BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
316 (Alquist)
Hearing Date: 5/28/2009 Amended: As Introduced
Consultant: Katie Johnson Policy Vote: Health 6-4
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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.
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Fiscal Impact (in thousands)
Major Provisions 20011-12 2012-13 2013-14 Fund
CDI Regulations $100 Special*
DMHC Regulations $200 - 350 $100 - 150
Special**
CDI oversight $700 $250 -
$1,000Special*
and evaluation
DMHC oversight $90 - 200 $100 -
400Special**
and evaluation
*Insurance Fund
**Managed Care Fund
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STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
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
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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. It
could cost the DMHC an estimated one-time total costs of
$270,000 - $500,000 in FYs 2009-2010 and 2010-2011 from a
fee-supported special fund for regulations. It would cost the
CDI an estimated $70,000 for a 6 month limited-term position
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.
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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.
Proposed amendments would change the date when health plans and
insurers commence reporting their MLRs to the CDI and the DMHC
from January 1, 2011, to January 1, 2013. The amendments would
also require the CDI and the DMHC to not assess a plan or
insurer within the 12-month period after it has complied with
the MLR reporting requirement required by this bill, unless the
plan or insurer certifies that it failed to meet its MLR or the
CDI or DMHC believe the plan's certification of its MLR is
incorrect. This could result in a decreased number of annual
assessments by the departments after the first year of
implementation.