BILL ANALYSIS
SB 890
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Date of Hearing: August 4, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 890 (Alquist) - As Amended: August 2, 2010
Policy Committee: Health Vote:13-6
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill enacts substantial reforms in California's individual
health insurance market regulated by the California Department
of Managed Health Care (DMHC) and the California Department of
Insurance (CDI). Specifically, this bill:
1)Authorizes individuals, during open enrollment, to switch to a
different health insurance policy of equal or lesser value on
a guarantee issue basis, meaning the individual cannot be
turned down for coverage.
2)Requires health plans and health insurers (carriers) to offer
standardized policies and prohibits carriers from offering
other products. Standardized products include six health
maintenance organization (HMO) policies and six preferred
provider (PPO) policies. Specifies the cost sharing
requirements (deductibles, copayments, and out-of-pocket
maximums) for each standard product category. Establishes
standardized pricing practices in the individual insurance
market with regard to factors such as age, geography, family
size, and health benefit design.
3)Requires health insurance policies regulated by CDI to provide
coverage for medically necessary basic health care services
and prohibits health insurance policies from containing annual
or lifetime limits for basic health services. Medically
necessary coverage is defined in current law for health plans
regulated by DMHC.
4)Requires health plans and insurers to spend 80% of premiums
collected on patient care in individual and small group health
insurance markets. Requires carriers to spend 85% of premiums
SB 890
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collected on patient care in the large group insurance market.
5)Establishes an 11-member Individual Insurance Market Reform
Commission and requires the Commission to develop a
standardized enrollment questionnaire and to review and modify
standardized policies as necessary.
FISCAL EFFECT
Annual fee-supported (health plan fees) special fund costs of $2
million to DMHC and CDI, combined, to establish and maintain
oversight of the standardization requirements and reforms
contained in this bill.
COMMENTS
1)Rationale . This bill is co-sponsored by Health Access and the
Kaiser Permanente to enact substantial reforms in the
individual insurance market. This bill is supported by a wide
coalition of consumer and provider groups. Several features of
this bill, including standardized product offering, the
imposition of medical loss ratios (percent of premium spent on
medical care), and the elimination of lifetime and annual
limits in health coverage are contained in federal health
reform, the Patient Protection and Affordable Care Act
(PL-111-148).
According to the author and sponsors, insurers use the illusion
of choice and invent new products in order to enroll customers
they want and deny others coverage. Consumers, with more than
100 products to choose from and no method of comparison, are
unable to make fundamental determinations about coverage
offerings. This bill significantly increases standardization
and enacts several other reforms to aid consumers.
2)The Individual Market . While most Californians receive health
coverage via employer-sponsored plans or public programs such
as Medi-Cal or Healthy Families, approximately three million
individuals purchase health coverage in the individual
insurance market. The individual insurance market has
distinctly different rules than either the small employer or
large employer group insurance markets. Medical underwriting
and diversity in product offerings in the individual market
translates to widely varying benefit packages and premiums.
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3)The medical loss ratio (MLR) refers to the ratio of medical
benefits to premiums. This ratio gives some indication of what
percentage of premiums are spent on patient care as opposed to
administration, overhead and profit. Generally, health care
products in California are not subject to MLR. The details of
what may be included and excluded in the ratio calculation are
included in federal health reform requirements, but detailed
definitions have not yet been finalized.
4)Concerns . Several health plans and insurers oppose this bill.
Carriers indicates required uniformity will negatively impact
the ability of health plans to provide flexible products at
affordable prices. Carriers indicate this bill adopts certain
features of federal health reform in advance of federal
requirements and regulations and separate from include market
protections such as risk adjustment and reinsurance. In
addition, this bill enacts reforms to the individual insurance
market prior to the provision of subsidies to low-income
individuals in the state-run health insurance exchange that
will be operational in 2014.
5)Related Legislation . AB 786 (Jones), currently on the inactive
file of the Senate, requires DMHC and CDI to develop standard
definitions and cost sharing arrangements in the individual
health insurance market.
Analysis Prepared by : Mary Ader / APPR. / (916) 319-2081