C A L I FOR N I A H EALTH C ARE F OU NDATION Implementing National Health Reform in California: Changes to Public and Private Insurance June 2010 Implementing National Health Reform in California: Changes to Public and Private Insurance Prepared for California HealthCare Foundation by William Bernstein, J.D. Patricia Boozang, M.P.H. Paul Campbell, M.S. Melinda Dutton, J.D. Alice Lam, M.P.A. Manatt Health Solutions June 2010 About the Authors Manatt Health Solutions is the interdisciplinary policy and business advisory division of Manatt, Phelps & Phillips, LLP, a leading law and consulting firm. Clients look to Manatt Health Solutions for leading expertise in health care coverage and access, health information technology (health IT), health care financing and reimbursement, and health care restructuring. Manatt Health Solutions also provides strategic and business advice, policy analysis and research, project implementation, alliance building/advocacy, and government relations services. For more information, visit www.manatt.com. Contributing to this project on behalf of Manatt Health Solutions were William Bernstein, J.D., Patricia Boozang, M.P.H., Paul Campbell, M.S., Melinda Dutton, J.D., and Alice Lam, M.P.A. About the Foundation The California HealthCare Foundation is an independent philanthropy committed to improving the way health care is delivered and financed in California. By promoting innovations in care and broader access to information, our goal is to ensure that all Californians can get the care they need, when they need it, at a price they can afford. For more information, visit www.chcf.org. ©2010 California HealthCare Foundation Contents 2 I. Introduction 4 II. Public Coverage Medi-Cal Expansion Changes in Eligibility and Enrollment Rules Maintenance of Effort Changes to the Child Health Insurance Program (CHIP) Improving Coverage Coordination and Care Delivery for Dual-Eligible Beneficiaries 1 9 III. Health Insurance Exchanges Subsidies Essential Benefits Qualified Health Plans Scope of Exchanges Technical and Financial Consumer Assistance 2 7 IV. Basic Health Program 2 9 V. Private Coverage Provisions Affecting Individual and Small Group Private Coverage Changes Regarding All Private Coverage 4 2 VI. Waiver for State Innovation 4 4 VII. Conclusion 4 6 Appendix: Interviewees 4 7 Endnotes I. Introduction T he federal reform legislation known ◾◾ Expanding Medi-Cal and reconfiguring its collectively as the Affordable Care Act (ACA) has eligibility standards; a lofty goal: to transform the way health care is ◾◾ Creating a health insurance exchange; and provided and paid for in the United States. Sweeping in scope, with an implementation timeline that spans ◾◾ Implementing a wide range of reforms to nearly a decade, the new law will fundamentally alter commercial markets, as mandated by the new law. the availability and structure of health insurance, bringing coverage for the first time to millions The purpose of this paper is to provide an initial of Americans and creating new coverage options assessment of the work ahead for California as the for millions more. Federal estimates indicate that state and its partners implement the coverage-related 92 percent of people not yet eligible for Medicare provisions of the ACA. It identifies specific provisions could have access to coverage by 2016, compared to that California either must or may implement, with 81 percent today.1 a particular eye to the component tasks, decisions, The implementation of these reforms will be a and actions. The findings in this report have been massive undertaking requiring leadership, interagency informed by interviews with 16 leaders in health care and public-private collaboration, and a disciplined policy and analysis, both private actors and public and aggressive planning process. Although the policy officials (see Appendix). and legislation were crafted at the national level, While each ACA provision differs in complexity, their successful execution depends, in large part, on the steps necessary to implement them fall into actions taken within the states, with much of the several common categories: responsibility falling to state government. ◾◾ Monitoring, interpreting, and seeking to California has long played a central role in influence federal guidance; supplying and regulating health insurance, through public programs such as Medi-Cal and the oversight ◾◾ Facilitating interagency collaboration and of private insurance markets. Yet while the landscape planning; is familiar, the broad extent of the new federal ◾◾ Identifying and securing financing for mandate is formidable: Under the combined administrative and programmatic needs; legislation of the ACA — consisting of the Patient Protection and Affordable Care Act (PPACA) ◾◾ Making and effecting state legislative and of 2010 and the Health Care and Education regulatory changes; Reconciliation Act (HCERA) of 2010 — the state’s ◾◾ Securing state plan amendments, waiver responsibilities in both the public and private amendments, and other necessary federal coverage spheres will grow considerably.2 Some of the approvals; state’s major implementation responsibilities include: 2 | C alifornia H ealth C are F oundation ◾◾ Redesigning information technology (IT) systems; and ◾◾ Redesigning administrative systems. In an effort to assist policymakers and stakeholders in navigating the legislation, each section of this analysis presents a summary outlining the provision discussed, its effective date, the responsible entities, and the decisions, tasks, and considerations facing California as it moves forward with implementation. Each summary ends with a short statement of “the bottom line” for the provision summarized. Because the new law is subject to interpretation and regulatory clarification, this paper represents a starting point in a process that will evolve over the coming months and years. Moreover, the discussion that follows is focused solely on the reform act’s broad changes to public coverage programs and to the private health insurance market. In addition to those provisions, the ACA also promotes new care delivery and payment models designed to improve the quality and efficiency of care, encourages investment in population health and wellness, and improves administrative efficiency in the health care sector — all of which have their own implications for California.3 Although these elements are not addressed here, important work lies ahead for public and private sector leaders to explore California’s options and opportunities, beyond those related to coverage, under the ACA. Implementing National Health Reform in California: Changes to Public and Private Insurance | 3 II. Public Coverage T he A ffordable C are A ct relies on under Healthy Families), plus approximately 412,000 the nation’s public health insurance programs, people who are already eligible and who are expected including Medicaid (Medi-Cal, operated by the to seek coverage for the first time in response to the state Department of Health Care Services [DHCS]) new federal mandate to obtain health insurance and the Children’s Health Insurance Plan (CHIP) coverage.9 In total, under the expanded enrollment (Healthy Families, operated by the Managed Risk Medi-Cal would cover nearly a quarter of the state’s Medical Insurance Board [MRMIB]), to serve as a population.10 foundation for enhancing health insurance coverage for people with low income. Most significantly, the Figure 1. ncome Limits I ACA establishes a new national minimum Medicaid income eligibility level for individuals under the age • Medi-Cal • Medi-Cal • Healthy Families • AIM* (mandatory) (optional) of 65, extends authority and funding for the CHIP Infants (under age 1) program, and calls for streamlined eligibility and enrollment procedures for both Medicaid and CHIP. Children (ages 1– 5) Medi-Cal Expansion (§2001)4 Medi-Cal currently provides health coverage for Children (ages 6–19) nearly 7 million Californians, including children under age five in families whose income is up to Parents 133 percent of the Federal Poverty Level (FPL), children six to 18 with family income up to Elderly and People with Disabilities 100 percent FPL, and parents with income up to 106 percent FPL (see Figure 1).5 – 6 Childless Pregnant Women adults who are not age 65 or disabled typically are not eligible for coverage under Medi-Cal, at any 0% 50% 100% 150% 200% 250% 300% income level. Also, today as many as one in five FEDERAL POVERTY LEVEL Californians under age 65 — between 900,000 and *Access for Infants and Mothers Program 1.4 million — are eligible for Medi-Cal or Healthy Source: Medi-Cal Facts and Figures, 2009. California HealthCare Foundation Families but are not enrolled.7 (www.chcf.org). Federal reform mandates expansion of Medi-Cal coverage, estimated to increase total enrollment by more than 20 percent, or approximately 1.8 million individuals.8 This would include approximately 1.4 million individuals who will be newly eligible for Medi-Cal (including some children currently covered 4 | C alifornia H ealth C are F oundation Coverage for Individuals with Income At or Medicaid Benchmark Benefits (§2001[c]) Below 133 Percent of FPL (§2001[a]) Under the ACA, California must provide the newly Effective 2014, the ACA expands Medi-Cal eligibility expanded Medi-Cal population with a “benchmark” in two ways. First, it establishes a new national benefit package.14 These benchmark benefits may Medicaid eligibility threshold for all individuals be less generous than the benefits available for under age 65, providing coverage for those with individuals currently eligible for Medi-Cal coverage, income up to 133 percent of FPL (see Table 1). but must be at least as generous as the narrower Second, it requires states to provide coverage to “essential health benefits” to be offered by private current and former foster children up to age 26. insurance plans through the new State Health Under this expansion, approximately 850,000 Insurance Exchange (hereinafter, “the Exchange”) to childless adults with income up to 133 percent be established under the new law by 2014 (discussed of FPL will become newly eligible for Medi-Cal. in Section III of this report). A comparison of these Medi-Cal currently covers parents with income up essential benefits with benefits for current Medi-Cal to 106 percent of FPL; the federal expansion will and Healthy Families enrollees illustrates the areas make roughly 280,000 parents, with income of in which the essential benefits are less generous (see 106 percent to 133 percent of FPL, newly eligible Table 2 on page 6). The state could, at its option: for the program.11 For children, new income ◾◾ Seek the federal Department of Health and eligibility levels will include those age six to 18 in Human Services’ (HHS) approval to provide a families with income of 100 percent to 133 percent more generous benchmark benefit package, and of FPL. This eligibility shift appears to require the receive enhanced federal support for all services state to transition an estimated 162,000 children approved by HHS as part of the expanded from Healthy Families to Medi-Cal. The ACA also benchmark benefit; or provides the state with the option to expand Medi-Cal eligibility earlier than 2014, but provides ◾◾ Choose to provide additional services over and less generous federal support for doing so.12 above the approved benchmark package, but with such additional services not being eligible for Table 1. hanges in Medi-Cal Coverage, C Starting in 2014 federal matching dollars. Available to individuals with income For children, California must ensure access to the less than 133 percent of FPL13 full range of benefits guaranteed under Medicaid, ▶ $14,404 — family unit of 1 which may require the creation of “wrap-around ▶ $19,378 — family unit of 2 benefits” to supplement the benchmark package for ▶ $24,352 — family unit of 3 children.15 ▶ $29,327 — family unit of 4 Federal Funding for Cost of Covering Newly Eligible Individuals (§2001[a][3]) Medi-Cal will receive enhanced federal funding to pay for newly eligible populations under the new law. The federal government generally matches state spending on Medi-Cal benefits at 50 cents on the Implementing National Health Reform in California: Changes to Public and Private Insurance | 5 Table 2. Essential Benefit Comparison B enchma rk/ Essential M edi - Cal Healt h y Families Benefit s Benefi ts Packag e Benefi t Packag e Benefi t Pac k a g e Ambulatory Care 4 4 4 Emergency Services 4 4 4 Hospitalization 4 4 4 Maternity and Newborn Care 4 4 4 Mental Health and Substance Abuse Services 4 4 4 Prescription Drugs 4 4 4 Rehabilitative/Habilitative Services and Devices 4 4 4 Laboratory Services 4 4 4 Preventive and Wellness Services, 4 4 4 including Chronic Disease Management Pediatric Services, including Oral/Vision Care 4 4 4 Dental Services 4 4 (children only) Vision Services 416 4 Long-Term Care 4 Medical Case Management 4 Podiatry Services 4 (children only) Acupuncture 4 4 (children only) (some plans) Audiology and Hearing Aids 4 4 (children only) Chiropractic 4 4 (children only) (some plans) Durable Medical Equipment 4 4 Medical Transportation 4 4 Orthotics and Prosthetics 4 4 Home Health Care 4 4 Skilled Nursing Care 4 Biofeedback 4 (some plans) Elective Abortion 4 (some plans) Sources: Patient Protection and Affordable Care Act (P.L. 111–148) and modifications by the Health Care and Education Reconciliation Act of 2010 (P.L. 111–152). 6 | C alifornia H ealth C are F oundation dollar (increased to 62 cents on the dollar through eligibility prior to 2014, but will receive California’s December 31, 2010 due to the federal stimulus existing base match rate of 50 percent until 2014.18 package). Starting in 2014, the federal government Expanded Medi-Cal coverage, combined with will pay 100 percent of costs for the expansion the requirement that all individuals have insurance, population, though this will decrease gradually is anticipated to have the single largest fiscal impact over time to 90 percent in 2020 and beyond (see on the state resulting from the ACA. Based on Table 3).17 The state has the option to expand congressional estimates, California could receive upwards of $44.5 billion between 2014 and 2019 Table 3. nhanced Federal Medical Assistance E in federal support for newly eligible individuals.19 Percentages (FMAP) However, starting in 2018, state Medi-Cal spending Yea r S tate S har e Feder al Share is expected to increase by $2 billion to $3 billion 2014 0% 100% annually.20 In addition to those added to Medi-Cal by expanded eligibility, the mandate that all 2015 0% 100% individuals purchase or enroll in available health 2016 0% 100% insurance coverage could bring into the Medi-Cal 2017 5% 95% program up to 412,000 individuals who are currently 2018 6% 94% eligible but not enrolled.21 Enhanced federal funding will not be available for these new enrollees; the state 2019 7% 93% will be responsible for picking up the customary 2020 and forward 10% 90% 50 cents on the dollar for their costs. Source: Manatt analysis of ACA. S u mma ry: Medicaid Expansion What Does It Say? The Affordable Care Act sets a new, national Medicaid threshold at 133 percent of FPL. The newly eligible will receive a “benchmark” benefit package that must include the “essential” benefits required for insurance that will be offered in the Exchange, but may be less generous than Medi-Cal. The ACA provides full federal funding for the newly eligible populations for three years, gradually decreasing to cover 90 percent of the cost in 2020 and beyond. Effective Date January 1, 2014, though California has the option to expand Medi-Cal income eligibility earlier. What Needs to Be Done? Implementation of the expansion at the state level will require changes to state law, an amendment to California’s State Plan, as well as a host of administrative actions including changes to the application and enrollment systems. The state must define the “benchmark benefits,” including “wrap-around benefits” for children. The ACA appears to require the state to transition children ages six to 18 with family income of 100 percent to 133 percent of FPL from Healthy Families to Medi-Cal coverage. Who’s Responsible? Centers for Medicare & Medicaid Services (CMS), DHCS, MRMIB The Bottom Line California could receive upwards of $44.5 billion between 2014 and 2019 in federal support for those newly eligible for Medi-Cal, but will also face increased Medi-Cal costs due to both increased enrollment among those already eligible for public coverage and the ramping up of state matching requirements in later years. Implementing National Health Reform in California: Changes to Public and Private Insurance | 7 Changes in Eligibility and result of other programs, will not have their income Enrollment Rules calculated using the MAGI eligibility formula. In 2014, the ACA requires states to change their While transition to MAGI will simplify eligibility Medicaid and CHIP eligibility rules in three rules for many applicants, it will result in a less fundamental ways: (1) states must change the way generous eligibility standard for some current Medi- income is counted for the purpose of determining Cal beneficiaries. Preliminary state analysis indicates eligibility; (2) states must eliminate the asset test that a number of Medi-Cal adults could lose Medi- for most populations; and (3) states must make a Cal eligibility due to the application of MAGI to series of changes intended to improve the process how their income is counted.23 These beneficiaries for determining and maintaining eligibility for their are generally parents who receive Medi-Cal coverage public programs. through eligibility for California Work Opportunity and Responsibility to Kids (CalWORKS). These Income-Counting Rules Replaced by Modified individuals would be able to obtain health insurance Adjusted Gross Income (MAGI) (§2002) coverage through the Exchange, but this will have The ACA requires California to change the way it less generous benefits and substantially higher calculates income for the purpose of determining cost-sharing than Medi-Cal. Federal law prohibits Medi-Cal and Healthy Families eligibility, with the children from losing coverage as a result of the goal of creating a single set of rules that will apply transition to MAGI, but it appears to permit, and nationally to Medicaid, CHIP, and the Exchanges. may even require, the MAGI standards to force some Today, Medicaid and CHIP allow applicants to adults off Medi-Cal coverage.24 deduct certain child care expenses, child support Prior to implementation of the new MAGI payments, the first $90 of earned income, and standards, California must submit to HHS — likely other deductions at the state’s discretion, before to CMS — the procedures that will be used to determining eligibility.22 While these deductions have calculate income and the income eligibility thresholds the effect of increasing eligibility, they also make under the new income calculation. This will require the application process more complex. The ACA sorting through the existing eligibility categories simplifies such income-counting rules by replacing and identifying those that will fall under the MAGI them with a single federal standard articulated standards. in federal tax law called “modified adjusted gross income”. To offset the loss of these deductions, Elimination of the Assets Test (§2002) the new methodology increases the adjusted gross Medi-Cal eligibility rules currently require that most income level by five percentage points for all adults have less than $2,000 to $4,000 in assets, Medicaid applicants. Thus, expanded eligibility depending on family size; children are exempt from under Medi-Cal, in effect, is automatically increased this requirement. The ACA requires that, beginning from 133 percent of FPL to 138 percent of FPL. in 2014, states eliminate Medicaid assets tests for the Income will not be calculated on a MAGI basis for same adults whose income will be calculated using all individuals, however: Individuals who are 65 or MAGI (see previous section). That is, this change over, disabled, medically needy (with high medical will not apply to Medi-Cal beneficiaries who are expenses), or deemed eligible for Medi-Cal as a elderly, disabled, medically needy, or deemed eligible 8 | C alifornia H ealth C are F oundation for Medicaid as a result of other programs, such as Enrollment Simplification (§§1413, 2201) Temporary Assistance for Needy Families (TANF). The ACA includes provisions aimed at simplying Because neither the Exchange nor Healthy Families eligibility and enrollment procedures for Medicaid has an assets test, this change will align and simplify and CHIP, and ensuring coordination with coverage the eligibility processes and enable as many as available through newly created state Exchanges. 16,000 adults to become newly eligible for Medi-Cal By January 1, 2014, California must implement coverage.25 a series of procedures that simplify enrollment in Medi-Cal and Healthy Families and coordinate with the state’s Exchange, or risk losing federal Medi-Cal Coverage for Legal Immigrants and Healthy Families funding. Required enrollment The Affordable Care Act does not lift the five-year waiting period (“five-year bar”) for (non-pregnant) adult simplification and coordination procedures will legal immigrants to enroll in federal, means-tested include: benefits like Medi-Cal.26 However, as a result of the ACA, these legal immigrants will have other coverage ◾◾ Utilizing a single, streamlined application form options during the waiting period, available through the for Medi-Cal, Healthy Families, subsidies for Exchange or the Basic Health Plan (see Section IV for coverage through the Exchange, and the Basic discussion of the Basic Health Plan program). Health Program (§1413[b]); • All legal immigrants will be able to access coverage under the Exchange, as well as applicable premium ◾◾ Establishing a Web site that permits individuals tax credits and cost-sharing reductions in the same to apply to, enroll in, and renew enrollment in manner as citizens. Though premium tax credits Medi-Cal, and to consent to enrollment or re- and cost-sharing reductions are generally only available for individuals whose income is between enrollment in such coverage through electronic 100 percent and 400 percent of FPL, the ACA signature (§2201, creating new Social Security Act §1943[b] further allows for legal immigrants with income [1][A]); under 100 percent of FPL, and who are under the five-year bar, to access subsidies comparable to an ◾◾ Ensuring that individuals who seek coverage individual with income of 100 percent of FPL.27 through Medi-Cal, Healthy Families, or the (See Section III, Health Insurance Exchange.) Exchange are concurrently screened for eligibility • All legal immigrants whose income is between for all three options (including Exchange 133 percent and 200 percent of FPL will be able to access Basic Health Plan coverage (if the state coverage subsidies and the Basic Health Program) chooses to implement the Basic Health Plan). and referred to the appropriate program for Though Basic Health Plan coverage is generally enrollment, without having to submit additional limited to people in the 133 percent to 200 percent or separate applications for each program (§2201, of FPL income bracket, the ACA further allows legal creating new Social Security Act §1943[b][1]), and §1413[b]); immigrants under 133 percent of FPL, and who are under the five-year bar, to access Basic Health Plan and coverage.28 ◾◾ Establishing procedures for conducting outreach to and enrolling vulnerable populations, including children, homeless youth, children and youth with special health care needs, pregnant women, racial and ethnic minorities, Implementing National Health Reform in California: Changes to Public and Private Insurance | 9 Enrollment Technology Standards and Protocols (§1561) By September 23, 2010, in consultation with the federal Health Information Technology (HIT) Policy Committee and the HIT Standards Committee, HHS must develop interoperable, secure standards and protocols that facilitate enrollment in federal and state programs. These standards and protocols must allow for: • Electronic matching against existing federal and state data; • Simplification and submission of electronic documentation, digitization of documents, and systems verification of eligibility; • Reuse of stored eligibility information (including documentation) to assist with retention of eligible individuals; • Capability for individuals to apply, recertify, and manage their eligibility information online, including at home, at points of service, and at other community-based locations; • Ability to expand the enrollment system to integrate new programs, rules, and functionalities, in order to operate at increased volume; • Notification of eligibility, recertification, and other communications about eligibility via e-mail and cell phone; and • Other functionalities necessary to provide eligibles with a streamlined enrollment process. Funding is available to state and local governments for the development and adaptation of systems to meet these new standards and protocols. The Affordable Care Act specifies that state and local governments must submit applications outlining a plan to adopt and implement appropriate enrollment technology to secure funding, but it does not provide details on the application process, funding levels, any matching requirements, or timing. Presumably, this information will accompany further federal guidance and a funding announcement related to the provision. rural populations, victims of abuse or trauma, DHCS has estimated an immediate cost of about individuals with mental health or substance $1 billion to administer the changes to the Medi-Cal abuse-related disorders, and individuals with system that result from reform.29 The state will HIV/AIDS (§2201, creating new Social Security Act need to develop and upgrade systems infrastructure §1943[f ]). including county consortia eligibility systems for Medi-Cal, CalWORKS and Food Stamps, state Changes are required at the federal level in which Medi-Cal eligibility systems for Medi-Cal, and the HHS must (1) develop electronic information new insurance Exchange. Some funding is available standards and protocols to facilitate enrollment and through traditional federal Medi-Cal and Healthy (2) establish a system to coordinate enrollment and Families support for administration, generally eligibility determination and re-determination in matched at 50 cents on the dollar. However, given Medicaid, CHIP, coverage (including applicable its poor current fiscal condition, the state will face subsidies) through the Exchange, and the Basic serious challenges in finding the state share of costs Health Program, and to ensure that Medi-Cal- or to draw down federal funding. The ACA also makes Healthy Families-eligible individuals who apply for funding available to develop and adapt systems to the coverage through the Exchange are enrolled in the new simplified and streamlined enrollment standards applicable public insurance program. Further federal and protocols, but details — such as funding levels, guidance on how the federal system is to coordinate any matching requirements, the application process, with state systems should significantly clarify and and timing — are not yet available. inform the implementation of these provisions. 10 | C alifornia H ealth C are F oundation S u mma ry: Changes in Eligibility and Enrollment Rules What Does It Say? The Affordable Care Act mandates use of a new, simpler formula, based on MAGI, to calculate income eligibility in Medicaid and CHIP, and of simplified procedures that streamline and coordinate enrollment into public programs and plans in the state Exchange. Effective Date January 1, 2014 What Needs to Be Done? CMS will issue guidance on the application of MAGI in state Medicaid and CHIP programs, intended to ensure that children do not lose Medicaid coverage in the transition to the new formula. The state must make the transition to the MAGI formula and meet enrollment and eligibility simplification requirements in 2014. Who’s Responsible? CMS, DHCS The Bottom Line While MAGI is a simpler income test to administer, it may result in less generous Medi-Cal eligibility standards, knocking some adults out of the program in 2014. Other eligibility simplification requirements in the ACA could make enrollment less burdensome for recipients and more streamlined across multiple programs, but will require significant human and financial resources to implement. Finally, starting on January 1, 2014, the state Healthy Families, the MOE will continue until will be permitted to expand hospital presumptive October 1, 2019, at which time states may transition eligibility determinations beyond pregnant women children to the state Exchange, but only upon a and children to all Medi-Cal eligible populations. finding by HHS that comparable pediatric coverage Presumptive eligibility allows individuals to is provided by participating qualified health plans. temporarily receive Medi-Cal coverage based on an California would risk federal support for both initial determination by a hospital while awaiting programs, an estimated $32 billion, if found to be a formal eligibility determination by a Medi-Cal in violation of MOE.31, 32 eligibility office.30 The MOE requirement has immediate implications for California, prohibiting the state Maintenance of Effort (§§2001[gg], 2101[b]) from enacting the Governor’s 2010 –11 Proposed The Affordable Care Act establishes a maintenance Budget provision to reduce eligibility for Healthy of effort (MOE) requirement that prohibits states Families, which had been estimated to generate from imposing Medicaid or CHIP eligibility rules savings of $68 million.33 (The governor withdrew or enrollment methodologies or procedures that this provision from the 2010 –11 Revised Budget.)34 are more restrictive than eligibility and enrollment As a result of the MOE, California will not be able requirements in place on March 23, 2010 when to achieve budget cuts through narrowing income the ACA was enacted. The MOE requirement will eligibility levels or imposing enrollment hurdles continue for adults until 2014, when HHS is to (e.g., requiring a face-to-face interview to apply for certify that a state’s Exchange is fully operational, or renew coverage) in Medi-Cal or Healthy Families, at which time states will be bound only by the new or by reinstating mid-year status reports for Medi-Cal Medicaid income eligibility threshold of 133 percent children.35 However, the state would not be of FPL. For children covered by Medi-Cal and prohibited under federal law from seeking savings by Implementing National Health Reform in California: Changes to Public and Private Insurance | 11 S u mma ry: Maintenance of Effort What Does It Say? The state must maintain eligibility levels and procedures in Medi-Cal and Healthy Families that are no more restrictive than rules in place on March 23, 2010. Effective Dates Adults: March 23, 2010 through the date of HHS certification of a fully operational state Exchange. Children: March 23, 2010 through October 1, 2019. What Needs to Be Done? CMS is expected to issue MOE guidance in the next several months. The state must withdraw or reject proposals to reduce Medi-Cal and Healthy Families eligibility and enrollment in light of the MOE requirement, or risk loss of federal Medicaid and CHIP funds. Who’s Responsible? CMS, MRMIB, DHCS, legislature/governor The Bottom Line The MOE constrains California from extracting budget savings by making eligibility or enrollment process changes to Medi-Cal and Healthy Families. reducing provider payments or restricting optional residents and U.S. citizens, non-citizen nationals, or benefits in Medi-Cal. Although California is in eligible qualified immigrants.39 the midst of a protracted budgetary crisis that has The ACA makes a number of changes to Healthy created enormous pressure to find cost reductions Families: creates new eligibility parameters, related in Medi-Cal, these particular changes would likely to Medi-Cal expansion; reauthorizes federal CHIP be difficult to implement. The state already has funding; enhances the state’s Federal Medical among the lowest provider reimbursement rates Assistance Percentage (FMAP) for the program; in the nation, and is currently defending against a imposes a MOE requirement; and outlines series of court challenges to recent rate cuts.36, 37 Also, requirements to transition children to the state last year California eliminated several categories of Exchange if federal CHIP funding is depleted after Medi-Cal optional benefits for adults, including 2014. Key changes, as summarized below, have the dental, audiology, chiropractic, optometry, podiatry, following implications for Healthy Families: psychology, and speech therapy services, leaving few ◾◾ From 2010 through 2015, Healthy Families will optional benefits left to cut. However, California does operate with federal CHIP funding and under continue to cover some optional benefits, including a MOE requirement. The program will have no prescription drugs and home and community-based changes in eligibility, other than the transition to services. Medi-Cal of children ages six to 18 whose family income is between 100 percent and 133 percent Changes to the Child Health Insurance of FPL. Program (CHIP) (§§2101, 2102, 10203[c], 10203[d], HCERA §1004[b][2]) ◾◾ From 2015 through 2019, Healthy Families will Healthy Families, California’s CHIP, currently continue to operate under the MOE but federal covers 873,850 children whose family income is funding for the program is uncertain. If Congress above Medi-Cal income eligibility levels but below does not reauthorize CHIP funding, California 250 percent of FPL.38 Administered by the MRMIB, is obligated under the ACA to transition Healthy Healthy Families covers children who are California Families children to comparable coverage in 12 | C alifornia H ealth C are F oundation the state Exchange when federal CHIP funding ◾◾ After September 30, 2015, enrolling Healthy becomes insufficient. Families eligible children into certified comparable coverage through the state Exchange. ◾◾ After 2019, the MOE expires and federal funding is uncertain. California will not be obligated Federal Funding for Healthy Families to continue the Healthy Families program or (§§2101[a], 10203) comparable coverage in the state Exchange. The Affordable Care Act extends federal CHIP funding through September 30, 2015, consistent Transition of Children from Healthy Families with current funding levels. The law also enhances to Medi-Cal (§2001[a]) the CHIP FMAP from October 1, 2015 through With the implementation of the new federal September 30, 2019 by increasing the federal share Medicaid eligibility threshold in 2014, roughly of Healthy Families costs by 23 percentage points, 162,000 children in California with family income from a 65 percent to an 88 percent match. In order from 100 percent to 133 percent of the FPL, who are for this FMAP increase to have meaningful financial currently covered by Healthy Families, will become benefit to the state, CHIP funding would have to eligible for the state’s Medi-Cal program.40 The ACA be reauthorized beyond 2015 and aggregate funding appears to require California to transition these would have to be increased to take into account the children to Medi-Cal. new, higher FMAP rate. After 2015, the future of the Healthy Families program is uncertain; while the Maintenance of Effort (§2101[b]) state will be operating under an ACA mandate to The Affordable Care Act imposes a MOE maintain Healthy Families income eligibility levels requirement that prohibits states from imposing and benefits through 2019, this mandate is unfunded eligibility rules and enrollment methodologies or by the federal government after 2015. procedures in their state CHIP programs that are more restrictive than eligibility and enrollment Exchange Coverage for Lower-Income requirements in place on March 23, 2010, when the Children (§2101) ACA was enacted. This MOE requirement is effective The Affordable Care Act requires that, in the event through September 30, 2019 and is a condition of of federal CHIP funding shortfalls, the state have continued federal funding for the state’s Medi-Cal procedures to transition Healthy Families-eligible and Healthy Families programs. However, the CHIP children to alternate sources of coverage. Specifically, MOE requirement does not prevent California from: California would be required to have children’s ◾◾ Adopting income eligibility levels and enrollment coverage available, through a plan offered in the state procedures that are less restrictive than those in Exchange, that is comparable to Healthy Families in place on March 23, 2010; terms of both benefits and cost-sharing. The state’s procedures to transition low-income children who are ◾◾ Imposing limitations on Healthy Families eligible for Healthy Families to new coverage would enrollment permitted under federal law, including have to include screening for and enrolling eligible enrollment caps and waiting lists, in order to children in Medi-Cal and enrolling other children in limit program expenditures to those for which a qualified health plan through the state Exchange, federal funding is available; and Implementing National Health Reform in California: Changes to Public and Private Insurance | 13 S u mma ry: Enhanced Federal Support for CHIP What Does It Say? The Affordable Care Act establishes new eligibility parameters for Healthy Families related to the Medi-Cal expansion, authorizes two additional years of CHIP funding, enhances the FMAP for Healthy Families, and establishes an MOE requirement that the state has to meet to keep its federal Medi-Cal and CHIP funding. Effective Dates March 23, 2010 through September 30, 2019: CHIP MOE in effect. September 30, 2015: Federal CHIP funding authorization end date. October 1, 2015: Federal matching for Healthy Families enhanced to 88 percent. October 1, 2015: tate permitted to enroll Healthy Families-eligible children in comparable S coverage through the state Exchange, as certified by HHS. By April 1, 2015: HS to review and certify exchange coverage for children, to ensure that H benefits and cost-sharing are comparable to state CHIP benefits. What Needs to Be Done? The federal government will issue guidance on the MOE requirement in the near term, including regarding the relationship between the MOE and new Medi-Cal income eligibility levels which appear to require the state to transition children from Healthy Families to Medi-Cal. California must meet the federal MOE requirement. The state will also effect the transition of children from Healthy Families to Medi-Cal, related to the federal Medicaid expansion in 2014. The state will also have to ensure (if necessary) that Healthy Families comparable coverage is available through the Exchange until 2019. Who’s Responsible? CMS, MRMIB The Bottom Line California cannot enact the initial Governor’s 2010-11 Budget Proposal to reduce eligibility for Healthy Families — estimated to generate savings of $68 million — without running afoul of MOE requirements and losing a much larger FMAP.41, 42 Through 2014, the Healthy Families program will operate with federal funding and under the MOE. But without renewed federal funding for CHIP after 2015, the future of the program is uncertain and the state risks financial exposure in light of its obligation to provide Healthy Families comparable coverage for children through 2019. as certified by HHS. While there may be continuity Improving Coverage Coordination and streamlining of benefits by having families enroll and Care Delivery for Dual-Eligible as units through the state Exchange, it is unclear Beneficiaries whether California would be able to ensure Healthy The Affordable Care Act includes a number of Families comparable coverage — with more generous provisions related to integrating and coordinating benefits than the “essential benefits package” and care, including long-term care, for individuals who relatively low cost-sharing — for children in the state are covered by both Medicaid and Medicare (dual Exchange without federal financial support. eligibles) — generally low-income seniors and people with disabilities. California has approximately 1.1 million dual eligibles enrolled in the Medi-Cal program.43 While dual eligibles represent just 13 percent of total Medi-Cal beneficiaries, they generate 47 percent of total Medi-Cal expenditures annually, in part, because the dual eligibles represent 14 | C alifornia H ealth C are F oundation two-thirds of those who qualify as a result of age or Demonstration Projects, Section 1915(b) Managed disability.44 As in many other states, financial and Care/Freedom of Choice Waivers, Section 1915(c) administrative responsibility for care for dual eligibles Home and Community-Based Services Waiver, and in California is fragmented, leading to significant Section 1915(d) Waivers. access and quality issues for low-income seniors and people with disabilities. Federal Coordinated Health Care Office (§2602) California is in the process of developing its For better integration of service delivery and payment renewal of the Section 1115 waiver for hospital mechanisms for dual eligibles, the ACA directs the financing and uninsured care; the state’s current establishment of the federal Coordinated Health waiver expires in August 2010. (Under the authority Care Office within CMS to facilitate a working of Section 1115 of the Social Security Act, the relationship between Medicare and Medicaid at the federal government may waive certain Medicaid federal level and Medicaid offices at the state level. statutory requirements and states may receive The new office is specifically charged with ensuring federal matching funds for Medicaid services that that these beneficiaries have better access to all would otherwise not be eligible for federal funding.) services to which they are entitled and to improved California’s hospital financing and uninsured care quality of health care and long-term care services. waiver took effect in July 2005.45 A primary goal Specific responsibilities of the Coordinated Health of the waiver will be to better coordinate care for Care Office include: dual eligibles by establishing delivery systems that ◾◾ Providing states and other relevant parties with “incorporate a medical home system and care and education and tools for developing programs that disease management, as well as incentives that reward align Medicare and Medicaid benefits for dual providers and beneficiaries for achieving the desired eligibles; clinical, utilization, and cost-specific outcomes.”46 The state is also aiming to make coverage and ◾◾ Supporting state efforts to coordinate and align delivery system changes that improve coordination acute and long-term care services with other between Medicare and Medi-Cal coverage through Medicare benefits for dual eligibles; the waiver. The ACA contains a number of provisions ◾◾ Supporting coordination of contracting and that give California opportunities to expedite delivery oversight by the states and CMS to support goals system improvements for dual eligibles through of the Office; enhanced federal funding and technical support, and additional opportunities to test innovative ◾◾ Consulting and coordinating with the Medicare reimbursement and care delivery approaches outside Payment Advisory Commission and the Medicaid of the 1115 waiver process. and CHIP Payment and Access Commissions; ◾◾ Studying the provision of drug coverage for new Five-Year Period for Dual Eligibles full-benefit dual eligibles; and Demonstration Projects (§2601) The ACA creates new demonstration authority for ◾◾ Monitoring and reporting total expenditures, states to conduct five-year waivers related to dual- health outcomes, and access to benefits for all eligible beneficiaries under Section 1115 Research & dual eligibles. Implementing National Health Reform in California: Changes to Public and Private Insurance | 15 State Option to Provide Health Homes for ◾◾ One chronic condition and are at risk of Medi-Cal Enrollees with Chronic Conditions developing another; or (§2703) ◾◾ At least one serious and persistent mental health Beginning on January 1, 2011, states will have the condition. option to amend their Medicaid state plans to create health homes for enrolled people with chronic Qualifying providers will have to meet standards conditions, including dual eligibles. This program established by HHS, including demonstrating that is designed to promote a coordinated, team-based they have systems and infrastructure to provide approach to providing health care to individuals with comprehensive and timely high-quality care either multiple, chronic illnesses. in-house or by contracting with a team of health Through the program, eligible consumers select professionals. Teams of providers can be free- a provider or a team of health care professionals standing, virtual, or hospital-based, a community as their health home. The designated health home health center, a community mental health center, will provide comprehensive care management; care a clinic, a physician’s office, or a physician group coordination and health promotion; comprehensive practice. Designated providers will be required to transitional care, including appropriate follow-up, report to the state on all applicable quality measures from inpatient to other settings; patient and family in the state Medicaid program. support; referral to community and social support The state is to develop a mechanism to pay the services; and, as feasible, use health information health home, which may be tiered with respect to technology to link such services. Eligible Medicaid the clinical severity of each enrollee. States can use a beneficiaries include those that have: variety of payment models for health home services, including per-member, per-month mechanisms, ◾◾ At least two chronic conditions; subject to approval by HHS. If a state chooses this option, the state plan amendment would have to S u mma ry: State Option to Provide Health Homes for Enrollees with Chronic Conditions What Does It Say? The Affordable Care Act authorizes a new state plan option under which eligible Medicaid enrollees with chronic conditions, including dual eligibles, could designate a provider or health team as their health home. The health home would be responsible for providing comprehensive medical and care coordination services. States opting for the program would receive a 90 percent FMAP for the health home services provided during the first two years. Effective Date January 1, 2011: State option becomes available and HHS may award planning grants to states for the purpose of developing a state plan amendment to create health homes. What Needs to Be Done? CMS is expected to issue guidance to states on the new state option in the near-term. California should begin discussions with CMS to coordinate a January 2011 plan amendment for this program with the states’ broader waiver activities and goals. Who’s Responsible? CMS, DHCS The Bottom Line The program will bring enhanced federal dollars to California to more rapidly deploy delivery system improvements for dual eligibles. 16 | C alifornia H ealth C are F oundation describe the payment methodology, the state’s plan Medicaid State Options and Demonstration for tracking avoidable hospital readmissions, and its Programs for Dual-Eligible Populations plan for producing savings from improved chronic The Affordable Care Act provides a host of new plan care coordination and management. options and demonstration programs to encourage The ACA provides an enhanced match of state innovation in payment reform and delivery 90 percent FMAP for all Medicaid costs for health system integration for Medicaid beneficiaries home services provided to the enrollees for the first requiring long term care services, such as dual-eligible two years of program operation. Small planning beneficiaries (see Table 4 on page 18). Forthcoming grants may also be available to states beginning in guidance from CMS on these programs should offer 2011. more insight into how these may best be leveraged in the context of its waiver renewal process, with an eye Extension of Special Needs Plan Program toward minimizing CMS red tape and maximizing (§3205) the FMAP for delivery system innovations targeted to The Affordable Care Act extends program authority dual eligibles. through December 31, 2013 for all three types of Special Needs Plans (SNP) — dual eligible, chronic care, and institutional care. In addition, the ACA requires all SNPs to be approved by the National Committee for Quality Assurance (NCQA), starting in 2012. SNPs for dual eligibles will be able to operate for an additional two years without contracting with Medi-Cal because the authority to do so was extended until December 31, 2012. Starting in 2011, dual eligible SNPs which have a Medi-Cal contract could benefit from a “frailty payment” adjustment from HHS, comparable to the payment adjustment that Program of All-Inclusive Care for the Elderly (PACE) plans receive from HHS. The SNP frailty payment adjustment would be made to fully integrated SNPs that have a similar average level of frail beneficiaries as PACE plans and a contract with Medi-Cal. As a result of this additional payment,, the Managed Care Division of DHCS may experience an increase in the number of dual eligible SNPs interested in obtaining a contract to integrate Medi-Cal benefits with Medicare benefits for their dual-eligible enrollees. Implementing National Health Reform in California: Changes to Public and Private Insurance | 17 Table 4. edi-Cal State Options and Demonstration Programs Relating to Long Term Care Payment Reform and M Delivery System Integration Des c r iption N ew F ederal Fu n ds Effec ti ve Dat e Medicaid Community State plan amendment option to provide coverage 6 percentage point October 1, 2011 First Choice Option of home and community-based attendant services FMAP increase (§2401) and supports, such as assistance to accomplish activities of daily living, to those who meet the state’s nursing facility clinical eligibility standards. Home and Simplifies provision of home and community- Regular FMAP April 1, 2010 Community-Based based services through a state plan option rather Services State Plan than by pursuing more difficult federal waiver Options authority. Provides a full range of Medicaid (§2402) services to individuals whose income does not exceed 300 percent of the Supplemental Security Income (SSI) standard. Balancing Incentive Expands and diversifies Medicaid coverage for 2 to 5 percentage point October 1, 2011 through Payments Program home and community-based long term services FMAP increase September 30, 2015 (§10202[a]) and makes structural changes to improve Allocates up to $3 billion coordination and access to such services. Creates for Medicaid home new financial incentives for states to shift and community-based Medicaid beneficiaries out of facilities and into services. home and community-based services. Hospitalization Care Five-year demonstration project limited to eight Unclear, pending further January 1, 2012 through Integration Payment states to evaluate the use of bundled payment federal guidance December 31, 2016 Bundling for integrated care for Medicaid beneficiaries. (§2704) Focuses on specific episodes of care involving hospitalization and concurrent physician services where bundling payment may have the potential of improving quality of care while reducing costs. Medicaid Money Demonstration established through the Deficit The ACA extends the April 22, 2010 Follows the Person Reduction Act of 2005 (P.L. 109 –171) to reduce demonstration through Rebalancing reliance on institutional care and develop September 30, 2016, Demonstration community-based systems of care. The ACA bringing new aggregate (§2403) modifies eligibility rules to require that individuals federal funding of $450 reside in an inpatient facility for not less than million each year for FY 90 days. 2011– 2016. The state California received $130 million for California may be able to access Community Transitions (CCT), for the five-year this funding to expand project term from 2007– 2011. The project aims its current demonstration to transition 2,000 individuals from institutional or to pursue further to community-based settings in up to ten regions initiatives. within the state. Sources: Manatt analysis of ACA; The Scan Foundation, Policy Brief No. 2. March 2010. 18 | C alifornia H ealth C are F oundation III. Health Insurance Exchanges A health insurance exchange is a may need different resources to serve a high volume marketplace for purchasing health insurance, of individuals, some of whom may qualify for which can be organized by a government agency premium and cost-sharing subsidies and who will or an independent organization. The Exchanges choose from a wide range of plans to meet their established by the Affordable Care Act include the needs. In contrast, an Exchange would need different American Health Benefit Exchange for individuals resources to serve small employers who may look to who want to enroll in a qualified health plan and the the Exchange for help in finding a plan that meets Small Business Health Options Program (SHOP) the needs of both the employees and the employer, or “SHOP Exchange” for small employers, defined including the employer’s potential to receive small as businesses with up to 100 employees. The state business tax credits (see sidebar below). has the option to define small employer using a 50-employee threshold prior to 2016. States are Small Business Tax Credits (§1421) given the flexibility to operate geographic or regional Small employers who pay at least 50 percent of Exchanges (referred to as “subsidiary Exchanges”) their employees’ health insurance will qualify for a which may serve one or more counties, or other 35 percent tax credit beginning in 2010 and continuing through 2013. The credit will be increased to geographic or health insurance rating areas in the 50 percent in 2014 if the employer plan is purchased state. Starting in 2017, each state may allow, but not on the new state Exchange. Tax-exempt organizations require, issuers of health insurance in the large group may qualify for the credit, although it is lower for market in the state to offer qualified health plans them — 25 percent through 2013 and 35 percent through an Exchange. starting in 2014. California must establish separate Exchanges Small employers are defined in terms of the number for individuals and small employers by 2014, or, if of their full-time equivalents (FTE) and their average wage rate. The number of FTEs cannot be more than approved by HHS, implement a single Exchange that 25 and the average wage rate cannot be more than can serve the needs of both individual purchasers $40,000, although that amount will increase each year and small groups. If the state does not establish an based on inflation. Exchange, HHS will establish and operate one either directly or through an agreement with a not-for- profit entity (see Table 5 on page 20). HHS will establish standards by which an Exchange could demonstrate that it would not compromise its ability to meet the needs of the small employer market if it merged the two Exchanges and formed a single risk pool. The standards will be based on a recognition of the different types of services that these two Exchanges need. For example, an Exchange Implementing National Health Reform in California: Changes to Public and Private Insurance | 19 Table 5. Affordable Care Act Requirements to Organize Health Insurance Inside and Outside of Exchanges Ins ide O u tsi de Healt h Issuer O ffer s : Exc han g e Exchang e ACA Pro vi sion Separate Exchanges for the Individual and Small Group Markets Qualified Plan in the Individual Market Yes Yes Single Pool for Individual Market Required Health plan must operate a single risk pool for individual market enrollees, both inside and outside of Exchange. Qualified Plan in the Small Group Market Yes Yes Single Pool for Small Group Market Required Health plan must operate a single risk pool for small market enrollees, both inside and outside of Exchange. Single Exchange with Merger of Individual and Small Group Markets Qualified Plans in Both the Individual and Yes Yes Single Pool for Merged Markets Small Group Market (possible with state action) State has the authority to require health plans to operate a single risk pool which merges the individual and small group market, both inside and outside of the Exchange. Source: Manatt analysis of ACA. Except for grandfathered plans, all health plans directly seeking health insurance, or for agents or participating in an Exchange must operate a single brokers who may act on their behalf. risk pool without regard to the Exchange. That is, all A state Exchange will be responsible for of a health plan’s enrollees in either the individual or administering the subsidies and the certification small group market must be treated as a single risk process by which the Department of Treasury will pool regardless of whether the enrollment occurred be notified that an individual is exempt from the inside or outside of the Exchange. This single pool individual mandate or the penalty for non-coverage, rule could have a wider impact if a state decides to and for providing the employer identification merge the individual and small group Exchanges and information if an employer penalty needs to be the state requires that all fully insured health plans applied. Individuals are exempt from the requirement operate a single risk pool for their individual and to maintain health insurance in three instances: small group subscribers regardless of whether the (1) an individual’s income is below $9,350; (2) the enrollment was inside or outside of the Exchange. lowest cost exchange plan exceeds 8 percent of his or As part of organizing the health insurance market her income; or (3) the individual has a recognized within the state, an Exchange will certify health plans religious objection. it offers as “qualified health plans.” In addition, a Federal regulations will prescribe various state Exchange will operate a navigator program of requirements for an Exchange (see Table 6). However, public education and outreach to increase awareness the ACA does allow the state flexibility with respect about the Exchange and the health insurance to governance, whether to establish one or more subsidies. The Exchange will serve as a portal for regional Exchanges, and whom the Exchange will qualifying individuals and small employers who are serve (individuals and/or small businesses). 20 | C alifornia H ealth C are F oundation Table 6. Exchange Functions Plan Certification • Certify health plans as “qualified health plans” based on federal requirements. Premium Reviews • Consider premium levels in determining whether to make a plan available through the Exchange. Outreach, Enrollment, • Establish a navigator program to provide public education and outreach designed to promote and Exemptions awareness of the availability of qualified health plans and of the premium tax credits and cost-sharing reductions, and to facilitate enrollment in qualified health plans. • Screen individuals to determine if they qualify for coverage under Medi-Cal or Healthy Families and if so, enroll them in the program. • Assist individuals in determining if they qualify for premium and cost-sharing subsidies. • Certify if an individual is exempt from the individual mandate or the penalty and provide a list of individuals with such certification to the Secretary of the Treasury, as well as employer information when an employer penalty needs to be applied. Customer Support • Maintain an Internet Web site where enrollees and prospective enrollees can obtain standardized information about the plans. • Operate a toll-free telephone hotline to respond to requests for assistance. • Establish and make available by electronic means a calculator to determine the actual cost of coverage after accounting for the subsidies. Quality Measures • Assign a rating to each qualified plan offered through a state Exchange, based on criteria established by HHS. All of the functions of the Exchange are limited Benefits,” on the next page for a description of tiers). to the qualified health plans operating within it. Individuals with income of at least 100 percent but However, a state Exchange can take into account any not more than 400 percent of FPL will receive a excess of premium growth which the plan experiences refundable tax credit for a percentage of the cost of outside the Exchange, as compared to the rate of such premiums for a qualified health plan. Premium credit growth inside the Exchange, in determining whether is scaled, using six income bands, so that premiums to make a plan available. are less than 2 percent of income for consumers with income up to 133 percent of FPL while households Subsidies (§§1401, 1402, 1411, 1412) with income of 300 to 400 percent of FPL would The Affordable Care Act requires HHS to establish not pay more than 9.5 percent of income for health procedures for advance determination of eligibility insurance. for Exchange participation, premium tax credits and The Exchange must establish an electronic reduced cost-sharing. In addition, procedures must calculator for consumers to determine the actual include a process for certifying that an individual is cost of coverage after any premium tax credit and exempt from the requirement to maintain essential cost- sharing reductions are applied. The tool will minimum coverage. help purchasers to understand the actual costs of The subsidies are based on a taxpayer’s monthly obtaining health insurance inside the Exchange. household income (as a percentage of FPL) compared Although there is a presumption that the advance to the monthly premium for the second-lowest cost determination of subsidies and the other enrollment- plan within the “silver” tier of plans (see “Essential related processes described above will be performed Implementing National Health Reform in California: Changes to Public and Private Insurance | 21 by the Exchange, the state has the option instead to actual determination, it will need to establish a operate the enrollment and eligibility determination contract with the state agency that does so. program as part of either Medi-Cal or Healthy Families. The flexibility is provided as part of the Essential Benefits (§1302) enrollment simplification provisions. An “essential health benefits package” is defined as Each state must operate the Exchange as part coverage that: of a coordinated system with other “state health 1. Provides for essential health benefits as defined subsidy programs.” Specifically, through a single, by HHS, which must include at least certain streamlined form, individuals must be able to apply specified general categories (see Figure 2); for enrollment and receive a determination of eligibility to participate (or continue to participate) 2. Limits cost-sharing and deductibles for such in premium tax credits and cost-sharing reductions coverage; and within the Exchange, the state Medicaid program, 3. Provides benefits that meet one of four defined CHIP, and the new qualified basic health program. categories of coverage. California will have the option of delegating the advance determination of subsidy to Medi-Cal or In determining the scope of essential health Healthy Families if the state would be able to comply benefits coverage, the HHS Secretary must ensure with new HHS requirements for ensuring reduced that coverage is equal to the typical coverage provided administrative costs, eligibility errors, and disruptions by an employer, and accords with other principles in coverage. If the Exchange will not perform the laid out in the act. The HHS Secretary is also Figure 2. Health Coverage through the Exchange: Essential Benefits Package Required Services Actuarial Value portion of health care costs covered by plan for a standard population • Ambulatory patient services; • Emergency services; Platinum 90% • Hospitalization; • Maternity and newborn care; • Mental health and substance Gold 80% use disorder services, including behavioral health treatment; Silver 70% • Prescription drugs; • Rehabilitative and habilitative services and devices; Bronze 60% • Laboratory services; • Preventative and wellness services, and chronic disease management; Limits on Out-of-Pocket Costs* and Individuals: $5,950 • Pediatric services, including oral Families: $11,900 and vision care. *Levels are further reduced for individuals with income between 100 percent and 400 percent of FPL who are enrolled in a Silver Tier plan. Source: Manatt analysis of ACA. 22 | C alifornia H ealth C are F oundation directed to collaborate with the Secretary of Labor ◾◾ Include in the network essential community who will conduct a survey of employer-sponsored providers, where available, that serve coverage to determine typical benefits. predominately low-income, medically There are four categories for essential benefits underserved individuals;47 packages — Bronze (minimum coverage), Silver, ◾◾ Be accredited with respect to local performance Gold, and Platinum — that cover the same set of on clinical quality measures, patient experience services but range in the value of benefits provided. ratings, and other accreditation program Also, qualifying plans must offer a child-only policy requirements; for any of the four categories of benefits it offers. The ACA also establishes a catastrophic coverage ◾◾ Implement a quality improvement strategy, plan, primarily for individuals age 30 or younger, which uses a payment structure that provides that complies with the essential health benefits increased reimbursement or other incentives package. A catastrophic plan provides coverage for to hospitals and other healthcare providers and all essential benefits once the cost limit has been which improves health outcomes through quality reached, with preventive services and three primary reporting, case management, care coordination, care visits covered prior to reaching the out-of-pocket chronic disease management and care, and cost limit. medication compliance initiatives, including use California has the flexibility to require its of a medical home model; Exchange to offer benefits in addition to the essential ◾◾ Use a “uniform enrollment form” developed health benefits. If the state opts to require more by the National Association of Insurance generous benefits, it will be required to defray the Commissioners (NAIC) and certified by HHS; additional costs related to the expanded benefits when they are offered through the Exchange ◾◾ Use a standard format established for presenting health benefit plan options; and Qualified Health Plans (§1301) ◾◾ Provide information to enrollees and prospective HHS will develop a regulation that addresses the enrollees, and to each Exchange in which the plan requirements that an Exchange will use in certifying is offered, on quality measures. qualified health plans. The ACA requires that “at a minimum” the qualified plans offered through an In some states, newly established CO-OP plans Exchange: may be a source of qualified health plans offered ◾◾ Meet marketing requirements, and not use through the state’s Exchange (see sidebar on the marketing practices or benefit designs that following page). discourage enrollment by high-risk individuals; ◾◾ Ensure sufficient choice of providers, and provide information to enrollees and prospective enrollees on the availability of in-network and out-of- network providers; Implementing National Health Reform in California: Changes to Public and Private Insurance | 23 Scope of Exchanges (§1311) Consumer Operated and Oriented Plan (CO-OP) Program (§1322) If California complies with the federal requirements The ACA provides authority for the development of to establish a state Exchange rather than relying on Consumer Operated and Oriented Plans (CO-Ops), the federal fallback Exchange, it will need to enact which are nonprofit, membership-driven health conforming state legislation or issue regulations to insurance organizations that will be able to offer implement it. qualified health plans to the individual and small group markets through a state Exchange. CO-OPs will be The state must make three key decisions subject to the same federal standard qualification concerning the operating charter of its Exchange. requirements that an Exchange will apply to all health plans. The membership focus of a CO-OP allows one 1. The state must decide whether the Exchange will or more community organizations to develop a health be an existing agency, a new state agency, or a plan which meets the unique needs of its constituents. nonprofit organization. The ACA appropriates $6 billion for the CO-OP program and directs HHS to provide loans and grants 2. The state has the flexibility to establish subsidiary to entities applying to become qualified nonprofit Exchanges if they serve geographically distinct health insurance issuers. By June 23, 2010, the areas and each area is at least as large as the rating federal Comptroller General must form an advisory area that will be used to establish fair health board with 15 members having qualifications similar to MedPAC members. No later than July 1, 2013, insurance premiums.48 the HHS Secretary is required to award the loans and 3. The state must determine whether to operate grants based on advisory board recommendations. The ACA directs the HHS to give preference in awards to separate Exchanges for individuals and small applicants that will offer a qualified plan on a statewide employers or to merge the individual and small basis. The ACA also directs HHS to ensure that there group markets into a single risk pool and operate is funding to establish at least one CO-OP per state. a single Exchange with two service lines. The state’s decision must be based on an assessment of whether it has the resources necessary to meet the unique needs of the individual and small group markets. HHS will specify what resources are needed to address the unique needs of these two markets. In order to meet the requirement to be self- sustaining by January 1, 2015, the state Exchange will need to develop a funding structure to support its operations. The ACA suggests an assessment or user fee for participating health insurance issuers, although the state is not limited to only those funding mechanisms. 24 | C alifornia H ealth C are F oundation S u mma ry: Health Benefit Exchange What Does It Say? The Health Benefit Exchange is the governmental agency or nonprofit entity established by a state, which organizes health insurance markets for individuals and small employers.* Effective Dates July 1, 2010: HS must establish an Internet portal by which a resident of any state may H identify affordable coverage insurance options within the state. March 23, 2011: xchange Planning and Establishment grants in amounts to be determined E by HHS will be available to help fund states’ Exchange-related activities. Planning grants may be renewed, subject to meeting performance criteria, but grant funding ends January 1, 2015. January 1, 2014: Exchanges must be operational. January 1, 2016: tate discretion to limit the definition of “small business” to those with S 50 or fewer employees expires. January 1, 2017: tate may allow qualified health plans in the large group market to be S offered inside the Exchange. What Needs to Be Done? HHS must: • Establish, by regulation, criteria for the certification of qualified health plans; • Develop a system that would rate qualified health plans in each benefit level on the basis of relative quality and price; and • Establish enrollment periods which an Exchange will be required to offer, including an initial open enrollment period, an annual open enrollment period, special enrollment periods, and special monthly enrollment periods for Indians. California must: • Decide if the Exchange will be a state agency or an independent, nonprofit organization; • Decide whether to limit the definition of small business to a 50-employee threshold; • Enact any legislation and issue conforming regulations required to operate an Exchange, consistent with but not limited to the federal requirements; • Apply for grant funding and technical assistance to help plan and establish the Exchange; and • Anticipate the Exchange’s need for operating capital in addition to the grants to establish the navigator program.49 Who’s Responsible? HHS, governor, legislature The Bottom Line Unless the state wants to rely on the federal fallback Exchange, it must start the planning process to develop a California Exchange. The Exchange requirements will be determined in large part by HHS, but the state has flexibility in some areas, including key decisions about its organizational form, whether to establish subsidiaries operating in some geographic areas or counties, and whether the individual and small employer Exchanges should be merged into a single risk pool. Initial funding will be available in the form of federal Planning and Establishment Grants. However, the Exchange will need some working capital to support early-stage activities such as the navigator program to increase awareness prior to the start of the Exchange, and subsequently to support enrollment. The Exchange will be able to rely on the local navigator initiatives funded by the Patient Navigator Program, reauthorized by Section 3510 of the ACA with annual funding of $4 million from 2011 through 2015. As of January 1, 2015, however, the Exchange will need to be self-sustaining and will need to charge assessments or user fees to participating health insurance issuers, or establish some other funding mechanism, to support its operations. *If a state chooses not to establish an Exchange, the HHS Secretary will directly or through an agreement with a not-for-profit entity, establish and operate an Exchange within the state. Implementing National Health Reform in California: Changes to Public and Private Insurance | 25 Technical and Financial Consumer that seem to align with the goals of the grant Assistance program. Whether these offices will be supported through the new funding will depend on a variety of Health Insurance Consumer Information (§1002) factors: whether existing CDI and DMHC offices The state, or a state-established Exchange, will be would qualify; how California chooses to configure eligible to receive grant funds to expand existing or the Exchange; and whether support would be more establish new offices of health insurance consumer appropriately dedicated to an Exchange-level office or assistance or health insurance ombudsman a community-based office. HHS guidance has not yet programs, which would be charged with responding been released regarding these grant funds. to inquiries and complaints concerning health insurance coverage. A total of $30 million in Consumer Information Portal (§1103) federal grant funding is available for this purpose HHS must establish a mechanism to help consumers during the first year (2011), with further funding identify affordable health coverage options, including subsequently available in amounts to be determined an Internet Web site, by July 1, 2010. The ACA in the congressional appropriations process. The places primary responsibility on HHS for the Congressional Budget Office (CBO) has estimated development of the resource, with a standardized that a total of $340 million will be available between format for information presented, though the Act 2011 and 2019, by estimating $31 million for 2011 stipulates that HHS do so in consultation with the and calculating increasing annual funding based on states. In 2014, the Web site will be coordinated with estimated GDP growth, up to $45 million in 2019.50 the Web site the state is charged with developing Both the California Department of Insurance under the Exchange. HHS issued interim final (CDI) and the Department of Managed Health regulations, effective May 10, 2010, to begin Care (DMHC) currently operate offices — CDI’s implementation of the portal.51 Ombudsman Office and DMHC’s Help Center —  S u mma ry: Health Insurance Consumer Assistance What Does It Say? The state may be able to access federal funding to support an existing, or establish a new, consumer assistance office. Effective Date March 23, 2010, though HHS guidance is not yet available. What Needs to Be Done? The federal government will develop guidance on how the state may access funding, which could be in the form of a federal grants announcement. California will need to determine whether it will request funding for an existing office or establish a new office, potentially through the state Exchange. If it chooses to dedicate funding to an existing office, the state could explore consolidating the CDI and DMHC offices, since the new office’s purview would cover health insurance broadly. It is unclear how funds will be distributed, but California would need to successfully compete with other interested states for funds. Who’s Responsible? HHS, CDI, DMHC, state Exchange entity The Bottom Line The state could receive additional funding to support consumer assistance efforts. 26 | C alifornia H ealth C are F oundation IV. Basic Health Program T he A ffordable C are A ct (§1331) gives sharing for beneficiaries with family income between the state the option of establishing a Basic Health 134 percent and 150 percent of FPL may not exceed Program for low-income individuals under the age of the cost sharing required under the most generous 65 with income above the new Medicaid threshold coverage option in the state Exchange (Platinum of 133 percent of FPL and up to 200 percent of FPL. Tier). Cost sharing for beneficiaries with family Legal immigrants with income below 133 percent of income between 151percent and 200 percent of FPL FPL who are not enrolled in Medi-Cal because of the may not exceed the cost sharing required under a five-year bar would also be eligible for Basic Health state’s Gold Tier (see Section III for a discussion of Program benefits if the state elects this option. the categories of coverage in the Exchange). Those eligible for Basic Health Program coverage The ACA requires the state to establish a would otherwise be able to access coverage through competitive contracting process for a standard health the state Exchange, though some would qualify for plan, defined in the statute as a health benefits plan affordability exemptions from the individual mandate with which a state contracts to participate in the and penalty for non-coverage and remain uninsured. Basic Health Program. The law specifically directs As implementation planning for the Medi-Cal that the state engage in the following practices (in expansion and creation of a state Exchange takes addition to negotiation of premiums, cost sharing shape, California state regulators may consider and benefits) in its contracting process: whether a Basic Health Program is an effective means ◾◾ Negotiating with plans that offer: (a) care to provide an affordable coverage option for certain coordination and care management, especially low-income state residents. A Basic Health Program for chronic conditions; (b) incentives for use could provide an affordable, comprehensive coverage of preventive services; and (c) establishment of option for very low-income legal immigrants who are provider/patient relationships that maximize ineligible for Medi-Cal, as well as for families with patient involvement in health care decision income just above the Medi-Cal threshold.52 A Basic making; Health Program may be especially helpful in light of the number of parents that the state projects will lose ◾◾ Contracting with managed care systems or current Medi-Cal coverage with the conversion to a systems that offer attributes of managed care; MAGI eligibility test in 2014 (for more information ◾◾ Establishing quality of care and outcome on MAGI, see section starting on page 8).53 measurement and reporting requirements; and The ACA establishes caps on beneficiaries’ monthly premiums and cost-sharing obligations, ◾◾ Making multiple standard health plans available which vary based on income. Monthly premiums for through the Basic Health Program. the Basic Health Program are limited to the level of the second lowest cost coverage option (Silver Tier) Standard health plans must offer at least essential offered in the state Exchange. Additionally, cost benefits in order to participate in a state’s Basic Implementing National Health Reform in California: Changes to Public and Private Insurance | 27 Health Program. Standard health plans may include health plans if they enroll in qualified health plans licensed health maintenance organizations, licensed through the state Exchange. In turn, the state is health insurance insurers, or networks of health required to establish a trust for deposit of federal care providers established to offer services under Basic Health Program funds. The ACA requires that the Basic Health Program. The state may negotiate these trust funds be used only to reduce premiums regional compacts with other states to cover eligible and cost sharing for eligible individuals or to provide individuals in all participating states under contracted additional benefits. standard health programs. HHS has responsibility for establishing the Basic The ACA requires HHS to transfer to states Health Program through federal regulation, but Basic offering a Basic Health Program 95 percent of the tax Health Program regulations are not expected to be credits and cost-sharing reductions that would have promulgated in the near term. been provided to individuals enrolled in standard S u mma ry: Basic Health Program What Does It Say? The state has the option of creating a Basic Health Program for all people under age 65 with income from 134 percent to 200 percent of FPL, and to legal immigrants with income below 133 percent of FPL who are ineligible for Medi-Cal because of the five-year ban. Funding for the program would come from federal dollars that would otherwise have supported tax credits and cost-sharing reductions had these Californians enrolled in coverage through the state Exchange. Effective Date January 1, 2014 What Needs to Be Done? The federal government will issue guidance on the Basic Health Program, but such guidance is probably not a high priority for the agency for at least the next year. California has the option to consider whether the Basic Health Program can provide an affordable, comprehensive coverage option for low-income families and legal immigrants. An assessment of tradeoffs among state costs, comprehensiveness of coverage, administrative ease, and consumer benefits could help inform whether to establish a Basic Health Plan. Who’s Responsible? HHS, CMS, DHCS, MRMIB The Bottom Line The Basic Health Program is not a near term priority, but is worth exploration once federal guidance is available. 28 | C alifornia H ealth C are F oundation V. Private Coverage T he A ffordable C are A ct enacts private implementation of the new health reform law but health insurance reforms to address consumer will also help clarify how new insurance standards do barriers in accessing and maintaining comprehensive and do not differ from current state standards. coverage. The new law also establishes insurance industry standards and consumer protection and Provisions Affecting Individual and assistance mechanisms that target coverage provided Small Group Private Coverage in the individual and small group markets, as well as some that apply more broadly to all private coverage Temporary High-Risk Pool Program (§1101). models. The ACA establishes a $5 billion temporary high-risk As a result, California will assume new pool program to provide coverage for citizens and responsibilities. New standards and requirements legal immigrants who have been uninsured for at for health plans and insurers will require the state least six months and have a preexisting condition.56 to harmonize its existing regulations and oversight California currently maintains a high-risk pool, activities with federal requirements in numerous known as the Major Risk Medical Insurance Program areas including premium review and approval, plan (MRMIP) which is operated by the state’s MRMIB, financial reporting, product design, and network although actual coverage is provided by contracted development. DMHC and CDI jointly regulate health plans, primarily Kaiser and Anthem Blue health insurance in the state: DMHC has authority Cross. MRMIP has been operating since 1991 and over health maintenance organizations (HMO) reached its peak enrollment of over 27,000 in 1998. and some preferred provider organizations (PPO) Its two major funding sources are the Cigarette and while CDI has authority over traditional insurance Tobacco Surtax Fund (Proposition 99) which covers products and some PPOs.54 one-third of program costs, and individual premiums Some of the ACA’s requirements become which cover most of the other two-thirds. In 2008, effective immediately or within the next six months MRMIP’s enrollment was capped at 7,100 as a result while others are phased in over a longer term of funding constraints, including a projected average (through 2014). Practically speaking, however, annual decline of 3 percent for Proposition 99 even with many requirements that are effective revenue. immediately, the federal government will need to The new high-risk pool program is meant to take additional action before the provisions can be serve as a temporary bridge to the establishment of implemented. In several instances, the ACA directs the state Exchange; it will operate for approximately HHS to issue additional instructions or engage in 42 months, assuming a July 1, 2010 start date. The formal rulemaking.55 In other cases, while it is not state will be expected to transition the high-risk pool specifically directed to do so, HHS could exercise its enrollees to the state Exchange by January 1, 2014, discretion to issue clarifying information. Additional when the Exchange becomes operational. federal guidance will not only help inform the state’s Implementing National Health Reform in California: Changes to Public and Private Insurance | 29 HHS will develop procedures to transition that an individual must be without insurance eligible individuals enrolled in the high-risk pool for a six-month period is not likely to be a major to qualified health plans offered through a state limiting factor. In fact, California is thought to have Exchange.HHS is also authorized to extend coverage somewhere between 400,000 and 850,000 medically after the termination of the high-risk pool, if uninsured residents.58 The number that actually take necessary to avoid an enrollee’s loss of coverage. advantage of the high-risk program will depend on California had several options for implementing many factors, including the level of benefits offered the temporary high-risk pool program: and premiums. The funds for the temporary pool will be allocated based on the state’s population and ◾◾ Designate MRMIB as the entity that will operate cost profile, comparable to the CHIP allocation. The the new temporary program, in tandem with total pool of funds will be allocated each year in a MRMIP; manner which allows each qualified enrollee to be ◾◾ Designate another state entity to operate the new covered by the program until the end of December high-risk pool, outside of MRMIB; or 2013. ◾◾ Fail to implement a temporary high-risk pool, Coverage Expansion and Financing meaning that HHS would operate the program, HHS has clarified that the federal government most likely through delegation to a contractor. will fund all costs which exceed the premiums On April 29, 2010, Governor Schwarzenegger received from individual enrollees in the high-risk indicated to HHS Secretary Sebelius, through pool. No state matching funds will be required. an official letter of intent, that California would The costs of the temporary high-risk pool include operate its own temporary high-risk pool through administrative expenses required to develop and the MRMIB.57 HHS has indicated that it will allow operate the program, as well as the costs of health states to use existing lists of benefits and criteria insurance claims. HHS plans to establish an account for defining preexisting conditions, as long as they through which each contracted state can draw down are not inconsistent with the federal requirements. the benefit claims. Based on HHS’s preliminary Because MRMIP is not a qualified high-risk pool, it estimates, California could receive $761 million is likely that both the benefits and the criteria would over the 42 months of the pool’s operation, or an need to be modified for new high-risk enrollees. annualized amount of $218 million, which is more Nonetheless, the new federally funded risk pool than a five-fold increase over the state’s annual is expected to operate alongside the state’s current funding of MRMIP.59 The estimated California MRMIP high-risk pool (see Table 7 on page 31). allocation could fund coverage for more than 35,000 It is difficult to estimate the number of individuals for the entire 42-month period, assuming Californians who might benefit from the temporary an average monthly premium of approximately $600, high-risk pool, although it is likely to be significantly which is the national average premium for high-risk more than the enrollment cap of 7,100 for the state’s pools in a Government Accountability Office (GAO) current MRMIP risk pool, which has found that report.60 The actual number will depend on two key 40 percent of its subscribers had been uninsured factors: six months or more. As a result, the federal criteria 30 | C alifornia H ealth C are F oundation ◾◾ Average enrollment period. Enrollment is ◾◾ Premiums. The premiums may be more than unlikely to occur for all enrollees at the same the $600 average in the GAO report because the time, meaning that the average number of ACA requires an actuarial value of 65 percent, months of coverage for all enrollees will be less which is likely to be higher than the coverage than the 42 months of the program’s operation. offered by most existing state risk pools. The remaining 35 percent reflects the average enrollee’s share, primarily for the cost-sharing Table 7. Comparison of MRMIP and New Temporary High-Risk Pool MR MIP Tempo rary Hig h- Ri sk Pool Eligibility Criteria • Resident of state • Citizen or national of the U.S. or lawfully • Demonstrate: present in the U.S. • Rejection from a carrier in last 12 months; • Have no creditable coverage in the last or six months • Offer of coverage with premiums equal to • Have a preexisting condition, as or exceeding MRMIPs; or determined by the Secretary of HHS or as • Termination by a carrier for reasons other proposed by the state with HHS approval than fraud or non-payment of premium • Ineligible for Medicare, unless solely eligible because of End-Stage Renal Disease • Ineligible for or has exhausted COBRA or Cal COBRA Rating Factors • Plan • Age of Subscriber (subject to a 4:1 limit) • Age of Subscriber • Individual or Family • Individual or Family • Geographic Region • Geographic Region • Tobacco Use (subject to a 1.5:1 limit) Preexisting Conditions • PPO product: three-month waiting period for No waiting period for preexisting conditions Restrictions/Waiting Periods services for preexisting conditions • HMO product: three-month post-enrollment waiting period during which no benefits are provided (subscriber does not pay premiums during this period) Deductible $500 To be determined (enrollee share of benefit costs cannot Annual Limit $75,000 exceed 35 percent) Out-of-Pocket Limit $2,500 $5,950 for an individual; amount based on High Deductible Health Plan Lifetime Benefit Limit $750,000 Pending federal guidance Actuarial Value Approximately 40 percent* At least 65 percent (i.e., on average, the percent of total health care costs covered by the premium) *Estimate provided by MRMIP in personal communication with California HealthCare Foundation. Implementing National Health Reform in California: Changes to Public and Private Insurance | 31 requirements up to the annual out-of-pocket Maintenance of Effort and Plan Monitoring limit. The premiums charged in the high-risk In order to qualify for the new high-risk pool, the pool cannot exceed the state’s “standardized risk state is required to maintain the current level of effort rate,” an amount that the state must calculate associated with MRMIP, which is funded by the using reasonable actuarial methods. state. For California, which could be participating in the new program as early as July 1, 2010, the MOE Recognizing that there will be some uncertainties requirement means that MRMIP’s funding must be related to enrollment patterns, HHS intends to maintained at the 2009 level. reassess the state high-risk pool allocations at some In addition to MOE requirements, health point within the program’s first two years. Similar to insurance issuers and employment-based health the process for CHIP, the reallocation will be based plans are subject to sanctions for “dumping risk,” on an assessment of each state’s actual enrollment with HHS to develop criteria for determining if an rates and spending experience. States with a high individual has been discouraged from remaining rate of medically uninsured are likely to pursue an enrolled in a plan based on the individual’s health aggressive first-year enrollment strategy to minimize status. As part of the high-risk pool solicitation, HHS their potential loss of federal funds in subsequent has asked states to consider the following procedures years if the early enrollment rates and spending for determining if an individual was discouraged experience causes HHS to reallocate funds among the from maintaining coverage: states in the middle of the program’s operation. ◾◾ Questions on the high-risk pool application form about employment status of the applicant or family members, and questions as to whether anyone is assisting them with the premiums; S u mma ry: Temporary High-Risk Pool Program What Does It Say? The temporary high-risk pool program will be a source of health insurance coverage for U.S. citizens or nationals who have been uninsured for at least six months because of a preexisting condition. The program could start as early as July 1, 2010 and will continue until the end of 2013 when enrollees will transition to coverage through Medi-Cal or the state Exchange, based on a transition plan established by HHS and implemented by the state. Effective Date July 1, 2010: alifornia must be ready to begin operating the high-risk pool. HHS expects that C an individual’s coverage will be effective within 15 days of submitting a complete enrollment request. What Has Been Done? April 30, 2010: overnor Schwarzenegger expressed the state’s intent to operate the high-risk G pool under contract with HHS. May 10, 2010: HHS issued a Solicitation for State Proposals to Operate Qualified High-Risk Pools. What Needs to Be Done? California must submit its proposal in response to the HHS solicitation to operate the temporary high-risk pool (federal deadline not set as of this writing). Who’s Responsible? HHS, governor, MRMIB, legislature The Bottom Line California will be able to provide health insurance coverage to many more medically uninsured than is possible under MRMIP’s current funding constraints. 32 | C alifornia H ealth C are F oundation ◾◾ Questions on the application form asking on an amount set by HHS and to make reinsurance applicants to identify their most recent health payments to plans in the individual market which coverage and the reasons for leaving or losing that have enrolled high-risk individuals. The risk corridor coverage; and program involves payment adjustments between HHS and a health plan, which depend on an analysis ◾◾ Requirement that enrollees report changes in of whether the plan’s premiums are more or less than their employment status, or that of a family the allowed costs. member, during the course of enrollment. The amount of the sanctions based on those who Transitional Reinsurance (§1341) have been discouraged from remaining enrolled in The transitional reinsurance program is designed to an existing health plan will be based on the medical stabilize premiums in the individual market during expenses that the high-risk pool program incurs as a the first three years of the new federal requirement result. to maintain minimum essential coverage. During this time, it may be difficult to estimate the Temporary Reinsurance Programs (§§1341– 2) average cost of an enrolled population because Two temporary reinsurance programs will be in place of the combined effect of the guaranteed issue from the start of the Exchanges in 2014 until the requirement for health plans and the minimum end of 2016: the transitional reinsurance program coverage requirement for individuals. Some health and the federal risk corridor program. (In addition, plans may enroll a disproportionate number of a program to provide reinsurance for early retirees is individuals with preexisting conditions or risk factors also established; see sidebar below.) The transitional who would not be able to afford coverage without reinsurance program requires a state reinsurance the new federal subsides, while other plans may entity to collect fees from all health insurers based have a disproportionate rate of healthy enrollees. Reinsurance will help to redistribute among the plans any disproportionate gains associated with low-risk Reinsurance for Early Retirees (§1102) enrollees as well as the losses associated with high-risk As early as July 2010, employers — including state, enrollees. county and local governments — can qualify for a total of $5 billion in federal reinsurance payments to Nationwide, new health insurance issuers and help them lower the health plan costs paid by early health plans will be required to make contributions retirees, including premium contributions, deductibles to a reinsurance pool which will total $25 billion. and co-payments. In order to qualify for the payments, Grandfathered health plans or issuers and self-insured the employer must demonstrate that its retiree health plan has implemented programs and procedures to ERISA plans are exempt from the reinsurance generate cost-savings related to chronic and high-cost provision. The state reinsurance entity will determine conditions. The application process is similar to the the amount of reinsurance that each health insurer Medicare Retiree Drug Subsidy program. Qualified will pay based on the payment method selected by plans will submit their claims to HHS, which will make HHS, which will either be a specified percentage of reinsurance payments to the plans for claim costs which are between $15,000 and $90,000. HHS issued premiums or claims costs, or a specified per capita interim final regulations, which are effective June 1, amount. Regardless of the method, it would be 2010, to begin implementation of the program.61 applied to all major medical polices, both inside Implementing National Health Reform in California: Changes to Public and Private Insurance | 33 and outside the Exchange, unless the plan or issuer States have several options for establishing was exempt. HHS will specify the fixed percentage reinsurance entities, though they must be not-for- or the per capita amount using a methodology profit organizations. A state can establish a new whereby the total contributions across all states will independent reinsurance organization within the total $12 billion in 2014, $8 billion in 2015, and state or it can join with other states to establish a new $5 billion in 2016. independent entity available to all of the participating The state reinsurance entity will make payments states. Alternatively, a state can choose to contract to insurers in the individual market that cover with one or more existing reinsurance entities to high-risk individuals. The payments will be based operate the program on its behalf. MRMIP is not a on a payment schedule for the range of high-risk candidate to serve as a reinsurance entity, since it is a conditions covered by the program, or using an state agency rather than a nonprofit organization as alternative method recommended by the American required by law. Academy of Actuaries, that will encourage care coordination and care management programs. The Federal Risk Corridor Program (§1342) high-risk conditions will be established by HHS Health insurers in the individual and small group based on: 1) a list of 50 to 100 conditions, defined by markets in California must participate in the federal diagnosis or procedure codes, which are indicative of risk corridor program if they offer a qualified health an individual with a preexisting high-risk condition, plan. The program will operate for the first three or 2) a comparable method recommended by the years of the state Exchange when plans may be less American Academy of Actuaries. accurate in setting premiums because of the factors S u mma ry: Transitional Reinsurance Program for Individual Market in Each State What Does It Say? The transitional reinsurance program is designed to support health plans in the individual market that cover high-risk individuals. California will need to establish a reinsurance entity which will collect reinsurance contributions from all health plans that participate in the individual and group market, except for grandfathered plans. The fees will be based on a health insurance issuer’s fully insured major medical products, regardless of whether they are offered inside the Exchange. HHS will determine if the reinsurance payments will be made based on a payment schedule for a list of 50 to 100 conditions or another method such as the risk adjustment methodology used in Medicare Advantage. Effective Date January 1, 2014 What Needs to Be Done? HHS is responsible for defining how states will identify individuals with high-risk conditions and for determining the rate methodology that the state reinsurance entity will use to calculate each health insurer’s reinsurance contributions. California needs to decide if it wants to establish one or more reinsurance entities within the state or if it wants to establish a contract with an existing reinsurance entity. The only constraint is that the entity must be a not-for-profit organization. Who’s Responsible? HHS, DCI, MRMIB The Bottom Line California needs to establish or contract with a reinsurance entity which will comply with federal standards and state laws and regulations regarding the Exchange. MRMIP would not qualify as the reinsurance entity because it is a state agency rather than a not-for-profit organization as required by law. 34 | C alifornia H ealth C are F oundation described in the section above. A risk corridor is a the total amount of costs that the plan incurs in threshold that is based on a comparison of a plan’s providing covered benefits, reduced by administrative allowable costs to its target amount of revenue. expenses and any reinsurance from the temporary Plans at the lower end of the risk corridor will return reinsurance fund or the state risk adjustment payments to HHS because their target rate exceeds program. The target amount is the total annual their costs by more than 3 percent. Plans at the upper premiums, including subsidies, minus administrative end will receive payments from HHS because their expenses. costs exceed their target rate by more than 3 percent. Unlike the state reinsurance program, which The risk corridors or thresholds will be based makes payments only to plans in the individual on the methodology used in the Medicare Part market, the federal risk corridor payment D program, in which the plans with higher risk adjustments will be made to qualified health plans enrollees receive additional payments from the in the small group market as well, if their costs are program while health plans with lower-risk enrollees in the upper end of the risk corridor. While the risk make payments to the program. corridor is a federal program, HHS may delegate The payment adjustment is calculated as the the function to the state authority responsible for percentage of the plan’s allowable costs measured implementing the health insurance reform activities. against its target amount. The allowable costs are S u mma ry: Federal Risk Corridors for Plans in Individual and Small Group Markets What Does It Say? Risk corridors will be calculated based on a comparison of a plan’s allowable costs and its target amount, which is based on premiums. Plans with low-risk corridors have allowable costs which are less than 97 percent of the target amount, indicating that they have been “overpaid” and will need to make a repayment to HHS, similar to a rebate. Plans with high-risk corridors have allowable costs which exceed 103 percent of the target amount, indicating that they have been “underpaid” and will receive additional payments from HHS. Qualified health plans in the individual and small group markets will be subject to positive or negative payment adjustments depending on the risk corridor calculation. Effective Date The federal risk corridor payment adjustments will be effective for three years starting on January 1, 2014. What Needs to Be Done? The Affordable Care Act does not specify how the payment adjustments will be made. HHS may establish a reconciliation process whereby a state agency or the Exchange would serve as an intermediary between HHS and the plans. Alternatively, it could follow the Medicare Part D model where the payment adjustments are between the plan and the federal government without any intermediary. Who’s Responsible? HHS The Bottom Line HHS will rely on health plan data collected by the state to administer the risk corridor program. It is possible that HHS could delegate the payment adjustment function to the state. Implementing National Health Reform in California: Changes to Public and Private Insurance | 35 Permanent State Program for Risk Adjustment The permanent risk adjustment program is based (§1343) on a comparison of the “actuarial risk” of a health California will be required to establish a risk plan’s enrollees and the average risk profile across adjustment program so that plans with high-risk all plans and sources of health coverage in a state enrollees will be compensated by plans with lower- (not counting self-insured plans). If a health plan risk enrollees, regardless of whether the plan is does not have many high-risk individuals, it would offered inside or outside of the state Exchange. have a low risk score and would be defined as a “low The risk adjustment program will apply to all new actuarial risk plan.” In contrast, a “high actuarial fully insured health plans for the small group and risk plan” is likely to have many more high-risk individual markets. The program will not apply to enrollees compared to other plans. In order to limit grandfathered plans or to self-insured plans. the financial risks associated with adverse selection, The risk adjustment methodology will be this new state program would collect fees from low developed as part of a consultative process between actuarial risk plans, which it would use to make the states and HHS, which is authorized to use payments to the high actuarial risk plans. criteria and methods similar to the “risk scores” used Since the risk adjustment program applies to in the Medicare Advantage and Medicare Part D qualified health plans inside and outside of the programs. This methodology uses an algorithm that Exchange, the state will want to develop the program creates an overall risk profile for various groupings so that it coordinates with the state’s insurance and of beneficiaries. For example, Medicare calculates managed care regulatory agencies as well as with the geographic and health plan-specific risk scores to new state Exchange. determine if there are differences in the relative risks of different Medicare populations. S u mma ry: Risk Adjustment State Program What Does It Say? The state must establish a permanent program to adjust risk for qualified health plans in the small group and individual markets. Under the program, plans would be classified as low or high actuarial risk. Low actuarial risk plans would be assessed a fee which would provide funds the state would use to make payments to the high actuarial risk plans because they cover more individuals with high-risk conditions. Effective Date The Affordable Care Act does not specify an effective date; however, CBO estimates include risk adjustment payments starting in 2014. What Needs to Be Done? HHS must develop the criteria and establish the risk adjustment program, in consultation with the states. The ACA allows HHS to develop program criteria and methods similar to those used under the Medicare program. The state must then establish a program consistent with the criteria. Who’s Responsible? HHS, state (likely CDI, DMHC) The Bottom Line This is a significant change in the health insurance market since it is not limited to qualified health plans inside the state Exchange. This provision could have a financial impact on any fully insured health plan or health insurance issuer in the individual or small group market within the state. 36 | C alifornia H ealth C are F oundation Table 8. Transitional Reinsurance, Risk Corridor, and Risk Adjustment Programs Tempo r ary Pro g ram s (2014 –  2016) Permanent Ri sk Adju stment Pro g r am Transitional Reinsurance Federal Risk Corridor (estimated 2014 or later ) C ollections from Payments to Payment A djustments C ollections from Payments to A ll P lans A ll P lans ( positive and negative) L ow R isk P lans H igh R isk Plans Types of Plans* • Individual • Individual • Individual • Individual • Individual • Small Group, • Small Group, • Small Group, • Small Group, New Plan New Plan New Plan New Plan Exchange • Inside Exchange • Inside Exchange • Inside Exchange • Inside Exchange • Inside Exchange Status of Plans • Outside Exchange • Outside Exchange • Outside Exchange • Outside Exchange (qualified and (qualified plans only) (qualified and (qualified and non-qualified plans) non-qualified plans) non-qualified plans) Funding $25 billion TBD TBD TBD Organization Nonprofit Reinsurance Entity HHS Determined by the State *Grandfathered health plans and self-insured health plans are excluded from these programs. Changes Regarding All Private Coverage the state must also begin ongoing monitoring of premium increases for plans, regardless of whether Premium Rate Review (§§1003, 10101[i]) the health insurance coverage is offered in the Starting in 2010, California must institute an annual Exchange or outside it. review process to identify “unreasonable” plan Health insurers will be required to disclose to premium rate increases, a standard yet to be defined HHS, the state, and the public, the justification by HHS. The Affordable Care Act makes available a for a premium rate increase. Insurers with excessive total of $250 million to support state premium rate or unjustified premium increases, as determined review efforts and for new “medical reimbursement through the review process and applying standards centers”—to be established at academic and/or set by HHS and applied by the state, may be nonprofit institutions—that collect, analyze, and excluded from participating in state Exchanges. The organize medical reimbursement information from ACA does not otherwise authorize HHS or states to health insurers. California could receive between prevent implementation of plan rate increases and it $1 million and $5 million annually for five years, is unclear at this time if HHS guidance can or will the exact amount to be based on a federal formula authorize federal or state modification of premium for state allocation of appropriated funds.62 As a rates in the review process. condition of receiving federal funding, California The premium rate review process is currently will need to provide HHS with information about under development. The ACA places primary premium increase trends in the state and recommend responsibility for that development on HHS, though whether certain insurance plans should be excluded it stipulates that HHS do so in consultation with the from participating in the state’s Exchange due to states. On April 14, 2010, HHS initiated this process excessive or unjustified premium increases. In 2014, and issued a notice requesting public feedback on Implementing National Health Reform in California: Changes to Public and Private Insurance | 37 S u mma ry: Premium Rate Review What Does It Say? The state must review plan premium rates and report information to the federal government on an ongoing basis. The state may also provide funding to academic and nonprofit institutions to form medical reimbursement centers that collect, analyze, and organize medical reimbursement information from insurers. Effective Date March 23, 2010 What Needs to Be Done? The federal government will develop guidance on the annual review process and parameters on the grant program to support states’ premium rate review processes. California has the opportunity to work with federal partners in the guidance development process. California will also need to determine how current state premium rate review practices align with new federal requirements and if any changes (e.g., conforming state legislation) are necessary. Who’s Responsible? HHS, DOL, Treasury, DMHC, CDI The Bottom Line The state needs to institute new premium rate review processes and could receive new federal funding to support these efforts. current state rate review practices and requirements More guidance from the federal government and on the formula for allocating grant funds.63 related to standards and state enforcement authority On June 7, 2010, HHS announced the availability will be necessary, but the state will likely need to of $51 million in a first round of grants from the harmonize current state requirements with the ACA $250 million ACA dedicates to states to carry out health insurance standards. The state will also need this provision. In this first cycle, states will be able to play an active role in monitoring and enforcing to receive $1 million each if they submit satisfactory new standards. For both tasks, California may need applications describing how they will use grant to modify current or develop new administrative funds to develop or enhance the process of reviewing and oversight processes and pursue regulatory and and approving, disapproving, or modifying health legislative changes. Questions also remain with insurance premium requests.64 respect to the maintenance of grandfathered health plan status, and whether modifications in coverage New Insurance Standards features or issuer organizational structure could result The Affordable Care Act establishes a number of new in the end of grandfathered status.66 It is unclear the requirements for health plans and insurers. Unless extent to which these questions will be addressed in otherwise noted below, these provisions apply to federal guidance, and if so, when. group health plans, including self-insured plans, and In the near term. Starting with the first plan years issuers offering individual and small group coverage following effective dates ranging from September 23, both inside and outside the state Exchange. The ACA 2010 through December 31, 2010, health plans: exempts existing group and individual coverage —  “grandfathered health plans”— from a number of ◾◾ Are prohibited from imposing lifetime limits on these new requirements.65 Provisions that apply to the dollar value for essential benefits provided to grandfathered health plans are specifically highlighted consumers (see “Essential Benefits” in Section III) below. and are only permitted to impose “restricted annual limits” on coverage. As of January 1, 38 | C alifornia H ealth C are F oundation 2014, health plans will be prohibited from setting HCERA §2301). A related provision gives parents annual limits. In addition to new health plans favorable tax treatment for coverage of adult and insurers, the lifetime limit prohibition applies children under age 27 (HCERA §1004[d][1]).70 to grandfathered health plans while the annual Areas for Federal Guidance: HHS, the Internal limits prohibition applies to grandfathered group Revenue Service (IRS), the Department of health plans (§§1001 [PHSA §2711], 10101[a], 1251, the Treasury (Treasury), and the Department HCERA §2301).67 of Labor (DOL) jointly issued interim final Areas for Federal Guidance: HHS must define the regulations, effective July 12, 2010.71 The public parameters for the interim standard of restricted comment period closes on August 12, 2010. annual limits. Federal guidance has already clarified some of the initial questions raised regarding this provision, ◾◾ Are prohibited from terminating coverage of such as articulating that such coverage: (1) is individuals except on grounds of fraud and available up to a child’s 26th birthday and not abuse.68 In addition to new health plans and through a child’s 26th year; (2) is not limited only insurers, this provision applies to grandfathered to dependents meeting the income tax definition; health plans (§§1001 [PHSA §2712], 1251, HCERA and (3) is not required to be available to the §2301). spouse of an eligible child. Areas for Federal Guidance: Though the ACA does not require any additional regulations, more ◾◾ Are prohibited from discriminating in the guidance could be required to clarify “fraud” and provision of health coverage or benefits in favor “intentional misrepresentation of material fact,” of highly compensated employees. These are rules the conditions that would permit health plans to that currently apply to self-insured plans and are terminate an individual’s coverage. being extended to group heath plans (§§1001 [PHSA §2716], 10101[d]). ◾◾ Must provide coverage for a designated set of preventive health services (under existing federal ◾◾ Must submit annual reports to HHS on their guidelines) without cost-sharing. Examples activities and reimbursement structures related of these services include immunizations and to quality improvement, hospital readmission children’s preventive health screenings (§1001 prevention, patient safety, and wellness and health [PHSA §2713]). promotion (§§1001 [PHSA §2717], 10101[e]). Areas for Federal Guidance: HHS must establish Areas for Federal Guidance: HHS must develop an appropriate transition timeframe of at least a reporting requirements and issue regulations on year between the issuance of new guidelines and the criteria for evaluating whether reimbursement expected adoption by health plans. structures fulfill quality improvement, hospital readmission, patient safety, and wellness and ◾◾ Must extend coverage for children up to age health promotion goals. The deadline for HHS to 26, if the plan provides coverage for dependent promulgate these regulations is March 23, 2012. children.69 In addition to new health plans and insurers, this provision applies to grandfathered ◾◾ Must submit annual reports to HHS on the group health plans (§§1001 [PHSA §2714], 1251, percentage of premiums spent by the plan on Implementing National Health Reform in California: Changes to Public and Private Insurance | 39 clinical services and activities that improve health Areas for Federal Guidance: HHS and DOL must care quality, a term known in the insurance establish internal claims appeal requirements. industry as “medical loss ratios.” If the reported HHS must also establish external review process medical loss ratio falls below minimum standards, requirements. insurers would be required to provide consumer rebates. The ACA specifies minimum medical In the longer term. Starting with the first plan years loss ratios of 80 percent for individual and following effective dates, ranging from January 1, small group insurers and 85 percent for large 2012 and beyond, health plans: group insurers, though the state has discretion ◾◾ Must provide benefits summary and coverage to establish higher levels with HHS approval. In information to individuals, following a addition to new health plans and insurers, this standardized format. In addition to applying provision applies to grandfathered health plans to new health plans and insurers in 2012, this in the first plan year following enactment (§§1001 provision applies to grandfathered health plans [PHSA §2718], 10101[f ], 1251, HCERA §2301). and takes effect for them in the first plan year Areas for Federal Guidance: The NAIC must following ACA enactment (§§2715, 1251, HCERA develop guidelines for standard definitions in §2301). accounting for health care costs and calculation Areas for Federal Guidance: HHS must develop methodology for medical loss ratios, and HHS a standardized format, in consultation with must certify these guidelines by the end of NAIC and a stakeholder workgroup, and issue 2010. HHS must develop enforcement rules, the standards (including requirements concerning which it has opted to do jointly with DOL presentation and content) by March 23, 2011. and Treasury. On April 14, 2010, these three HHS must also promulgate regulations providing federal departments issued a notice requesting standards for common health insurance and public feedback to inform the development of medical terms. regulations.72 ◾◾ Must issue insurance policies to interested ◾◾ Must implement internal claims appeals and individuals and employers (“guaranteed issue”) external review processes. For internal claims and continue to sell these policies (“guaranteed appeals, health plans must initially comply with renewability”) regardless of health or risk status existing rules and then with any additional (effective January 1, 2014). Health plans may requirements that may be specified by DOL restrict enrollment timeframes by establishing and HHS. For external review processes, health open enrollment periods but must also establish plans must comply either with state standards special enrollment periods that would allow that meet minimum NAIC Uniform External interested individuals to join or modify their Review Model Act consumer protections or, coverage due to a “qualifying event” as addressed in the absence of state standards or for plans in existing law (e.g., change in marital status, loss not regulated by the state, with standards to be of employment) (§1201 [PHSA §§2702, 2703]). established through HHS guidance (§§1001, 10101 [PHSA §2719], 10101[g]). 40 | C alifornia H ealth C are F oundation Areas for Federal Guidance: HHS must issue to grandfathered group health plans (§§1201[2][a] regulations regarding requirements for the open [PHSA §§2704, 2705], 10103[e],HCERA §2301). enrollment and special enrollment periods. Areas for Federal Guidance: HHS has the ◾◾ Are prohibited from withholding coverage due to discretion to specify additional health status a preexisting condition(a health condition present factors. prior to a consumer seeking coverage). The ACA ◾◾ Are prohibited from applying waiting periods further specifies seven health status-related factors for health coverage that exceed 90 days. This (such as claims experience, genetic information, provision applies to all group health plans and and disability) that cannot be used in determining all grandfathered health plans (§1201 [PHSA §2708], eligibility for coverage. (For children under 19, §1251, HCERA §2301). the protection is effective September 23, 2010.) Areas for Federal Guidance: HHS may issue In addition to applying to new health plans additional guidance regarding this requirement. and insurers, the prohibition on withholding coverage due to a preexisting condition applies S u mma ry: New Insurance Standards What Does It Say? Health plans regulated by the state are subject to a host of new requirements that become effective in the near term and in 2014. Effective Date Plan years starting following effective dates ranging from September 23, 2010 to January 1, 2014. What Needs to Be Done? The federal government and NAIC will develop guidance on a variety of requirements. California will need to analyze current insurance standards and the Affordable Care Act when federal parameters become clearer, to determine the extent to which legislative, administrative, or other changes may be necessary to harmonize with ACA standards. Who’s Responsible? HHS, DOL, Treasury, DMHC, CDI, legislature The Bottom Line California could need to modify current or develop new administrative and oversight processes and pursue regulatory and legislative changes to harmonize current state requirements with ACA health insurance standards. Implementing National Health Reform in California: Changes to Public and Private Insurance | 41 VI. Waiver for State Innovation C alifornia may ask permission from The state will have the option to apply for a HHS and/or Treasury to waive certain requirements five-year waiver for state innovation starting in under the Affordable Care Act, substituting a state- 2017. In the interim, by September 23, 2010, HHS designed coverage approach (§1332). If the state does and Treasury are to issue regulations regarding the so, its alternative program must: waiver application process. The ACA specifies certain required features of the waiver process, including ◾◾ Provide coverage that is comparable to the requiring the state to engage in a public notice essential benefits package and protections and comment process. The waiver process could regarding consumers’ out-of-pocket costs; very well be similar to current waiver processes ◾◾ Provide coverage to a comparable number of applicable for Medi-Cal and Healthy Families, and residents as in the absence of the waiver; and the ACA specifically requires HHS to coordinate and consolidate these existing processes with ◾◾ Not increase the federal deficit. the application process for the waiver for state innovation. The ACA even goes so far as to require The state would have the opportunity to waive that HHS develop a process that would allow the the provisions related to: state to submit a single application for a waiver under ◾◾ Essential health benefits; this provision and Medi-Cal and Healthy Families, potentially allowing the state to test comprehensive ◾◾ Exchanges; approaches for expanding coverage. ◾◾ Cost-sharing reductions; Given that the ACA dictates that states would not be able to apply for a waiver sooner, it seems that the ◾◾ Premiums subsidies; state will still need to be ready to implement major ◾◾ Individual mandate for coverage; and ACA provisions in 2014, even though the waiver option could raise some strategic considerations for ◾◾ Employer requirement for coverage. the state in the long term. The tax credits for premiums subsidies and cost- sharing reductions that would have been provided to individuals enrolled in qualified standard health plans offered through the state Exchange would be provided to the state to support its alternative program. 42 | C alifornia H ealth C are F oundation S u mma ry: Waiver for State Innovation What Does It Say? Starting in 2017, the state has the option of waiving certain major provisions in the Affordable Care Act related to essential benefits, the state Exchange, individual mandate, and employer requirements, and substituting state-designed policies. Effective Date January 1, 2017 What Needs to Be Done? The federal government needs to issue guidance on the state innovation waiver application process. California will need to review federal guidance and consider whether the state has alternative policies it would like to test. Who’s Responsible? HHS, CMS, DHCS, governor, legislature The Bottom Line The waiver for state innovation is not a near-term priority but may be an option for the state to test alternative state policies in later years. Implementing National Health Reform in California: Changes to Public and Private Insurance | 43 VII. Conclusion I mplementation of federal health care the safety net and reducing the number of the reform would be daunting in the best of times. uninsured—reflect foundational elements for health But California, like many states, is operating in an reform implementation. The waiver request focuses enormously challenging environment, with severe on four target populations: seniors and persons budget deficits projected for years to come, resources with disabilities; children with special health care already stretched thin in the very state agencies key needs; people with behavioral health disorders or to implementation, and political transition at the substance abuse requiring integration of care; and highest levels of state government. Although the those who are dually eligible for Medi-Cal and Affordable Care Act makes available some federal Medicare. It remains to be see what new programs planning and implementation grants, neither the and financing arrangements will emerge from state- aggregate amount nor the amount of state awards for federal negotiations around the waiver application. many of the areas is known at this time, leaving many But the waiver’s focus on targeted groups, as well as to wonder whether the support will be adequate California’s large undocumented population who will for the task (see Table 9, below). In addition, many remain ineligible for programs under the waiver and areas necessary for state implementation — such under federal health reform, means that a significant as considerable policy and legal analysis — remain number of residents will not benefit from coverage unfunded. expansion either this year or in 2014. Therefore, Implementation of health reform will unfold continued support for the safety net, also included in alongside the state’s comprehensive Medicaid waiver, the waiver renewal application, will remain a crucial slated for renewal this year. The goals articulated in priority for the state. the waiver—restructuring care delivery, strengthening Table 9. Federal Support Specified in the ACA for Implementation* S upported Ac tiv ities F ederal Fu n din g L evel and Availabilit y Enrollment Technology Development and adaptation of systems to new No funding level or timeframe specified Standards and Protocols simplified and streamlined enrollment standards (§1561) and protocols State Exchange Planning and establishment of state Exchanges No funding level specified; funding available (§1311 [a][1]) between March 2011 and January 2015 Health Insurance Expansion of existing or establishment of new $30 million in first year and such sums as Consumer Information offices of health insurance consumer assistance necessary in future years; CBO estimates $340 (§1002) or health insurance ombudsman programs million of spending between 2011 and 2019. Premium Rate Review Establishment and operation of annual premium $250 million between October 2009 and (§§1003, 10101[i]) rate review process and medical reimbursement September 2014 centers *This chart represents sources of funding specified in PPACA solely for implementation activities related to new responsibilities. This chart does not include new funding available for Medicaid expansion or coverage of new benefits, nor does it include existing funding sources that may be accessed for implementation, such as Medicaid administrative funds. 44 | C alifornia H ealth C are F oundation In other ways, too, California’s specific circumstances form an important backdrop for health reform implementation. The state’s difficult fiscal position means that policymakers may be wary of potential new state costs resulting from increased enrollment of those already eligible for Medi-Cal. The state’s already complicated insurance regulatory structure means that new programs and oversight mechanisms run the risk of adding to, rather than reducing, consumer confusion. In order to track and manage progress as implementation of the federal law unfolds, it will be important to monitor both desired outcomes and potential unintended consequences. Despite these challenges and considerations, the ACA has the potential to have an enormously positive impact in California, reducing the state’s uninsured population and improving the quality and accessibility of care. To realize this potential, California will need to draw on all available resources — taking full advantage of existing and new federal funding streams, as well as drawing upon the expertise of private stakeholders and subject matter experts within the state. Implementing National Health Reform in California: Changes to Public and Private Insurance | 45 Appendix: Interviewees Shortly after enactment of the Affordable Care Act, Manatt Health Solutions engaged in a series of interviews with 16 leaders in health care policy and analysis, consisting of private actors and public officials in California. Tahira Bazile, Senior Policy Analyst California Primary Care Association Kim Belshe, Secretary California Department of Health and Human Services Farra Bracht, Principal Policy and Fiscal Analyst State of California Legislative Analyst’s Office Carmela Castellano-Garcia, President and Chief Executive Officer California Primary Care Association Lesley Cummings, Executive Director California Managed Risk Medical Insurance Board Duane Dauner, President and CEO California Hospital Association Toby Douglas, Deputy Director of Health Care Programs California Department of Health Care Services Cindy Ehnes, Director California Department of Managed Health Care Richard Figueroa, Health Care Advisor Office of California Governor Arnold Schwarzenegger Patrick Johnston, President and CEO California Association of Health Plans Howard Kahn, CEO L.A. Care David Link, Deputy Commissioner and Legislative Director California Department of Insurance David Panush Office of California Senate President pro Tempore Marjorie Schwartz California State Assembly Health Committee Melissa Stafford-Jones, President and CEO California Association of Public Hospitals Anthony Wright, Executive Director Health Access California 46 | C alifornia H ealth C are F oundation Endnotes 1. Health coverage figures of non-elderly residents in 13. Figures are calculated using most recently available levels, the 50 states and the District of Columbia, including 2009 HHS Poverty Guidelines for the 48 contiguous unauthorized immigrants. Congressional Budget Office states and the District of Columbia (aspe.hhs.gov). Letter to Speaker Pelosi, “Estimate of the Direct Spending 14. Benchmark benefits are defined in federal Medicaid law and Revenue Effects of an Amendment in the Nature as benefits comparable to those offered through insurance of a Substitute to H.R. 4872, the Reconciliation Act of provided to state or federal employees, insurance provided 2010,” March 20, 2010. by the largest private HMO in the state, the actuarial 2. The Patient Protection and Affordable Care Act is equivalent of these options, or a plan approved by federal Public Law 111–148. The Health Care and Education Medicaid officials (Social Security Act §1937. [42 U.S.C. Reconciliation Act of 2010 is Public Law 111–152. 1396u-7]). 3. For example, states will have the opportunity to compete 15. PPACA requires that the entire expansion population, for funding for demonstration projects and grants to including children, receive benchmark benefits. However, promote quality and reduce the cost of care, including the Social Security Act specifies that children receiving large-scale pilot programs on bundled payments, the benchmark benefits are still entitled to the full range development of community-based collaborative care of Medicaid benefits guaranteed to children under the networks, and programs establishing health homes for Early and Periodic Screening, Diagnostic, and Treatment individuals with chronic conditions. program. See Social Security Act §1937 [42 U.S.C. §1396u-7], State Medicaid Director’s Letter #06-008, 4. All citations are to sections of the PPACA unless “Section 6044 of the Deficit Reduction Act of 2005,” otherwise noted. March 31, 2006, and State Medicaid Director’s Letter 5. Medicaid Enrollment: June 2009 Data Snapshot. Kaiser #10-005, “New Option for Covering Individuals Under Family Foundation. February 2010 (www.kff.org). Medicaid,” April 9, 2010. 6. Medicaid Income Eligibility, 2009. Kaiser Family 16. Excluding optometry and optometric services. Foundation (www.statehealthfacts.org). 17. §2101(a)(3), as amended by HCERA §1201(1)(B). 7. California’s Uninsured. California HealthCare Foundation. 18. The increased FMAP that California has been receiving December 2009 (www.chcf.org). The precise number of under the American Recovery and Reinvestment Act of people eligible but not enrolled is not captured through 2009 would not be available for this new optional group. Current Population Survey, the data source for this State Medicaid Director’s Letter #10-005, “New Option report; percentage ranges presented in Chart 16 were for Covering Individuals Under Medicaid,” April 9, the basis for numerical estimates presented here. 2010. 8. Analysis by the California Department of Health Care 19. The Benefits of Health Reform in California. Special Services. Report, Democratic Policy Committee, April 5, 2010 9. Ibid. (dpc.senate.gov). 10. The estimate adjusts for the anticipated reduction in 20. Skelton, G. “California Could Take Big Hit from the number of adults who will lose Medi-Cal coverage Healthcare Overhaul.” Los Angeles Times. March 24, 2010 because of eligibility-related changes. (www.latimes.com). 11. See note 8. 21. See note 8. 12. §2001(a)(4). 22. Social Security Act §1931. 23. See note 8. Implementing National Health Reform in California: Changes to Public and Private Insurance | 47 24. Further federal guidance is necessary to clarify whether 34. “Summary of Significant Changes by Major Program states may alter their eligibility standards to ensure adults Areas,” Governor’s Revised Budget Summary (2010 –11) do not lose existing coverage, as PPACA itself appears (www.ebudget.ca.gov). to give contradictory guidance on this point. Section 35. To ensure access to increased FMAP under the American 2002(a) provides that states are required to “establish Recovery and Reinvestment Act (P.L. 111-5), Senate income eligibility thresholds… using modified gross Bill (SB) X3 24, Chapter 24, Statutes of 2009, amended income and household income that are not less than Section 14005.25 of the Welfare & Institutions Code the effective income eligibility levels that applied ... on to suspend the MSR requirement, or reduction of the date of enactment [of PPACA].” However, the act Continued Eligibility for Children (CEC), from goes on to say that current enrollees who lose eligibility 12 months to six months during the time that the are only “grandfathered” into coverage until their next increased FMAP is available. The provisions of SB X3 24 eligibility determination. The act further specifies that took effect immediately and will continue until the children may not lose coverage due to MAGI, but does Director of DHCS issues a declaration specifying that not mention adults. the increased FMAP is no longer available through the 25. Simplifying Medi-Cal Enrollment: Options for the Assets ARRA. DHCS will now need to consider the MOE Test, California HealthCare Foundation, Medi-Cal Policy requirements under PPACA. Institute. June 2003 (www.chcf.org). 36. Zuckerman, S., A. Williams, and K. Stockley. April 2009. 26. 8 USC §1611. “Trends in Medicaid Physician Fees, 2003 – 2009,” Health Affairs Web Exclusive 28 (3); w510 – w519. 28. Internal Revenue Code (1986) §§1401 (36B[c][1][B]) Medi-Cal Physician and Dentist Fees: A Comparison to and 10105(b). Other Medicaid Programs and Medicare. California Health 28. §§1331(e)(1)(B), 10104(o)(2). Care Foundation. April 2009 (www.chcf.org). 29. Buchanan, W. “Health Care Law May Cost California 37. Rosenbaum, S. Medicaid Payment Rate Lawsuits: Evolving Billions,” San Francisco Chronicle, March 28, 2010 Court Views Mean Uncertain Future for Medi-Cal. (articles.sfgate.com). California HealthCare Foundation. October 2009 30. §2202. (www.chcf.org). 31. For Medi-Cal, the state is estimated to receive 38. Enrollment as of February 2010. Source: Managed Risk $31.1 billion in federal funds in state Fiscal Year Medical Insurance Board (www.mrmib.ca.gov). 2009 – 10. “Medi-Cal Program Estimate Summary, 39. Children’s Health Coverage Facts and Figures, 2009. Fiscal Year 2009 – 10.” Medi-Cal November 2009 Local California HealthCare Foundation. November 2009 Assistance Estimate for Fiscal Years 2009 –10 and 2010 –11 (www.chcf.org). (www.dhcs.ca.gov). 40. See note 8. 32. For the Healthy Families Program, the state is estimated 41. See note 33. to receive $732 million in federal funds for state Fiscal Year 2009 – 10. The 2010 –11 Budget: Health and Social 42. See note 34. Services Budget Primer. California Legislative Analyst’s 43. State Of California’s Concept For A Comprehensive Section Office (www.lao.ca.gov). 1115 Waiver To Replace The Current Medi-Cal Hospital/ 33. “Summary of Significant Changes by Major Program Uninsured Care Demonstration Project. California Areas,” Governor’s Proposed Budget Summary (2010 –11) Department of Health Care Services. December 16, 2009 (www.ebudget.ca.gov). (www.dhcs.ca.gov). 44. Kaiser Family Foundation. State Health Facts (statehealthfacts.kff.org). 48 | C alifornia H ealth C are F oundation 45. For more information, see Medicaid Section 1115 57. “Gov. Schwarzenegger Announces State will Contract Demonstration Waivers: Comparing California, with Federal Government to Cover High-Risk, Uninsured Massachusetts, and New York. California HealthCare Californians,” Press Release, April 29, 2010 (gov.ca.gov). Foundation. October 2009 (www.chcf.org). 58. Estimates of the total number of California residents who 46. Ibid. are uninsured because of a preexisting condition range from 200,000 (quoted in Sacramento Bee ) to more than 47. Essential community providers are those such as health 850,000 based on a GAO study for the 2005 – 2007 care providers defined in section 340B(a)(4) of the Public period. MRMIP materials refer to 400,000 Californians Health Service Act and providers described in section as being “medically uninsurable.” 1927(c)(1)(D)(i)(IV) of the Social Security Act, as set forth by section 221 of Public Law 111– 8. 59. Fact Sheet – Temporary High Risk Pool Program. U.S. Department of Health and Human Services 48. The state will define geographic area(s) which the (www.hhs.gov). Secretary will use in calculating premiums. 60. GAO reported a 2006 national average premium for 49. A total of $3.5 million in federal grant funding is high risk pools of $450 in 2006, which was inflated by available for federal Fiscal Year 2010, with subsequent 10 percent each year to develop a 2010 rate. funding available but in amounts subject to the congressional appropriations process. CBO has estimated 61. 75 Fed. Reg. 24450 – 24470. a total of $20 million will be available between 2011 62. Public Health Service Act §2794(c), U.S. Code, Title 42, and 2015, by applying a $4 million estimate for 2011 as created by PPACA §1003. and increasing annual funding available based on GDP growth. Letter to the Honorable Jerry Lewis (R-CA), 63. 75 Fed. Reg. 19335 –19338. Congressional Budget Office, May 11, 2010. 64. “Grants to States for Health Insurance Premium 50. Letter to the Honorable Jerry Lewis (R-CA), Congressional Review-Cycle I,” Funding Opportunity Number: Budget Office, May 11, 2010. RFA-FD-10-999 (www.grants.gov). 51. 75 Fed. Reg. 24470 – 24482. 65. §1251, P.L 111–152 §2301. 52. The estimate is based on information from the Urban 66. Fernandez, B. Grandfathered Health Plans Under PPACA. Institute and the Kaiser Family Foundation, which Congressional Research Service, April 7, 2010. indicates that 14 percent of the uninsured would qualify 67. See note 62. for premium and cost-sharing subsidies in the Exchange. 68. Dropping of sick individuals from coverage, known as 53. See note 8. rescission, has been a significant focus of DMHC and 54. Making Sense of Managed Care Regulation in California. CDI. Both agencies have conducted investigations of California HealthCare Foundation. November 2001 California’s five largest insurers, leading to settlements (www.chcf.org). that imposed fines and corrective action plans on insurers. Through these investigations, the state agencies 55. HHS may carry out responsibilities in collaboration with reportedly found that more than 6,000 Californians had other federal agencies, for example the DOL or Treasury, their coverage rescinded by the five insurers between as well as in consultation with the NAIC. 2004 and 2008. Referenced in background material for 56. HHS will establish a list of, or the criteria for “Department of Managed Health Care and Department determining, a preexisting condition, although it will of Insurance Rescission Settlement Agreements,” provide some flexibility to the states in this regard. Hearing before the California State Assembly Committee on Accountability and Administrative Review, March 10, 2010 (www.assembly.ca.gov). Implementing National Health Reform in California: Changes to Public and Private Insurance | 49 69. While the provision is not effective until September 23, 2010, several large insurers have indicated they will extend this coverage immediately. “HHS Secretary Kathleen Sebelius on Growing List of Insurers That Will Provide Coverage for Young Adults under Age 26.” Press Release, U.S. Department of Health and Human Services, April 20, 2010 (www.hhs.gov). 70. April 27, 2010, IRS Notice 2010-38, regarding the tax treatment provision, notes that the dependent coverage provision does not exactly parallel the tax treatment provision in some respects. 71. 75 Fed. Reg. 27122 – 27140. 72. 75 Fed. Reg. 19297 – 19302. 50 | C alifornia H ealth C are F oundation C A L I FOR N I A H EALTH C ARE F OU NDATION 1438 Webster Street, Suite 400 Oakland, CA 94612 tel: 510.238.1040 fax: 510.238.1388 www.chcf.org