BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: SB 890
S
AUTHOR: Alquist
B
AMENDED: April 13, 2010
HEARING DATE: April 21, 2010
8
CONSULTANT:
9
Bain/
0
SUBJECT
Health care coverage
SUMMARY
Allows people to switch to a different individual health
plan or insurer on the annual renewal date of their current
policy, on a guarantee issue basis, to a policy of equal or
lesser value. Requires health plans and health insurers in
the individual market to offer standardized products (five
preferred provider organization [PPO] products and five
health maintenance organization [HMO] products), and
prohibits plans and insurers from offering other products.
Specifies the cost-sharing requirements for each product in
each coverage choice category. Requires health insurers to
cover medically necessary basic health care services.
Prohibits health insurers from having an annual or lifetime
benefit limit. Requires health plans to change premium
rates for adults based on one-year changes in a person's
age and establishes standard rating factors and limits on
premium variation. Requires a minimum health plan medical
loss ratio of 85 percent for large group and 80 percent for
individual and small group.
CHANGES TO EXISTING LAW
Existing law:
Provides for the regulation of health plans by the
Department of Managed Health Care (DMHC) under the
Continued---
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 2
Knox-Keene Act, and for the regulation of health insurers
by the California Department of Insurance (CDI) under
provisions of the Insurance Code.
Requires health plan contracts to provide basic health
care services, as defined. Basic health care services
required to be provided by a health care service plan to
its enrollees include, where medically necessary, and
subject to any co-payment, deductible, or limitation of
which DMHC may approve, a specified list of health care
services, including physician services, hospital
inpatient and ambulatory services, emergency services,
and preventive health services.
Requires individual health plan contracts under the
jurisdiction of DMHC to additionally provide other
specific types of health care services. Existing law
requires individual and group health insurance policies
under the jurisdiction of CDI to provide specific types
of health care services, but not basic health care
services.
States that nothing in the Knox-Keene Act prohibits a
health plan from charging subscribers or enrollees a
co-payment or a deductible for a basic health care
service or from setting forth, by contract, limitations
on the maximum coverage of basic health care services,
provided that the co-payments, deductibles, or
limitations are reported to, and not rejected by, the
Director of DMHC (Director) and are set forth to the
subscriber or enrollee pursuant to the disclosure
provisions of existing law. The Commissioner of CDI does
not have authority to object to co-payments and
deductibles.
Allows individuals to switch plans within their current
health plan/insurer once a year, if they have been
covered for at least 18 months under an individual plan
contract, and to transfer, without medical underwriting
(meaning the individual cannot be turned down for
coverage), to any other individual plan contract offered
by that same health plan/insurer that provides equal or
lesser benefits.
Requires health care service plans to use disclosure
forms or materials containing information regarding the
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 3
benefits, services, and terms of the plan contract as the
Director may require, so as to afford the public,
subscribers, and enrollees with a full and fair
disclosure of the provisions of the plan in readily
understood language and in a clearly organized manner.
This bill:
Switching to a different individual market plan or insurer
Allows an individual enrolled in an individual health
plan or health insurer to change to a different benefit
plan design issued by the same health plan, or by a
different health plan or health insurer, on a guarantee
issue basis (meaning the person cannot be turned down for
coverage) on the individual's annual renewal date. The
ability to switch on a guarantee issue basis is limited
to a plan design that is within the same or a lower
coverage choice category. Notice of an individual's
right to change benefit plan designs and to switch to a
different health insurer or health plan must be included
in the plan's evidence of coverage, and in the notice of
premium increases required under current law.
Standardized benefit plan designs in individual market
Requires health plans and health insurers offering
individual plan contracts to fairly and affirmatively
offer and market standard benefit plan designs (five HMO
benefit plan designs and five PPO benefit plan designs)
in five coverage choice categories.
Designates the five coverage choice categories as
platinum, gold, silver, bronze and catastrophic, and
specifies the cost-sharing requirements (deductibles,
co-payments, and out-of-pocket maximums) for services
covered under each coverage choice category, for
individuals, and for families (see chart under
"Standardized products" and on pages 10 and 11 and 27-29
of the bill). The plan design in the catastrophic choice
category must have cost-sharing and an out-of-pocket
maximum that enables it to be offered with a health
savings account.
Requires health plans and health insurers to offer and
market one standard benefit plan in each of the five
coverage choice categories. Health plans and insurers
would be prohibited from offering benefit plan designs
other than those listed in this bill.
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Creates a "grandfathering" exception that would allow
individuals and their dependents to renew health benefit
plan designs issued prior to July 1, 2011 until July 1,
2012.
Permits an Individual Insurance Market Reform Commission
created by this bill to suggest changes to the standard
benefit plan designs, or to add new standard benefit
plans designs.
Require the individual heath insurance market
requirements enacted by this bill, and any regulations
adopted under this bill, to be enforced consistently
between health plans and health insurers, regardless of
licensure.
Individual Insurance Market Reform Commission
Establishes an 11-member Individual Insurance Market
Reform Commission (Commission), and requires the
Commission to:
o Develop a standardized enrollment
questionnaire to be used by all health plans and
health insurers that offer and sell individual
coverage.
o Review and, if necessary, suggest changes
to the standard benefit plan designs required to
be offered by health plans and health insurers in
the individual market. This review must be
conducted within six months of the effective date
of regulations adopted under a provision of the
federal Patient Protection and Affordable Care
Act (Public Law 111-148) requiring "essential
health benefits" to be defined, and at least
every two years thereafter.
Requires, if the Commission suggests changes to the
standard benefit plan designs, or suggests standard
benefit plan designs that are in addition to those
established under this bill, the Director of DMHC and the
Insurance Commissioner to jointly adopt regulations that
contain standardized benefits and cost-sharing and that
are substantially based on the standard benefit plan
designs suggested by the Commission.
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Medically necessary basic health care services required to
be covered by insurers
Requires a health insurance policy issued, amended, or
renewed on or after January 1, 2011 that is regulated by
CDI, to provide coverage for medically necessary basic
health care services, as defined in existing law and
regulations affecting health plans regulated by DMHC.
Annual and lifetime limit prohibited for insurers
Prohibits a health insurance policy issued, amended, or
renewed on or after January 1, 2011, from having annual
or lifetime benefit limits on basic health care services.
States that the two provisions above do not prohibit a
health insurer from charging policyholders or insureds a
co-payment or a deductible for a basic health care
service, or from setting limitations on maximum coverage
of basic health care services, provided that the
co-payments, deductibles, or limitations are reported to,
and not objected to, by the Commissioner of CDI, and are
disclosed to the policyholder or insured.
Standardized enrollment questionnaire
Requires the Commission to develop a standardized
enrollment questionnaire to be used by all health plans
and health insurers that offer and sell individual
coverage. The questionnaire must be written in clear and
easy-to-understand language. The questionnaire must
provide for an objective evaluation of the potential
subscriber's health status, and that of his or her
dependents applying for coverage, by assigning a discrete
measure, such as a system of point scoring, to each
potential subscriber. The Commission is required to
establish a methodology for the graduation of accepted
risk into three risk categories based on responses to the
questionnaire: "higher risk," "standard risk," and
"preferred risk."
Requires health plans and insurers, at least six months
following the date the Commission develops the
standardized enrollment questionnaire, to exclusively use
the questionnaire, and to not use other questionnaires or
forms in order to conduct underwriting. Health plans and
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 6
insurers are also required to utilize the objective
evaluation developed by the Commission in determining
whether to provide coverage.
Prohibits health plans and insurers, on and after January
1, 2014, from requiring, requesting, or obtaining health
information as part of the application process for an
applicant who is eligible for guaranteed issuance of
coverage, and requires the application form to include a
clear and conspicuous statement that such an applicant is
not required to provide health information.
Individual market rating rules
Allows, in rating (pricing) individuals for individual
coverage, only the following characteristics of an
individual to be used: age, geographic region, family
composition, health benefit plan design, and until
January 1, 2014, health status.
Requires, in using age as a rating factor, benefit plan
designs in the individual market to use single-year age
categories for individuals above 18 years of age and
under 65 years of age (meaning each age [age 41, 42, 43,
44, etc.] would potentially have a different premium).
Requires, in using geographic region as a rating factor,
health plans and health insurers to use the same
geographic rating requirements required in the state's
small group health insurance law.
Requires health plans and insurers to base rates on
family size for individuals using no more than six family
size categories.
Provides, on and after January 1, 2011, that rates
between the plan or insurer's highest risk category and
the lowest risk category cannot vary by more than a ratio
of 2 to 1 within each standard benefit plan design
offered by a health plan/insurer within each coverage
choice category. For example, for an individual covered
under the "gold" benefit plan design, the maximum rate
charged a person who is "higher risk" can be no more than
double the lowest or "preferred risk" rate.
Provides, on and after an unspecified date, that rates
between the highest risk category and the lowest risk
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category cannot vary by more than an unspecified ratio
within each standard benefit plan design offered by a
health plan or insurer within each coverage choice
category.
Establishes limits on the annualized premium rate
increase of a health plan/insurer by requiring, after
taking into account a change in premium because of an
increase in an individual's age, that rates not vary by
more than 10 percent above or below the weighted average
premium rate increase calculated across all of the plan
or insurer's health benefit plan designs.
Prohibits, in addition to the bullet above, the highest
standard premium rate for a standard benefit plan design
offered in the individual market by a health plan (at any
age, geographic area, family size, contract type,
network, and effective date) from exceeding the lowest
standard premium rate for a standard benefit plan design
offered in the individual market by the health
plan/insurer (at the same age, geographic area, family
size, contract type, network, and effective date) by more
than 50 percent, after taking into consideration the
actuarial difference of the standard benefit plan designs
offered. For example, in implementing this provision for
a standard platinum policy and a standard catastrophic
policy, the standard premium rate for a platinum policy
for a particular age, area, family size and benefit
design cannot, after adjustment for the actuarial
difference between the two policies, exceed by more than
50 percent the standard rate for a standard catastrophic
policy for a particular age, area, family size and
benefit design.
Medical loss ratio
Requires full service health care service plans and
health insurers to expend on health care benefits no less
than 85 percent (for large group products), and 80
percent (for individual and small group products), of the
aggregate fees, premiums, and other periodic payments
they receive, as specified.
Requires plans and insurers to provide for rebates to
enrollees and insureds if they fail to meet these
percentages, as specified.
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Authorizes plans and insurers to assess compliance with
this requirement by averaging their total costs across
all plan contracts or insurance policies issued, amended,
or renewed by them and their affiliated plans and
insurers in California, as specified.
Requires DMHC and CDI to jointly adopt and amend
regulations to implement these provisions, as specified.
Increased disclosure requirements
Requires specified health plan disclosure material,
including the uniform benefits and coverage matrix, to be
made available on the health plan's internet Website.
Requires health plans, health insurers and disability
insurers to disclose additional information related to
this bill, including provisions relating to an
individual's right to apply for any benefit plan design
written by the plan/insurer at the time of application
for a new health plan/insurance contract, or at the time
of renewal of a health plan contract, and to provide
information concerning the availability of a listing of
all the plan's contracts and benefit plan designs offered
to individuals, including the rates for each contract.
For health insurers, this additional information that
must be disclosed includes a uniform health plan benefits
and coverage matrix.
FISCAL IMPACT
This bill has not been analyzed by a fiscal committee.
BACKGROUND AND DISCUSSION
According to the author, this bill would address many of
the shortcomings in the state's individual health insurance
market, and will provide a bridge to the full
implementation of federal health insurance reforms in 2014
by phasing in some of these reforms starting next year.
To address individuals facing significant premium increases
in the individual market, this bill will allow people to
switch individual coverage on their annual renewal date to
a different plan offered by a competing plan or insurer
with equal or lower benefits. The author argues allowing
people to "vote with their feet" if they are unhappy with
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 9
their current plan's prices, service or network, prevents
people from being trapped in their current plan if they
have developed a medical condition that prevents them from
passing a new plan's medical underwriting standards. To
address the dizzying array of products that makes
comparison shopping difficult, this bill requires
standardized products so people buying coverage can make an
"apples-to-apples" comparison of identical products. The
author argues standardizing products forces price
competition on the provider network and quality of the
plan, and not on widely varying and difficult-to-compare
benefit designs.
This bill would establish a standard application with
standard scoring that would ensure that a person with a
given health history would get the same response from any
plan they apply to for individual coverage, and will also
allow individuals to apply for multiple plans at one time.
To create a level playing field and ensure coverage of
basic health care services, this bill requires all health
insurance products to cover medically necessary care with
no annual or lifetime limits. The author argues allowing
insurers to exclude services, such as maternity, means only
people who want to have children buy maternity coverage,
which defeats the purpose of insurance where you have a
large pool of people whose health costs are spread across
the group. Finally, this bill codifies the federal medical
loss ratio requirements to ensure consumers get value for
the premium dollars.
California Health Benefits Review Program (CHBRP)
Pursuant to AB 1996 (Thomson) Chapter 795, Statutes of
2002, and SB 1704 (Kuehl) Chapter 684, Statutes of 2006,
the University of California is requested to assess
legislation proposing a mandated benefit or service, or the
repeal of a mandated benefit or service, through the
California Health Benefits Review Program (CHBRP). CHBRP
prepares a written analysis of the public health, medical,
and economic impacts of such measures. CHBRP indicates
that given the uncertainty surrounding implementation of
the federal health care reform provisions and its recent
enactment, the potential effects of its short-term
provisions are not taken into account in the baseline
estimates presented in this report. The following are
highlights from the CHBRP analysis of the provision of this
bill requiring health insurers to cover medically necessary
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 10
basic health care services (the CHBRP analysis is limited
to this provision of SB 890).
CHBRP's analysis indicates SB 890 would affect 2.4 million
Californians enrolled in CDI-regulated health insurance
policies. This bill would newly mandate coverage for: (1)
preventive benefits for adults (physical exams,
immunizations, health education, vision screenings, and
hearing screenings), (2) preventive benefits for children
(physical exams, immunizations, health education, well baby
exams, vision screenings, and hearing screenings), (3)
maternity coverage, (4) physical, occupational, and speech
therapy, (5) home health care, and (6) hospice services.
CHBRP indicates the bill could affect utilization and cost
in two ways: (1) by requiring CDI-regulated policies to
cover medically necessary basic health care services and,
(2) by prohibiting those policies from using an annual or
lifetime benefit limit for basic health care services.
According to CHBRP, most of the cost of SB 890 is driven by
coverage for maternity services within the CDI-regulated
individual market. Currently, 216,000 individuals are
covered for maternity care in this market, and the mandate
would extend this coverage to 963,000 individuals without
maternity services coverage. The total net annual
expenditures are estimated to increase by $49 million or
0.06 percent for the year following implementation of the
mandate. Approximately 82 percent of the expenditure
increase is attributable to maternity services, and the
other 18 percent is associated with other basic health care
services. CalPERS HMO, Medi-Cal managed care, and Healthy
Families are not directly affected by the mandate.
In terms of the cost impact, CHBRP found the following:
Total premiums expenditures for private employers
purchasing group insurance are estimated to increase by
$4.4 million or .01 percent.
Total premiums expenditures for enrollees in the group
market are estimated to increase by $1.4 million or 0.01
percent.
Total premium expenditures for individuals purchasing
individual insurance are estimated to increase by $128
million or 2.14 percent.
Individual out-of-pocket expenditures for covered
benefits (deductibles, co-payments) across all DMHC- and
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 11
CDI-regulated market segments are expected to increase by
0.54 percent and of this increase, 89 percent can be
attributed to added coverage for maternity services in
the CDI-regulated individual market.
CHBRP's coverage survey suggests that few policies
currently have significant annual or lifetime limits:
In terms of annual benefit limits, about 0.6 percent of
the group market and 0.1 percent of the individual market
are estimated to have annual benefit limits. The annual
average dollar limits for this proportion of policies
with limits are $70,000 for group policies and $100,000
for individual policies.
In terms of lifetime benefit limits, responses to CHBRP's
survey indicated that all policies had lifetime benefit
limits that were close to $5 million (group policies have
an average lifetime dollar limit of approximately $4.9
million, and individual policies have an average lifetime
dollar limit of approximately $5.2 million).
It is possible that small carriers that are not captured
by CHBRP's survey have more stringent annual or lifetime
limits, however these survey responses capture 79 percent
of the CDI-regulated market.
Eliminating annual and lifetime benefit limits has the
following effect: removing annual dollar limits would
increase per member per month (PMPM) covered claim costs
by about $0.63-$0.68 in the large-group plans,
$0.05-$0.06 in the small-group plans, and $0.00-$0.02 in
the individual plans.
CHBRP estimates the impact on the number of insured when
the premium increase (or
decrease) faced by any segment of the population is at
least a 1 percent increase. Using CHBRP's standard
methodology, premium changes associated with SB 890 are
projected to lead to a net increase of uninsured of
approximately 9,629, of which 9,335 are due to the addition
of maternity coverage, and 294 are due to other basic
health care services. Since the premium increases for large
group and small group were less than 1 percent, CHBRP does
not estimate an increase in the number of uninsured persons
in these markets.
Comparison of SB 890 Proposed Changes with Federal Health
Care Reform
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 12
1. Switching coverage in the individual market
Approximately 2 to 2.5 million Californians purchase
individual health insurance, representing approximately 7
percent of Californians. Existing law allows individuals a
limited ability to switch plans within their current
carrier (e.g., within Blue Cross), if the individual has
been covered for at least 18 months under an individual
plan contract. Such an individual can transfer, without
medical underwriting (meaning the individual cannot be
turned down for coverage), to any other individual plan
contract offered by that same health plan/insurer that
provides equal or lesser benefits.
This bill would allow a person to switch sooner, and to
switch to a competing plan or insurer. Under this bill,
individuals could switch plans on the annual renewal date
of their contract (12 months following the time they signed
up for coverage), and would be allowed to switch to a
product offered by a competing plan or insurer (e.g., from
Blue Cross to Kaiser or vice versa), provided it is to a
product of equal or lesser value.
Federal health care reform, effective January 1, 2014,
makes several fundamental changes to the private health
insurance market. Health plans are prohibited from
imposing any preexisting condition exclusion or
discriminating on the basis of any health status-related
factor. Premium rates can vary only by individual or
family coverage, rating area, age, or tobacco use. Health
plans are required to accept every employer and individual
in the state that applies for coverage, although plans may
restrict enrollment to open or special enrollment periods.
Health plans are prohibited from establishing individual
eligibility rules based on health status-related factors,
including medical condition, claims experience, receipt of
health care, medical history, genetic information, and
evidence of insurability.
2. Medically necessary basic health care services for
health insurers
Existing law requires health plans and health insurers to
cover specific services, commonly referred to as mandated
benefits. One difference between the requirements imposed
on health plans regulated by the DMHC as compared to health
insurers regulated by CDI is health plans must cover
medically necessary basic health care services. This bill
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 13
would require health insurers to cover medically necessary
basic health care services using the definition in the
Knox-Keene Act (the body of law regulating health plans by
DMHC). In the Knox-Keene Act, "basic health care services"
are defined as:
Physician services, including consultation and referral.
Hospital inpatient services and ambulatory care services.
Diagnostic laboratory and diagnostic and therapeutic
radiologic services.
Home health services.
Preventive health services.
Emergency health care services, including ambulance and
ambulance transport services and out-of-area coverage,
including ambulance and ambulance transport services
provided through the "911" emergency response system.
Hospice care pursuant to a specified provision of
existing law.
Federal law, effective January 1, 2014, requires health
plans and health insurers to ensure coverage of "essential
health benefits," as defined by the Secretary of the
Department of Health and Human Services. The list of
essential health benefits is broader than what is required
in state law, with the exception of two requirements placed
on DMHC-regulated health plans to cover home health
services and hospice care. Federal requirements that are
more expansive than current state law include coverage of
maternity and newborn care (for insurers only),
prescription drugs, substance use disorder services, and
wellness services.
Essential health benefits must include at least the
following general categories and the items and services
covered within the categories:
Ambulatory patient services.
Emergency services.
Hospitalization.
Maternity and newborn care.
Mental health and substance use disorder services,
including behavioral health treatment.
Prescription drugs.
Rehabilitative and habilitative services and devices.
Laboratory services.
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 14
Preventive and wellness services and chronic disease
management.
Pediatric services, including oral and vision care.
According to the California HealthCare Foundation's
California Health Care Almanac - California Health Plans
and Insurers, January 2009, enrollment under CDI-regulated
insurers has grown steadily, while overall enrollment in
DMHC plans has declined. With high demand for rate
reduction, and with fewer benefit requirements under CDI
regulations, carriers such as Anthem Blue Cross are
expanding their lower-priced, slimmer product offerings
under CDI's jurisdiction. The number of individuals
covered under CDI-regulated policies increased from 1.4
million in 2004 to 2.8 million in 2007 (an increase of 100
percent), while the number in DMHC-regulated plans
decreased from 22.6 million in 2004 to 22.2 million in 2007
(a decrease of 2 percent).
3. Annual and lifetime benefit limits
This bill would prohibit annual and lifetime limits on
benefits in health insurance policies. Annual and lifetime
limits are dollar amount caps on benefits. For example, in
the Major Risk Medical Insurance Program, there is an
annual benefit limit of $75,000 and a lifetime benefit
limit of $750,000. Benefits received above these dollars
amounts are excluded from coverage.
DMHC indicates that the requirements in existing law and
regulation that health plans cover medically necessary
basic health care services prohibit annual and lifetime
limits in DMHC-regulated HMOs. DMHC indicates that
point-of-service plans (POS) and PPO plans regulated by
DMHC are allowed to have annual and lifetime benefit
limits. CDI-regulated health insurers (PPOs and indemnity
carriers) are also allowed to have annual and lifetime
benefit limits.
Federal health care reform prohibits health plans and
insurers from establishing:
Any lifetime limits on the dollar value of essential
health benefits for any participant or beneficiary; or,
Annual limits on the dollar value of essential health
benefits for any participant or beneficiary, except that
until January 1, 2014, health plans and insurers can
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 15
establish a "restricted annual limit" on the dollar value
of benefits for any participant or beneficiary with
respect to essential health benefits required under the
Patient Protection and Affordable Care Act (HR 3590).
The lifetime limit provision takes effect six months
following enactment of federal health care reform. In
making the determination of what is a "restricted annual
limit," the Secretary of the federal Department of Health
and Human Services (DHHS) is charged with defining the term
"restricted annual limit." In defining this phrase, the
federal Secretary is required to ensure that access to
needed services is made available with a minimal impact on
premiums.
4. Medical loss ratio
The amount of money that a health plan or health insurer
spends on medical care, versus administrative expenses and
profit, is referred to in the health care industry as a
medical loss ratio (MLR), or a minimum loss ratio.
California law does not prescribe specific medical loss
ratio requirements per se, with the exception of individual
health insurance policies. The CDI sets a standard of
"reasonableness" for the ratio of medical benefits to the
premium charged for individual health insurance at 70
percent for new policy forms submitted after July 1, 2007,
and for existing policy forms that file rate increases.
Health plans regulated under DMHC are required by
regulation to hold administrative costs, as defined, to 15
percent of premiums, with certain exceptions. This leaves
the amount spent on medical care at the discretion of the
plan, provided this limit is maintained.
According to the California Health Care Almanac -
California Health Plans and Insurers, January 2009, in
2007, the share of premium costs spent on medical care by
the state's leading six health plans/insurers is as
follows:
----------------------------
| | DMHC | |
| | | CDI |
|--------------+------+------|
|Anthem Blue | 80%| 75%|
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|Cross | | |
|--------------+------+------|
|Aetna | 82%| 85%|
|--------------+------+------|
|Blue Shield | 85%| 70%|
|--------------+------+------|
|Health Net | 86%| 80%|
|--------------+------+------|
|PacifiCare | 87%| 70%|
|--------------+------+------|
|Kaiser | 93%|N/A |
----------------------------
Federal health care reform requires health insurers
offering coverage in the large group market to have a MLR
of 85 percent, or a higher percentage as a state may, by
regulation determine. With respect to a health insurance
issuer offering coverage in the small group market or in
the individual market, the MLR must be 80 percent, or such
higher percentage as a state may by regulation determine,
except that the Secretary may adjust such percentage with
respect to a state if the Secretary determines that the
application of the 80 percent MLR may destabilize the
individual market in such state. The federal law requires
annual rebates to enrollees on a pro rata basis if the plan
does not meet the minimum ratio.
The National Association of Insurance Commissioners is
required to establish uniform definitions for purposes of
calculating the MLR. Federal law also permits the
Secretary to adjust the MLR rates, if the Secretary
determines appropriate, on account of the volatility of the
individual market due to the establishment of state
Exchanges.
5. Standardized products
This bill requires health plans to offer five standardized
products, and health insurers to offer five standardized
products. The charts below are placed in statute by this
bill, but could be adjusted by the Commission established
by this bill through regulations adopted by DMHC and CDI.
This bill uses the five categories in federal law
(platinum, gold, silver, bronze and catastrophic)
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 17
------------------------------------------------------------------------
| | | HMO |
------------------------------------------------------------------------
|-----------+---------+--------+---------+---------+---------+-----------|
| | | 1 | 2 | 3 | 4 | 5 |
|-----------+---------+--------+---------+---------+---------+-----------|
| |Coverage |Platinum| Gold | Silver | Bronze |Catastrophi|
| | Choice | | | | | c |
| |Category | | | | | |
------------------------------------------------------------------------
------------------------------------------------------------------------
| | | Benefit Designs |
------------------------------------------------------------------------
|-----------+---------+--------+---------+---------+---------+-----------|
| |Deductibl| $0 | $0 | $1,500 | $2,000 | $2,500 |
| | e | | | | | |
|-----------+---------+--------+---------+---------+---------+-----------|
| |Out-Of-Po| $1,000 | $2,000 | $4,000 | $5,000 | $5,950 |
| | cket | | | | | |
| | Maximum | | | | | |
|-----------+---------+--------+---------+---------+---------+-----------|
| |Maternity| Yes | Yes | Yes | Yes | Yes |
| | | | | | | |
|-----------+---------+--------+---------+---------+---------+-----------|
| | | | | | | |
|-----------+---------+--------+---------+---------+---------+-----------|
| Copays / | Office | $10 | $40 | $30 | $40 | $45 |
|Co-insuranc| Visit | | | | | |
| e (after | | | | | | |
| meeting | | | | | | |
|deductible | | | | | | |
| where | | | | | | |
|applicable)| | | | | | |
| | | | | | | |
|-----------+---------+--------+---------+---------+---------+-----------|
| | In | $100 | $200 | $350 | $500 | 20% |
| | Patient | | | | | |
| | stay | | | | | |
| | /day | | | | | |
|-----------+---------+--------+---------+---------+---------+-----------|
| | OP | $50 | $100 | $200 | $250 | 20% |
| | Surgery | | | | | |
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 18
|-----------+---------+--------+---------+---------+---------+-----------|
| | Lab/Rad | $10 | $15 | $20 | $25 | 20% |
|-----------+---------+--------+---------+---------+---------+-----------|
| |MRI, CT, | $25 | $50 | $100 | $100 | 20% |
| | and PET | | | | | |
|-----------+---------+--------+---------+---------+---------+-----------|
| |Emergency| $100 | $100 | $150 | $250 | 20% |
| | Room | | | | | |
------------------------------------------------------------------------
| |Preventiv| $0 | $0 | $0 | $0 | $0 |
| |e Health | | | | | |
| |Services | | | | | |
------------------------------------------------------------------------
| | | | | | | |
------------------------------------------------------------------------
| Maximum | In | - | - | - | - | - |
| payment | Patient | | | | | |
|for Out of | stay | | | | | |
| Network | /day | | | | | |
|-----------+---------+--------+---------+---------+---------+-----------|
| |Outpatien| - | - | - | - |- |
| | t | | | | | |
| | Surgery | | | | | |
------------------------------------------------------------------------
---------------------------------------------------------------------------
| | | PPO |
---------------------------------------------------------------------------
|------+--------+----------+----------+-----------+-----------+-----------|
| | | 1 | 2 | 3 | 4 | 5 |
|------+--------+----------+----------+-----------+-----------+-----------|
| |Coverage| Platinum | Gold | Silver | Bronze |Catastrophi|
| | Choice | | | | | c |
| |Category| | | | | |
| | | | | | | |
-------------------------------------------------------------------------
---------------------------------------------------------------------------
| | | Benefit Designs |
---------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
| | | IN* | OON** | IN | OON | IN | OON | IN | OON | IN | OON |
-----------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------
| |Deductib| $100 | $500 | $1,500 | $2,000 | $2,500 |
| | le | | | | | |
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 19
-------------------------------------------------------------------------
| |Out-of-P| $1,000 | $2,000 | $4,000 | $5,000 | $5,950 |
| | ocket | | | | | |
| |Maximum | | | | | |
|------+--------+----------+----------+-----------+-----------+-----------|
| |Maternit| Yes | Yes | Yes | Yes | Yes |
| | y | | | | | |
-------------------------------------------------------------------------
|--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------|
| | | | | | | | | | | | |
|--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------|
| Copays | Office | $5 | 30% | $20 | 40% | $30 | 50% | $40 | 50% | $45 | 50% |
| / | Visit | | | | | | | | | | |
|Co-insur| | | | | | | | | | | |
| ance | | | | | | | | | | | |
| (after | | | | | | | | | | | |
|meeting | | | | | | | | | | | |
|deductib| | | | | | | | | | | |
| le | | | | | | | | | | | |
| where | | | | | | | | | | | |
|applicab| | | | | | | | | | | |
| le) | | | | | | | | | | | |
-----------------------------------------------------------------------------------------------------------
| | In | 10% | 30% | 20% | 40% | 30% | 50% | 35% | 50% | 40% | 50% |
| |Patient | | | | | | | | | | |
| | stay | | | | | | | | | | |
| | /day | | | | | | | | | | |
-----------------------------------------------------------------------------------------------------------
| | OP | | | | | | | | | | |
| |Surgery | | | | | | | | | | |
-----------------------------------------------------------------------------------------------------------
| |Lab/Rad | | | | | | | | | | |
-----------------------------------------------------------------------------------------------------------
| | MRI, | | | | | | | | | | |
| |CT, and | | | | | | | | | | |
| | PET | | | | | | | | | | |
-----------------------------------------------------------------------------------------------------------
| |Emergenc| | | | | | | | | | |
| | y Room | | | | | | | | | | |
-----------------------------------------------------------------------------------------------------------
| |Preventi| $0 | 0% | $0 | 0% | $0 | 0% | $0 | 0% | $0 | 0% |
| | ve | | | | | | | | | | |
| | Health | | | | | | | | | | |
| |Services| | | | | | | | | | |
| | | | | | | | | | | | |
-----------------------------------------------------------------------------------------------------------
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 20
|Maximum | In | - | $800 | - | $800 | - | $800 | - | $800 | - | $800 |
|payment |Patient | | | | | | | | | | |
|for Out | stay | | | | | | | | | | |
| of | /day | | | | | | | | | | |
|network | | | | | | | | | | | |
|--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------+--------|
| |Outpatie| - | $500 | - | $500 | - | $500 | - | $500 | - |$500 |
| | nt | | | | | | | | | | |
| |Surgery | | | | | | | | | | |
-----------------------------------------------------------------------------------------------------------
* In-Network
** Out-of-network
The federal health care reform bill, effective January 1,
2014, establishes levels of coverage for health plans and
insurers that are defined by a certain percentage of the
costs that would be paid by the plan. For example, the
bronze level must provide a level of coverage that is
designed to provide benefits that are actuarially
equivalent to 60 percent of the full actuarial value of the
benefits provided under the plan. Actuarial value is the
estimated percent of health care costs a health plan will
pay for a standard population (e.g., 60 percent for
bronze). For the silver level, the percentage is 70, for
the gold level, it is 80, and for the platinum level, it is
90. Additionally, health plans in the individual market
can offer catastrophic coverage for individuals under age
30, with certain limitations.
6. Common underwriting standards
When individuals and families apply for individual health
coverage, they fill out an application that asks detailed
questions about their current health status, current
medication use and past health history. Health plans use
this information to determine whether to offer the
individual/family coverage, and how much they will pay in
premiums.
Existing law requires health plans and insurers selling
individual coverage to have written policies, procedures,
or underwriting guidelines establishing the criteria and
process by which the plan makes its decision to provide or
to deny coverage to individuals applying for coverage and
sets the rate for that coverage. Health plans and insurers
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 21
must annually file with their respective regulator a
general description of the criteria, policies, procedures,
or guidelines the plan uses for rating and underwriting
decisions related to individual health plan contracts.
Existing law does not require health plans or insurers to
use a common underwriting form, and plans and insurers use
their own forms. Existing law requires all applications
for coverage which include health-related questions to
contain clear and unambiguous questions designed to
ascertain the health condition or history of the applicant.
Arguments in support
Health Access California (HAC) writes in support that this
bill provides substantial consumer protections for those
Californians who purchase health coverage as individuals,
both now and after 2014, when federal health reform is
fully implemented. HAC writes that the requirement to
cover medically necessary care, including maternity care,
eliminates "junk insurance" under which a health insurance
policy can cover only a few days of hospitalization or a
limited dollar amount for hospital care, or only a few
doctor visits a year. HAC argues eliminating lifetime and
annual caps on coverage will help individuals facing
catastrophic costs due to cancer, a heart attack or other
serious illness, and will help reduce medical debt among
those who are insured.
HAC states that today insurers use the illusion of consumer
choice to select the customers they want and discourage the
customers they do not want. Insurers invent new products
designed to attract consumers who are healthy and
discourage those with significant medical needs from
seeking individual coverage. The new federal health care
reform law will require insurers to take all comers, but
further action is needed to assure that insurers cannot
game the new system as they manipulate the existing market
to cherry pick the healthy while avoiding those who need
health care. HAC argues this bill proposes the same
solution for this problem that currently exists in
Medi-Gap, CalPERS, and most large employer coverage---and a
solution similar to what the Massachusetts Connector is in
the process of adopting. The solution is to specify the
products that can be offered rather than allowing insurers
to design these products to benefit the insurer first and
foremost. This bill proposes one HMO product and one PPO
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 22
product for each level of coverage that will be available
to individuals in 2014.
HAC states that today, an individual consumer facing
premium hikes of 39 percent or more must be offered
coverage with comparable or lesser benefits by the insurer
currently covering them. But in order to move from one
insurer to another (from Blue Cross to HealthNet),
individuals must undergo medical underwriting, and an
unknown but significant proportion of those who seek
coverage fail underwriting. HAC states this bill allows
consumers facing high premiums and lower benefits to vote
with their feet by changing insurers to obtain lower
premiums for comparable or lesser benefits.
HAC states this bill will limit premium variation for
individual consumers by age and product category, smoothing
out increases in premiums by requiring that premium
increases above a certain threshold be spread across the
entire market.
The Kaiser Permanente Medical Care Program (Kaiser) writes
in support that this bill provides a bridge between
California's current lackluster and inconsistent market
rules to those that will be in effect in 2014, upon full
implementation of the federal health care reform bill.
Kaiser writes, this bill levels the playing field by
requiring all health coverage in the individual market to
cover medically necessary care, including maternity care.
Kaiser states carriers wishing to offer cheaper products by
limiting benefits, or eliminating entire categories of
benefits altogether, simply move business from DMHC
regulation to CDI regulation.
Kaiser states that, of the 138 insurance choices available
in the market today, just 18 cover maternity - and 11 of
these are offered by Kaiser. Kaiser believes maternity
coverage is an important part of health care, and the
ability to carve out benefits such as maternity, or limit
drug coverage to generic coverage only, have a profound,
though not obvious effect: they attract healthy customers
to the carriers that offer plans with such features. After
the young and healthy have been skimmed from the top, the
pool that remains is sicker, and their coverage becomes
more expensive. Kaiser takes the view that a uniform and
reasonable package of benefits should be established, and
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 23
that all carriers should offer it.
Kaiser also writes the standard benefit plan designs will
substantially strengthen the ability of consumers to choose
in the individual health plan marketplace, and close off
opportunities for plans and insurers to avoid aggressive
price competition. Every plan wishing to compete in the
market must offer only these plans and not others, which
will provide fierce competition on quality and price alone
to proceed. Kaiser states that today's insurance market
would be made more competitive if consumers were armed with
the ability to make "apples-to-apples" comparison through a
structured market, and if carriers were forced to abandon
today's practice of designing benefits to attract one type
of customer (namely the healthy types) over another.
Kaiser writes that this bill establishes important limits
on how health plans and insurers set prices for different
groups of individuals by creating standard geographic
regions, and allowing health plans and insurers to increase
rates for specific regions and products no more than 10
percent above or below that plan's average increase. This
bill also requires annual increases for age, rather than
grouped into age bands of five or ten years (e.g., ages
45-49). In so doing, the bill should eliminate much of the
extreme price volatility that has been the focus of much
concern in recent months. This bill also standardizes the
extent to which consumers can be "rated up" when their
health status is less than ideal. Finally, Kaiser writes
this bill eliminates lifetime and annual caps on coverage,
and establishes in state law minimum "medical loss ratios,"
consistent with the provisions of federal reform. Kaiser
concludes that it believes these are appropriate reforms,
and that California law, which presently conflicts with
these new federal provisions, should be updated to reflect
them.
The California Medical Association (CMA) writes in support
that this bill would make it easier for Californians
purchasing health insurance in the individual market to
compare products and "vote with their feet" when they are
unhappy with their coverage. CMA states the individual
market today is confusing and intimidating, and the
coverage that is available falls short in many ways. By
leveling the playing field among all carriers and mandating
comprehensive coverage, this bill will address the
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 24
migration of insurance from HMO products regulated under
DMHC to PPO products regulated with much less oversight in
CDI.
CMA states this bill also puts an end to the ability of
health insurers to create a Catch-22 situation for
enrollees by offering a confusing and ever-changing array
of PPO products that attract enrollees with low rates and
skinny coverage and then raise rates on captive enrollees.
CMA states it would like to continue to work with the
author to ensure that physicians are fairly represented as
the implementation goes forward via the Commission and that
the MLR provisions of the bill are meaningful and as strong
or stronger than what will ultimately be effective in
federal law, the details of which are still in flux.
Related bills
AB 786 (Jones) requires DMHC and CDI to jointly promulgate
regulations to develop standard definitions and terminology
for covered health benefits and cost-sharing provisions
applicable to individual health care contracts and
individual health insurance policies, and to develop a
system to categorize all contracts and policies to be
offered and sold to individuals on and after September 1,
2012. AB 786 would also establish a maximum out-of-pocket
limit of $5,000 per individual and $10,000 per family.
Finally, AB 786 requires the Office of the Patient Advocate
to develop and post on its Internet Website a description
of each coverage choice category and a uniform benefit
matrix of all available individual health plan contracts
and individual health insurance policies.
AB 1825 (De La Torre) would require CDI-regulated health
insurers to provide coverage for maternity services.
Prior legislation
SB 1522 (Steinberg) of 2008 would have required DMHC and
the CDI to jointly develop a system to categorize into five
coverage choice categories health coverage sold to
individuals, as specified. SB 1522 failed passage on the
Assembly Floor.
ABX1 1 (Nunez) of 2007 among its provisions, would have, on
and after July 1, 2010, required full-service health plans
and health insurers to expend no less than 85 percent of
the after-tax revenues they receive from dues, fees,
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 25
premiums, or other periodic payments, on health care
benefits. The bill would have allowed plans and insurers
to average their administrative costs across all of the
plans and insurance policies they offer, with the exception
of Medicare supplement plans and policies and certain other
limited benefit policies, and would have allowed DMHC and
CDI to exclude any new contracts or policies from this
limit for the first two years they are offered in
California. "Health care benefits" would have been broadly
defined to include the costs of programs or activities
which improve the provision of health care services and
improve health care outcomes, as well as disease management
services, medical advice, and pay-for-performance payments.
Failed passage in the Senate Health Committee.
AB 8 (Nunez) of 2007 contained similar provisions to ABX1 1
with regard to the amount health plans and health insurers
would have been required to expend on health care benefits.
Vetoed by the Governor.
SB 48 (Perata) of 2007 contained similar provisions to ABX1
1 with regard to the amount health plans and health
insurers would have been required to expend on health care
benefits. These provisions were amended out of the bill.
SB 1591 (Kuehl) of 2006 would have prohibited health
insurers from spending on administrative costs in any
fiscal year an excessive amount of aggregate dues, fees, or
other periodic payments received by the insurer. Provides,
for purposes of the bill, that administrative costs include
all costs identified in current regulations that apply to
health care service plans. Requires the Department of
Insurance to develop regulations to implement the bill by
January 1, 2008, and provides that the bill is to take
effect on July 1, 2008. These provisions were amended out
of the bill.
There have been several bills requiring health insurers to
cover maternity services, including AB 98 (De La Torre) of
2009, AB 1962 (De La Torre) of 2008 and SB 1555 (Speier) of
2004. All vetoed by the Governor.
COMMENTS
1. Annual and lifetime limits. This bill prohibits annual
and lifetime benefit limits in health insurance policies.
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 26
Current practice permits DMHC-regulated PPO and POS plans
to have annual and lifetime limits, but not HMOs. To
ensure consistency of regulatory requirements across plans
and insurers, this bill should be amended to similarly
prohibit annual and lifetime limits in DMHC-regulated PPO
and POS plans.
2. Technical drafting errors. The reference to health
insurers offering HMO coverage under the Insurance Code in
the chart on p. 27 and 28 is incorrect as this type of
coverage is only authorized under the Knox-Keene Act under
the Health and Safety Code. A recommended amendment would
be to delete the HMO chart from the Insurance Code. In
addition, a recommended amendment would to be clarify that
the increased disclosure requirements in this bill are
placed on health insurers, and not disability insurers.
3. Health plan benefits beyond required federally required
"essential health benefits." Federal law requires health
plans and health insurers, effective January 1, 2014, to
ensure that health plans provide coverage for "essential
health benefits," as defined by the Secretary of HHS. The
statutory list of essential health benefits in the federal
Act is generally broader than state law requirements (two
exceptions are the requirement DMHC plans cover home health
services and hospice care), although the scope of essential
health benefits will depend upon the federal regulations.
The health insurance exchanges required to be established
by federal health care reform allow states to require
qualified health plans in the Exchange to offer benefits in
addition to the essential health benefits. However, a
state must assume the cost of doing so by making payments
to an individual eligible for the premium tax credit and
any cost-sharing reduction under the Act to defray the cost
to the individual of any additional benefits which are not
eligible for such credit or reduction. Following the
regulatory publication of what is and what is not included
in the federal definition of "essential health benefits,"
the Legislature may either need to determine whether to
continue existing benefit mandates that exceed federal
minimums, or determine how to fund the cost to the
individual for benefits that are not eligible for the
federal credit or cost-sharing reduction.
POSITIONS
STAFF ANALYSIS OF SENATE BILL 890 (Alquist) Page 27
Support: Alliance of Californians for Community
Empowerment
California Children's Hospital Association
California Medical Association
Congress of California Seniors
Consumers Union
Health Access California
Kaiser Permanente Medical Care Program
Oppose: None received.
-- END --