BILL ANALYSIS
SB 890
Page 1
SENATE THIRD READING
SB 890 (Alquist)
As Amended August 20, 2010
Majority vote
SENATE VOTE :23-11
HEALTH 13-6 APPROPRIATIONS 12-5
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|Ayes:|Monning, Ammiano, Carter, |Ayes:|Fuentes, Bradford, |
| | | |Huffman, Coto, Davis, De |
| |De La Torre, De Leon, | |Leon, Gatto, Hall, |
| |Eng, Hayashi, Hernandez, | |Skinner, Solorio, |
| |Jones, Bonnie Lowenthal, | |Torlakson, Torrico |
| |Nava, V. Manuel Perez, | | |
| |Salas | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Fletcher, Conway, Gaines, |Nays:|Conway, Harkey, Miller, |
| |Smyth, Audra Strickland, | |Nielsen, Norby |
| |Silva | | |
| | | | |
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SUMMARY : Requires health plans and health insurers to
categorize all individual market products into tiers based on
actuarial level, as specified. Requires health plans and health
insurers to allow an individual to transfer without medical
underwriting to any other individual plan contract offered by
that same health plan or health insurer that provides equal or
lesser benefits upon the annual renewal date of the contract or
policy. Requires health plans and health insurers to meet
federal annual and lifetime limits and the medical loss ratio
requirements (MLR) in specified provisions of the federal health
care reform law, and any federal rules or regulations issued
under those provisions.
Categorization into Tiers Based on Actuarial Value
1)Requires, effective July 1, 2011, health plan and health
insurers to categorize all products offered or renewed in the
individual market.
2)Requires, effective July 1, 2011 through December 31, 2013,
each product to be categorized on the basis of actuarial value
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into one of the following tiers:
a) Bronze level for products with have an actuarial value
of 55% to 64%;
b) Silver level for products with have an actuarial value
of 65% to 74%;
c) Gold level for products with an actuarial value of 75%
to 84%;
d) Platinum level for products with an actuarial value of
85% or greater; and,
e) Catastrophic coverage for products with an actuarial
value less than 55%.
3)Requires each product, effective January 1, 2014, to be
categorized on the basis of actuarial value into one of the
following tiers:
a) Bronze level for products with an actuarial value equal
to 60%;
b) Silver level for product with an actuarial value equal
to 70%;
c) Gold level for products with an actuarial value equal to
80%;
d) Platinum level for products with an actuarial value
equal to 90%; and,
e) Catastrophic coverage for products with an actuarial
value less than 60%.
4)Allows health plans and health insurers to have a de minimis
variation from the actuarial value categorization tiers in 3)
above.
5)Requires, by July 1, 2011, the Department of Managed Health
Care (DMHC) and the California Department of Insurance (CDI)
to jointly adopt a common actuarial model, which is required
to be used by health plans and health insurers to categorize
products in the individual market within one year of the date
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of adoption of the model. Requires the model to be updated at
least every three years. Exempt the establishment of the
model and updates to the model from the rulemaking provisions
of the Administrative Procedure Act.
6)Requires, until January 1, 2014, the benefits required to be
covered under the Knox-Keene benefit package to be used to
determine the denominator of the actuarial value calculation.
Prohibits this provision from being construed to require
health insurers to provide the Knox-Keene benefit package.
Requires health plans and health insurers to use a qualified
actuary, as defined, to certify its categorization meets the
requirements established in the actuarial model. Requires
health plans and health insurers, after the implementation of
the common actuarial model, to use a qualified actuary to also
certify its categorization meets the requirements established
in the actuarial model.
7)Requires, after January 1, 2014, the actuarial model to use
the method of calculating actuarial value contained in a
specified section of the federal Patient Protection and
Affordable Care Act (PPACA), (Public Law 111-152).
8)Permits the Department of Managed Health Care (DMHC) and the
California Department of Insurance (CDI) to review the
categorization of any product for accuracy, and the
methodology used by a plan or insurer to establish actuarial
value.
9)Permits DMHC and CDI to require the submission of any
information needed to categorize products under the actuarial
value provisions of this bill.
10)Requires health plans and health insurers, as part of the
disclosure form required by existing law, to disclose the
actuarial value of each product with an explanation of
actuarial value in easily understood language expressed as a
percent of expenses paid by insurance versus out-of-pocket.
Requires the disclosure to include an estimate of the annual
out-of-pocket expenses of an individual in average health who
is enrolled in such a contract, and the total annual cost (the
sum of premium plus out-of-pocket cost) of a person of average
health. Requires the notice to also disclose that the share
of cost may be more or less depending on the illness or
condition of the consumer, and to make a statement requesting
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that consumers examine other features of the insurance product
carefully, as specified.
Switching Earlier to Lower Cost Plan of Current Carrier
11) Requires health plans and health insurers to allow an
individual to transfer without medical underwriting to any
other individual plan contract offered by that same health
plan or health insurer that provides equal or lesser benefits
upon the annual renewal date of the individual plan contract
or policy. Under current law, an individual must have been
covered for at least 18 months under an individual plan
contract to transfer without medical underwriting.
State Enforcement of Federal Law
12)Requires a health plan and a health insurer that issues,
sells, renews, or offers contracts for health care coverage to
meet federal annual and lifetime limits in a specified
provision of PPACA, and any federal rules or regulations
issued under that section, to the extent required by federal
law. Requires health plans and health insurers to meet any
state laws or regulations that do not prevent the application
of those federal annual and lifetime limit provision, to the
extent required by federal law.
13)Requires health plans and health insurer that issue, sell,
renew, or offers contracts for health care coverage to meet
the MLR requirements of PPACA, and any rules or regulations
issued under that provision of PPACA, to the extent required
by federal law.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, annual fee-supported (health plan fees) special fund
costs of $1 million to $1.5 million to DMHC and CDI, combined,
to establish and maintain oversight of the standardization
requirements and reforms contained in this bill.
COMMENTS : According to the author, Californians purchasing
health insurance in the individual market face a dizzying array
of products to choose from with different benefit standards that
makes price shopping difficult. The author states that roughly
2 to 2.5 million Californians buy health insurance in the
individual market, and have over a hundred different products to
choose from, with different benefits (maternity vs. no
maternity), cost-sharing provisions (deductibles and
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co-payments) offered by competing health plans and health
insurers. The author states that this bill addresses some of
the shortcomings in the state's individual health insurance
market, and provides a bridge to the full implementation of
federal health insurance reforms in 2014. This bill will tell
people shopping for individual coverage the percentage of
expenses paid for by insurance for an individual of average
health, an individual's annual out-of-pocket expenses, and his
or her total annual cost (premiums plus out-of-pocket costs).
The author states that these disclosure requirements will help
individuals make sense of complex insurance policy provisions
using actuarial value as a common frame of reference. Consumer
comparison shopping will be enhanced as the disclosure
provisions will help illustrate the premium and out-of-pocket
cost trade-offs individuals face when choosing an individual
health insurance product that best meets their needs and budget.
Finally, the author contends that this bill will ensure state
enforcement of the federal medical loss ratio and annual and
lifetime benefit limit provisions contained in federal health
care reform.
On March 23, 2010, President Obama signed the PPACA. Among
other provisions, the new law makes statutory changes affecting
the regulation of and payment for certain types of private
health insurance. There are a number of health insurance
provisions that will take effect in 2010, including some of
those related to this bill:
1)Benefit package. PPACA defines an essential health benefits
package that all qualified health plans must cover, at a
minimum, with some exceptions. The package will be determined
by the federal Department of Health and Human Services
Secretary and must include, at a minimum, ambulatory patient
services; emergency services; hospitalizations; maternity and
newborn care; mental health and substance use disorder
services, including behavioral health; prescription drugs;
rehabilitative services and devices; laboratory services;
preventive services, including services recommended by the
Task Force on Clinical Preventive Services and vaccines
recommended by the Director of the Centers for Disease Control
and Prevention; and, chronic disease management. In addition,
the plans must cover pediatric services, including vision and
oral care.
2)Four benefit categories. PPACA establishes four benefit
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categories-bronze, silver, gold, and platinum - all of which
will have the essential health benefits package. Policies
cannot be sold in the small-group and individual market or
exchanges that do not meet the actuarial standards for the
benefit categories established by law. All carriers selling
in the individual and small-group markets are at least
required to offer silver and gold plans. The bronze package
will represent minimum creditable coverage with an actuarial
value of 60% (i.e., covering 60% of enrollees' medical costs)
with out-of-pocket spending limited to that which is defined
for health savings accounts (HSAs), or $5,950 for individual
policies and $11,900 for family policies. The silver benefit
package will have an actuarial value of 70% and the same
out-of-pocket limits; the gold package will have an actuarial
value of 80% and the same out-of-pocket limits, and the
platinum package will cover 90% of costs with the same
out-of-pocket limits. A catastrophic benefit package could be
made available for adults younger than age 30, similar to
HSA-eligible, high-deductible plans, with the essential
benefits package, preventive services excluded from the
deductible as under current HSA law, three primary care
visits, and cost-sharing to HSA out-of-pocket limits. People
who are unable to find a plan with a premium that is 8% or
less of their income will be able to purchase the young adult
plan as well, regardless of age. Deductibles of greater than
$2,000 for individuals and $4,000 for families will be
prohibited in the small-group market.
3)Medical Loss Ratio. PPACA requires health plans and insurers
to have a MLR of 85% in the large group market and 80% in the
small group and individual markets.
4)Prohibitions Against Lifetime Benefit Caps. Group health
plans or insurance companies providing group or individual
market coverage are prohibited from setting lifetime limits on
the dollar value of benefits and from setting unreasonable
annual limits on the dollar value of benefits, effective in
September 2010. Annual limits will be banned completely in
2014.
Analysis Prepared by : Melanie Moreno / HEALTH / (916)
319-2097
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FN: 0006444