BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1163| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 1163 Author: Leno (D), et al Amended: 4/28/10 Vote: 21 SENATE HEALTH COMMITTEE : 5-0, 4/21/10 AYES: Alquist, Leno, Negrete McLeod, Pavley, Romero NO VOTE RECORDED: Strickland, Aanestad, Cedillo, Cox SENATE APPROPRIATIONS COMMITTEE : 7-3, 5/27/10 AYES: Kehoe, Alquist, Corbett, Leno, Price, Wolk, Yee NOES: Denham, Walters, Wyland NO VOTE RECORDED: Cox SUBJECT : Health care coverage: denials: premium rates SOURCE : Health Access California DIGEST : This bill requires health plans and insurers to give 180 days written notice of changes in the premium rate or coverage before such change takes effect. This bill extends requirements placed on health plans and insurers when they deny individual coverage to when plans and insurers deny group purchasers. This bill 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. This bill requires health plans and insurers to provide to its regulator specified information, such as provider prices CONTINUED SB 1163 Page 2 and utilization increases, with respect to rate increases for each product. ANALYSIS : Existing law requires health plans and health insurers that decline to offer coverage or that deny enrollment of an individual or his/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. 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 SB 1163 Page 3 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 extends, 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 applies this 180-day notice to group contracts. This bill extends the following requirements currently placed on health plans and insurers selling individual coverage, to health plans and insurers selling group coverage: 1. 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. 2. 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. 3. 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 SB 1163 Page 4 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 Department of Insurance (CDI), the Managed Risk Medical Insurance Board, and the public all of the following until January 1, 2014: 1. The number and proportion of applicants for individual coverage and large group coverage that were denied coverage for each product offered by the health plan/insurer. 2. 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. 3. Demographic information about applicants denied coverage, including gender, age, language spoken, occupation, and geographic region of the applicant, by product. 4. 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 Web sites the following information for each product offered by a health plan/insurer, and for all products offered by the health plan/insurer: 1. 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. 2. The number and proportion of applicants for large group SB 1163 Page 5 coverage denied coverage, as well as aggregate information about health status and demographics of the employees of those large groups denied coverage. 3. 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 requires health plans and insurers to disclose to its regulator the following: 1. 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. 2. 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. 3. For the individual, small group and large group markets, 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. This bill requires the regulators to disclose such information to the public, both in summary fashion its Web site and in full on request. This bill requires 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: 1. Any change in rate. 2. Any change in cost sharing. SB 1163 Page 6 3. Any change in covered benefits. This bill requires, 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: 1. Actuarial memorandum. 2. Assumptions on trends in medical inflation, including justification. 3. Specific worksheets or exhibits documenting increases in costs. 4. Enrollee population characteristics that increase or decrease costs. 5. Utilization increases. 6. Provider prices. 7. Administrative costs. 8. Medical loss ratios. 9. Reserves and surplus levels, including tangible net equity and reserves in excess of tangible net equity. 10.Changes in cost sharing. This bill requires that reports to the public maintain patient privacy. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes According to the Senate Appropriations Committee: Fiscal Impact (in thousands) Major Provisions 2010-11 2011-12 2012-13 Fund DMHC review of data $240 $130 SB 1163 Page 7 $140Special* CDI review of data $125 $210 $210Special** * Managed Care Fund ** Insurance Fund SUPPORT : (Verified 5/27/10) Health Access California (source) American Federation of State, County and Municipal Employees California Alliance for Retired Americans California Chiropractic Association California Pan-Ethnic Health Network California Retired Teachers Association California School Employees Association California Teachers Association Congress of California Seniors Consumers Union OPPOSITION : (Verified 5/27/10) Anthem Blue Cross Association of California Life and Health Insurance Companies California Association of Health Plans Health Net ARGUMENTS IN SUPPORT : 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 SB 1163 Page 8 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 increases 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 extends 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 bill 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). Rather than constructively working with providers to lower costs and premiums, the author and bill's sponsors 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 SB 1163 Page 9 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. ARGUMENTS IN OPPOSITION : The California Association of Health Plans (CAHP) argues that this bill requires health plans and insurers to disclose the basic competitive factors that shape the 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 anti-trust 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, in contrast to federal anti-trust law and state law, illuminates 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 six 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. SB 1163 Page 10 CTW:mw 5/27/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****