean a period of 90 days immediately following the effective date of a change of operator.
14. Requires DDS to notify a contractor that it has awarded or intends to award the contract to a different entity and, further, requires this notification to include the effective date of the change of operator and the successor contractor’s contact information, as specified.
15. Requires the predecessor contractor to, at least 15 days prior to the effective date of the change of operator, provide a list containing specified information regarding all covered employees to the successor contractor.
16. Subjects a contract entered into or renewed pursuant to the provisions of this bill to all of the following conditions:
    1. Stipulates that the successor contractor:
       1. Shall agree to retain all covered employees for at least 90 days subsequent to a change of operator, with certain exceptions specified in the provisions of this bill;
       2. Shall not reduce total compensation of or terminate without cause a covered employee during the transition period;
       3. Shall retain qualified covered employees by seniority within each job classification in the event that it determines in good faith that it requires fewer employees during the transition period than were required by the predecessor contractor, as specified;
       4. Shall, at the end of the transition period, make a written performance evaluation for each covered employee retained during the transition period; and
       5. May, with a labor organization representing covered employees, by collective bargaining agreement, provide that the agreement supersedes the requirements of provisions of this bill;
    2. Requires the predecessor contractor to, at least 15 days prior to the effective date of a change of operator, cause to be sent to any labor organization representing covered employees and cause to be posted in a conspicuous place at each principal place of employment of any covered employee a public notice containing information regarding the change of operator, as specified; and
    3. Requires a successor contractor to retain all of the following in written or electronic format for at least three years:
       1. The list of all covered employees provided by the predecessor contractor pursuant to the provisions of this bill;
       2. All offers of employment made to covered employees;
       3. All terminations of covered employees during a transition period, including reasons for termination; and
       4. All written performance evaluations of covered employees completed by the successor contractor at the end of the transition period pursuant to the provisions of this bill.
17. Allows a covered employee to bring an action against a successor contractor in any superior court of the state with jurisdiction over the successor contractor if he or she:
    1. Is not offered employment;
    2. Has been discharged in violation of provisions of this bill; or
    3. Has been paid less than the covered employee’s total compensation during the transition period.
18. Authorizes the court, upon finding a violation of provisions of this bill, to award back pay, issue an injunction or appropriate order to cease continued violation of those provisions, and provide any other relief deemed appropriate, as specified.
19. Requires the court to award a covered employee reasonable attorney’s fees and costs, as specified, if that employee is the prevailing party.
    
20. Prohibits a covered employee from maintaining a cause of action due solely to the failure of a successor contractor to provide a written performance evaluation pursuant to the provisions of this bill, as specified.
21. Stipulates that the rights and remedies provided by provisions of this bill are intended to supplement, and not supplant, any existing rights or remedies.
22. Stipulates that provisions of this bill are severable, as specified.

EXISTING LAW:

1. Establishes the Lanterman Developmental Disabilities Services Act, which declares California’s responsibility for providing an array of services and supports to meet the needs of each person with developmental disabilities in the least restrictive environment, regardless of age or degree of disability, and to support their integration into the mainstream life of the community. (WIC 4500, et seq.)
2. Establishes the jurisdiction of DDS over state developmental centers, including Sonoma, Fairview and Porterville DCs, as specified. (WIC 4440 et seq.)
3. Establishes a system of nonprofit regional centers, which contract with the state to provide fixed points of contact in the community for all persons with developmental disabilities and their families, to coordinate services and supports best suited to them throughout their lifetime. (WIC 4620)
4. Delineates requirements related to regional center contracts and operations. (WIC 4620 et seq.)
5. States that a regional center is responsible for informing DDS immediately if it finds that it does not expect to fulfill its contractual obligations and further, states that failure to provide this notification in a timely manner constitutes grounds for possible revocation or nonrenewal of the contract. (WIC 4635 (a))
6. Requires a regional center to, if it makes the decision to cancel or not renew its contract, give at least 90 days’ written notice of its decision. (WIC 4635 (a))
7. Requires DDS, if it finds that any regional center is not fulfilling its contractual obligations, to make reasonable efforts to resolve the problem within a reasonable period of time with the cooperation of the regional center, as specified. (WIC 4635 (b)(1))
8. Requires DDS, if its efforts to resolve the problem are not successful, to issue a letter of noncompliance detailing the noncompliant activities and establishing a specific timeline for the development and implementation of a corrective action plan, as specified, and to approve the plan and monitor its implementation. (WIC 4635 (b)(2))
9. Requires DDS, if it finds that any regional center continues to fail in fulfilling its contractual obligations after reasonable efforts have been made, and finds that other regional centers are able to fulfill similar obligations under similar contracts, and finds that it will be in the best interest of the persons being served by the regional center, to take steps to terminate the contract and to negotiate with another governing board to provide regional center services in the area. (WIC 4635 (c))
10. Requires DDS, if it makes a decision to cancel or not renew its contract with the regional center, to give a minimum of 90 days’ written notice of its decision, unless it has determined that the 90 days’ notice would jeopardize the health or safety of the regional center’s consumers, or constitutes willful misuse of state funds, as determined by the Attorney General. (WIC 4635 (d))
11. Permits a regional center, within 14 days after receipt of a notice from DDS that it will cancel or not renew a contract, to make a written protest to DDS of that decision, and provides for related processes for discussions regarding the decision and dispute resolution, as specified. (WIC 4635 (d))
12. Establishes steps DDS must take when terminating or not renewing a regional center contract and negotiating with another governing board for a regional center contract, including, as specified:
    1. Notifying regional center consumers, personnel, providers, and the State Council on Developmental Disabilities that DDS proposes to terminate or not renew the contract with the regional center, and that the state will continue to fulfill its obligations to ensure a continuity of services;
    2. Issuing a request for proposals prior to selecting and negotiating with another governing board for a regional center contract;
    3. Requesting the State Council on Developmental Disabilities and any other community agencies to assist the state by locating or organizing a new governing board to contract with the department to operate the regional center in the area; and
    4. Providing any assistance that may be required to ensure that the transfer of responsibility to a new regional center will be accomplished with minimum disruption to the clients of the service program. (WIC 4635 (e))
13. Stipulates that in no event shall the procedures for termination or nonrenewal of a regional center contract limit or abridge the state’s authority to contract with any duly authorized organization for the purpose of service delivery, nor shall these procedures be interpreted to represent a continued contractual obligation beyond the limits of any fiscal year contract. (WIC 4635 (f))
14. Authorizes DDS to directly operate a regional center during the interim period between the termination of its contract with one governing board and the assumption of operating responsibility by a regional center contract with another governing board, but limits this authority to no longer than 120 days before contracting with a new governing board, as specified. (WIC 4636)
15. Requires each regional center to, as expeditiously as possible and in order to promote transparency, include certain information on its Internet Web site, including, among other items, as specified: regional center independent audits, purchase of service policies, and bylaws of the regional center governing board. (WIC 4629.5)

FISCAL EFFECT: Unknown.

COMMENTS:

Developmental services: Developmental disabilities are disabilities that originate before an individual attains 18 years of age, are expected to continue indefinitely, and constitute a substantial disability for that individual; they include intellectual disabilities, cerebral palsy, epilepsy, and autism spectrum disorders (ASD). Other developmental disabilities are those disabling conditions similar to an intellectual disability that require treatment (i.e., care and management) similar to that required by individuals with an intellectual disability.

The Lanterman Act (Welfare and Institutions Code Section 4500 et seq.) declares the state’s responsibility for providing an array of services and supports to meet the needs of each person with developmental disabilities in the least restrictive environment, regardless of age or degree of disability, and to support their integration into the mainstream life of the community. The Lanterman Act entitles each eligible individual to treatment and habilitation services and supports in the least restrictive environment. Services provided under the Act are designed to enable all consumers to live more independent and productive lives in the community.

Regional centers: DDS and 21 regional centers – private nonprofit entities established pursuant to the Lanterman Act, that contract with DDS to carry out many of the state’s responsibilities under the Act – share responsibility for the implementation of the Lanterman Act service system. The 21 regional centers coordinate the provision of services and supports such as residential placements, supported living services, respite care, transportation, day treatment programs, work support programs, and various social and therapeutic activities; they currently serve over 338,000 consumers.

Regional center staff perform a range of activities related to administration, operations, and, predominantly, coordination of services for consumers. As of December 1, 2017, regional centers employed close to 7,350 full-time equivalent staff; 4,819 of these employees worked in classifications pertaining to service coordination for Early Start and Lanterman-eligible individuals. Total staff sizes at individual regional centers ranged from 118 full-time equivalent employees at Redwood Coast Regional Center to 757 at Inland Regional Center.

DDS monitors and oversees the operations of regional centers in order to ensure that the Lanterman Act is upheld and all contractual, statutory, and regulatory obligations are met. Sections 4635 and 4636 of the Welfare and Institutions Code provide for circumstances under, and processes by, which DDS is to terminate a contract with a regional center and find a replacement contractor in the event that a regional center is not meeting its contractual obligations. Prior to termination, however, DDS is required by these same provisions of state law to make reasonable efforts to resolve the problem within an appropriate period of time. If these efforts are unsuccessful, DDS will issue a letter of noncompliance delineating the reasons for noncompliance and establishing a specific timeline for the development and implementation of a corrective action plan.

Since 1977, when the Health and Welfare Agency was reorganized and DDS was established by SB 363 (Gregorio), Chapter 1252, Statutes of 1977, there have been, as reported by the Association of Regional Center Agencies (ARCA), four terminations of contracts, including:

• In 1979, Loma Prieto Regional Center (in the area now served by San Andreas Regional Center);
• In 1982, Western Regional Center (in the area now served by Westside Regional Center);
• In 1983, North Coast Regional Center (in the area now served by Redwood Coast Regional Center); and
• In 1985, San Gabriel Valley Regional Center (in the area now served by San Gabriel/Pomona Regional Center).

Kern Regional Center: In recent years, Kern Regional Center (KRC) has faced mounting scrutiny particularly with regards to its financial practices and solvency, and impacts on service provision to consumers. Beginning around 2012, KRC – which serves close to 8,700 consumers in Inyo, Kern, and Mono counties – had numerous concerns and complaints raised about factors such as its management, organizational status, and potential conflicts of interest. By late 2014, DDS sent the regional center a letter outlining required corrections and calling on KRC to develop a plan to assess and address areas of deficiency. In 2015, among other things, the Board of KRC terminated the Executive Director and the regional center’s operational budget was found to have a deficit of approximately $500,000, which DDS then supplemented. A similar deficit, also supplemented by DDS, occurred in 2016. In 2017, an outside management company was brought in to work with KRC on reviewing its operations and ensuring future financial solvency. Throughout this time, DDS has continued to revise KRC’s Special Contract Language with requirements aimed at improving performance and operations. DDS informed KRC of the most recent revision in mid-July of this year.

Need for this bill: This bill seeks to increase transparency about regional center administrative management’s compensation and to ensure continuity of employment and service provision in the event the operation of a regional center is transferred to a new contractor.

According to the author, “Regional centers provide critical access to support services for Californians with developmental disabilities, one of our most vulnerable populations in the state. The crucial services administered to this population, and the workers who provide this quality care, should not be jeopardized due to financial troubles caused by executive mismanagement and poor oversight. These financial troubles have led to proposals to cut contracts with existing workers, which would cause mass displacement of regional center employees and disrupt vital care to regional center patients since there is no statewide plan to guarantee services. By establishing a transitional retention period for regional center employees, this bill will ensure continuity of services for developmentally disabled Californians and stability for workers who serve them.”

SEIU California, sponsor of this bill, states that:

“[This bill] will expand transparency to families and the public about the true costs of Regional Center operations by requiring additional postings that include compensation packages of the managerial staff of the regional center.

Additionally, [this bill] will expand protections for Regional Center clients by ensuring that if there is a change in the operator of a Regional Center that there will not be wholesale turnover in staff that will disrupt and harm the clients of that regional center.

When the entire Lanterman system is suffering from under-funding, open disclosure of the individual compensation paid by Regional Centers is critical to both the families and clients and to all California taxpayers so that they can understand all factors stressing the system. [This bill] will provide more open disclosure.

California has a compelling interest in preventing turmoil in the lives of its most vulnerable citizens that would occur if large scale turnover were to occur is the staff of a Regional Center due to a change in operator.

[This bill] will guard against that eventuality by providing a 90 day transition period.”

Opposition: Writing in opposition, the Association of Regional Center Agencies (ARCA) states that:

“All non-profit (tax-exempt) organizations are required to file IRS form 990 (-N, -EZ, -PF), which include reportable compensation and other compensation for various employees. These industry-standard details provide accountability and transparency, and are readily accessible by the public. This bill’s proposals create an unnecessary standard that singles out just one component of the non-profit sector.

Second, this bill proposes to restructure the policies governing certain state contracts. For the past fifty years, the State of California has contracted with non-profits (regional centers) to act as the point of entry into the community-based service system for people with developmental disabilities. Overseen by the Department of Developmental Services, in rare and extreme cases, a contract may need to be terminated. Subsequently, a new legal entity will contract with the state to perform those duties. At all times, all parties place a premium on ensuring minimal disruption to individuals with developmental disabilities, their families, regional center line staff, and service providers who work directly with them.

This bill places significant and unique prohibitions on both the state and the potential future contractor that would drive up costs and hinder operational flexibility. The Department (and the state) has used this option, in rare cases, to provide oversight, ensure adequate fiscal control, and address prior operational issues. However, should the proposals in this bill become law, these abilities will be sharply limited – and creates the potential for endemic issues to be legally unresolvable.”

REGISTERED SUPPORT / OPPOSITION:

Support

SEIU California, sponsor

California Labor Federation

UDW/AFSCME Local 390

Opposition

Association of Regional Center Agencies

Analysis Prepared by: Daphne Hunt / HUM. S. / (916) 319-2089

SENATE THIRD READING

STR Bill Id:SB 134

Author:(Hernandez)

As Introduced Ver:January 11, 2017

Majority vote

SENATE VOTE: 39-0

SUMMARY: Deletes references to the federal transitional reinsurance program in the small group market for health care service plans (health plans).

FISCAL EFFECT: None.

COMMENTS: According to the author, prior to the federal Patient Protection and Affordable Care Act (ACA), California adopted market reform measures to make it easier for small employers to access affordable health insurance options for their employees. With the passage of the ACA, California adopted AB 1083 (Monning), Chapter 852, Statutes of 2012, to update California's small group laws to comply with or exceed the ACA requirements. The Republican Congressional leadership and President Donald Trump have called for a "repeal and replace" of the ACA. The President has issued an Executive Order to direct his administration to reduce regulatory burdens on the health insurance industry and others. Federal legislation has been introduced which would substantially roll back gains made in California. The author states that this bill is necessary to keep California's small group law current in response to statutory and regulatory changes as well as administrative changes at the federal level.

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. However, if not accompanied by other regulatory measures, these provisions could have unintended consequences for the insurance market. For example, insurers may try to compete by avoiding sicker enrollees rather than by providing the best value to consumers. In addition, in the early years of market reform insurers faced uncertainty as to how to price coverage as new people gained coverage, potentially leading to premium volatility. To discourage behavior that could lead to adverse selection, the ACA makes it difficult for people to wait until they are sick to purchase insurance (i.e. by limiting open enrollment periods, requiring most people to have insurance coverage or pay a penalty, and providing subsidies to help with the cost of insurance). Three provisions of the ACA: a) risk adjustment (redistributes funds from plans with lower-risk enrollees to plans with higher-risk enrollees by protecting against adverse selection and risk selection in the individual and small group markets, inside and outside the exchanges by spreading financial risk across the markets); b) reinsurance; and, c) risk corridors (limits losses and gains beyond an allowable range by stabilizing premiums and protects against inaccurate premium setting during initial years of the reform), were intended to promote insurer competition on the basis of quality and value and promote insurance market stability, particularly in the early years of reform.

The ACA established a transitional reinsurance program to stabilize premiums inside and outside of health benefit exchanges. The transitional reinsurance program will collect contributions from contributing entities to fund reinsurance payments to issuers of eligible market plans, the administrative costs of operating the reinsurance program, and the General Fund of the United States (U.S.) Treasury for the 2014, 2015, and 2016 benefit years.

The goal of the ACA's temporary reinsurance program was to stabilize individual market premiums during the early years of new market reforms (e.g. guaranteed issue). The program transfers funds to individual market insurance plans with higher-cost enrollees in order to reduce the incentive for insurers to charge higher premiums due to new market reforms that guarantee the availability of coverage regardless of health status. Reinsurance is meant to stabilize premiums by reducing the incentive for insurers to charge higher premiums due to concerns about higher-risk people enrolling early in the program, whereas risk adjustment is meant to stabilize premiums by mitigating the effects of risk selection across plans. Thus, reinsurance payments are only made to individual market plans that are subject to new market rules (e.g., guaranteed issue), whereas risk adjustment payments are made to both individual and small group plans. Additionally, reinsurance payments are based on actual costs, whereas risk adjustment payments are based on expected costs. As reinsurance is based on actual rather than predicted costs, reinsurance payments will also account for low-risk individuals who may have unexpectedly high costs (such as costs incurred due to an accident or sudden onset of an illness). Under reinsurance, some plans may receive payments for high-cost/high-risk enrollees, and still be eligible for payment for those enrollees under risk adjustment.

To cover the costs of reinsurance payments and administering the program, funds are collected from all health insurance issuers and third party administrators (including those in the individual and group markets). The U.S. Department of Health and Human Services issues reinsurance payments to plans based on need, rather than issuing payments proportional to the amount of contributions from each state.

1. The American Care Act and the Better Care Reconciliation Act (BCRA) and Tax Reform. On May 4, 2017, the House of Representatives voted 217-213 to pass the American Health Care Act (AHCA). The AHCA would repeal and replace the ACA. On June 22 and 26, 2017, Senate Republican leaders released the discussion draft of the BCRA, the Senate version of its repeal and replace legislation. The BCRA includes a more gradual phase-out of Medicaid expansion starting in 2021, Medicaid per-capita caps with tighter indexing in later years, and modified ACA premium subsidies tied to a less generous benchmark plan in 2020. Additionally, states could apply for waivers through a loosened ACA 1332 waiver process and waive essential health benefits, among other potential waivers. The BRCA also defunds Planned Parenthood for one year, repeals ACA taxes, and repeals the employer and individual mandates. Cost-sharing subsidies are appropriated through 2019, thereafter those subsidies are repealed. The BCRA failed passage in July 2017, however, on Dec. 20, 2017, Congress passed the Tax Cuts and Jobs Act, which made significant changes to individual and corporate provisions of the U.S. tax code. The BCRA included a zeroing out of the penalty associated with the ACA's individual mandate beginning in 2019. For 2018, most individuals are still required to maintain coverage or pay a penalty when they file their 2018 federal income tax return.

Health Access California states that since the reinsurance program has expired, it is appropriate to eliminate reference to the program in state law.

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0002590

Date of Hearing: July 11, 2017

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

SBPCA Bill Id:SB 134

Author:(Hernandez) – As Introduced Ver:January 11, 2017

SENATE VOTE: 39-0

SUBJECT: Small group market: single risk pool: index rate.

SUMMARY: Deletes references to the federal transitional reinsurance program in the small group market for health care service plans (health plans).

EXISTING LAW:

1. Establishes the federal Patient Protection and Affordable Care Act (ACA), which enacts various health care coverage market reforms including the guaranteed availability of insurance and various premium stabilization programs, such as the transitional reinsurance program and the risk adjustment program, to stabilize premiums inside and outside of health benefit exchanges.
2. Establishes, in state government, the California Health Benefits Exchange (Exchange), referred to as Covered California, as an independent public entity not affiliated with an agency or department, and requires Covered California to compare and make available through selective contracting health insurance for individuals and small business purchasers as authorized under the ACA.
3. Provides for the regulation of health plans by the Department of Managed Health Care.
4. Requires a health plan, on and after October 1, 2013, to fairly and affirmatively offer, market, and sell all of the health plan’s small employer health insurance policies for plan years on or after January 1, 2014, to all small employers in each service area in which the plan provides or arranges for the provision of health care services.
5. Requires a health plan to consider the claims experience of all enrollees in all nongrandfathered small employer health benefit plans offered by that health plan as a single risk pool for rating purposes in the small employer market.
6. Requires a health plan to establish, at least each calendar year, and no more frequently than each calendar quarter, an index rate for the small employer market based on the total combined claims costs for providing essential health benefits, as defined, within the single risk pool and requires the index rate to be adjusted on a market wide basis based on the total expected market wide payments and charges under the risk adjustment and reinsurance programs established under state law and under the ACA and the Covered California user fees.
7. Requires the premium rate for all of the nongrandfathered small employer health benefit plans within the single risk pool to use the applicable market wide adjusted index rate, as specified.

FISCAL EFFECT: None

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, prior to the ACA, California adopted market reform measures to make it easier for small employers to access affordable health insurance options for their employees. With the passage of the ACA, California adopted AB 1083 (Monning), Chapter 852, Statutes of 2012, to update California’s small group laws to comply with or exceed the ACA requirements. The Republican Congressional leadership and President Donald Trump have called for a “repeal and replace” of the ACA. The President has issued an Executive Order to direct his administration to reduce regulatory burdens on the health insurance industry and others. Federal legislation has been introduced which would substantially roll back gains made in California. The author states that this bill is necessary to keep California’s small group law current in response to statutory and regulatory changes as well as administrative changes at the federal level.
2. BACKGROUND.
   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. However, if not accompanied by other regulatory measures, these provisions could have unintended consequences for the insurance market. For example, insurers may try to compete by avoiding sicker enrollees rather than by providing the best value to consumers. In addition, in the early years of market reform insurers faced uncertainty as to how to price coverage as new people gained coverage, potentially leading to premium volatility. To discourage behavior that could lead to adverse selection, the ACA makes it difficult for people to wait until they are sick to purchase insurance (i.e. by limiting open enrollment periods, requiring most people to have insurance coverage or pay a penalty, and providing subsidies to help with the cost of insurance). Three provisions of the ACA: i) risk adjustment (redistributes funds from plans with lower-risk enrollees to plans with higher-risk enrollees by protecting against adverse selection and risk selection in the individual and small group markets, inside and outside the exchanges by spreading financial risk across the markets); ii) reinsurance; and, iii) risk corridors (limits losses and gains beyond an allowable range by stabilizing premiums and protects against inaccurate premium setting during initial years of the reform), were intended to promote insurer competition on the basis of quality and value and promote insurance market stability, particularly in the early years of reform.
      
      The ACA established a transitional reinsurance program to stabilize premiums inside and outside of health benefit exchanges. The transitional reinsurance program will collect contributions from contributing entities to fund reinsurance payments to issuers of eligible market plans, the administrative costs of operating the reinsurance program, and the General Fund of the U.S. Treasury for the 2014, 2015, and 2016 benefit years.
      The goal of the ACA’s temporary reinsurance program was to stabilize individual market premiums during the early years of new market reforms (e.g. guaranteed issue). The program transfers funds to individual market insurance plans with higher-cost enrollees in order to reduce the incentive for insurers to charge higher premiums due to new market reforms that guarantee the availability of coverage regardless of health status. Reinsurance is meant to stabilize premiums by reducing the incentive for insurers to charge higher premiums due to concerns about higher-risk people enrolling early in the program, whereas risk adjustment is meant to stabilize premiums by mitigating the effects of risk selection across plans. Thus, reinsurance payments are only made to individual market plans that are subject to new market rules (e.g., guaranteed issue), whereas risk adjustment payments are made to both individual and small group plans. Additionally, reinsurance payments are based on actual costs, whereas risk adjustment payments are based on expected costs. As reinsurance is based on actual rather than predicted costs, reinsurance payments will also account for low-risk individuals who may have unexpectedly high costs (such as costs incurred due to an accident or sudden onset of an illness). Under reinsurance, some plans may receive payments for high-cost/high-risk enrollees, and still be eligible for payment for those enrollees under risk adjustment.
      
      To cover the costs of reinsurance payments and administering the program, funds are collected from all health insurance issuers and third party administrators (including those in the individual and group markets). The U.S. Department of Health and Human Services issues reinsurance payments to plans based on need, rather than issuing payments proportional to the amount of contributions from each state.
   2. The American Care Act and the Better Care Reconciliation Act. On May 4, 2017, the House of Representatives voted 217-213 to pass the American Health Care Act (AHCA) (H.R. 1628). The AHCA would repeal and replace the ACA. On June 22 and 26, 2017, Senate Republican leaders released the discussion draft of the Better Care Reconciliation Act (BCRA), the Senate version of its repeal and replace legislation. The BCRA includes a more gradual phase-out of Medicaid expansion starting in 2021, Medicaid per-capita caps with tighter indexing in later years, and modified ACA premium subsidies tied to a less generous benchmark plan in 2020. Additionally, states could apply for waivers through a loosened ACA 1332 waiver process and waive essential health benefits, among other potential waivers. The BRCA also defunds Planned Parenthood for one year, repeals ACA taxes, and repeals the employer and individual mandates. Cost-sharing subsidies are appropriated through 2019, thereafter those subsidies are repealed. The Senate has yet to vote on the BCRA.
3. SUPPORT. Health Access California states that since the reinsurance program has expired, it is appropriate to eliminate reference to the program in state law.
4. RELATED LEGISLATION.
   1. AB 156 (Wood) deletes references in the Insurance Code to the federal transitional reinsurance program in the individual market and is pending in the Senate Health Committee.
   2. AB 157 (Wood) deletes references in the Insurance Code to the federal transitional reinsurance program in the small group market and is pending in the Senate Health Committee.
   3. SB 133 (Hernandez) deletes references in the Health and Safety Code to the federal transitional reinsurance program in the individual market and is pending in the Assembly Health Committee.
5. PREVIOUS LEGISLATION.
   1. AB 1602 (John A. Pérez) Chapter 655, Statutes of 2010 and SB 900 (Alquist) Chapter 659, Statutes of 2010, establishes California’s Exchange and its powers and duties.
   2. ABX1 2 (Pan), Chapter 1, Statutes of 2013-14 First Extraordinary Session and SBX1 2 (Hernandez), Chapter 2, Statutes of 2013-14 First Extraordinary Session, establish health insurance market reforms contained in the ACA specific to individual purchasers, such as prohibiting insurers from denying coverage based on preexisting conditions; and, make conforming changes to small employer health insurance laws resulting from final federal regulations.
   3. SB 961 (Hernandez) and AB 1461 (Monning) of 2012 were identical bills that would have reformed California’s individual market similar to the provisions in SBX1 2. SB 961 and AB 1461 were vetoed by Governor Brown who indicated that without the strong foundation that federal law provides, a state-level mandate on insurers alone could encourage healthy people to wait until they got sick or injured before purchasing coverage and would lead to skyrocketing premiums, making coverage more unaffordable.
   4. AB 1083 (Monning), Chapter 854, Statutes of 2012, establishes reforms in the small group health insurance market to implement the ACA.

REGISTERED SUPPORT / OPPOSITION:

Support

Health Access California

Opposition

None on file.

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097

 CONSENT  

Bill No: SB 134

Author: Hernandez (D)

Introduced: 1/11/17

Vote: 21

SENATE HEALTH COMMITTEE: 8-0, 5/3/17

AYES: Hernandez, Nguyen, Atkins, Leyva, Mitchell, Monning, Newman, Nielsen

NO VOTE RECORDED: Roth

SUBJECT: Small group market: single risk pool: index rate

SOURCE: Author

DIGEST: This bill deletes a reference in existing law to the Affordable Care Act reinsurance program related to small group health plan single risk pool index rate adjustments.

ANALYSIS:

Existing law:

1. Establishes, under federal law, the Affordable Care Act (ACA), which, among other things, requires a health insurance issuer to consider the claims experience of all enrollees in all health plans (other than grandfathered health plans) subject to the ACA, as specified, and offered by such issuer in the small group market in a state, including those enrollees who do not enroll in such plans through a health benefit exchange, to be members of a single risk pool.
2. Establishes, under the ACA, a temporary reinsurance program where reinsurance contributions collected from insurers and third party administrators over three years can be allocated to cover the costs of reinsurance for any of the three years and funds left over can be used to make payments for reinsurance programs for the two years following 2017.
3. Establishes the Department of Managed Health Care (DMHC) to regulate health care service plans (health plans) under the Health and Safety Code and the California Department of Insurance (CDI) to regulate health insurers under the Insurance Code.
4. Requires a health plan to consider as a single risk pool for rating purposes in the small employer market the claims experience of all enrollees in all non-grandfathered small employer health benefit plans offered by the health plan in this state, whether offered as health plan contracts or health insurance policies, including those insureds and enrollees who enroll in coverage through the exchange (California’s exchange is Covered California) and insureds and enrollees covered by the health plan outside Covered California.
5. Requires at least each calendar year, and no more frequently than each calendar quarter, a health plan to establish an index rate for the small employer market in the state based on the total combined claims costs for providing essential health benefits, as defined, within the single risk pool.
6. Requires the index rate to be adjusted on a marketwide basis based on the total expected marketwide payments and charges under the risk adjustment and reinsurance programs established for the state pursuant to the ACA and Covered California user fees, as specified. Requires the premium rate for all of the non-grandfathered small employer health benefit plans within the single risk pool to use the applicable marketwide adjusted index rate, subject only to certain permitted adjustments, as specified.

This bill deletes a reference to the federal reinsurance program in existing law that establishes requirements on small employer health plans with regard to the single risk pool index rate.

Background

1. California’s small group health insurance market. In 1992, under AB 1672 (Margolin and Hansen, Chapter 1128, Statutes of 1992) California enacted a number of reforms to the small group market, making health insurance more accessible to small employers through guaranteed issue and renewability provisions, regulating pre-existing conditions limitations, underwriting protections, and disclosure requirements. Before AB 1672, a carrier would examine an employer’s health history and could either increase the premiums significantly or decline the entire group. California’s small group market has been shaped by guaranteed issue and other protections established in small group reform in 1992. In this market, carriers could impose participation requirements (i.e. 70% of eligible employees must enroll) and contribution requirements (i.e. employer must pay at least pay half of the premium). As a result, enrollees in small group coverage typically pay a fraction of their premium. Under the ACA, employers are not explicitly required to provide health benefits, although certain employers with more than 50 employees may be required to pay a penalty if they either a) do not provide insurance, under certain circumstances, or b) the insurance they provide does not meet specified requirements. The ACA also eliminated the pricing of premiums based on health status, limited the range of premiums based on age, added the self-employed to those eligible for guaranteed issue of coverage, included wellness incentives in the coverage available to small businesses and expanded the small group rules to employers with one to 100 employees.
2. Reinsurance program. The ACA established state-based reinsurance and risk adjustment programs and a federal risk corridors program. The overall goal of these programs was to provide certainty and protect against adverse selection in the market while stabilizing premiums in the individual and small group markets as the ACA market reforms began in 2014. The table below describes the three programs.

Comments

Author’s statement. According to the author, prior to the ACA, California adopted market reform measures to make it easier for small employers to access affordable health insurance options for their employees. With the passage of the ACA, California adopted AB 1083 to update California’s small group laws to comply with or exceed the ACA requirements. Under the terms of the ACA, the reinsurance program was always intended to be temporary with the collection of contributions subject to end in 2016. This bill is needed to update California law related to the single risk pool to reflect that reinsurance payments are no longer being made and therefore do not necessitate adjustment. This bill is also necessary to keep California law current in response to statutory and regulatory changes as well as administrative changes at the federal level.

Related/Prior Legislation

AB 157 (Wood, 2017) contains similar provisions to this bill that apply to the Insurance Code.

SB 133 (Hernandez, 2017) contains similar provisions to this bill that apply to health plans that operate in the individual market. AB 156 (Wood) contains similar provisions to SB 133 that apply to the Insurance Code.

AB 1083 (Monning, Chapter 852, Statutes of 2012) made conforming and other changes to state law governing the sale of small group health insurance products to implement provisions in the ACA, including deleting December to January contract rate dates and instead requiring rates to be in effect no less than 12 months from the date of issuance or renewal, prohibiting a health plan or insurer from acquiring or requesting information that relates to a health status-related factor from the applicant or his or her dependent or any other source prior to enrollment, adding provisions which tie the guaranteed issue and rating provisions to those provisions in federal law and reinstating existing law if certain provisions are repealed, deferring the requirements on age bands and family size to the United States Secretary of Health and Human Services, increasing the geographic rating regions to 19 and requiring no later than June 1, 2017, DMHC, in collaboration with Covered California and CDI, to review the geographic rating regions and submit a report to the appropriate policy committees.

SB X1 2 (Hernandez, Chapter 2, Statutes of 2013-14 First Extraordinary Session) and AB X1 2 (Pan, Chapter 1, Statutes of 2013-14 First Extraordinary Session) established the rules for California’s individual market including requirements for a single risk pool of claims experience for rating purposes, and a requirement that each calendar year a plan establish an index rate for the individual market based on the total claims costs for providing essential health benefits, as defined. The law requires the index rate to be adjusted on a market wide basis based on the total expected market wide payments and charges under the risk adjustment and reinsurance program. Other permitted adjustments to the index rate are identified in the statute as well.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 5/4/17)

Health Access of California

OPPOSITION: (Verified 5/4/17)

None received

ARGUMENTS IN SUPPORT: Health Access California writes that the reinsurance program was a temporary program that helped to stabilize premiums in the small group market during the initial years of ACA implementation by providing payments to health plans that enroll higher-cost individuals. The program was created to protect against overall premium increases by offsetting the expenses of high-cost consumers entering the small group market. Since the reinsurance program has expired, it is appropriate to eliminate reference to the program in state law.

Prepared by: Teri Boughton / HEALTH /

5/5/17 14:22:07

**** END ****

SENATE COMMITTEE ON HEALTH

Senator Ed Hernandez, O.D., Chair

BILL NO: SB 134

SUBJECT: Small group market: single risk pool: index rate

SUMMARY:

Deletes a reference in existing law to the Affordable Care Act reinsurance program related to small group health plan single risk pool index rate adjustments.

Existing law:

1. Establishes, under federal law, the Affordable Care Act (ACA), which among other things requires a health insurance issuer to consider the claims experience of all enrollees in all health plans (other than grandfathered health plans) subject to the ACA, as specified, and offered by such issuer in the small group market in a state, including those enrollees who do not enroll in such plans through a health benefit exchange, to be members of a single risk pool.
   
2. Establishes, under the ACA, a temporary reinsurance program where reinsurance contributions collected from insurers and third party administrators over three years can be allocated to cover the costs of reinsurance for any of the three years and funds left over can be used to make payments for reinsurance programs for the two years following 2017.
   
3. Establishes the Department of Managed Health Care (DMHC) to regulate health care service plans (health plans) under the Health and Safety Code and the California Department of Insurance (CDI) to regulate health insurers under the Insurance Code.
   
4. Requires a health plan to consider as a single risk pool for rating purposes in the small employer market the claims experience of all enrollees in all non-grandfathered small employer health benefit plans offered by the health plan in this state, whether offered as health plan contracts or health insurance policies, including those insureds and enrollees who enroll in coverage through the exchange (California’s exchange is Covered California) and insureds and enrollees covered by the health plan outside Covered California.
   
5. Requires at least each calendar year, and no more frequently than each calendar quarter, a health plan to establish an index rate for the small employer market in the state based on the total combined claims costs for providing essential health benefits, as defined, within the single risk pool.
   
6. Requires the index rate to be adjusted on a marketwide basis based on the total expected marketwide payments and charges under the risk adjustment and reinsurance programs established for the state pursuant to the ACA and Covered California user fees, as specified. Requires the premium rate for all of the non-grandfathered small employer health benefit plans within the single risk pool to use the applicable marketwide adjusted index rate, subject only to certain permitted adjustments, as specified.

This bill: Deletes a reference to the federal reinsurance program in existing law that establishes requirements on small employer health plans with regard to the single risk pool index rate.

FISCAL EFFECT:

This bill is keyed nonfiscal.

COMMENTS:

1. Author’s statement. According to the author, prior to the ACA, California adopted market reform measures to make it easier for small employers to access affordable health insurance options for their employees. With the passage of the ACA, California adopted AB 1083 to update California’s small group laws to comply with or exceed the ACA requirements. Under the terms of the ACA, the reinsurance program was always intended to be temporary with the collection of contributions subject to end in 2016. This bill is needed to update California law related to the single risk pool to reflect that reinsurance payments are no longer being made and therefore do not necessitate adjustment. This bill is also necessary to keep California law current in response to statutory and regulatory changes as well as administrative changes at the federal level.
   
2. California’s small group health insurance market. In 1992, under AB 1672 (Margolin and Hansen, Chapter 1128, Statutes of 1992) California enacted a number of reforms to the small group market, making health insurance more accessible to small employers through guaranteed issue and renewability provisions, regulating pre-existing conditions limitations, underwriting protections, and disclosure requirements. Before AB 1672, a carrier would examine an employer’s health history and could either increase the premiums significantly or decline the entire group. California’s small group market has been shaped by guaranteed issue and other protections established in small group reform in 1992. In this market, carriers could impose participation requirements (i.e. 70% of eligible employees must enroll) and contribution requirements (i.e. employer must pay at least pay half of the premium). As a result, enrollees in small group coverage typically pay a fraction of their premium. Under the ACA employers are not explicitly required to provide health benefits, although certain employers with more than 50 employees may be required to pay a penalty if they either a) do not provide insurance, under certain circumstances, or b) the insurance they provide does not meet specified requirements. The ACA also eliminated the pricing of premiums based on health status, limited the range of premiums based on age, added the self-employed to those eligible for guaranteed issue of coverage, included wellness incentives in the coverage available to small businesses and expanded the small group rules to employers with one to 100 employees.
   
3. Background on the reinsurance program. The ACA established state-based reinsurance and risk adjustment programs and a federal risk corridors program. The overall goal of these programs was to provide certainty and protect against adverse selection in the market while stabilizing premiums in the individual and small group markets as the ACA market reforms began in 2014. The table below describes the three programs.
   

1. Related legislation. AB 157 (Wood) contains similar provisions to this bill that apply to the Insurance Code.

SB 133 (Hernandez) contains similar provisions to this bill that apply to health plans that operate in the individual market. AB 156 (Wood) contains similar provisions to SB 133 that apply to the Insurance Code.

1. Prior legislation. SB 1083 (Monning, Chapter 852, Statutes of 2012) made conforming and other changes to state law governing the sale of small group health insurance products to implement provisions in the ACA, including deleting December to January contract rate dates and instead requiring rates to be in effect no less than 12 months from the date of issuance or renewal, prohibiting a health plan or insurer from acquiring or requesting information that relates to a health status-related factor from the applicant or his or her dependent or any other source prior to enrollment, adding provisions which tie the guaranteed issue and rating provisions to those provisions in federal law and reinstating existing law if certain provisions are repealed, deferring the requirements on age bands and family size to the United States Secretary of Health and Human Services, increase the geographic rating regions to 19 and require no later than June 1, 2017, DMCH in collaboration with Covered California and CDI to review the geographic rating regions and submit a report to the appropriate policy committees.
   

SB X1 2 (Hernandez, Chapter 2, Statutes of 2013) and AB X1 2 (Pan, Chapter 1, Statues of 2013) established the rules for California’s individual market including requirements for a single risk pool of claims experience for rating purposes, and a requirement that each calendar year a plan establish an index rate for the individual market based on the total claims costs for providing essential health benefits, as defined. The law requires the index rate to be adjusted on a market wide basis based on the total expected market wide payments and charges under the risk adjustment and reinsurance program. Other permitted adjustments to the index rate are identified in the statute as well.

1. Support. Health Access California writes that the reinsurance program was a temporary program that helped to stabilize premiums in the small group market during the initial years of ACA implementation by providing payments to health plans that enroll higher-cost individuals. The program was created to protect against overall premium increases by offsetting the expenses of high-cost consumers entering the small group market. Since the reinsurance program has expired, it is appropriate to eliminate reference to the program in state law.

SUPPORT AND OPPOSITION:

Support: Health Access of California

Oppose: None received

-- END --