California Gears Up for Reform Provisions Taking Effect This Year

It’s been more than a month since President Obama signed health care reform legislation into law. The debate over health care overhaul hasn’t stopped since the passage of reform, but the conversation has quickly shifted to implementation.

Many of the most-publicized health reform provisions — such as the creation of health insurance exchanges and the requirement that most U.S. residents purchase health insurance — won’t take effect for several years. However, there are a slew of provisions slated to go into effect this year that likely will have an immediate impact in California. Here’s a rundown.

Effective Immediately — Small Business Tax Credits: Under the health reform law, small businesses are eligible for tax credits to help offset the cost of providing health insurance to employees. To qualify for the tax credit, a business must have fewer than 25 employees, provide average annual wages of under $50,000 and cover at least 50% of its employees’ health insurance premiums. From 2010 through 2013, the tax credit will cover up to 35% of the employer’s share of premiums. In 2014, the tax credit will increase to 50%. Not-for-profit, tax-exempt organizations also are eligible for the tax credits — 25% in 2010 through 2013 and 35% in 2014. According to a March issue brief from UC-Berkeley’s Center for Labor Research and Education, California residents who work at small businesses or are self-employed represent a disproportionate 71% of the state’s total uninsured population. The center estimates that small California businesses could receive more than $4.4 billion in tax credits over 10 years through the reform provision. California small businesses with fewer than 50 full-time employees are exempt from the reform law’s requirement to provide health insurance by 2014, but some analysts say the tax credits and eventually the law’s health insurance exchanges could encourage many small businesses to provide insurance. 

April 1, 2010 — Medicaid Expansion Option: By Jan. 1, 2014, states are required to expand Medicaid eligibility to non-elderly residents with incomes less than 133% of the federal poverty level. However, the reform law allows states as of April 1, 2010, to phase in the Medicaid expansion to take advantage of federal matching dollars. According to a letter to state health officials and Medicaid directors, Cindy Mann, director of CMS’ Center for Medicaid and State Operations, notes that if states expand their Medicaid programs early, it will not affect their ability to receive the higher federal matching rate for newly eligible residents beginning in 2014. California and other states that face significant budget shortfalls are unlikely to expand their Medicaid programs before 2014. California officials have estimated that it will cost the state $2 billion to $3 billion more each year to cover new Medi-Cal beneficiaries. During his state of the state address in January, Gov. Arnold Schwarzenegger (R) criticized the provision, pointing to the state’s estimated $20 billion budget deficit to argue that California can’t afford its Medicaid program in its current state, let alone with millions of additional beneficiaries.

Effective 90 Days After Enactment — High-Risk Pools: The health reform law directs $5 billion for the creation of a network of high-risk insurance pools to help provide coverage to uninsured individuals with pre-existing conditions. It is up to states to determine whether and how they participate in the program. Earlier this month, HHS Secretary Kathleen Sebelius sent a letter to state governors and insurance commissioners asking them to submit a letter of intent by April 30 that indicates whether they plan to submit an application to operate a high-risk pool program under the new law. California already has a high-risk pool — the Major Risk Medical Insurance Program — but it does not meet the requirements of the new health reform law because it caps enrollment at 7,100 and insurance benefits at $75,000 per year because of limited funding. The federal high-risk pool under the reform law calls for subsidized premiums and no annual caps on benefits. A bill (AB 1887) by Assembly member Mike Villines (R-Clovis) would establish a new high-risk insurance pool that would operate alongside MRMIP until 2014, when health plans will be prohibited to deny coverage to individuals because of pre-existing conditions.

Effective Six Months After Enactment — Extending Coverage for Young Adults: Under the reform law, young adults may stay on their parents’ health plans until they reach age 26. According to the Kaiser Family Foundation, young adults have the highest uninsured rate of any age group. UCLA’s 2007 California Health Interview Survey found that 29.5% of Californians ages 23 (when most health plans stop covering dependents) through 25 were uninsured. Some health plans, including California giant Kaiser Permanente, have announced that they will comply with this reform provision before it takes effect in September. However, the insurers do not plan to provide early coverage to young adults who already have aged past current thresholds of their parents’ policies. These individuals will have to wait until the provision takes effect in September and then re-enroll. Meanwhile, the Assembly Health Committee has passed a bill (AB 1602) by Assembly Speaker John Pérez (D-Los Angeles) would modify state law with several provisions of the reform law, including extending coverage for dependents until age 26.

Effective Six Months After Enactment — Prohibiting Rescissions: The health reform law prohibits insurers from rescinding coverage except in cases of fraud. Health plan rescissions have long been a hotly contested issue in the state. In 2008 and 2009, the departments of Managed Health Care and Insurance reached settlement agreements requiring five major insurers to offer new coverage to consumers whose individual insurance policies had been improperly rescinded between 2004 and 2008. The settlements did not require the insurers to admit wrongdoing, but they did impose fines on some health plans. Meanwhile, Schwarzenegger last year signed into law a bill (AB 108) by Assembly member Mary Hayashi (D-Castro Valley) that imposes new restrictions on HMOs’ ability to rescind coverage. 

Effective Six Months After Enactment — Banning Lifetime Limits on Coverage: Under the health reform law, health insurance companies are prohibited from placing lifetime caps on benefits or unreasonable annual limits on benefits. In 2014, annual limits on benefits will be banned altogether. A 2009 report from PricewaterhouseCoopers found that 55% of U.S. residents with employer-sponsored health insurance are subject to lifetime benefit caps and that 20,000 to 25,000 people have exceeded the lifetime limits of their health plans. The report concludes that removing such limits would cut Medicaid costs by $1 billion annually. AB 1602 by Perez would change state law to comply with this new provision.

Effective Six Months After Enactment — Prohibiting Pre-Existing Condition Exclusions for Children: The reform law prohibits health plans from excluding coverage to children with pre-existing conditions. By 2014, this provision will apply to all individuals. Assembly Member Mike Feuer (D-Los Angeles) has introduced a bill (AB 2244) that would go beyond the federal health reform provision by also limiting discriminatory changes for children with pre-existing conditions. The bill, sponsored by Health Access, would phase in “modified community ratings” for children younger than age 19 in the individual market. The Assembly Health Committee has passed the bill, and it now goes to the Assembly Appropriations Committee. The measure is supported by the Congress of California Seniors, Consumers Union, the 100% Campaign and the California School Employees Association, and is opposed by the California Association of Health Plans and the California Association of Life and Health Insurance Companies.

Here’s a list of some of the other health reform provisions set to take effect this year:

  • Consumer Health Insurance Assistance — Provides grants to states to establish health insurance consumer assistance or ombudsman programs to receive and respond to questions and complaints about health insurance coverage.
  • Employer Retiree Re-Insurance — Creates a temporary re-insurance program aimed at helping to offset the costs to companies that provide early retiree health benefits for individuals ages 55 to 64.
  • Health Plan Premium Spending — Requires health plans to report the proportion of premium dollars spent on non-medical care.
  • Independent Health Plan Appeals Process — Ensures that consumers in new group or individual health plans have access to an effective internal and external appeals process for coverage determinations and claims.
  • Medicare Part D Doughnut Hole — Provides Medicare beneficiaries who reach the “doughnut hole,” or coverage gap, in Medicare Part D prescription drug coverage with a $250 rebate.
  • Preventive Care — Requires new private health plans and Medicare to cover preventive services without copayments. The preventive services also are exempt from deductibles.

On Message

  • Last week, President Obama named Stephanie Cutter to oversee the administration’s communications strategy for the new health reform law. Cutter, who was the spokesperson for Sen. John Kerry‘s (D-Mass.) 2004 presidential campaign, has already worked on several projects for the Obama administration (AP/Atlanta Journal-Constitution, 4/22). Obama administration officials say Cutter’s job will be more educational than political. She is expected to assume the post next month (Boston Globe, 4/23).
  • Nicholas Papas has been named the White House Office of Health Reform‘s communications director. The post was left vacant when Linda Douglass stepped down after the passage of the health law. Papas, who worked in the HHS media relations department, was an aide to White House Chief of Staff Rahm Emanuel and was the press secretary for the HHS Office of Health Reform (CQ HealthBeat, 4/22).
  • The Internal Revenue Service sent out more than four million postcards to small-business owners to inform them of their eligibility for a tax credit under the new health reform law. A White House aide said that the mailers represent a more direct approach by the Obama administration to address residents’ concerns about the overhaul and to counter misinformation spread by opponents of the law (Condon, CongressDaily, 4/20).

State Action

  • Florida: Fifty-four percent of state residents believe that the multistate lawsuit challenging the individual mandate in the new reform law is a “bad idea,” according to a poll released earlier this week. The poll, conducted by Quinnipiac University, found that 40% said that the lawsuit is a “good idea.” Florida Attorney General Bill McCollum (R) filed the suit last month (Cave, “The Caucus,” New York Times, 4/19).
  • New York: Former New York Gov. George Pataki (R) on Sunday launched “Revere America,” a not-for-profit organization aimed at garnering support for repealing the new health reform law. Revere America plans to collect at least one million signatures and e-mail addresses of U.S. residents who support repealing the law, Pataki said (Romm, “Blog Briefing Room,” The Hill, 4/18).
  • Oklahoma: State House Speaker Chris Benge (R) and Senate President Pro Tempore Glenn Coffee (R) last week said they intend to file a lawsuit against the U.S. Congress, President Obama and HHS Secretary Kathleen Sebelius in an effort to block provisions in the new health reform law from taking effect. Last month, state Attorney General Drew Edmondson (D) said he would decline to join a multistate lawsuit against the new reform law unless he is forced to do so (Pierog, Reuters, 4/20).
  • Pennsylvania: Mark Critz, a Democratic candidate in a May 22 special election to fill the U.S. House seat of the late Rep. John Murtha (D), this week launched a new television ad in which he declares that he “opposed the health care bill [that became the new reform law]” and that he is “pro-life, and pro-gun.” The TV spot is in response to an ad by Republican candidate Tim Burns, which accuses Critz of being a Democrat who would “put the liberal agenda before Pennsylvania” (Davis, “Washington Wire,” Wall Street Journal, 4/19).

Businesses React

  • Last week, several companies reported significantly lower earnings for 2010’s first quarter, which they attribute partly to the new health reform law. For example, Boeing‘s income fell by 15% in 2010 compared with the year prior because of a loss of a $150 million tax benefit as a result of the law. Abbott Laboratories‘ first-quarter profit dropped by 30%, from $1.4 billion in 2009 to $1 billion in 2010, for the same reason (Japsen/Johnsson, Chicago Tribune, 4/21). In addition, Verizon Communications reported a 75% decline in its first-quarter earnings because of a 34 cents per share charge reflecting a change to the tax treatment of benefits included in the health law (AP/New York Times, 4/22).
  • Meanwhile, Medco Health Solutions CEO Dave Snow last week said that he expects his company to benefit from the new law because more U.S. residents will have insurance coverage (Woodall, Reuters, 4/22).
  • The U.S. Chamber of Commerce this week launched a $50 million advertising campaign that aims to inform voters about the new health reform law’s costs heading into the fall midterm elections. COC also will co-host the first of several planned events against the new law in the coming months with the National Federation of Independent Business and the American Benefits Council (Ethridge/Adams, CQ Today, 4/23).

CBO Report

  • About four million U.S. residents will be subject to fines averaging $1,000 per person for failing to obtain health insurance once the new health reform law is fully in effect in 2016, according to a Congressional Budget Office report released last week. Penalties for failing to abide by the law’s individual mandate will begin in 2014 but will not be fully phased in until 2016 (AP/Los Angeles Times, 4/22).

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