BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: AB 2578
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AUTHOR: Jones and Feuer
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AMENDED: May 28, 2010
HEARING DATE: June 23, 2010
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CONSULTANT:
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Chan-Sawin/
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SUBJECT
Health care coverage: rate approval
SUMMARY
Requires health care service plans (health plans) and
health insurers, effective January 1, 2012, to apply for
prior approval of proposed rate increases, under specified
conditions, and imposes on DMHC and CDI specific rate
review criteria, timelines and hearing requirements. Any
proposed rate that is not acted on by DMHC or CDI on its
own discretion within 60 days would be deemed approved.
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.
Limits administrative costs for health plans regulated by
DMHC to 15 percent and establishes minimum medical loss
ratios for health insurers regulated by CDI for specified
individual indemnity dental and vision policies (50
percent), and minimum loss ratios for individual health
insurance, excluding indemnity payout policies (70
percent).
Continued---
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Authorizes DMHC and CDI to charge fees associated with
regulatory filings and, in addition, requires that the
regulatory enforcement programs be entirely paid for by
health plan and insurer fees and assessments.
Establishes the Consumer Participation Program (CPP) within
DMHC, which allows for the awarding of reasonable advocacy
and witness fees to any person who meets specified criteria
and who has made a substantial contribution on behalf of
consumers to the adoption of a regulation, order, or
decision made by the director.
This bill:
Prohibits health plans and insurers from implementing a
rate increase without regulatory approval, except as
specified in this bill, and requires health plans and
insurers to submit proposed rate increases to DMHC or CDI
respectively, for review and approval. Specifies certain
information that is required to be included in a rate
application.
Defines "rate" for purposes of this bill to include
premiums, copayments, coinsurance obligations, deductibles,
and other charges.
Exempts Medicare supplement contracts and specialized
health plan contracts covering dental services.
Prohibits any rate from being approved or remaining in
effect that is excessive, inadequate, unfairly
discriminatory, or otherwise in violation of specified
existing law.
Requires DMHC or CDI to consider whether the rate
mathematically reflects the health plan or insurer's
investment income, and is reasonable in comparison to
coverage benefits. Prohibits DMHC and CDI from considering
the degree of competition.
Requires DMHC and CDI review a rate application pursuant to
regulations promulgated by the department to determine
reasonable rates for medical expenses and all nonmedical
expenses, including the rate of return, surplus, overhead,
and administration.
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Requires health plans and insurers to file any required
rate application as a complete application, as specified,
with the respective regulator, for a rate increase that
will become effective on or after January 1, 2012. Allows
for no more than one rate filing per year, and requires
officers of the company, specifically the chief executive
and chief financial officers, to certify the data,
information, and representations in the rate filing.
Imposes a burden of proof on health plans and insurers to
provide the DMHC or CDI with evidence and documents
establishing, by a preponderance of the evidence, the
health plan or insurer's compliance with the requirements
of this bill.
Requires health plans and insurers to submit rate
applications electronically and requires DMHC or CDI to
post the applications on their websites within 10 days of
receipt.
Requires all information submitted in a rate application,
and all information submitted in support of the
application, to be subject to the California Public Records
Act, except for financial data, as specified.
Requires DMHC or CDI to review all rate increases which
become effective January 1, 2010 to December 31, 2011 for
compliance with this bill.
Requires DMHC or CDI to notify the media and the public of
any rate application submitted by a health plan or insurer,
as specified, and requires the rate to be deemed approved
within 60 days after the date of the public notice, unless
the regulatory agency conducts a hearing, as specified.
Requires all hearings to be conducted in accordance with
laws governing state administrative hearings, including
that the hearing be conducted by an administrative law
judge (ALJ) in the Department of General Services Office of
Administrative Hearings, that the DMHC or CDI be subject
to required notices and discovery, and that the decision of
the ALJ is subject to review by the DMHC or CDI. Requires
the right to discovery to be liberally construed and
requires discovery disputes to be determined by the ALJ.
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Authorizes any person to initiate or intervene in any of
the proceedings, establishes parameters for judicial
review, and ensures the right of consumers to challenge
final decisions by the regulator in court, as specified,
Requires DMHC, CDI, or the court to award reasonable costs,
including witness fees, for persons meeting specified
requirements, and requires the applicant to pay those fees.
Subjects health plans and insurers to penalties for
violation of the provisions in this bill, and authorizes
DMHC and CDI to charge fees to cover costs of applications
filed, and establishes two new state special funds to
receive those revenues for the sole purpose of implementing
this bill.
FISCAL IMPACT
According to the Assembly Appropriations Committee
analysis:
1.Annual fee-supported special fund costs of at least $30
million to $40 million to DMHC and CDI, combined, to
process, review, approve, post, and monitor activities
related to rate increase approvals. According to the
DMHC or CDI and the health plans and insurers, several
thousand policies may be subject to review per
requirements of this bill. The number of policy changes
under review is numerous because each proposed increase
in premiums, copayments, coinsurance, and deductibles
would be subject to review.
2.Workload to DMHC and CDI includes data collection,
actuarial analysis, consumer services, rate enforcement,
legal analysis, administrative law hearings, and
continued oversight. Assuming an expansion of magnitude
considered in this bill, DMHC may increase total staffing
by up to 50 percent and CDI may increase staffing up to
15 percent.
3.A significant increase in fee-supported special funds may
be required for several years and especially during major
coverage expansions in several years per requirements of
the federal health reform law, the Patient Protection and
Affordable Care Act (PPACA). Actual costs may subside
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earlier depending on patterns of health coverage
expansions and related changes in insurance product
pricing.
Federal health reform includes some support for states to
conduct general rate review and report to the federal
government about unjustified rates. California will likely
receive $5 million each year for the next five years. This
federal funding would offset fee-supported special fund
costs generated by this bill.
BACKGROUND AND DISCUSSION
The author asserts that, since the up-to-39 percent premium
increases announced by Anthem Blue Cross earlier this year,
members of the public from throughout California have been
contacting their legislators about the premium increases
that are impacting their families or small businesses.
Anthem Blue Cross is not alone in announcing unaffordable
rate hikes that force many to choose between a health
insurance policy that provides less coverage or dropping
coverage all together. For some small businesses, the rate
hikes are even more extreme, including rate hikes of up to
75 percent reported in the small group insurance market.
The author states that during the February 23, 2010
oversight hearing of the Assembly Health Committee
regarding how the dramatic rate increases are impacting
Californians in the Individual Market, Anthem Blue Cross
executives admitted that they expected approximately
250,000 individual policyholders to disenroll in
conjunction with the scheduled May 1st rate increases that
had originally been scheduled to go into effect on March 1,
2010. Witnesses testified that Blue Cross made $3 billion
in profits that they passed on to their out-of-state parent
company, WellPoint, from 2007 to 2009. WellPoint made $4.7
billion in profits last year alone. The committee also
learned that Blue Cross has hundreds of millions of dollars
in surpluses, far in excess of what DMHC or CDI require.
According to the author, this evidence undercuts Blue
Cross' assertion that they need to raise rates, yet again,
and serve as a reminder that unchecked premium increases
hit small businesses, the three million Californians
purchasing health insurance in the individual market, and
retirees not yet eligible for Medicare, the hardest.
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According to the author, this bill is necessary because
premiums in California are soaring far above the rates of
both general and medical cost inflation. California's
uninsured population rose dramatically to 8.2 million in
2009, accounting for 1 in 4 Californians under age 65.
Consumers, particularly those buying coverage on their own,
must often choose between purchasing coverage with higher
deductibles, copayment and coinsurance obligations, or
going without care. The author claims that the current
lack of health insurance regulation has resulted in
outrageous premium increases in which policyholders are
funding record corporate profits, high executive pay and
excessive overhead, rather than medical care. By
comparison, the author points out that Medicare spends at
least 98 percent of its revenue on care. The author argues
that rate regulation will not only save money for those who
have insurance, it will make it more likely that uninsured
Californians can afford coverage.
2010 health coverage rate increases
In February 2010, Anthem Blue Cross notified CDI of their
intention to raise rates up-to-39 percent for policyholders
in the individual market. The decision by Anthem Blue
Cross to implement these premium increases after similar
increases in 2009 caused great concern, not only in
California, but across the nation, as reports of other
health plans and insurers raising rates similarly were made
public. The California Assembly Committee on Health held
an oversight hearing in late February 2010 on the rate
increases, as did the Congressional House Energy & Commerce
Subcommittee on Oversight and Investigations on February
24, 2010.
Wellpoint (Anthem Blue Cross' parent company), in response
to an inquiry from Kathleen Sebelius, Secretary of the U.S.
Department of Health and Human Services (HHS) for a
detailed justification for the increases to the public,
stated that an independent actuarial firm concluded that
their rates are actuarially sound and necessary, reflecting
the expected medical costs associated with the membership
in their plans, and that they satisfy or exceed the medical
loss ratio required by California law. The letter went on
to state that rate increases reflect the increasing
underlying medical costs in the delivery system which are
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unsustainable. Specifically, Wellpoint explained that
rates in the individual market were rising faster than
medical inflation due to a number of factors, including: a)
a less healthy risk pool; b) individuals moving to
lower-cost options; c) individuals aging into a higher age
category; and, d) "deductible leveraging," when enrollee
deductibles and copayments do not increase with medical
inflation, and medical costs increases disproportionately
fall on the premiums.
At the request of Insurance Commissioner Steve Poizner,
Anthem Blue Cross agreed to delay the increases until May
1, 2010 to allow an independent actuary to review their
rates. In April, the independent actuarial review found
numerous errors in the methodology used by Anthem to
project total lifetime loss ratios, which is a projection
of the amount of services that is potentially used.
Specifically, mathematical errors in the double counting of
aging in the calculating medical trend caused Anthem to
overstate the initial medical trends used to project costs
for known risk factors. Once these numerous mathematical
errors were fixed, the average rate increase across Anthem
products was reduced from 25.4 percent to 15.2 percent,
reducing the initial rate increase on average by 10.2
percent.
Health plan and health insurance regulation in California
California's regulatory agencies, DMHC and CDI, oversee
roughly 200 health plans and insurers, which collectively
provide coverage for 27 million people. DMHC regulates
health plans, including Health Maintenance Organizations
(HMOs) and some Preferred Provider Organization (PPO)
plans. CDI regulates multiple lines of insurance,
including disability insurers offering health insurance,
which are generally PPO plans and traditional indemnity
coverage. Five HMOs-Kaiser, Blue Cross, HealthNet,
Pacificare, and Blue Shield-currently account for 76.0
percent of health plan enrollment in the state.
Collectively, these plans cover 20 million Californians.
Although DMHC and CDI both regulate health plans and
insurers providing health coverage, each regulator employs
a different approach, based on historical differences. At
the heart of the difference is the "promise-to-pay" versus
the "promise-to-deliver care." DMHC-licensed health plans
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arrange for, and organize the delivery of, health care and
services through contracted or owned providers and
facilities, and are required to cover all medically
necessary services. Disability insurers protect against
(indemnify) the expense or charges (losses) associated with
illness or injury, and typically provide coverage for
defined benefits that may be specifically limited in the
policy, such as number of visits or annual dollar limits.
The distinction between the two regulatory frameworks has
become blurred over time because of the historical
exceptions made for two large PPO health plans and
insurers, Blue Cross and Blue Shield, who offer PPO
products under both DMHC and CDI, but fundamental
differences remain in the expectations and regulatory
oversight by each regulator.
DMHC enforces the provisions of the Knox-Keene Health Care
Service Plan Act, which sets rules for mandatory basic
services; financial stability; availability and
accessibility of providers; review of provider contracts;
cost sharing; on-site medical surveys, including review of
patient medical records; and consumer disclosure and
grievance requirements.
Knox-Keene licensed plans must submit for review and
approval all of the types of contracts it will offer, as
well as its standard provider contracts and payment
methods, audited financial statements, administrative
structure, financial viability, actuarial analyses,
proposed advertising and marketing materials, and proposed
service areas. DMHC does not have authority to regulate
rates except in a few specified circumstances.
CDI requires premium rates to be filed for individual
health insurance, and rating plans to be filed by small
groups, but does not approve the rates per se. For
individual health insurance, CDI reviews rates after they
are filed, and may disapprove policies that provide no
economic benefit to the consumer and require that benefits
be reasonable in relation to use. The Commissioner can
also withdraw an individual health insurance policy upon a
finding that rates are unreasonable in relation to the
benefits.
In general, DMHC has greater authority and responsibility
to review and approve health plan products and benefit
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designs than CDI has to review health insurance products
under its purview. Medicare supplement policies and
contracts sold by both health plans and insurers are
subject to prior approval and regulation of their medical
loss ratios. Some other types of health insurance are
subject to rating restrictions, but generally are not
subject to rate regulation. Health plans and insurers are
subject to rating rules relating to health coverage sold to
small employer groups of 2 to 50 eligible employees, but
these rules do not limit the rate, per se, that may be
charged. Both DMHC and CDI ensure compliance with the
small group rating rules primarily in response to
complaints. CDI-regulated insurers are subject to filing
and review of rates, referred to as "file and use" and must
meet minimum MLR standards, but only for individual
products. The MLR requirements do not apply to Knox-Keene
plans. Knox-Keene plans are limited to no more than 15
percent administrative costs, but DMHC does not include
profit as an administrative cost.
Increases in health care spending and insurance rates
The 2009 edition of the California HealthCare Foundation's
"Healthcare Costs 101" stated that, although there has been
some moderation in health spending growth in recent years,
its share of the economy continues to grow. In 2007,
national health care spending reached $2.2 trillion ($7,421
per person). If left unchecked, health care spending is
projected to reach 20 percent of the country's gross
domestic product (GDP) by 2018. The report also
highlighted the following trends:
(a) Health spending grew 6.1 percent in 2007, the
smallest increase since 1998, extending a five-year
decelerating trend. Nevertheless, health spending
continues to outpace inflation and is projected to
reach $2.5 trillion this year.
(b) Projections indicate that the recession will more
than offset the recent moderation in health spending.
Health care's share of the GDP is expected to rise
rapidly, to 17.6 percent of GDP this year.
(c) Nationally, per-person costs for health care
increased 81 percent between 1997 and 2007.
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According to a study published in 2007 in the journal,
Health Affairs, premiums paid by employees for small group
coverage (2 to 50 employees) in California increased 53
percent between 2003 and 2006, from $250 to $382 per month,
and premiums for individual coverage rose 23 percent
between 2002 and 2006, from $211 to $259 per month. In
2006, a single person age 32 to 52 earning the median
income who purchased individual insurance spent, on
average, 16 percent of his or her income on premiums and
out-of-pocket medical expenses.
In addition to an increase in premiums, for individual
insurance, the share of medical expenses paid by insurance
as opposed to patients declined from 2002 to 2006. In
2003, individual market policies paid 75 percent of medical
costs on average. That figure had dropped to 55 percent
just three years later. In the small-group market the
proportion of claims paid by insurers for a standardized
population remained constant. Small group market policies
retained their actuarial value, paying for roughly 83
percent of medical expenses across a similar period.
Rate regulation nationally
In March of this year, the President signed the federal
health care reform law, the Patient Protection and
Affordable Care Act (PPACA). PPACA would make drastic
changes to the California health insurance market and its
regulatory environment.
As directed in PPACA, the federal government will be
awarding $1 million grants in August 2010 to states that
enhance their current rate review process for health
insurance premiums. Starting in 2011, California may
receive up to $5 million annually from the federal
government to implement rate regulation.
In conjunction with the passage of federal health care
reform, which requires all Americans to purchase health
insurance, President Obama and Senator Feinstein called for
the passage or rate regulation at the federal level. When
Senator Feinstein's amendment could not go into the
reconciliation bill for procedural reasons, the call for
rate regulation continued. In addition to introducing
stand-alone legislation at the federal level, Senator
Feinstein has called for the passage of AB 2578. She points
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out that "Without legislative action, insurance
policyholders face the possibility of multiple, dramatic
premium increases each year."
Precedence for insurance rate regulation in California
AB 2578 provides the authority for DMHC and CDI to directly
regulate health coverage rates, using language similar to
that enacted when the voters passed Proposition 103 in
1988. Proposition 103 currently applies to auto,
homeowners, and other forms of property and casualty
insurance and, generally speaking, requires extensive
examination of any rates proposed by insurers. Generally
speaking, CDI will find that proposed rates meet the one
test that they are not excessive, inadequate, or unfairly
discriminatory if the rates produce a return on surplus
(generally analogous to Tangible Net Equity for health
plans and insurers) of between -7 percent and +15 percent.
Regulations implementing Prop 103 were just finalized in
2006, nearly 20 years after passage of Proposition 103.
During that time, CDI regulated rates under draft
regulations that were subject to persistent legal
challenges and litigation by insurers. However, over the
decade after Proposition 103 was adopted, auto insurance
rates in California decreased by 4 percent while auto
insurance products remain broadly available and
competitive, and the uninsured motorist population declined
by 38 percent. In comparison, nationally, auto insurance
rates rose over 25 percent during this period. In 2001,
the Consumer Federation of America selected Prop 103 as the
best practice in the nation with regard to auto insurance
regulation.
2004 RAND study on premium regulation
In 2004, the California HealthCare Foundation (CHCF)
commissioned a RAND study to analyze the likely effect of
premium regulation on the California health insurance
market. RAND researchers found no compelling need to
regulate health insurance premiums in California and noted
that such regulation could have unintended, adverse
consequences on consumers, such as reduction in the quality
or quantity of care, stricter utilization management, and
discouraging expensive technologies from coming to market
while motivating the introduction of cost-saving
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technologies. The study recommended a number of steps to
mitigate the potential adverse consequences of rate
regulation by:
1.Monitoring coverage and the quality of health care that
enrollees and insureds receive;
2.Using objective indicators, such as insurers' profits,
over a two- or three-year period to judge whether premium
increases are appropriate;
3.Monitoring market participation among insurers; and,
4.Monitoring technology adoption in California and in
states without premium regulation.
Arguments in support
Senator Dianne Feinstein writes in support, stating that
she has also introduced similar legislation nationally
which gives the Secretary of Health and Human Services the
authority to deny or modify rate increases that are found
to be unjustified. Senator Feinstein points out that it is
critical to protect California consumers given that
insurance companies are driven by the need to return
profits to shareholders. Without proper regulatory
oversight, health plans and insurers will continue to raise
rates and drop people from coverage to maximize profits.
The California Labor Federation argues that AB 2578 will
give the state a valuable tool to help contain health
insurance costs by requiring state approval of increases.
This vital cost containment measure is essential to help
working families keep the coverage they have, and to expand
coverage to six million Californians without it.
Many consumer advocacy groups, such as Disability Rights
Legal Center, and labor organizations, like the California
School Employees Association, and the California Teachers
Association, also write in support, stating that when
employers pay more for health care, working families end up
paying those increases through higher co-payments or by
foregoing wage increases. If health insurance premiums
continue to rise, millions of additional Californians will
be unable to afford the costs and be forced to forgo health
coverage.
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Consumers Union supports this bill, stating that rate
regulation must provide means for California to understand
and attack the underlying causes of health care growth, and
urges that deliberations over rate requests should
eventually include consideration of how well insurers are
meeting standards for lowering costs. Consumer Watchdog
concurs, stating that AB 2578 would likely qualify for
federal grant money for premium rate review, as provided
under federal health care reform. Consumer Watchdog
further states that California patients need rate
regulation for health insurance and that small businesses
and individually insured Californians are one more rate
increase away from being priced out of coverage.
Health Access California supports this bill, pointing out
that the stunning increases in health insurance premiums
for individuals and small businesses revealed earlier in
the year have capped years of steady increases in overall
premiums. Health Access asserts that existing law is
plainly inadequate in light of the fact that medical
inflation, due to the aging population and increasing
medical cost, is far below the rate hikes imposed by
insurers and HMOs.
Arguments in opposition
The Association of California Life & Health Insurance
Companies (ACLHIC) opposes this bill, stating that it
imposes an extensive system of rate regulation that will do
little to address well-documented factors contributing to
increasing premiums. ACLHIC asserts that health insurance
rate regulation has proven to be a failure in states that
have gone that route. In New York, small employers
experienced rate increases of over 20 percent and consumers
pay up to 50 percent more than in California. ACLHIC
believes there is simply no way to artificially lower
premiums, outside of getting at the root causes of medical
inflation, without reducing physician and hospital fees,
reducing access to care and consumer choice, increasing
employer cost sharing, or other unpalatable impacts on
consumers.
Blue Shield opposes AB 2578, stating that this approach is
inherently flawed because it focuses on one very small
segment of the health care system. Blue Shield states that
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2008 data shows that health care spending on insurance
costs amount to 13 percent of the total, including spending
on prevention, disease management, care coordination,
investments in health information technology, etc. In
contrast, 87 percent of the health care dollar is spent on
hospitals, physicians, pharmaceuticals and other medical
services, and that is the percentage that is on the rise.
Blue Shield argues that the bill ignores the true cost
drivers in the health care system. Health Net raises
concerns that AB 2578 will hinder innovation in product
design, limit choices in the marketplace; they point out
that Health Net administers hundreds of product designs.
Each change varies the rate charged to the purchaser, and
in some cases, a product may be unique to one employer.
The California Chamber of Commerce (CalChamber) opposes
this bill, stating that it creates an additional
bureaucracy to implement rate regulation on health
insurance products by requiring a complex and regulated
rate approval process. The California Taxpayers
Association also opposes the bill because it interferes
with the operation of the free market, and does nothing to
stem the tide of rising health care costs that have forced
insurers to charge higher premiums. The California
Association of Joint Powers Authorities and the CSAC Excess
Insurance Authority points out this bill appears to
override any mid-year bargaining agreement or modifications
to existing bargaining agreements between labor and
management to adjust premiums, co-pays, deductibles or any
other level of service.
The California Hospital Association (CHA) raises concerns
that the expensive bureaucracy created by AB 2578 would
siphon millions of critically needed dollars from direct
patient care. While these costs will ostensibly be borne
by the plans and insurers, they will necessarily lead to
decreased payments to providers and increased out-of-pocket
costs for patients. CHA also points out that providers are
shifting costs to private payers due to payment shortfalls
in public programs. such as Medicare and Medi-Cal, and
points out that in 2009, Medicare and Medi-Cal payments
failed to cover $8 billion of hospital costs. Rate
regulation of premiums will only exacerbate this problem.
The California Medical Association also stated similar
concerns of cost-shifting to providers, and continue to
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suggest, as an alternative to this bill, requiring health
plans and insurers to spend at least 85 cents per dollar on
patient care.
The Civil Justice Association of California opposes the
bill, and asserts that the bill would allow any person to
intervene in any proceeding to "enforce any action of the
department under this article, and enforce any provision of
this article on behalf of him or herself or members of the
public." That provision would allow lawsuits to be filed
by uninjured parties who had suffered no harm.
Related bills
AB 1759 (Blumenfield) prohibits health plans and insurers
from using a change in enrollment as the basis for a
premium rate change during the length of a contract in the
group market. Set for hearing in the Senate Health
Committee on June 23, 2010.
AB 2042 (Feuer), among other things, provides
predictability in the individual insurance market by
limiting rate and benefit changes to once per year. Heard
testimony in the Senate Health Committee on June 16, 2010.
Set for hearing in the Senate Health Committee on June 23,
2010 for vote only.
AB 2170 (Bonnie Lowenthal) prohibits health plans and
insurers covering prescription drug benefits and using a
formulary from changing the applicable copayments or
deductibles or coinsurances for prescription drug benefits
for the length of the contract or policy. Failed passed in
Assembly Appropriations Committee.
Prior legislation
AB 1218 (Jones) of 2009 would have required health plans
licensed by DMHC and health insurers certificated by CDI,
to annually submit for prior approval to the respective
regulator any increase in the rate charged to a subscriber
or insured, as specified, and would have imposed on DMHC
and CDI specific rate review criteria, timelines, and
hearing requirements. Failed passage in the Assembly
Health Committee.
AB 1554 (Jones) of 2008 was substantively similar to AB
1218 (Jones) of 2009. Failed passage in the Senate Health
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Committee.
SB 425 (Ortiz) of 2006 would have required health plans and
insurers to obtain prior approval for a rate increase,
defined in a similar manner to rates under AB 1218 of 2009.
Failed passage in the Senate Health Committee.
SB 26 (Figueroa) of 2004 would have required health plans
and health insurers to obtain prior approval of rate
increases from DMHC and CDI, as specified, and would have
potentially required significant refunds of premiums
previously collected. Failed passage in the Senate
Insurance Committee.
AB 2052 (Goldberg), Chapter 336, Statutes of 2002,
prohibits a health care service plan or insurer from making
any change in premium rates or cost sharing after
acceptance of a contract or after the open enrollment
period.
PRIOR ACTIONS
Assembly Health: 13-5
Assembly Appropriations: 12-5
Assembly Floor: 43-28
COMMENTS
1.The term "one rate application" is unclear. The bill
currently prohibits health plans and insurers from
submitting more than one rate application each year.
However, with respect to the individual market, the bill
does not prohibit plans and insurers from including
multiple rate increases over the course of a year in one
rate application. If this bill and AB 2042 (Feuer) are
both enacted, AB 2042 would have a limiting effect on AB
2578 by restricting health plans and insurers to one
increase annually for products in the individual market.
In the absence of enactment of AB 2042, health plans and
insurers would be able to increase rates more than once per
year under AB 2578. It is also unclear if the one rate
application would include all products from the health plan
or insurer, or if each product would have a separate rate
application.
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2.Threshold for mandatory public hearing. This bill directs
the department to notify the public of all rate
applications, including increases exceeding seven percent.
However, consecutive annual increases of seven percent
could increase rates significantly over time. The author
may wish to institute a lower threshold to trigger a public
hearing, if the health plan or insurer has had several
successive increases in rates.
3.What approach, if any, should California take to regulate
rates and/or benefits? The regulation of rates is a
critical issue not addressed in federal health care reform.
This bill should be considered in context with AB 1759
(Blumenfield) and AB 2042 (Feuer), which offer different
approaches to regulating rates.
(a) AB 1759 (Blumenfield) changes the circumstances
under which plans or insurers could change premium
rates mid-contract. This bill is limited to the
large group market, and may be complementary to AB
2578
(b) AB 2042 (Feuer), limits rate and benefit
changes in the individual insurance market to once
per year. AB 2578 would have the same effect in the
group market as AB 2042 and takes the added step of
directly regulating rates.
POSITIONS
Support: American Federation of State, County and
Municipal Employees, AFL-CIO
American Association of Retired Persons
CALPIRG
California Alliance for Retired Americans
California Chiropractic Association
California Congress of Seniors
California Federation of Teachers
California Labor Federation
California National Organization for Women
California Psychological Association
California Retired Teachers Association
California Teachers Association
California School Employees Association
CALPIRG
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18
Community Resource Project
Consumer Federation of California
Consumers Union
Consumer Watchdog
Democratic Party, Los Angeles County
Disability Rights Legal Center
Glendale City Employees Association
Gray Panthers Sacramento
Greenlining Institute
Health Access California
Health Care for All - California
International Longshore and Warehouse Union - N. CA
District Council
Korean Health, Education, Information and Research
Center
Occupational Therapy Association of California
Organization of SMUD Employees
Planned Parenthood Affiliates of California
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
Senator Dianne Feinstein
Ship Clerks' Association, Local 34
Six Rivers Planned Parenthood
Teamsters
United Food and Commercial Workers
Oppose: Anthem Blue Cross
America's Health Insurance Plans
Association of California Life & Health Insurance
Companies
Blue Shield of California
California Advocates, Inc
California Academy of Family Physicians
California Association of Health Plans
California Association of Joint Powers Authorities
California Chamber of Commerce
California Hospital Association
California Medical Association
California Taxpayers Association
CSAC Excess Insurance Authority
Civil Justice Association of California
Health Net
Kaiser Permanente
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