BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  SB 1163|
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                                 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





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          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  







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          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  







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             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  







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             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.







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          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       







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           $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  







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          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  







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          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.








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          CTW:mw  5/27/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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