BILL ANALYSIS                                                                                                                                                                                                    




          Appropriations Committee Fiscal Summary

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|                               |AB 918  (Keeley)            |
|-------------------------------+----------------------------|
|                               |                            |
|-------------------------------+----------------------------|
|Hearing Date: 8/16/99          |Amended: 7/1/99             |
|-------------------------------+----------------------------|
|Consultant: David              |Policy Vote: Insurance 6-1  |
|Maxwell-Jolly                  |                            |
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____________________________________________________________ 

BILL SUMMARY: 

AB 918 requires an HMO to annually update its actuarial  
report originally submitted at the time of licensure.  The  
report must contain an opinion of a  qualified actuary as  
to whether the capitation-based payment arrangements are  
computed appropriately based on assumptions that satisfy  
contractual provisions. It the HMO uses capitation as a  
method for paying its providers, the statement must  
indicate the percentage of contracting providers paid by  
capitation, a description of the method used to determine  
and adjust the capitation rates, and to substantiate that  
the rates are adequate to reasonably assure the continuance  
of the relationship between the plan and the provider.

                         Fiscal Impact (in thousands)
  
Major Provisions    1999-2000     2000-01      2001-02      Fund 

"Reasonable rates"    unknown regulatory cost      Corp
                      unknown employee health benefits General &
                                                      others

STAFF COMMENTS:  

This bill meets the criteria to be placed on the Suspense  
file.

In effect the bill puts the state in the position of  
determining whether capitation contracts that HMOs have  
with provider groups are reasonable.  This will have two  
cost:










 The Department of Corporations will be called upon to  
  make determinations about whether capitation rates paid  
  by HMOs to providers are reasonable.  This is an aspect  
  of regulation that the department has no experience with  
  and no staffing to undertake.
 The bill could cause increases in the cost of state  
  employee health benefits.  It is likely that the bill  
  will reduce the cost effectiveness of current HMO  
  practices that have helped control the cost of health  
  coverage.  If the arguments about reasonableness of  
  rates, revelations about rate setting methodologies, and  
  perhaps the abandonment of capitation payment  
  arrangements result in a general increase in the cost of  
  providing health care coverage, state premiums will also  
  rise.  A 1
 increase in monthly premiums for state  š  workers would result in costs in excess of the suspense  
  limit.