BILL NUMBER: SB 1440 ENROLLED
BILL TEXT
PASSED THE SENATE AUGUST 31, 2008
PASSED THE ASSEMBLY AUGUST 19, 2008
AMENDED IN ASSEMBLY AUGUST 14, 2008
AMENDED IN ASSEMBLY AUGUST 8, 2008
AMENDED IN ASSEMBLY JULY 1, 2008
AMENDED IN ASSEMBLY JUNE 16, 2008
AMENDED IN SENATE APRIL 15, 2008
AMENDED IN SENATE APRIL 7, 2008
INTRODUCED BY Senator Kuehl
(Coauthor: Senator Alquist)
FEBRUARY 21, 2008
An act to add Section 1378.1 to the Health and Safety Code, and to
add Section 10113.11 to the Insurance Code, relating to health care
coverage.
LEGISLATIVE COUNSEL'S DIGEST
SB 1440, Kuehl. Health care coverage: benefits.
Existing law, the Knox-Keene Health Care Service Plan Act of 1975,
provides for the licensure and regulation of health care service
plans by the Department of Managed Health Care and makes a willful
violation of the act a crime. Under existing law, a health care
service plan is prohibited from expending for administrative costs,
as defined, an excessive amount of the payments it receives for
providing health care services to its subscribers and enrollees.
Existing law also provides for the regulation of health insurers by
the Department of Insurance. Under existing law, the Insurance
Commissioner is required to withdraw approval of an individual or
mass-marketed policy of disability insurance if the commissioner
finds that the benefits provided under the policy are unreasonable in
relation to the premium charged, as specified.
This bill would require full service health care service plans and
health insurers to expend on health care benefits no less than 85%
of the aggregate dues, fees, premiums, and other periodic payments
they receive with respect to plan contracts or policies issued,
amended, or renewed on or after January 1, 2011, as specified. The
bill would authorize those plans and insurers to assess compliance
with this requirement by averaging their total costs across all plan
contracts or insurance policies issued, amended, or renewed by them
and their affiliated plans and insurers in California, except as
specified. The bill would require those plans and insurers to
annually, commencing January 1, 2011, provide written affirmation of
compliance with the bill's requirements to the Department of Managed
Health Care or the Department of Insurance, and would also require
those plans and insurers to annually, commencing January 1, 2011,
report to the Director of Managed Health Care or the Insurance
Commissioner the medical loss ratio of each individual and small
group health care service plan product and health insurance policy
form issued, amended, or renewed in California and to report the
ratio when presenting a plan for examination or sale to any
individual or group consisting of 50 or fewer individuals. The bill
would authorize the Department of Managed Health Care to assess
health care service plan compliance with these provisions in
specified medical surveys and would also authorize the director of
that department and the Insurance Commissioner to take specified
actions if the director or commissioner determines that a plan or
insurer has failed to comply with these provisions. The bill would
require the departments to jointly adopt and amend regulations to
implement these provisions, as specified.
Because a willful violation of the bill's requirements with
respect to health care service plans would be a crime, the bill would
impose a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 1378.1 is added to the Health and Safety Code,
to read:
1378.1. (a) Notwithstanding any other provision of law, on and
after January 1, 2011, a full service health care service plan shall
expend in the form of health care benefits no less than 85 percent of
the aggregate dues, fees, premiums, and other periodic payments
received by the plan. For purposes of this section, a full service
health care service plan may deduct from the aggregate dues, fees,
premiums, or other periodic payments received by the plan the amount
of income taxes or other taxes that the plan expensed.
(b) For purposes of this section, "health care benefits" shall
include, but shall not be limited to, all of the following:
(1) Health care services that are either provided or reimbursed by
the plan or its contracted providers as covered benefits to its
enrollees and subscribers.
(2) The costs of programs or activities, including training and
the provision of informational materials that are determined, as part
of the regulations under subdivision (e), to improve the provision
of quality care, improve health care outcomes, or encourage the use
of evidence-based medicine.
(3) Disease management expenses using cost-effective
evidence-based guidelines.
(4) Payments to providers as risk pool payments of
pay-for-performance initiatives.
(5) Plan medical advice by telephone.
(6) Prescription drug management programs.
(c) For purposes of this section, "health care benefits" shall not
include administrative costs listed in Section 1300.78 of Title 28
of the California Code of Regulations in effect on January 1, 2007,
agent and broker commission and solicitation costs associated with
the issuance of individual and group health care service plan
contracts, dividends, profits, stock options, assessments or fines
levied by the Department of Managed Health Care, or administrative
costs associated with existing or new regulatory requirements.
(d) To assess compliance with this section, a health care service
plan may average its total costs across both of the following:
(1) All health care service plan contracts issued, amended, or
renewed by the plan, or by its affiliated plans, in California,
except those contracts described in subdivision (l).
(2) All health insurance policies issued, amended, or renewed in
California by the plan's affiliated health insurers with a valid
California certificate of authority, except those policies listed in
subdivision (k) of Section 10113.11 of the Insurance Code.
(e) The department and the Department of Insurance shall jointly
adopt and amend regulations to implement this section and Section
10113.11 of the Insurance Code to establish uniform reporting by
health care service plans and health insurers of the information
necessary to determine compliance with this section and Section
10113.11 of the Insurance Code. These regulations may include
additional elements in the definition of "health care benefits" not
identified in subdivision (b) in order to consistently operationalize
the requirements of this section among health care service plans and
health insurers, but these regulatory additions shall be consistent
with the legislative intent that a health care service plan expend at
least 85 percent of the aggregate payments received by the plan, as
provided in subdivision (a), on health care benefits.
(f) The department may exclude from the determination of
compliance with the requirement of subdivision (a) any new health
care service plan contracts for up to the first two years that these
contracts are offered for sale in California, provided that the
director determines that the new contracts are substantially
different from the existing contracts being issued, amended, or
renewed by the plan seeking the exclusion.
(g) Commencing January 1, 2011, and annually thereafter, a full
service health care service plan licensed to operate in California
shall provide written affirmation to the department that it meets the
requirements of this section.
(h) Commencing January 1, 2011, a health care service plan subject
to this section shall annually report to the director the medical
loss ratio of each individual and small group health care service
plan product issued, amended, or renewed by the plan in California.
Every health care service plan and its employees or agents shall
disclose this information when presenting a plan for examination or
sale to any individual or the representative of a group consisting of
50 or fewer individuals.
(i) The department may assess compliance with this section in its
periodic onsite medical survey conducted pursuant to Section 1380 or
in nonroutine medical surveys, as appropriate.
(j) The director may disapprove a health care service plan's use
of a plan contract, issue a fine or assessment against a health care
service plan, suspend or revoke the license issued to a health care
service plan under this chapter, or take any other action the
director deems appropriate if the director determines that the plan
has failed to comply with this section.
(k) Except as provided in subdivision (l), this section shall
apply to all health care service plan contracts issued, amended, or
renewed in California by a full service health care service plan on
or after January 1, 2011.
(l) This section shall not apply to Medicare supplement plan
contracts, administrative services-only contracts, or other similar
administrative arrangements, or to coverage offered by specialized
health care service plans, including, but not limited to, ambulance,
dental, vision, behavioral health, chiropractic, and naturopathic
coverage.
SEC. 2. Section 10113.11 is added to the Insurance Code, to read:
10113.11. (a) Notwithstanding any other provision of law, on and
after January 1, 2011, a health insurer shall expend in the form of
health care benefits no less than 85 percent of the aggregate dues,
fees, premiums, and other periodic payments received by the insurer.
For purposes of this section, a health insurer may deduct from the
aggregate dues, fees, premiums, or other periodic payments received
by the insurer the amount of income taxes or other taxes that the
insurer expensed.
(b) For purposes of this section, "health care benefits" shall
include, but shall not be limited to, all of the following:
(1) Health care services that are either provided or reimbursed by
the insurer or its contracted providers as covered benefits to its
policyholders and insureds.
(2) The costs of programs or activities, including training and
the provision of informational materials that are determined, as part
of the regulations under subdivision (e), to improve the provision
of quality care, improve health care outcomes, or encourage the use
of evidence-based medicine.
(3) Disease management expenses using cost-effective
evidence-based guidelines.
(4) Payments to providers as risk pool payments of
pay-for-performance initiatives.
(5) Plan medical advice by telephone.
(6) Prescription drug management programs.
(c) For purposes of this section, "health care benefits" shall not
include administrative costs listed in Section 1300.78 of Title 28
of the California Code of Regulations in effect on January 1, 2007,
agent and broker commission and solicitation costs associated with
the issuance of individual and group health insurance policies,
dividends, profits, stock options, assessments or fines levied by the
Department of Insurance, or administrative costs associated with
existing or new regulatory requirements.
(d) To assess compliance with this section, a health insurer may
average its total costs across both of the following:
(1) All health insurance policies issued, amended, or renewed by
the insurer in California, except those policies listed in
subdivision (k).
(2) All health care service plan contracts issued, amended, or
renewed in California by the insurer's affiliated health care service
plans licensed to operate in California, except those contracts
described in subdivision (l) of Section 1378.1 of the Health and
Safety Code.
(e) The department and the Department of Managed Health Care shall
jointly adopt and amend regulations to implement this section and
Section 1378.1 of the Health and Safety Code to establish uniform
reporting by health care service plans and health insurers of the
information necessary to determine compliance with this section and
Section 1378.1 of the Health and Safety Code. These regulations may
include additional elements in the definition of "health care
benefits" not identified in subdivision (b) in order to consistently
operationalize the requirements of this section among health care
service plans and health insurers, but these regulatory additions
shall be consistent with the legislative intent that a health insurer
expend at least 85 percent of the aggregate payments received by the
insurer, as provided in subdivision (a), on health care benefits.
(f) The department may exclude from the determination of
compliance with the requirement of subdivision (a) any new health
insurance policies for up to the first two years that these policies
are offered for sale in California, provided that the commissioner
determines that the new policies are substantially different from the
existing policies being issued, amended, or renewed by the insurer
seeking the exclusion.
(g) Commencing January 1, 2011, and annually thereafter, a health
insurer holding a certificate of authority to do business in
California shall provide written affirmation to the department that
it meets the requirements of this section.
(h) Commencing January 1, 2011, a health insurer subject to this
section shall annually report to the commissioner the medical loss
ratio of each individual and small group health insurance policy form
issued, amended, or renewed by the insurer in California. Every
insurer and its employees or agents shall disclose the information
when presenting a policy for examination or sale to any individual or
the representative of a group consisting of 50 or fewer individuals.
(i) The commissioner may disapprove a health insurer's use of a
health insurance policy, revoke or suspend the certificate of
authority of a health insurer, issue a fine or assessment against a
health insurer, or take any other action the commissioner deems
appropriate if the commissioner determines that the health insurer
has failed to comply with this section.
(j) Except as provided in subdivision (k), this section shall
apply to all health insurance policies issued, amended, or renewed in
California on or after January 1, 2011.
(k) This section shall not apply to Medicare supplement policies,
administrative services-only policies, or other similar
administrative arrangements, short-term limited duration health
insurance policies, vision-only, dental-only, behavioral health-only,
or pharmacy-only policies, CHAMPUS-supplement or TRICARE-supplement
insurance policies, or to hospital indemnity, hospital only, accident
only, or specified disease insurance policies that do not pay
benefits on a fixed benefit, cash payment only basis.
SEC. 3. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.