BILL NUMBER: AB 2578	AMENDED
	BILL TEXT

	AMENDED IN SENATE  AUGUST 17, 2010
	AMENDED IN ASSEMBLY  MAY 28, 2010
	AMENDED IN ASSEMBLY  MARCH 18, 2010

INTRODUCED BY   Assembly Members Jones and Feuer
   (Principal coauthor: Senator Leno)
   (Coauthors: Assembly Members Brownley, Fuentes, Salas, and
Saldana)

                        FEBRUARY 19, 2010

   An act to amend Section 1386 of, and to add Article 6.2
(commencing with Section 1385.01) to Chapter 2.2 of Division 2 of,
the Health and Safety Code, and to add Article 4.5 (commencing with
Section 10181) to Chapter 1 of Part 2 of Division 2 of the Insurance
Code, relating to health care coverage  , and making an
appropriation therefor  .


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2578, as amended, Jones. Health care coverage: rate approval.
   Existing law, the Knox-Keene Health Care Service Plan Act of 1975
(Knox-Keene Act), 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. Existing law also
provides for the regulation of insurers by the Department of
Insurance, including health insurers. Existing law makes the
violation of a final order by the Insurance Commissioner relating to
rates imposed by certain insurers, other than health insurers,
subject to assessment of a civil penalty and makes the willful
violation by those insurers of specified rate provisions a
misdemeanor. Under existing law, no change in premium rates or
coverage in a health care service plan or a health insurance policy
may become effective without prior written notification of the change
to the contractholder or policyholder. Existing law prohibits a plan
and insurer during the term of a group plan contract or policy from
changing the rate of the premium, copayment, coinsurance, or
deductible during specified time periods.
   This bill would require approval by the Department of Managed
Health Care or the Department of Insurance of an increase in the
amount of the premium, copayment, coinsurance obligation, deductible,
and other charges under health care service plan contracts or health
insurance policies, other than Medicare supplement  or
  ,  dental-only  , or vision-only 
contracts or policies. The bill would require a plan or insurer to
submit to the Department of Managed Health Care or the Department of
Insurance, respectively, an application for a rate increase that
would be effective on or after January 1, 2012, and would require
review of the application in accordance with regulations that each
department would be required to adopt no later than January 1, 2012.
The bill would subject a rate increase that became effective January
1, 2010, to December 31, 2011, inclusive, to review by the
appropriate department.
   The bill would require each department to notify the public of a
rate application and would deem the application approved within 60
days of the date of that notice unless the department holds a hearing
on the application, as specified. The bill would authorize the
initiation of, and intervention in, proceedings relating to rate
approvals and the award of advocacy fees and costs in those
proceedings in specified circumstances. The bill would require the
departments to work together in implementation of these provisions
 ,  and to take specified actions in order to ensure
coordination and consistency in implementation.
   The bill would authorize each department to assess a charge in
connection with its costs associated with a rate application. The
bill would direct the deposit of these fees into the respective
department's Health Rate Approval Fund, which would be created by the
bill, and would  continuously appropriate the revenue to
each department, thereby making an   make those funds
available to each department for those purposes,   upon
 appropriation. The bill would specify that a violation of its
provisions is punishable by criminal sanctions under the Knox-Keene
Act and under provisions applicable to insurers and, therefore, 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.
   Vote: majority. Appropriation:  yes   no
. Fiscal committee: yes. State-mandated local program: yes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Article 6.2 (commencing with Section 1385.01) is added
to Chapter 2.2 of Division 2 of the Health and Safety Code, to read:

      Article 6.2.  Approval of Rates


   1385.01.  (a) The following definitions apply for the purposes of
this article:
   (1) "Applicant" means a health care service plan seeking to
increase the rate it charges its subscribers.
   (2) "Rate" includes, but is not limited to, premiums, copayments,
coinsurance obligations, deductibles, and other charges.
   (b) No applicant shall increase the rate it charges its
subscribers unless it submits an application to the department, and
the application is approved by the department.
   (c) This article shall not apply to Medicare supplement contracts
or to specialized health care service plan contracts covering dental
services  or vision services  .
   1385.02.  (a) No rate shall be approved or remain in effect that
is excessive, inadequate, unfairly discriminatory, or otherwise in
violation of this article. In considering whether a rate is
excessive, inadequate, or unfairly discriminatory, the department
shall consider whether the rate mathematically reflects the health
care service plan's investment income and is reasonable in comparison
to coverage benefits. The department shall not consider the degree
of competition in determining whether a rate is excessive,
inadequate, or unfairly discriminatory.
   (b) The department shall review a rate application pursuant to
regulations it promulgates to determine reasonable rates for medical
expenses and all nonmedical expenses, including the rate of return,
surplus, overhead, and administration.
   1385.03.  (a) A health care service plan shall file a complete
rate application with the department for a rate increase that will
become effective on or after January 1, 2012.
   (b) The rate application shall be signed by the officers of the
health care service plan who exercise the functions of a chief
executive and chief financial officer. Each officer shall certify
that the representations, data, and information provided to the
department to support the application are true.
   (c) No health care service plan shall submit more than one rate
application  per product  each calendar year.
   (d) A rate application submitted to the department pursuant to
this section shall include the following information:
   (1) The rate of return that will result if the rate application is
approved.
   (2) The average rate change per affected enrollee or group that
will result from approval of the application.
   (3) The overhead loss ratio, reserves, excess tangible net equity,
and surpluses that will result if the application is approved. For
the purposes of this section, "overhead loss ratio" means the ratio
of revenue dedicated to all nonmedical expenses and expenditures,
including profit, to revenue dedicated to medical expenses. A medical
expense is any payment to a hospital, physician, or other provider
for the provision of medical care or health care services directly
to, or for the benefit of, the enrollee.
   (4) Salary and bonus compensation paid to the 10 highest paid
officers and employees of the applicant for the most recent fiscal
year.
   (5) Dollar amounts of shareholder dividends paid, financial or
capital disbursements to affiliates, and management agreements and
service contracts.
   (6) A statement setting forth all of the applicant's nonmedical
expenses for the most recent fiscal year including administration,
dividends, rate of return, advertising, and salaries.
   (7) A line-item report of medical expenses, including aggregate
totals paid to hospitals and physicians, and the amount paid by the
applicant for the 100 most common medical expenses incurred by
enrollees during the previous calendar year.
   (e) The health care service plan has the burden to provide the
department with evidence and documents establishing, by a
preponderance of the evidence, the application's compliance with the
requirements of this article.
   (f) Rate applications shall be submitted by the health care
service plan electronically, and the department shall post the
applications on its Internet Web site within 10 days of the date of
their receipt by the department.
   (g) All information in a rate application and all materials
submitted in its support by the applicant shall constitute a public
record for purposes of the California Public Records Act (Chapter 3.5
(commencing with Section 6250) of Division 7 of Title 1 of the
Government Code) except for financial data the disclosure of which
would be competitively injurious to the applicant, as determined by
the director.
   1385.04.  A rate increase by a health care service plan that
became effective during the period January 1, 2010, to December 31,
2011, inclusive, shall be subject to review by the department for
compliance with this article.
   1385.05.  (a) The department shall notify the public of any rate
application by a health care service plan.
   (b) The application shall be deemed approved by the department 60
days after the date of the public notice provided under subdivision
(a) unless the department conducts a hearing on the application on
 any   either  of the following grounds:
   (1) A consumer, or his or her representative, requests a hearing
within 45 days of the date of the public notice, and the department
grants the request for a hearing. If the department determines not to
grant the request for a hearing, it shall issue written findings in
support of that decision.
   (2) The department determines for any reason to hold a hearing on
the application. 
   (3) The proposed increase would exceed 7 percent of the amount of
the current rate under the plan contract. 
   (c) The public notice required by this section shall be posted on
the department's Internet Web site and distributed to major statewide
media and to any member of the public who requests placement on a
mailing list or electronic mail list to receive the notice.
   1385.06.  All hearings under this article shall be conducted
pursuant to the provisions of Chapter 5 (commencing with Section
11500) of Part 1 of Division 3 of Title 2 of the Government Code,
with the following exceptions:
   (a) The hearing shall be conducted by an administrative law judge
for purposes of Sections 11512 and 11517 of the Government Code,
appointed pursuant to Section 11502 of the Government Code or by the
director.
   (b) The hearing shall be commenced by filing a notice, in lieu of
Sections 11503 and 11504 of the Government Code.
   (c) The director shall adopt, amend, or reject a decision only
under Section 11518.5 of the Government Code and subdivisions (b) and
(c) of Section 11517 of the Government Code and solely on the basis
of the record as provided in Section 11425.50 of the Government Code.

   (d) The right to discovery shall be liberally construed, and
discovery disputes shall be determined by the administrative law
judge as provided in Section 11507.7 of the Government Code.
   (e) Judicial review shall be in accordance with Section 1858.6 of
the Insurance Code. For purposes of judicial review, a decision by
the department to hold a hearing on the application is not a final
order or decision; however, a decision not to hold a hearing on an
application is a final order or decision for purposes of judicial
review.
   1385.07.  (a) A person may initiate or intervene in any proceeding
permitted or established pursuant to this article, challenge any
action of the department under this article, and enforce any
provision of this article on behalf of himself or herself or members
of the public.
   (b) (1) The department or a court shall award reasonable advocacy
fees and costs, including witness fees, in a proceeding described in
subdivision (a) to a person who demonstrates both of the following:
   (A) The person represents the interests of consumers.
   (B) The person has made a substantial contribution to the adoption
of any order, regulation, or decision by the department or a court.
   (2) The award made under this section shall be paid by the rate
applicant.
   1385.08.  A violation of this article is subject to the penalties
set forth in Sections 1386 and 1390.
   1385.09.  (a) The department may charge a health care service plan
a fee for the actual, reasonable costs associated with an
application filed by the plan under this article.
   (b) The fees shall be deposited into the Department of Managed
Health Care Health Rate Approval Fund, which is hereby created in the
State Treasury. Notwithstanding Section 13340 of the
Government Code, all moneys in this fund are continuously
appropriated   Moneys in the fund shall be available
 to the department  ,   upon appropriation by the
Legislature,  for the sole purpose of implementing this article.

   1385.10.  The department, working in coordination with the
Department of Insurance, shall have all necessary and proper powers
to implement this article and shall adopt regulations to implement
this article no later than January 1, 2012. In implementing this
article, the department and the Department of Insurance shall jointly
develop any regulations, rate review standards, staff training,
policies, and procedures in order to ensure maximum coordination and
consistency of implementation.
  SEC. 2.  Section 1386 of the Health and Safety Code is amended to
read:
   1386.  (a) The director may, after appropriate notice and
opportunity for a hearing, by order suspend or revoke any license
issued under this chapter to a health care service plan or assess
administrative penalties if the director determines that the licensee
has committed any of the acts or omissions constituting grounds for
disciplinary action.
   (b) The following acts or omissions constitute grounds for
disciplinary action by the director:
   (1) The plan is operating at variance with the basic
organizational documents as filed pursuant to Section 1351 or 1352,
or with its published plan, or in any manner contrary to that
described in, and reasonably inferred from, the plan as contained in
its application for licensure and annual report, or any modification
thereof, unless amendments allowing the variation have been submitted
to, and approved by, the director.
   (2) The plan has issued, or permits others to use, evidence of
coverage or uses a schedule of charges for health care services that
do not comply with those published in the latest evidence of coverage
found unobjectionable by the director.
   (3) The plan does not provide basic health care services to its
enrollees and subscribers as set forth in the evidence of coverage.
This subdivision shall not apply to specialized health care service
plan contracts.
   (4) The plan is no longer able to meet the standards set forth in
Article 5 (commencing with Section 1367).
   (5) The continued operation of the plan will constitute a
substantial risk to its subscribers and enrollees.
   (6) The plan has violated or attempted to violate, or conspired to
violate, directly or indirectly, or assisted in or abetted a
violation or conspiracy to violate any provision of this chapter, any
rule or regulation adopted by the director pursuant to this chapter,
or any order issued by the director pursuant to this chapter.
   (7) The plan has engaged in any conduct that constitutes fraud or
dishonest dealing or unfair competition, as defined by Section 17200
of the Business and Professions Code.
   (8) The plan has permitted, or aided or abetted any violation by
an employee or contractor who is a holder of any certificate,
license, permit, registration, or exemption issued pursuant to the
Business and Professions Code or this code that would constitute
grounds for discipline against the certificate, license, permit,
registration, or exemption.
   (9) The plan has aided or abetted or permitted the commission of
any illegal act.
   (10) The engagement of a person as an officer, director, employee,
associate, or provider of the plan contrary to the provisions of an
order issued by the director pursuant to subdivision (c) of this
section or subdivision (d) of Section 1388.
   (11) The engagement of a person as a solicitor or supervisor of
solicitation contrary to the provisions of an order issued by the
director pursuant to Section 1388.
   (12) The plan, its management company, or any other affiliate of
the plan, or any controlling person, officer, director, or other
person occupying a principal management or supervisory position in
the plan, management company, or affiliate, has been convicted of or
pleaded nolo contendere to a crime, or committed any act involving
dishonesty, fraud, or deceit, which crime or act is substantially
related to the qualifications, functions, or duties of a person
engaged in business in accordance with this chapter. The director may
revoke or deny a license hereunder irrespective of a subsequent
order under the provisions of Section 1203.4 of the Penal Code.
   (13) The plan violates Section 510, 2056, or 2056.1 of the
Business and Professions Code or Section 1375.7.
   (14) The plan has been subject to a final disciplinary action
taken by this state, another state, an agency of the federal
government, or another country for any act or omission that would
constitute a violation of this chapter.
   (15) The plan violates the Confidentiality of Medical Information
Act (Part 2.6 (commencing with Section 56) of Division 1 of the Civil
Code).
   (16) The plan violates Section 806 of the Military and Veterans
Code.
   (17) The plan violates Section 1262.8.
   (18) The plan has failed to comply with the requirements of
Article 6.2 (commencing with Section 1385.01).
   (c) (1) The director may prohibit any person from serving as an
officer, director, employee, associate, or provider of any plan or
solicitor firm, or of any management company of any plan, or as a
solicitor, if either of the following applies:
   (A) The prohibition is in the public interest and the person has
committed, caused, participated in, or had knowledge of a violation
of this chapter by a plan, management company, or solicitor firm.
   (B) The person was an officer, director, employee, associate, or
provider of a plan or of a management company or solicitor firm of
any plan whose license has been suspended or revoked pursuant to this
section and the person had knowledge of, or participated in, any of
the prohibited acts for which the license was suspended or revoked.
   (2) A proceeding for the issuance of an order under this
subdivision may be included with a proceeding against a plan under
this section or may constitute a separate proceeding, subject in
either case to subdivision (d).
   (d) A proceeding under this section shall be subject to
appropriate notice to, and the opportunity for a hearing with regard
to, the person affected in accordance with subdivision (a) of Section
1397.
  SEC. 3.  Article 4.5 (commencing with Section 10181) is added to
Chapter 1 of Part 2 of Division 2 of the Insurance Code, to read:

      Article 4.5.  Approval of Rates


   10181.  (a) The following definitions apply for the purposes of
this article:
   (1) "Applicant" means a health insurer seeking to increase the
rate it charges its policyholders for health insurance, as defined in
Section 106.
   (2) "Rate" includes, but is not limited to, premiums, copayments,
coinsurance obligations, deductibles, and other charges.
   (b) No applicant shall increase the rate it charges its
policyholders unless it submits an application to the department, and
the application is approved by the department.
   (c) This article shall not apply to Medicare supplement 
or dental-only policies.   , dental-only policies, or
vision-only policies. 
   10181.01.  (a) No rate shall be approved or remain in effect that
is excessive, inadequate, unfairly discriminatory, or otherwise in
violation of this article. In considering whether a rate is
excessive, inadequate, or unfairly discriminatory, the department
shall consider whether the rate mathematically reflects the health
insurer's investment income and is reasonable in comparison to
coverage benefits. The department shall not consider the degree of
competition in determining whether a rate is excessive, inadequate,
or unfairly discriminatory.
   (b) The department shall review a rate application pursuant to
regulations it promulgates to determine reasonable rates for medical
expenses and all nonmedical expenses, including the rate of return,
surplus, overhead, and administration.
   10181.02.  (a) A health insurer shall file a complete rate
application with the department for a rate increase that will become
effective on or after January 1, 2012.
   (b) The rate application shall be signed by the officers of the
health insurer who exercise the functions of a chief executive and
chief financial officer. Each officer shall certify that the
representations, data, and information provided to the department to
support the application are true.
   (c) No health insurer shall submit more than one rate application
 per product  each calendar year.
   (d) A rate application submitted to the department pursuant to
this section shall include the following information:
   (1) The rate of return that will result if the rate application is
approved.
   (2) The average rate change per affected insured or group that
will result from approval of the application.
   (3) The overhead loss ratio, reserves, excess tangible net equity,
and surpluses that will result if the application is approved. For
the purposes of this section, "overhead loss ratio" means the ratio
of revenue dedicated to all nonmedical expenses and expenditures,
including profit, to revenue dedicated to medical expenses. A medical
expense is any payment to a hospital, physician, or other provider
for the provision of medical care or health care services directly
to, or for the benefit of, the insured.
   (4) Salary and bonus compensation paid to the 10 highest paid
officers and employees of the applicant for the most recent fiscal
year.
   (5) Dollar amounts of shareholder dividends paid, financial or
capital disbursements to affiliates, and management agreements and
service contracts.
   (6) A statement setting forth all of the applicant's nonmedical
expenses for the most recent fiscal year including administration,
dividends, rate of return, advertising, and salaries.
   (7) A line-item report of medical expenses, including aggregate
totals paid to hospitals and physicians, and the amount paid by the
applicant for the 100 most common medical expenses incurred by
insureds during the previous calendar year.
   (e) The health insurer has the burden to provide the department
with evidence and documents establishing, by a preponderance of the
evidence, the application's compliance with the requirements of this
article.
   (f) Rate applications shall be submitted by the health insurer
electronically, and the department shall post the applications on its
Internet Web site within 10 days of the date of their receipt by the
department.
   (g) All information in a rate application and all materials
submitted in its support by the applicant shall constitute a public
record for purposes of the California Public Records Act (Chapter 3.5
(commencing with Section 6250) of Division 7 of Title 1 of the
Government Code) except for financial data the disclosure of which
would be competitively injurious to the applicant, as determined by
the commissioner.
   10181.03.  A rate increase by a health insurer that became
effective during the period January 1, 2010, to December 31, 2011,
inclusive, shall be subject to review by the department for
compliance with this article.
   10181.04.  (a) The department shall notify the public of any rate
application by a health insurer.
   (b) The application shall be deemed approved by the department 60
days after the date of the public notice provided under subdivision
(a) unless the department conducts a hearing on the application on
 any   either  of the following grounds:
   (1) A consumer, or his or her representative, requests a hearing
within 45 days of the date of the public notice, and the department
grants the request for a hearing. If the department determines not to
grant the request for a hearing, it shall issue written findings in
support of that decision.
   (2) The department determines for any reason to hold a hearing on
the application. 
   (3) The proposed increase would exceed 7 percent of the amount of
the current rate under the policy. 
   (c) The public notice required by this section shall be posted on
the department's Internet Web site and distributed to major statewide
media and to any member of the public who requests placement on a
mailing list or electronic mail list to receive the notice.
   10181.05.  All hearings under this article shall be conducted
pursuant to the provisions of Chapter 5 (commencing with Section
11500) of Part 1 of Division 3 of Title 2 of the Government Code,
with the following exceptions:
   (a) The hearing shall be conducted by an administrative law judge
for purposes of Sections 11512 and 11517 of the Government Code,
appointed pursuant to Section 11502 of the Government Code or by the
commissioner.
   (b) The hearing shall be commenced by filing a notice, in lieu of
Sections 11503 and 11504 of the Government Code.
   (c) The commissioner shall adopt, amend, or reject a decision only
under Section 11518.5 of the Government Code and subdivisions (b)
and (c) of Section 11517 of the Government Code and solely on the
basis of the record as provided in Section 11425.50 of the Government
Code.
   (d) The right to discovery shall be liberally construed, and
discovery disputes shall be determined by the administrative law
judge as provided in Section 11507.7 of the Government Code.
   (e) Judicial review shall be in accordance with Section 1858.6.
For purposes of judicial review, a decision by the department to hold
a hearing on the application is not a final order or decision;
however, a decision not to hold a hearing on an application is a
final order or decision for purposes of judicial review.
   10181.06.  (a) A person may initiate or intervene in any
proceeding permitted or established pursuant to this article,
challenge any action of the department under this article, and
enforce any provision of this article on behalf of himself or herself
or members of the public.
   (b) (1) The department or a court shall award reasonable advocacy
fees and costs, including witness fees, in a proceeding described in
subdivision (a) to a person who demonstrates both of the following:
   (A) The person represents the interests of consumers.
   (B) The person has made a substantial contribution to the adoption
of any order, regulation, or decision by the department or a court.
   (2) The award made under this section shall be paid by the rate
applicant.
   10181.07.  A violation of this article is subject to the penalties
set forth in Section 1859.1. The commissioner may also suspend or
revoke in whole or in part the certificate of authority of a health
insurer for a violation of this article.
   10181.08.  (a) The department may charge a health insurer a fee
for the actual, reasonable costs associated with an application filed
by the insurer under this article.
   (b) The fees shall be deposited into the Department of Insurance
Health Rate Approval Fund, which is hereby created in the State
 Treasury. Notwithstanding Section 13340 of the Government
Code, all moneys in this fund are continuously appropriated to the
  Treasury. Moneys in the fund shall be available to the
 department  ,   upon appropriation by the
Legislature,  for the sole purpose of implementing this article.

   10181.09.  The department, working in coordination with the
Department of Managed Health Care, shall have all necessary and
proper powers to implement this article and shall adopt regulations
to implement this article no later than January 1, 2012. In
implementing this article, the department and the Department of
Managed Health Care shall jointly develop any regulations, rate
review standards, staff training, policies, and procedures in order
to ensure maximum coordination and consistency of implementation.
  SEC. 4.  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.