BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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                                 THIRD READING


          Bill No:  AB 2578
          Author:   Jones (D), et al
          Amended:  8/17/10 in Senate 
          Vote:     21

           
           SENATE HEALTH COMMITTEE  :  5-1, 6/23/10
          AYES: Alquist, Cedillo, Leno, Pavley, Romero
          NOES: Aanestad
          NO VOTE RECORDED: Strickland, Cox, Negrete McLeod

           SENATE APPROPRIATIONS COMMITTEE  :  7-4, 8/12/10
          AYES: Kehoe, Alquist, Corbett, Leno, Price, Wolk, Yee
          NOES: Ashburn, Emmerson, Walters, Wyland

           ASSEMBLY FLOOR  :  43-28, 6/2/10 - See last page for vote


           SUBJECT  :    Health care coverage:  rate approval

           SOURCE  :     Author


           DIGEST  :    This bill requires health care service plans and  
          health insurers, effective January 1, 2012, to apply for  
          prior approval of proposed rate increases, under specified  
          conditions, imposes on the Department of Managed Health  
          Care (DMHC) and California Department of Insurance (CDI)  
          specific rate review criteria, timelines and hearing  
          requirements, and states that any proposed rate that is not  
          acted on by DMHC or CDI on its own discretion within 60  
          days is deemed approved.

                                                           CONTINUED





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           ANALYSIS  :    

           Existing law
           
          1. 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.

          2. 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).

          3. 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.  

          4. 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:

          1. 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.

          2. Defines "rate" for purposes of this bill to include  
             premiums, copayments, coinsurance obligations,  
             deductibles, and other charges.

          3. Exempts Medicare supplement contracts and specialized  
             health plan contracts covering dental services or vision  







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             services.

          4. Prohibits any rate from being approved or remaining in  
             effect that is excessive, inadequate, unfairly  
             discriminatory, or otherwise in violation of specified  
             existing law.

          5. 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.

          6. 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.

          7. 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. 

          8. Allows for no more than one rate application, per  
             product, 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.

          9. 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.

          10.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.  

          11.Requires all information submitted in a rate  
             application, and all information submitted in support of  







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             the application, to be subject to the California Public  
             Records Act, except for financial data, as specified.

          12.Requires DMHC or CDI to review all rate increases which  
             become effective January 1, 2010 to December 31, 2011  
             for compliance with this bill.

          13.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.

          14.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.

          15.Requires the right to discovery to be liberally  
             construed and requires discovery disputes to be  
             determined by the ALJ.

          16.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.

          17.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.

          18.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.








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           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes    
          Local:  Yes

          According to the Senate Appropriations Committee: 

                          Fiscal Impact (in thousands)

           Major Provisions                2010-11     2011-12     
           2012-13   Fund  
          CDI rate review          $7,700                    
          $15,400$15,400 Special*
          and approval

          DMHC rate review              $10,000   $20,000    
          $20,000Special**
          and approval

          *Department of Insurance Health Rate Approval Fund
          **Department of Managed Health Care Rate Approval Fund
          ***These amounts could be partially offset by federal grant  
          funds

           SUPPORT  :   (unable to verify at time of writing)

          American Association of Retired Persons 
          American Federation of State, County and Municipal  
          Employees, AFL-CIO
          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 School Employees Association
          California Teachers Association
          CALPIRG
          Community Resource Project
          Consumer Federation of California
          Consumer Watchdog
          Consumers Union
          Democratic Party, Los Angeles County
          Disability Rights Legal Center







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          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

           OPPOSITION  :    (unable to verify at time of writing)

          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

           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  







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          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 this bill gives  
          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.

          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 this bill likely will 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  







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          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 this bill, stating that this approach  
          is inherently flawed because it focuses on one very small  
          segment of the health care system.  Blue Shield states that  
          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 this bill 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  







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          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.  

           ASSEMBLY FLOOR  : 
          AYES:  Ammiano, Bass, Beall, Blumenfield, Bradford,  
            Brownley, Caballero, Carter, Chesbro, Coto, Davis, De La  
            Torre, De Leon, Eng, Evans, Feuer, Fong, Fuentes,  
            Furutani, Hayashi, Hernandez, Hill, Huber, Huffman,  
            Jones, Bonnie Lowenthal, Ma, Mendoza, Monning, Nava, V.  
            Manuel Perez, Portantino, Ruskin, Salas, Saldana,  
            Skinner, Solorio, Swanson, Torlakson, Torres, Torrico,  
            Yamada, John A. Perez
          NOES:  Adams, Anderson, Bill Berryhill, Blakeslee,  
            Buchanan, Conway, Cook, DeVore, Emmerson, Fletcher,  
            Fuller, Gaines, Garrick, Gilmore, Hagman, Harkey,  
            Jeffries, Knight, Logue, Miller, Nestande, Niello,  
            Nielsen, Norby, Silva, Smyth, Tran, Villines
          NO VOTE RECORDED:  Arambula, Tom Berryhill, Block, Charles  
            Calderon, Galgiani, Hall, Lieu, Audra Strickland, Vacancy


          CTW:do  8/17/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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