BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: AB 2275
A
AUTHOR: Hayashi
B
AMENDED: June 10, 2010
HEARING DATE: June 30, 2010
2
CONSULTANT:
2
Chan-Sawin/cjt
7
5
SUBJECT
Dental coverage: non-covered benefits
SUMMARY
Prohibits a health care service plan (health plan) or
health insurer, beginning January 1, 2011, from requiring a
dentist to accept an amount set by the plan or insurer as
payment for dental care services provided to an enrollee or
insured, unless the dental care services are covered
services under the plan contract or policy, as specified.
CHANGES TO EXISTING LAW
Existing law:
Provides for the regulation of health plans and insurers by
the Department of Managed Health Care (DMHC) and the
California Department of Insurance (CDI), respectively.
Requires contracts between plans or insurers and providers
to be fair and reasonable.
Requires plans and insurers to reimburse a claim for
covered services within a specified period of time of
receiving the claim.
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 2275 (Hayashi) Page
2
This bill:
Prohibits a full service or specified health plan or
insurer, with respect to plan contracts and policies that
cover dental services, from requiring a dentist to accept
an amount set by the plan or insurer as payment for dental
care services provided to an enrollee or insured, unless
the dental care services are covered services under the
plan contract or policy, as specified.
Defines "covered services" to mean dental care services for
which a reimbursement is available under a health plan
contract or health insurance policy, or for which a
reimbursement would be available, but for the application
of contractual limitations, such as deductibles,
copayments, coinsurance, waiting periods, annual or
lifetime maximums, frequency limitations, alternative
benefit payments, or any other limitation.
Specifies that this bill only applies to provider contracts
issued, revised, or renewed on or after January 1, 2011.
Exempts discount health plan provider agreements.
FISCAL IMPACT
This bill has not yet been analyzed by a fiscal committee.
BACKGROUND AND DISCUSSION
This bill would prohibit dental benefit plans, those
regulated by the Department of Managed Health Care or the
Department of Insurance, from setting fees charged by
dental practices for procedures that the dental plan does
not cover in its scope of benefits.
The author believes that the policy of dental benefit plans
capping fees for procedures they do not cover is an
intrusion into the marketplace, and results in the plans
dictating fees for services they have no financial stake
in, and for which the plan bears no risk.
Dentists express concerns that plans' reimbursement rates
for non-covered benefits, such as rates for dental
implants, often don't cover the cost of materials and
fabrication of the crown to be placed on the implant.
STAFF ANALYSIS OF ASSEMBLY BILL 2275 (Hayashi) Page
3
The author and sponsor assert that dentists are not given
the opportunity to refuse provisions requiring dentists to
adhere to discounted fees for procedures that a dental plan
doesn't cover, but must accept them along with the entire
contract if they want to participate in the plan's provider
network.
The author and sponsor argue that the capping of fees for
non-covered services is used as a marketing tool by plans
and insurers with prospective subscribing groups, and has
given an advantage to the larger dental benefit companies
which have a larger market share and more negotiating
power. The sponsor believes that placing this in statute
creates an equal playing field among all dental plans.
Dental coverage in California
Dental insurance plays a key role in oral health. However,
while dental insurance typically covers preventive services
and significantly reduces the costs for services such as
fillings, crowns, and dentures, dental benefits often are
not comprehensive and come with significant cost-sharing
requirements and annual caps, which may lead to high
out-of-pocket expenditures.
Although structured similar to health insurance, dental
insurance is often more limited in scope and availability.
In California, 39 percent of the population has no dental
coverage, compared to 13 percent without health insurance,
according to a September 2009 California Healthcare
Foundation (CHCF) report. Dental insurance enables people
from different socioeconomic backgrounds to obtain dental
services. Those without dental insurance coverage bear the
entire cost of their dental services, which often compete
with health care, food, rent, and other basic necessities,
particularly for the poor and disadvantaged.
Unsurprisingly, people without dental coverage typically
seek dental care less often and may suffer poor dental
health as a result.
In 2007, among Californians with dental insurance, 78
percent have employer-sponsored coverage. Five percent of
Californians privately purchased dental insurance in 2007.
These are primarily those whose employers do not offer
dental benefits and who do not qualify for a public
program. The remaining 17 percent were insured through
STAFF ANALYSIS OF ASSEMBLY BILL 2275 (Hayashi) Page
4
public programs, including low-income workers who are not
offered health and dental benefits, the self-employed,
unemployed, and those not in the labor market.
Only 34 percent of California employers offer dental
benefits, and dental benefits are rarely offered
independent of health benefits.
Types of dental insurance
Dental insurance plans, much like health insurance plans,
can be divided into health maintenance organizations
(HMOs), preferred provider organizations (PPOs),
traditional indemnity plans, discount or referral plans,
and direct reimbursement plans.
Dental HMOs : Dental HMOs provide dental benefits
on a capitation basis using a contracted provider
network. Some dental HMOs may allow consumers to use
non-network providers on a fee-for-service basis, but
in general, dental HMOs rely on primary care dentists
to perform gatekeeper functions, including referrals
to specialists. Dental HMO participants are typically
limited in choice of dental providers. While dental
HMOs have lower levels of cost-sharing compared with
other types of dental plans, they pay on a capitated
basis, which may lead to lower provider participation.
Approximately 10 percent, or roughly 3.5 million,
Californians are in dental HMOs. Only 4 percent of
Denti-Cal recipients are in a dental HMO.
Dental PPOs : Since 2000, dental PPOs have
increased in popularity and market share. California
has the largest number of dental PPO participants at
an estimated 12.4 million, or 34 percent of the
state's population. Employers may choose dental PPOs
to reduce costs while offering benefit and provider
access levels similar to indemnity plans. The more
popular PPO dental plans utilize large networks of
preferred providers who agree to discounted
reimbursement amounts.
Dental Indemnity Plans : California dental
indemnity plans insure 7.3 percent of the state's
population. These plans pay providers on a
fee-for-service basis without any discounts or
STAFF ANALYSIS OF ASSEMBLY BILL 2275 (Hayashi) Page
5
contractual arrangements. In general, their presence
is slowly declining.
Dental Discount Plans : Also known as referral
plans, a dental discount plan is a non-insured
arrangement in which a panel of providers agrees to
discounted fees directly paid by participants. The
discount plans themselves do not contribute to the
cost of service. These plans serve 0.3 percent of the
California population, and are more prevalent in the
individual market than other types of plans.
Direct Reimbursement Plans : These plans are
self-funded programs that reimburse participants for a
percentage of their dental care expenses, have no
restrictions on the choice of provider, and function
similar to employment-based health savings accounts
without a health plan feature. These plans occupy one
percent of the national market share.
Health maintenance organizations (HMO) and preferred
provider organizations (PPO) establish, through contracts,
networks of providers to provide care to the plans'
enrollees. Contracted providers agree to a fee schedule
for providing treatment to the plan's enrollees. Providers
understand that, by participating in HMO and PPO networks,
they will receive reimbursements for care that are usually
below their standard fees for services. However,
increasingly, dental plans have adopted a policy of setting
fees for benefits they do not cover, requiring dentists to
adhere to those fee caps for non-covered services.
Dental benefits and cost-sharing
Covered dental services often include preventive/diagnostic
services (i.e. cleaning and routine dental exams), basic
dental care and procedures (i.e. fillings and extractions),
and major dental care (i.e. root canals and crowns).
Orthodontia, cosmetic, and implants are generally excluded
from benefits, and often fall under the category of
"non-covered dental services."
Cost-sharing for dental benefits is structured similarly to
general health benefits, with tiered deductibles and
cost-sharing depending on the type of service. However,
the scope of covered benefits and out-of-pocket expenses
STAFF ANALYSIS OF ASSEMBLY BILL 2275 (Hayashi) Page
6
differs considerably from product to product. Dental HMOs
do not include deductibles and have low copayments. Dental
PPOs and indemnity plans cover preventive care without
requiring deductibles, but apply tiered deductibles and
cost-sharing for other services. Often basic dental care
and procedures have lower deductibles and cost-sharing
amounts, while major services, such as crowns and root
canals have higher deductibles and out-of-pocket costs.
Among employment-based plans, the most common cost-sharing
arrangement is a $50 plus 20 percent coinsurance for basic
dental services. For major services, the most common
cost-sharing arrangement is $50 plus 50 percent
coinsurance. Orthodontic services are covered at even
higher cost-sharing levels.
Many dental plans have an annual cap for covered services,
at which point the plan stops contributing to the cost of
services until the next enrollment year. In terms of their
annual cap, 65 percent of indemnity plans and 57 percent of
dental PPOs have caps between $1,000 and $1,500, compared
to 21 percent of indemnity plans and 30 percent of dental
PPOs with caps between $1,500 and $1,999. In comparison,
Denti-Cal's annual cap is $1,800. Dental HMOs have no
caps.
In September of 2009, CHCF released two reports detailing
the scope, structure and availability of dental insurance
in California, as well as how dental insurance impacts
access to dental care in the state. These reports point
out that, while dental insurance covers the cost of
preventive services and significantly reduces the costs for
basic services, dental insurance benefits are often not
comprehensive and have significant cost-sharing
requirements and annual caps. One report found that dental
out-of-pocket expenses were reported by 77 percent of
adults in general, with nearly 1 in 10 privately insured
adults having out-of-pocket dental expenses over $2,000 in
one year. Dental out-of-pocket expenditures were about as
high as medical out-of-pocket expenditures for adults who
had visited a dentist in the previous year.
The CHCF reports found that affordability of dental care is
the number-one reported barrier to access to dental care.
While dental insurance enables people to obtain dental
care, it does not remove all financial barriers to needed
STAFF ANALYSIS OF ASSEMBLY BILL 2275 (Hayashi) Page
7
services. High out-of-pocket costs restrict some people
from obtaining preventive and other necessary services,
particularly when dental bills compete with medical or
other basic living expenses. Affordability concerns are
most common among the uninsured, but also plague the
privately and publicly insured. Those with privately
purchased policies often face increasing premium costs and
potentially lower-costs discount plans that do not cover
the full cost of dental care.
Arguments in support
According to the sponsor, the California Dental
Association, a number of dental benefits health plans and
insurers have, in recent years, added language to provider
agreements requiring them to set discounted fees for dental
services that the plans do not cover and do not pay for.
While these contractual provisions may give a dental plan a
competitive edge against their competitors, CDA asserts
that requiring dental practitioners to bear the burden of
these discounts is fundamentally unfair. Employers and
other group subscribers have the opportunity to negotiate
with the plans to determine what they will and will not
cover. Dental providers do not have the ability to
negotiate specific provisions of their service agreements
with plans. CDA believes it is unreasonable to allow plans
to arbitrarily set fees for services that they themselves
are not even covering.
Related bills
AB 684 (Ma) of 2009, in an earlier version, would have
increased the interest rate health plans and insurers
covering dental services must pay for uncontested claims,
and claims that the health plan and insurer determines to
be payable that are not reimbursed within 60 working days,
as specified. Would have also required the interest that
accrues to be paid to the health plans and insurers'
respective regulators for enforcement of specified laws,
upon appropriation. Required health plans and insurers
offering dental coverage to follow a specified process for
requesting additional information related to claims. These
provisions were amended out of the bill.
AB 2035 (Coto) of 2010 requires the third-party
administrator of a self-funded dental benefit plan to
include a disclosure in the explanation of benefits
STAFF ANALYSIS OF ASSEMBLY BILL 2275 (Hayashi) Page
8
document and benefit claim forms which provides the contact
information for the federal Department of Labor, which
regulates self-funded plans, in the event the consumer has
a payment dispute with the plan. Never heard in the Senate
Health Committee at the request of the author.
AB 745 (Coto) of 2009 was substantively similar to AB 2035
(Coto) of 2010. Vetoed by the Governor.
Prior legislation
SB 1387 (Padilla), Chapter 403, Statutes of 2008,
establishes specific requirements for overpayment notices
sent by dental plans to dental providers.
AB 1155 (Huffman) of 2008 would have required the director
of the Department of Managed Health Care, upon a final
determination that a health plan has underpaid or failed to
pay a provider in violation of the Knox-Keene prohibition
on an unfair payment pattern, to require the plan to pay
the provider not less than the amount owed plus interest,
as well as pay an administrative penalty to the Managed
Care Fund, not less than the amount owed the provider plus
interest. Vetoed by the Governor.
AB 895 (Aghazarian), Chapter 164, Statutes of 2007,
requires a health plan contract covering dental services,
or a disability insurer that issues a dental insurance
policy, to declare its coordination of benefits policy, as
defined, prominently in its evidence of coverage documents
or in its contracts or policies with both enrollees or
insureds and subscribers or policyholders. Also requires an
enrollee's or insured's primary dental benefit plan, as
defined, that is coordinating dental benefits with one or
more other plans or insurers to pay the maximum amount
required by its contract or policy with the enrollee or
insured or the subscriber or policyholder. Requires a
secondary dental benefit plan, as defined, to pay the
lesser of either the amount that it would have paid in the
absence of any other dental benefit coverage or the
enrollee's or insured's total out-of-pocket cost payable
under the primary dental benefit plan for benefits covered
under the secondary dental benefit plan.
AB 1455 (Scott), Chapter 827, Statutes of 2000, bars health
plans from engaging in unfair payment patterns in the
STAFF ANALYSIS OF ASSEMBLY BILL 2275 (Hayashi) Page
9
reimbursement of providers. AB 1455 additionally includes
a number of other provisions regarding payment practices of
health plans, including requiring health plans to make
their dispute resolution process available to
non-contracting providers.
PRIOR ACTIONS
No longer applicable.
COMMENTS
1. Author's amendments to be taken in committee. Staff
understands that the author intends to offer a number of
amendments in committee, including one that would change
the scope of the bill. The author's intended amendments
are described below:
a. Clarifies that the bill prohibits a contract
between a dental plan and a dentist from requiring
the dentist to accept an amount set by the plan as
payment for non-covered services, instead of
prohibiting the dental plan directly.
b. Changes the definition of "covered services" to
say "dental care services for which the health plan
or insurer is, pursuant to provider contracts,
obligated to pay, or for which the plan would be
obligated to pay, but for the application of
contractual limitations such as deductibles,
copayments, coinsurance, waiting periods, annual or
lifetime maximums, frequency limitations, or
alternative benefit payments." Also extends this
definition to "covered dental services."
c. Deletes the exemption for discount health plan
provider agreements.
2. Bill would remove the ability of plans and insurers
from negotiating, on behalf of their enrollees and
subscribers, discounted rates on non-covered services.
Many health plans and insurers offer, as a benefit to their
enrollees and insureds, a discounted rate on non-covered
services. In these situations, the health plan or insurer
has negotiated, on behalf of the enrollee or insured, the
rates on non-covered services. This bill does not allow
STAFF ANALYSIS OF ASSEMBLY BILL 2275 (Hayashi) Page
10
health plans and insurers to offer such a benefit, even if
the plan and provider are both willing to negotiate a
discounted rate. The author may wish to allow health plans
and insurers to offer an alternative rate schedule for
non-covered services that is mutually agreed to by the plan
and provider.
3. The bill does not provide a limit as to how much dental
providers may charge. This bill does not speak to how much
a dental provider may charge, or offer any limits on
charges, for non-covered services. Staff suggests
amendments to require providers to charge no more than the
usual and customary rates for such services:
d. On page 3, between lines 3 and 4, insert:
(d) Payments for dental care services that are not
covered services under the enrollee's contract [or
insured's policy] shall be no more than the
provider's usual and customary rate for such
services.
e. On page 4, between lines 24 and 25, insert:
(d) Payments for dental care services that are not
covered services under the enrollee's contract [or
insured's policy] shall be no more than the
provider's usual and customary rate for such
services.
4. Additional disclosure to enrollees. As noted in the
CHCF reports, economic downturns threaten dental insurance
coverage rates as employers seek cost-saving measures. The
trend toward increased market share of dental PPO plans in
the private market can potentially shift a greater share of
dental expenditures to the insured population. Given that
one in ten Californians currently pay over $2,000 in
out-of-pocket expenses, this bill could have the unintended
consequence of exposing patients to additional risk that
the patient is not fully aware of. Staff suggests an
amendment to require dental plans to provide additional
disclosure to enrollees to ensure enrollees understand the
potential risk for additional out-of-pocket costs they may
be subject to based on their dental plan.
STAFF ANALYSIS OF ASSEMBLY BILL 2275 (Hayashi) Page
11
POSITIONS
Support: California Dental Association (sponsor)
Oppose: None received
-- END --