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Red Flag, or Red Herring?

The biggest of  many decisons the governor faces this week involves creation of the California health care benefits exchange, and no one seems to know which way he’ll go on it.

One of the factors that has fueled the push toward a possible veto of the bill is a report that has many Capitol staffers hopping mad. It was written by Mike Genest, Gov. Schwarzenegger’s former director of the Department of Finance, and it was commissioned by the California Chamber of Commerce, one of the more vocal opponents of the exchange.

According to multiple sources, some of whom requested anonymity, the report promulgates several major fallacies about the power and scope of the proposed benefits exchange:

• The Chamber report’s most incendiary conclusion is that the board in charge of the exchange could endanger the state’s general fund, by making the state responsible for increased subsidies.

That conclusion runs completely counter to an analysis done by the Legislative Analyst’s Office.

“Our analysis of the legislation concluded that the cost of the exchange would be supported by assessments on the plan, by federal funds and by premiums. No general fund money,” Gregory Jolivette of the LAO said.

“There are several provisions in there to protect the general fund,” Jolivette said. “In fact, I have never seen language that protects the general fund so clearly. I’m not sure it could be any tighter.”

• The Chamber of Commecrce report also says the exchange might increase the cost of Medi-Cal, through an increase in eligibility errors. Staffers said this is subjective, but it’s just as likely that there would be fewer errors, since the exchange will be dealing with many patients who are ineligible for public programs.

• The Chamber report said the exchange would take over some of the management of Medi-Cal. Again, according to staffers, that’s far beyond the range of the exchange’s authority.

Jolivette of the LAO put it about as plainly as it could be put:

“That isn’t in the bill,” Jolivette said. “I’ve analyzed those bills. And I just don’t see it. They [the exchange bills] don’t change any of the laws that govern the state’s health laws. The sections of law that pertain to Medi-Cal are not amended by this at all.”

Report author Mike Genest begs to differ, on all three points — and in general over the language in the exchange bills.

“I’ve been involved in legislation that sets up new programs, and you don’t always know how it’s going to go in actual practice,” Genest said. “You make assumptions, you make estimates. But when we set something like that in place, it still has to come back to the budget, it still has to come back to the Legislature, and there are adjustments made.”

According to Genest, the exchange board would run independently from the Legislature, the state budget and the governor. The powers of the board running the exchange could be immense, he said. “They’re a completely independent agency, with an unaccountable, unelected board. They’re not accountable to any governor,” he said, “and that is a very bad way to run government.”

Point by point, Genest defended his report:

• On the notion that the general fund could be impacted, there’s one phrase in the bill that gives Genest fits: that the exchange board can “determine … the scope of coverage that must be provided.” If the board determines coverage beyond the federal limits and guidelines, he said, then the state could be on the hook for that extra coverage.

As to the LAO refuting that notion, Genest said, “they missed some key information … I have every confidence that if we sat down and talked about it,” Genest said, “they would reconsider, and possibly make some changes.”

• On the increased number of eligibility errors, he said, it’s a question of oversight: “I’m sure it’s possible this board will do a bang-up job, but there’s nothing in place to ensure that.”

• And on the idea that the exchange board would take over some of the Medi-Cal program: “I didn’t say the exchange will run the Medi-Cal program,” Genest said. “They won’t run it, but they certainly get into it,” he said. “They’re going to screen applicants and enroll them. This clearly grants them some say-so. It doesn’t allow them to change the rules of eligibility, but they could change some of the interpretations for eligibility.”

Jolivette of the LAO said he has no problem with looking into Genest’s concerns, that it’s just a disagreement over policy language.

But to him, the language is clear. “The intent is to have this thing not funded by the general fund,” he said. “The board can’t exceed the revenues that are in the fund established for its operation, and that fund doesn’t have any general fund money in it.”


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Capitol Desk The Health Law