BILL ANALYSIS                                                                                                                                                                                                    






                                 SENATE HEALTH
                               COMMITTEE ANALYSIS
                        Senator Elaine K. Alquist, Chair


          BILL NO:       SB 1163                                      
          S
          AUTHOR:        Leno                                         
          B
          AMENDED:       April 19, 2010                              
          HEARING DATE:  April 21, 2010                               
          1
          CONSULTANT:                                                 
          1
          Bain/                                                       
          6              3                                           
                                     SUBJECT
                                         
                  Health care coverage: denials: premium rates

                                     SUMMARY  

          Requires health plans and insurers to give 180 days written  
          notice of changes in the premium rate or coverage before  
          such change takes effect.  Extends requirements placed on  
          health plans and insurers when they deny individual  
          coverage to when plans and insurers deny group purchasers.   
          Requires health plans and insurers to provide data and  
          demographic information on individual and large group  
          denials of coverage, any changes in rates, any changes in  
          cost sharing, and any changes in covered benefits.   
          Requires health plans and insurers to provide to its  
          regulator specified information, such as provider prices  
          and utilization increases, with respect to rate increases  
          for each product.

                             CHANGES TO EXISTING LAW  

          Existing law:
          Existing law requires health plans and health insurers that  
          decline to offer coverage or that deny enrollment of an  
          individual or his or her dependents applying for individual  
          coverage, or that offer individual coverage at a rate that  
          is higher than the standard rate, to provide the individual  
          applicant with the specific reason for the decision in  
          writing at the time of the denial or offer of coverage.
                                                         Continued---



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          Existing law prohibits health plans from changing the  
          premium rate or coverage for an individual plan contract  
          unless the plan has delivered a written notice of the  
          change at least 30 days prior to the effective date of the  
          contract renewal, or the date on which the rate or coverage  
          changes.  Existing law requires a notice of an increase in  
          the premium rate to include the reasons for the rate  
          increase.

          Existing law requires individual health plans and health  
          insurers to have written policies, procedures, or  
          underwriting guidelines establishing the criteria and  
          process by which the plan or insurer makes its decision to  
          provide or to deny coverage to individuals applying for  
          coverage, and sets the rate for that coverage.  These  
          guidelines, policies, or procedures are required to assure  
          that the plan rating and underwriting criteria comply with  
          all other applicable provisions of state and federal law.

          Existing law requires health plans and health insurers to  
          annually file with its regulator a general description of  
          the criteria, policies, procedures, or guidelines the plan  
          or insurer uses for rating and underwriting decisions  
          related to individual health plan contracts, including  
          automatic declinable health conditions, health conditions  
          that may lead to a coverage decline, height and weight  
          standards, health history, health care utilization,  
          lifestyle, or behavior that might result in a decline for  
          coverage or severely limit the plan products for which they  
          would be eligible.  

          Existing law permits a plan or insurer to comply with this  
          requirement by submitting to its regulator underwriting  
          materials or resource guides provided to plan solicitors or  
          solicitor firms, provided that those materials include the  
          information required to be submitted. 
          
          This bill:
          This bill would extend, from 30 days to 180 days, the  
          requirement that plans and insurers provide advance written  
          notice of changes in the premium rate or coverage for an  
          individual plan contract before such change takes effect,  
          and would apply this 180-day notice to group contracts. 
          
          This bill would extend the following requirements currently  




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          placed on health plans and insurers selling  individual   
          coverage, to health plans and insurers selling  group   
          coverage:

           Health plans and insurers that decline to offer coverage  
            or deny enrollment for a group applying for coverage or  
            that offer coverage at a rate that is higher than the  
            standard rate must, at the time of the denial or offer of  
            coverage, provide the applicant with the specific reason  
            for the decision in writing, in clear, easily  
            understandable language. 
           A notice of an increase in the premium rate must include  
            the reasons for the rate increase.  The notice must state  
            in italics either the actual dollar amount of the premium  
            rate increase or the specific percentage by which the  
            current premium will be increased.  The notice must  
            describe in plain, understandable English any changes in  
            the plan design or any changes in benefits, including a  
            reduction in benefits or changes to waivers, exclusions,  
            or conditions, and highlight this information by printing  
            it in italics. The notice must also specify in a minimum  
            of 10-point bold typeface, the reason for a premium rate  
            change or a change to the plan design or benefits.
           This bill makes a notice provided to a group employer a  
            private and confidential communication.  At the time of  
            application, the plan must give the individual applicant  
            the opportunity to designate the address for receipt of  
            the written notice in order to protect the  
            confidentiality of any personal or privileged  
            information.

          This bill requires the current notices health plans and  
          insurers must provide regarding denials of individual  
          coverage to be in clear and easily understandable language.

          This bill requires a health plan/insurer that declines to  
          offer coverage or denies enrollment to any individual or  
          large group   to quarterly provide to the Department of  
          Managed Health Care (DMHC), the California Department of  
          Insurance (CDI), the Managed Risk Medical Insurance Board  
          (MRMIB), and the public all of the following until January  
          1, 2014:

           The number and proportion of applicants for individual  
            coverage and large group coverage that were denied  
            coverage for each product offered by the health  




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            plan/insurer. 
           The health status and risk factors for each applicant  
            denied coverage, by product.  For individual coverage,  
            this information must also include age, gender, language  
            spoken, occupation, and geographic region of the  
            applicant, by product.
           Demographic information about applicants denied coverage,  
            including gender, age, language spoken, occupation, and  
            geographic region of the applicant, by product. 
           The written policies, procedures, or underwriting  
            guidelines by which the health plan/insurer makes its  
            decision to provide or to deny coverage to applicants. 

          The regulators would be required to post on their  
          respective Internet Websites the following information for  
          each product offered by a health plan/insurer, and for all  
          products offered by the health plan/insurer:

           The number and proportion of applicants for individual  
            coverage denied coverage, as well as aggregate  
            information about health status and demographics of those  
            denied coverage. 
           The number and proportion of applicants for large group  
            coverage denied coverage, as well as aggregate  
            information about health status and demographics of the  
            employees of those large groups denied coverage. 
           The written policies, procedures, or underwriting  
            guidelines whereby the plan/insurer makes its decision to  
            provide or to deny coverage to applicants. 

          This bill deletes the prohibition against the public  
          disclosure of company-specific rating and underwriting  
          criteria and practices submitted to the director. 

          This bill would require health plans and insurers to  
          disclose to its regulator the following:

           The written policies, procedures or underwriting  
            guidelines whereby the plan makes its decision to  
            determine the standard rate and to issue a policy at a  
            rate higher or lower than the standard rate. 
           For each product in the individual and small group  
            market, the rates, including both the standard rate,  
            rates that are higher than standard rates, and rates that  
            are lower than standard rates.
           For the individual, small group and large group markets,  




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            the number and proportion of policyholders charged a  
            standard rate, a rate that is higher than the standard  
            rate, or a rate that is lower than the standard rate.    
            For each of these categories, demographic information  
            must be provided, including age, gender, language spoken  
            and geographic region.

          Requires the regulators to disclose such information to the  
          public, both in summary fashion its Website and in full on  
          request. 

          This bill would require health plans and health insurers,  
          on or before June 1, 2011, and no less than annually  
          thereafter, to disclose to their respective regulators all  
          of the following with respect to rate increases for each  
          product:

           Any change in rate.
           Any change in cost sharing.
           Any change in covered benefits.

          This bill would require, on or before June 1, 2011, and no  
          less than annually thereafter, a health plan and insurer to  
          also disclose to its regulator all of the following with  
          respect to rate increases for each product:

           Actuarial memorandum.
           Assumptions on trends in medical inflation, including  
            justification.
           Specific worksheets or exhibits documenting increases in  
            costs. 
           Enrollee population characteristics that increase or  
            decrease costs. 
           Utilization increases.
           Provider prices.
           Administrative costs.
           Medical loss ratios.
           Reserves and surplus levels, including tangible net  
            equity and reserves in excess of tangible net equity. 
           Changes in cost sharing. 
               
                                  FISCAL IMPACT  

          This bill has not been analyzed by a fiscal committee.

                            BACKGROUND AND DISCUSSION  




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          According to the author, this bill seeks to provide California  
          consumers, regulatory agencies and policymakers with critical  
          information regarding the actuarial basis and justification for  
          premium increases as well as data regarding denial and coverage  
          rates.  

          The author states that the provisions of this bill requiring  
          detailed data and actuarial justification for premium increases  
          and non-standard premium charges are necessary in response to  
          provisions contained in the recently enacted federal health  
          reform legislation requiring California regulatory agencies to  
          provide detailed information regarding premium trends and to  
          identify inappropriate premium increases.  In addition, the  
          author states the recent public furor over annual premium rate  
          hikes as high as 39 percent led policymakers and regulators,  
          including the Attorney General, to seek detailed information  
          justifying the rate increases.  Failure to comply with these  
          requests forced the Attorney General to file subpoenas seeking  
          the kind of information that regulators are required to provide  
          to the federal government 

          The author states that uncontrolled increases in health care  
          premiums are bankrupting California families and businesses.   
          According to a 2009 Kaiser Family Foundation report, premiums  
          for employer-based health insurance have more than doubled since  
          2000, a growth rate three times that of wages.  The same report  
          found that worker out-of-pocket financial liability has  
          dramatically increased since 2006.  By 2025, one in every four  
          dollars in our nation's economy will be spent on health care.

          This bill would increase the length of notice time that plans  
          and insurers must provide to purchasers of individual coverage  
          who experience changes in rates or coverage, from 30 days to 180  
          days, and would extend this 180-day notice requirement to group  
          purchasers.  The author states this change is intended to  
          provide consumers with adequate time to research and shop for  
          comparable products as 30 days is completely insufficient for  
          consumers to either make alternative arrangements for coverage,  
          or to plan for the increased burden for their household or  
          business.  Finally, this legislation additionally requires plans  
          and insurers to report detailed information regarding their  
          coverage and denial rates in the individual and large group  
          market (small group purchasers are protected with guaranteed  
          issue of coverage).  





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          Rather than constructively working with providers to lower costs  
          and premiums, the author and sponsor contend that health plans  
          and insurers have responded to the premium backlash by  
          increasing their efforts to identify and reduce high-risk  
          consumers from their products.  Because any group of patients  
          who are identified as likely to cost more than the premiums they  
          will pay are unprofitable to the plan or insurer, there is a  
          competitive disincentive to maintain good coverage for groups of  
          Californians who have high medical costs.  Because of this  
          competitive disincentive, the author argues this means that  
          certain geographic areas, women and occupations are potentially  
          being singled out for coverage denials.  Unfortunately, there is  
          little available data regarding coverage and denial decisions  
          made by insurance companies.  The author asserts obtaining such  
          information is absolutely paramount to ensuring fair access to  
          health care coverage for all Californians. 

          Federal health care reform 
          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.

          Federal health care reform also requires the Secretary of  
          the Department of Health and Human Services (DHHS), in  
          conjunction with states, to establish a process for the  
          annual review, beginning with the 2010 plan year, of  
          "unreasonable increases in premiums" for health insurance  
          coverage.  This process must require health plans and  
          insurers to submit to the Secretary and the relevant state  
          a justification for an unreasonable premium increase prior  
          to the implementation of the increase.  Health plans and  
          insurers must prominently post such information on their  
          Internet Websites.





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          The Secretary of DHHS is required to carry out a program to  
          award grants to states during the five-year period  
          beginning with fiscal year 2010 to assist states in  
          carrying out the annual review of unreasonable increases in  
          premiums for health insurance coverage.  As a condition of  
          receiving a grant, a state, through its Commissioner of  
          Insurance, must provide the Secretary with information  
          about trends in premium increases in health insurance  
          coverage in premium rating areas in the state; and make  
          recommendations, as appropriate, to the state Exchange  
          (Exchanges are entities required to be established by  
          federal health care reform) about whether particular health  
          insurance issuers should be excluded from participation in  
          the Exchange based on a pattern or practice of excessive or  
          unjustified premium increases.

          The health care reform bill appropriated to the Secretary $250  
          million to be available for expenditure for grants to states.   
          The Secretary is required to establish a formula for determining  
          the amount of any grant to a state that considers the number of  
          plans of health insurance coverage offered in each state, and  
          the population of the state.  No state qualifying for a grant  
          can receive less than $1 million or more than $5 million for a  
          grant year. 

          Background
          Existing law permits health plans and insurers to deny coverage  
          to individuals and employers with more than 50 eligible  
          employees who are seeking coverage.  The rates of denial,  
          "rating up" (charging more) for individual coverage or  
          "declining to quote" for mid-size and large employers is not  
          publicly known.  

          The state's small group health insurance law, known as AB  
          1672 from 1992, provides regulatory protections for the  
          state's small employers (50 or fewer eligible employees),  
          such as guaranteed issue, and rate bands that limit premium  
          variation.  However, guarantee issue does not apply to  
          mid-size (firms above 50 eligible employees) and large  
          firms. 

          A 2006 UCLA study found, although the data indicate that  
          most mid-size firms offer health insurance, some mid-size  
          firms may face difficulties due to their claims experience  
          or face other barriers.  A series of interviews with  
          stakeholders, including health plan executives, brokers,  




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          purchasing alliance representatives, advocates, and  
          regulators, were conducted by UCLA researchers to explore  
          these issues.  The majority of stakeholders - consisting  
          mostly of brokers and purchasing alliance representatives -  
          reported that mid-size firms with poor experience are  
          either unable to obtain a quote or have difficulty  
          obtaining an affordable quote for health insurance.  These  
          respondents commented that some carriers declined to  
          provide a quote or offered a limited selection.  

          Mid-size firms with 50-100 employees were reported to be  
          more likely to experience such a barrier than mid-size  
          firms with 101-250 employees.  Lack of negotiating power  
          and rate volatility were also mentioned by some regulators  
          and brokers as barriers for mid-size firms. Other barriers  
          identified were more general to the U.S. health care  
          system, such as high costs of health care and cost-shifting  
          between public and private payers.  No one pointed to major  
          barriers unique to mid-size firms with respect to  
          geographic area or industry.  However, firms in industries  
          with high rates of low-wage workers were identified by some  
          interviewees as experiencing difficulties in obtaining  
          health insurance for their employees.  Most stakeholders  
          reported that a variety of health coverage options or plans  
          existed for mid-size firms, but the range of choices was  
          considered to be more similar to that available to small  
          rather than large employers.


          
          Arguments in support
          This bill is jointly sponsored by Health Access California  
          and the Alliance of Californians for Community Empowerment  
          (ACCE) to publicly disclose the criteria and processes used  
          by health insurers to deny coverage and to set rates.  ACCE  
          argues, under current California law, health insurers can  
          price individual health insurance based on health status  
          and many other factors, including occupation and geography.  
           There is no reliable public information on how many  
          Californians have their rates increased dramatically  
          because of health status or other factors.  

          According to the sponsors, this bill takes another step to  
          correct the problems with California's insurance market by  
          requiring public disclosure of rates, and reasons,  
          processes and criteria for setting rates.  Federal health  




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          reform requires state oversight of "unreasonable" premium  
          increases starting with the 2010 plan year, and provides  
          $250 million in grants to states for this effort.  The new  
          federal law requires public disclosure and public  
          justification of the rates by insurers and health plans.  

          The sponsors state this bill adds greater specificity to  
          the federal requirements, so that state regulators can  
          provide better oversight.  This bill will also require  
          individuals to receive 180 days of notice (instead of 30  
          days in current law) of premium increases so individuals  
          can plan ahead plan ahead and shop for other coverage.   
          Finally, the sponsors of this measure argue there is no  
          reliable public information on how many Californians are  
          denied coverage for pre-existing medical conditions, or how  
          many have their rates increased dramatically because of  
          health status or other factors.  It has been estimated that  
          as many as 20 percent of those who apply for individual  
          coverage are denied that coverage.  This information is  
          essential to allow a smooth transition to federal health  
          reform by minimizing rate shock and allowing interim  
          reforms that will make coverage more available and more  
          affordable.  

          The sponsors argue this information will also be helpful in  
          providing funding for a high-risk pool that actually meets  
          the needs of medically uninsurable Californians.    
          California's utterly inadequate high-risk pool covers 7,000  
          people with very limited benefits, including an annual  
          benefit cap of $75,000.  Seven thousand individuals  
          represents only one to two percent of the medically  
          uninsurable.  The new federal funding for the high-risk  
          pool may allow three or four times as many Californians to  
          get coverage through a high-risk pool, and to provide  
          better benefits at a more affordable premium than is  
          currently provided.  But covering 20,000-30,000 medically  
          uninsurable will not meet the need created by insurers that  
          have denied coverage to hundreds of thousands of  
          Californians.  The sponsors state this bill will, for the  
          first time, provide information on how many Californians  
                                                  are denied coverage, and specifically for what reason.
           
          Arguments in opposition.  
          The California Association of Health Plans (CAHP) argues  
          this bill would require health plans and insurers to  
          disclose the basic competitive factors that shape the  




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          marketplace. CAHP argues this information has no value to  
          consumers because consumers are protected by extensive  
          statutory and regulatory provisions to ensure that health  
          care coverage is provided fairly.  Federal antitrust law  
          was designed to protect consumers by prohibiting  
          competitors from sharing information about future or  
          present pricing, allowances, premiums, costs, profits,  
          profit margins, market studies, or strategies.
          CAHP argues this bill would, in contrast to federal  
          antitrust law and state law, illuminate the competitive  
          factors behind pricing, premiums, and market strategy for  
          health plans and insurers, and CAHP fails to see the value  
          in this requirement.  Finally, CAHP argues that federal  
          health care reform will completely change the health  
          insurance market in California and across the country, and  
          requiring health plans to post detailed information  
          regarding underwriting is a waste of precious health care  
          resources, because, starting in 2014, individuals may not  
          be declined coverage and underwriting will be changed to  
          reflect federal rating restrictions.  

          HealthNet argues that extending the 30-day notice to 6  
          months is an unreasonably long period of time to allow for  
          any modifications of premiums and benefits, especially as  
          it relates to changes to drug formularies.  Finally,  
          HealthNet and Anthem Blue Cross argue the administrative  
          effort and costs to implement the changes and reporting  
          requirements of this bill are difficult to justify when  
          they are likely to change when the federal government  
          issues its guidelines.

          Prior legislation
          AB 356 (Chan), Chapter 526, Statutes of  2006, requires  
          health plans and insurers selling products in the  
          individual health insurance market to disclose specified  
          information to individuals applying for coverage, and to  
          those who have such coverage, and to report a general  
          description of  their rating and underwriting criteria and  
          policies to the DMHC and CDI, as specified.  

          
                                     COMMENTS
           
          Drafting notes:
          1.  To clarify that the notice required under existing law  
          about the availability of coverage under the Major Risk  




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          Medical Insurance Program applies only in the case of  
          rejections for individual coverage, a recommended  
          clarifying amendment would state that the rejection is for  
          an applicant of  individual  coverage.  This change would be  
          made in paragraph (4) of subdivision (a) of Section 1389.25  
          and the parallel Insurance Code Section (10113.9(b)(4).

          2.  This bill requires public reporting of the health  
          status and risk factors for each applicant denied coverage  
          by product.  To ensure patient privacy while allowing  
          access for research and consumer participation programs, a  
          recommended amendment would be to add the following  
          language to subdivisions (b) and (c) of Section 1389.26(b)  
          and Section 10113.91:

             (5) Public reporting shall be done in a manner consistent  
            with maintaining patient privacy. Academic institutions  
            and other entities, including those eligible for consumer  
            participation programs, as defined in Section 1348.9 of  
            the Health and Safety Code, and which have the capacity  
            to maintain patient privacy shall be able to obtain  
            patient specific data without patient name or identifier.  

           




                                    POSITIONS  


          Support:  Alliance of Californians for Community  
          Empowerment (co-sponsor)
                 Health Access California (co-sponsor)
                 AFSCME
                 California Pan-Ethnic Health Network
                 Consumers Union     
                 Congress of California Seniors
                 California Chiropractic Association
                 California Retired Teachers Association
                 California Teachers Association
          
          Oppose:  Anthem Blue Cross
                          Association of California Life and Health  
          Insurance Companies
                          California Association of Health Plans




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                 Health Net     


                                   -- END --