BILL ANALYSIS
SB 890
Page 1
Date of Hearing: August 26, 2010
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 890 (Alquist) - As Amended: August 25, 2010
SENATE VOTE : 23-11
SUBJECT : Health care coverage.
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
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,
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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 minimus
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
of adoption of the model. Requires the model to be updated at
least every three years and to reflect the method of
calculating actuarial value in 6) below. Exempts 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 Health Care Service Plan Act of
1975 (Knox-Keene) benefit package to be used to determine the
denominator of the actuarial value calculation using a
standard population. Prohibits this provision from being
construed to require health insurers to provide the Knox-Keene
benefit package. Requires, after January 1, 2014, the
actuarial value to be calculated using contained in a
specified section of the federal Patient Protection and
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Affordable Care Act (PPACA), (Public Law 111-152) and any
regulations adopted pursuant to that law. Requires health
plans and health insurers to use a qualified actuary, as
defined, to certify its categorization under this bill.
7)Permits DMHC and CDI, in lieu of establishing a common
actuarial model, to require plans and insurers to categorize
their products using a qualified actuary and the applicable
method of calculation described in 6) above. Requires plans
and insurers, in this case, to submit a copy of the actuarial
value calculations and a certification signed by the qualified
actuary in a manner and format specified by DMHC and CDI.
8)Permits DMHC and the 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 age, illness, or
health condition of the consumer, and to make a statement
requesting 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
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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.
EXISTING LAW :
1)Provides for the regulation of health plans by DMHC under
Knox-Keene, and for the regulation of health insurers by CDI
under provisions of the Insurance Code.
2)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.
3)Requires health care service plans to use disclosure forms or
materials containing information regarding the benefits,
services, and terms of the plan contract as the Director of
DMHC 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.
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,
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to establish and maintain oversight of the standardization
requirements and reforms contained in this bill.
COMMENTS :
1)PURPOSE OF THIS BILL . 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 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.
2)PPACA . 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:
a) Benefit package. PPACA defines an essential health
benefits package that all qualified health plans must
cover, at a minimum, with some exceptions. The package
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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.
b) Four benefit categories. PPACA establishes four benefit
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.
c) Medical Loss Ratio. PPACA requires health plans and
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insurers to have a MLR of 85% in the large group market and
80% in the small group and individual markets.
d) 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.
REGISTERED SUPPORT / OPPOSITION :
Support
Blue Shield
Health Access California
Kaiser Permanente Medical Care Program
(previous version)
AARP
Alliance of Californians for Community Empowerment
American Federation of State, County and Municipal Employees
American Heart Association
Anaheim Chamber of Commerce
California Association of Physician Groups
California Children's Hospital Association
California Hispanic Chambers of Commerce
California Hospital Association
California Medical Association
CALPIRG
Community Health Partnership
Congress of California Seniors
Consumers Union
International Brotherhood of Electrical Workers - Local 332
Kern County Medical Society
Local Health Plans of California
Los Angeles County Medical Society
MemorialCare Health System
Monterey County Medical Society
Orange Coast Memorial
Orange County Hispanic Chamber of Commerce
Orange County Medical Association
Planned Parenthood Affiliates of California
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San Bernardino County Medical Society
San Francisco Medical Society
San Mateo Central Labor Council
San Mateo County Board of Supervisors
San Mateo County Medical Association
Santa Clara Family Health Plan
Service Employees International Union
Sierra Sacramento Valley Medical Society
Six Rivers Planned Parenthood
South Bay AFL-CIO Labor Council
St. Joseph Health System
Stanford Hospital and Clinics
Stanislaus Medical Society
United Nurses Associations of California/Union of Health Care
Professionals
Working Partnerships USA
Opposition
None on file.
Analysis Prepared by : Melanie Moreno / HEALTH / (916)
319-2097