BILL ANALYSIS SENATE HEALTH COMMITTEE ANALYSIS Senator Elaine K. Alquist, Chair BILL NO: AB 2244 A AUTHOR: Feuer B AMENDED: April 27, 2010 HEARING DATE: June 23, 2010 2 CONSULTANT: 2 Bain/ 4 4 SUBJECT Health care coverage SUMMARY Requires guaranteed issue of health plan and health insurance products for children in 2011 and adults in 2014. Establishes standard individual market rating factors (age, geographic region, family composition and health benefit plan design). Limits premium variation for children's coverage until 2014 by requiring health plans and health insurers to use "rate bands" that limit premium variation to no more than a specified percentage of a standard rate for a child in each particular rating category and benefit plan. CHANGES TO EXISTING LAW Existing federal law: The federal Patient Protection and Affordable Care Act (Public Law 111-148) known as PPACA requires each health insurance issuer that offers health insurance coverage in the individual or group market to accept every employer and individual that applies for such coverage. This requirement is known as "guaranteed issue." PPACA allows a health insurance issuer to restrict enrollment in coverage Continued--- STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 2 to open or special enrollment periods. Additionally, a health insurance issuer must establish special enrollment periods for qualifying events. The federal Secretary of the Department of Health and Human Services (DHHS) must promulgate regulations regarding enrollment periods and qualifying events. PPACA establishes rating factors for individual and small group health insurance, effective January 1, 2014, that prohibit rates from varying with respect to the particular plan only by the following factors: Whether the plan or coverage covers an individual or family; The geographic rating area (each state must establish one or more rating areas within the state); Age, except that rates are prohibited from varying by more than 3 to 1 for adults, consistent with federal law; and, Tobacco use, except that rates are prohibiting from varying by more than 1.5 to 1. PPACA prohibits a group or individual health plan from imposing any pre-existing condition exclusion. This provision becomes effective for adults in 2014 and for children on September 23, 2010. PPACA establishes a requirement to maintain minimum essential health coverage, establishes phased-in tax penalties for failure to maintain such coverage, and allows exemptions from this requirement, such as for religious reasons, hardship, or because an individual is low-income. The requirement to maintain minimum essential health coverage takes effect January 1, 2014 and is referred to as the "individual mandate." Existing state law: Licenses and regulates health plans, by the Department of Managed Health Care (DMHC), and health insurers, by the California Department of Insurance (CDI). Existing state law does not require guarantee issue or limit the premiums for individuals in the individual health insurance market, except premiums are regulated for individuals eligible under federal law who previously had STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 3 18 months of group coverage and who have exhausted COBRA/Cal-COBRA coverage. Existing law establishes requirements for health plans that provide coverage to small employers. Specifically, this body of law: Requires health plans to fairly and affirmatively offer, market, and sell health coverage to small employers. This is known as "guaranteed issue." Requires health plans to offer, market, and sell all of the health plan's contracts that are sold to small employers, to any small employers in each service area in which the plan provides health care services. This is known as an "all products" requirement. Requires renewal of coverage, at the option of the policyholder, unless there is fraud or nonpayment of premium or the health plan leaves the market. This is known as "guaranteed renewal." Restricts a plan's ability to set initial and renewal premium rates to a group of specified risk categories (age, region, family size, and health benefit plan) and allows only a limited premium variance of plus or minus 10 percent from a standard rate based on health status. The limitation on premium variance is referred to as "rate bands." Limits pre-existing condition exclusions to six months from the individuals' effective date of coverage, with a requirement that health plans credit policyholders for the time the individual was covered under previous coverage. Prohibits pre-existing condition exclusions of more than 12 months in policies and contracts covering one or two individuals, with a requirement that plans credit enrollees for the time the individual was covered under prior coverage. This bill: Requires health plans/insurers, effective January 1, 2011, to offer coverage to the responsible party for any child STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 4 that seeks coverage (the responsible party is an adult with custody and the right to make medical decisions for the child). Requires health plans/ insurers, effective January 1, 2014, to offer coverage to any adult who seeks coverage. This is known as "guaranteed issue." Requires, effective January 1, 2011, health plans/insurers to fairly and affirmatively offer, market, and sell all of the plan's health plan contracts that are offered and sold to the responsible party for a child. Requires, effective January 1, 2014, a health plan to fairly and affirmatively offer, market, and sell all of the plan/insurer's health plan contracts that are sold to adults. This is known as an "all products" requirement. Prohibits, effective January 1, 2011, health plans and health insurers offering contracts to children from excluding or limiting coverage due to any pre-existing condition. Prohibits, effective January 1, 2014, health plans/insurers offering contracts to adults from excluding or limiting coverage due to any pre-existing condition. Defines the rating period as the period for which premium rates established by a plan/insurer are in effect and, requires the rating period to be no less than 12 months.Requires all health benefit plans offered to an adult or a child to provide at least all of the basic health care services in this bill. Establishes standard rating categories of age, geographic region, family composition and health benefit plan design selected. Limits, until January 1, 2014, the age categories for children to 3 categories: under age 5, age 5 to 15 and age 15 to 19. Prohibits the rate from varying more than 2 to 1 for children. Establishes, for rating purposes, four family size categories: single, married couple, one adult and child or children, and married couple and child or children. Prohibits, effective January 1, 2011, a health plan/insurer from excluding any child who would otherwise be entitled to STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 5 health care services on the basis of an actual or expected health condition of that child. Prohibits a health plan contract from limiting or excluding coverage for a child by type of illness, treatment, medical condition, or accident. Applies these prohibitions to coverage for adults, effective January 1, 2014. Requires health plan contracts to be guaranteed renewable except for nonpayment of premium or fraud or misrepresentation. Requires premiums for a child in a particular risk category to be no more than 120 percent or no less than 80 percent of the plan's standard risk rate until January 1, 2012. Effective January 1, 2012, this factor may not be more than 110 percent or less than 90 percent. The limit on premium variance is referred to as "rate bands." The standard risk rates must remain in effect for no less than 12 months. Requires disclosures in plan and insurer solicitation and sales materials of specified information, including a summary brochure that summarizes all of its plan contracts. Permits DMHC and CDI to issue regulations to carry out the purpose of this bill. FISCAL IMPACT According to the Assembly Appropriations Committee: 1)Fee-supported (health plan fees) special fund costs of $600,000 to $700,000, combined, to DMHC and CDI to establish regulations related to the requirements of this bill. Absorbable, on-going workload to each department to continue oversight of the individual insurance market. 2)Unknown, potentially significant state savings, in excess of tens of millions of dollars, to the extent this bill reduces enrollment in or reimbursements by Medi-Cal, Healthy Families, or the California Children's Services (CCS) programs. Because this bill increases the availability of private health insurance to children with pre-existing health conditions, children and families may rely less on publicly funded health programs. For STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 6 example, California currently spends about $2 billion (all funds) on the CCS program. Some of these costs will likely shift to private health coverage. BACKGROUND AND DISCUSSION According to the author, the newly enacted federal health care reform law prohibits the use of pre-existing condition exclusions for children in the individual market. The author maintains there was a dispute between insurers and the federal government about whether the new federal law requires guaranteed issue for children, and this bill would clarify that for California. According to the author, the new federal law also does not specifically address rating rules in the individual market prior to 2014. The author maintains that this bill will align California law with the federal health care reform law and will ensure that children cannot be denied health insurance coverage, or be charged more because of a pre-existing condition. Background In March 2010, President Obama signed PPACA, as amended by the Health Care and Education Reconciliation Act of 2010 (Public Law 111-152). Among its many provisions, the new law prohibits group health plans or individual health insurance carriers from imposing any pre-existing condition exclusion on coverage. In September 2010, insurers will no longer be able to have a pre-existing condition exclusion for coverage of children. Insurers will not have to meet this same requirement for adults until January 2014. According to a March 28, 2010 New York Times article, just days after the President signed PPACA into law, there was a dispute over the language in the law regarding the pre-existing conditions coverage provisions. While insurers agreed that health insurance carriers offering individual or group coverage were unable to impose a pre-existing condition exclusion on coverage for children beginning in September 2010, the article stated insurers disagreed that the law required them to "guarantee issue" coverage to children until 2014. The federal Secretary of the Department of Health and Human Services (DHHS) wrote to the president of the America's STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 7 Health Insurance Plans (AHIP) stating that, "To ensure that there is no ambiguity on this point, I am preparing to issue regulations in the weeks ahead ensuring that the pre-existing condition exclusion applies to both a child's access to a plan and his or her benefits once he or she is in the plan." The Secretary further noted that regulations would make clear that by September 2010, children with pre-existing conditions may not be denied access to their parents' health insurance plan, and that insurance companies will no longer be allowed to insure a child but exclude treatments for that child's pre-existing condition. In response, AHIP's president wrote to the Secretary that AHIP would accept the clarification of the new law and, fully comply with it. AHIP further added that, "AHIP members would be ready to work with DHHS to implement the new regulations." The individual insurance market and standard rating factors Approximately 2 to 2.5 million Californians purchase individual health insurance, representing approximately 7 percent of Californians. When individuals and families apply for individual health coverage, they fill out an application that asks detailed questions about their current health status, current medication use and past health history. Health plans use this information to determine whether to offer the individual/family coverage, how much they will pay in premiums, and whether to impose a pre-existing condition exclusion or a waiting period before coverage takes effect. PPACA establishes rating factors for individual and small group health insurance that prohibit rates from varying except for the following factors: geographic region, family size (individual or family), age (except that rates are prohibited from varying by more than 3 to 1 for adults), health benefit plan, and tobacco use (except that rates are prohibited from varying by more than 1.5 to 1). The standard rating categories established by this bill for individual coverage are age, geographic region, family composition, age and health benefit plan design selected. For geographic region, this bill uses the same geographic rating rules that apply to the health plans and insurers STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 8 selling coverage to small employers. For plans operating statewide, the small group geographic rating provision means a plan cannot use more than nine geographic regions in the state, divide no county into more than two regions, and have no region smaller than an area in which the first three digits of all its ZIP Codes are in common within a county. For family size, this bill establishes four family size categories: single, married couple, one adult and child or children and married couple and child or children. Federal law does not establish age-rating categories for children, or have a maximum ratio that prohibits the maximum premium rate for children's coverage from exceeding a minimum premium amount (such as 3 to 1 for adults in federal law). Under this bill, until January 1, 2014, the age categories for children are required to fall within three age categories: under age 5, age 5 to 15 and age 15 to 19. This bill also prohibits the rate for children's coverage from varying more than 2 to 1, meaning within each age band (e.g., age 5 to 15), the highest rate charged for a child for a particular product in the same region could not be more than twice that of the lowest rate. For children's premium rates prior to 2014, this bill requires the use of "rate bands" to limit premium variation in the individual market based on the "phased in" approach taken in the state's small group health insurance requirements. In California's small group health insurance law, health plans and health insurers file a standard rate based on a particular age, family size, geographic area and benefit plan design. For purposes of illustration, under this bill, a child in Sacramento enrolled in a particular individual product could have a standard monthly rate of $100. A rate band of +/- 20 percent would allow a plan to charge a child with lower-than-expected health care costs of $80 per month, and a child with higher-than-expected health care costs of $120 per month. Similarly, a rate band of +/-10 percent for a child with a standard rate of $100 could be charged a premium of $90 to $110. This bill requires the use of rate bands of +/- 20 percent until January 1, 2012, and +/- 10 percent until January 1, 2014. In 2014, PPACA prohibits health plans from varying STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 9 premiums for each rating category, except for tobacco use. Plans can charge more for a tobacco user using a ratio of 1 to 1.5. In the above example, under federal law, an individual with a standard rate of $100 could be charged $150 if he or she used tobacco. This bill would prohibit such a "rate up" for tobacco use. The chart below shows how the rating rules established by PPACA compared with the provisions of this bill. STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 10 -------------------------------------------------------- | Rating Rule | PPACA | AB 2244 | |--------------+-------------------+---------------------| |Rates Vary by |Allowed; state |Allowed; same | |Geography |establishes rating |geographic rating as | | |area, federal |used in state small | | |Secretary of DHHS |group health | | |reviews. |insurance law (up to | | | |9 regions allowed). | |--------------+-------------------+---------------------| |Rates Vary by |Allowed. |Allowed. | |Age |No specific |3 age categories | |(Children) |categories of age, |until 2014: | | |or 2 to 1 limit. | | | | | Under age 5 | | | | Age 5-15 | | | | Age 15-19 | | | | | | | |Rates cannot vary | | | |more than 2 to 1. | |--------------+-------------------+---------------------| |Limits on |No rate bands. |Establishes rate | |Premium |Standard rates |bands on premiums | |Variance for |required in 2014. |based on a standard | |Children |Rating on tobacco |rate as follows: | |Through "Rate |allowed after | +/- 20 percent | |Bands" |2014, except rates | from January 2011 | | |may not vary by | until January | | |more than 1.5 to | 2012. | | |1. | +/- 10 percent | | | | from January 2012 | | | | until January | | | | 2014. | |--------------+-------------------+---------------------| |Rating up |Allowed except |Not allowed after | |Based on |rates may not vary |2014. | |Tobacco Use |by more than 1.5 | | | |to 1. | | |--------------+-------------------+---------------------| |Rates Vary by |Allowed. 2 |Allowed. 4 | |Family Size |categories: |categories: | | | Single | Single | | | Family | Married Couple | | | | One adult and | STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 11 | | | child or children | | | | Married couple and | | | |child or children. | -------------------------------------------------------- Arguments in support This bill is sponsored by Health Access California (HAC) and supported by children's and consumer groups, which argue no child should be denied health insurance because of a pre-existing medical condition, that no child should be sold insurance that does not cover pre-existing conditions, and premiums for children should be based on age and geographic region and not health status. HAC intends this measure to provide early implementation of federal health reform for a segment of the market that already has substantial subsidies available (through Medi-Cal and Healthy Families coverage up to 250 percent of the federal poverty level) for low- and moderate-income children. HAC also intends this bill to provide a transition to health reform modeled on the successful small employer market rules by phasing in modified community rating, and by limiting and then eliminating premium variation based on health status. HAC argues that not all families with children who are eligible for Medi-Cal and Healthy Families can afford premiums for private insurance, but HAC argues a greater number could afford it if premiums for private insurance were no longer increased due to health conditions, and that this could produce state savings to the General Fund in the tens or hundreds of millions of dollars from reduced enrollment in Healthy Families and Medi-Cal. Support if amended Blue Shield of California (Blue Shield) writes that, in order to implement provisions of PPACA that relate to children's health care coverage in a manner that does not cause undue disruption to California insurance markets, it asks for the following amendments in this bill: 1) An annual open enrollment period for children to seek and gain coverage on a guarantee issue basis. Blue Shield argues that without an annual open enrollment period, nothing would prevent parents from enrolling their children only when health care is needed and disenrolling them when they do not need care; STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 12 2) An effective date of coverage that applies a certain number of days (for example, 30 days) after an application is received; 3) A standard lock-out period to ensure that parents are dissuaded from dropping coverage for their children when they are healthy. For example, if coverage is dropped (or cancelled for nonpayment of premium), a parent could not reapply until the lock-out period concludes; 4) Authority for insurers to coordinate benefits between multiple policies to ensure that only one payment is made for a claim if a child has coverage from more than one source; 5) Greater flexibility on age bands so that insurers can retain the use of two age bands for children (under one year of age and from one to eighteen years of age). Blue Shield argues retaining the two age band structure is important so that one to eighteen year olds do not see a large spike in premiums due to having to subsidize the significantly higher costs attributable to newborns; 6) Language allowing an insurer to retain their existing family tier structure and geographic regions; and, 7) Other technical changes to conform with PPACA. Arguments in opposition The Association of California Life and Health Insurance Companies (ACLHIC), Anthem Blue Cross (ABC), and the California Association of Health Plans (CAHP) write in opposition that this bill goes well beyond the provisions in PPACA. CAHP and ACLHIC argue that the Legislature should wait for further guidance from the federal government to ensure its actions are consistent with federal requirements and definitions. Related bills SB 890 (Alquist) makes a number of changes to the individual market, including requiring health plans and health insurers in the individual market to offer standardized products (five preferred provider organization products and five health maintenance organization products), and prohibiting plans and insurers from offering other products. SB 890 also establishes standard rating factors, including requiring health plans to change premium rates for adults based on one-year changes in a person's age, establishing additional standard rating factors (geography, family size, benefit plan design) and by STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 13 limiting premium variation and requiring premium increases to be spread across the entire individual market. AB 1602 (Perez) makes a number of changes to implement federal health care reform including establishing a health insurance exchange, prohibiting annual and lifetime benefit limits and prohibiting a health plan or health insurer, on or after September 23, 2010, from imposing any pre-existing condition exclusion on children under 19 years of age, effective on or after September 23, 2010. PRIOR ACTIONS Assembly Health: 11-6 Assembly Appropriations: 12-5 Assembly Floor: 50-25 COMMENTS 1. Guaranteed issue. PPACA requires "guaranteed issue" effective January 1, 2014, and also generally requires individuals to have health insurance coverage, a provision known as an "individual mandate," which also begins in 2014 For children, the federal government has interpreted the pre-existing condition exclusion provision as requiring guaranteed issue, and this provision takes effect this year. One of the policy concerns with guaranteed issue is individuals waiting until they have an immediate need for health care services before buying health coverage, which results in an increase in premium rates overall. The individual mandate is intended to keep individuals in the health insurance "risk pool" so that people are paying for insurance coverage both when they are healthy and when they need medical care. The PPACA provision requiring guaranteed issue also allows health plans to restrict enrollment in coverage to open or special enrollment periods, and charges the federal Secretary of DHHS with promulgating regulations regarding enrollment periods and qualifying events. These regulations have not been issued to date. A policy tradeoff posed by guaranteed issue is the concern over increased health insurance premium rates versus the need for individuals to buy coverage to ensure access to medical STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 14 care, financial protection, and beginning in 2014, the need to comply with the federal individual mandate. 2. Family size categories. This bill has four family size categories based on the state's small group health insurance law, as follows: Single; Married couple; One adult and children or children; and, Married couple and child or children. Federal law permits two family size categories (single and family). SB 890 (Alquist) allows six family size categories, based on the language in ABX1 1: Single; More than one child 18 years of age or under and no adults; Married couple or registered domestic partners; One adult and child; One adult and children; and, A married couple and child or children, or registered domestic partners and child or children. Amendments are needed to reconcile the family size categories in this bill and SB 890. 3. Premium variation. Both this bill and SB 890 (Alquist) limit premium variation. AB 2244 limits premium variation using rate bands for children's coverage, to +/- 20 percent effective January 1, 2011, which means a ratio of 1.5 to 1, and +/- 10 percent effective January 1, 2012, which means a ratio of 1.2 to 1. SB 890 requires premium variation between the highest risk category and the lowest risk category for individual coverage generally (including children) to vary by no more STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 15 than a ratio of 2 to 1, effective January 1, 2011. Amendments are needed to reconcile the premium variation range in this bill and SB 890. 4. Drafting Notes a) The rate bands for "in force" business in this bill appear to contain a drafting error where the +/- 20 percent rate band is in effect until January 1, 2011 , which is the same date as the effective date of this bill (see Section 1399.836(b)). A recommended amendment would be to change that date to January 1, 2012 , after which the +/- 10 percent rate band would take effect. b) This bill requires the +/- 10 percent rate bands for children take effect January 1, 2012. In 2014, PPACA prohibits health plans from varying premiums for each rating category, except for tobacco use. In one part of this bill, the rate bands continue after January 1, 2012, but in the definition sections of this bill, the rate bands end on January 1, 2014 and a standard rate would apply for both children and adults. The author may wish to clarify if his intent is to allow the continued use of rate bands for children after 2014. c) This bill requires all health benefit plans offered to an individual or a child to provide at least all of the basic health care services in this bill. However, this bill does not define basic health care services or specifically contain provisions requiring basic health services to be provided. An amendment is needed to clarify this provision of the bill. POSITIONS Support: Health Access California (sponsor) AARP American Federation of State, County and Municipal Employees, AFL-CIO California School Employees Association Congress of California Seniors Consumers Union The 100% Campaign Oppose: Anthem Blue Cross Association of California Life & Health Insurance STAFF ANALYSIS OF ASSEMBLY BILL 2244 (Feuer) Page 16 Companies California Association of Health Plans -- END --