BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 316 (Alquist) Hearing Date: 4/20/2009 Amended: As Introduced Consultant: Katie Johnson Policy Vote: Health 6-4 _________________________________________________________________ ____ BILL SUMMARY: SB 316 would require full service health care service plans (health plans) and health insurers, regulated by the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) respectively, to spend no less than 85 percent of aggregate dues, fees, premiums and other periodic payments received on health care benefits, as specified, commencing January 1, 2011. The bill would also require the health plans and insurers, beginning January 1, 2011, to annually submit written affirmation that they met the 85 percent requirement and to annually report their medical loss ratios (MLR) to their respective regulators. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2009-10 2010-11 2011-12 Fund CDI Regulations $227 Special* DMHC Regulations $90 - 167 $180 - 333 Special** CDI oversight $529 $1,058 $1,058 Special* and evaluation DMHC oversight $90 - 200 $180 - 400Special** and evaluation *Insurance Fund **Managed Care Fund _________________________________________________________________ ____ STAFF COMMENTS: This bill meets the criteria for referral to the Suspense File. Existing law provides for the licensure and regulation of health care service plans by the DMHC. Existing law prohibits a health plan from expending an excessive amount of the payments it receives for providing health care services to its subscribers and enrollees on administrative expenses. Existing regulation requires health plans to hold administrative costs to 15 percent of premiums. Existing law provides for the regulation of health insurers by the CDI. Existing law requires the Insurance Commissioner to withdraw approval of an individual or mass-marketed policy of disability insurance if he or she finds that the benefits provided under the policy are unreasonable in relation to the premium charged. This bill is identical to SB 1440 (Kuehl, 2008); it was vetoed by the Governor. The veto message stated, "This bill represents exactly what I did not want to see this year - a one-sided, piecemeal approach to health care reform?Taken in its isolated and Page 2 SB 316 (Alquist) singular fashion, this bill may weaken our already-broken system." Since the bill is identical to SB 1440, it does not appear to address the veto message. This bill would require health plans and insurers to spend not less than 85 percent of their aggregate fees and premiums on health care benefits, as specified. This bill would specify that health care benefits do not include administrative costs. This bill would provide that a health plan may average its total costs across all health care service plan contracts or health insurance policies of the plan, its affiliated plans or its affiliated health insurers operating in California. This bill would provide that a health insurer may average its total costs across all its health insurance policies or the health care service plan contracts of its affiliated health care service plans operating in California. This bill would require the DMHC and the CDI to work jointly to promulgate regulations to implement and to establish uniform reporting by health plans and insurers of the information necessary to determine compliance with these provisions. The DMHC estimates that regulations would require one-time total 6costs of $270,000 - $500,000 in FYs 2009-2010 and 2010-2011 from a fee-supported special fund. The CDI estimates that regulations would cost $227,000 for two 6 month limited-term positions from a special fund for FY 2009-2010. This bill would apply to health care service plan contracts and health insurance policies issued, amended, or renewed on or after January 1, 2011. This bill would provide that the DMHC and the CDI may exclude from determination of compliance for two years any new health care service plan contract or health insurance policy that the Director or the Commissioner, respectively, determined to be substantially different from the existing plans and policies that the health plan or insurer already offered. This bill would specify that these provisions would not apply to certain limited-benefits plans and contracts including Medicare supplement plan contracts, administrative services-only contracts, or to coverage offered by specialized health care service plans, and short-term limited duration health insurance policies, among others. This bill would require a full service health plan or insurer to provide written affirmation to the DMHC or the CDI that it is in compliance with these provisions commencing January 1, 2011. Also commencing January 1, 2011, this bill would require a health plan or insurer to annually report the MLR of each of its individual and small group health care service plans or insurance policies. This bill would require health plans, insurers, their employees, and agents to disclose the MLR information when presenting a plan for examination or sale to an individual or the representative of a group of 50 or fewer individuals. This bill would allow the DMHC to assess compliance with these provisions in its periodic onsite medical survey or in a non-routine medical survey. In order to verify that health plans comply with this bill, the DMHC estimates that it would have ongoing costs, commencing January 1, 2011, of $180,000 - $400,000 to support 2 - 4 staff positions. Page 3 SB 316 (Alquist) These costs would be paid from a fee-supported special fund. Similarly, the CDI estimates ongoing increased workload costs of $1,058,000 special fund annually for 9 positions commencing January 1, 2010. This bill would provide that the Director of the DMHC and the Insurance Commissioner may take action against a health plan or insurer if he/she determines that the plan or insurer is not in compliance with these provisions, including by disapproving a health care service plan contract or a health insurance policy, issuing a fine or assessment, or suspending or revoking the license or certificate of authority of a health plan or insurer.