BILL ANALYSIS                                                                                                                                                                                                    



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          Date of Hearing:   June 29, 2010

                            ASSEMBLY COMMITTEE ON HEALTH
                              William W. Monning, Chair
                     SB 1163 (Leno) - As Amended:  June 23, 2010

           SENATE VOTE  :  23-2
           
          SUBJECT  :  Health care coverage: denials: premium rates.

           SUMMARY  :  Extends requirements related to denying coverage that  
          are placed on health care service plans (health plans) and  
          insurers selling individual coverage to health plans and  
          insurers selling group coverage.  Requires health plans and  
          insurers, on or before June 1, 2011, and for each rate filing  
          thereafter, to disclose to the Department of Managed Health Care  
          (DMHC) and the California Department of Insurance (CDI), for  
          each rate filing in the individual, small employer, and large  
          group health plan markets, specified information.  Requires  
          health plans and insurers to also disclose aggregate data  
          related to the number and percentage of rate filings, as  
          specified.  Requires DMHC and CDI to review each rate filing for  
          consistency with applicable state law and regulations as well as  
          federal law, regulations, rules, or other guidance and to  
          determine that it is actuarially sound.  Increases, from 30 days  
          to 180 days, the number of days that plans and insurers are  
          required to 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.  Specifically,  this bill  :   

           DENIAL OF COVERAGE OR ENROLLMENT

           1)Extends the following requirements currently placed on health  
            plans and insurers selling  individual  coverage, to health  
            plans and insurers selling  group  coverage: 
             a)   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;
             b)   A notice of an increase in the premium rate must include  
               the reasons for the rate increase.  The notice must state  








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               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; and,
             c)   A notice provided to a group employer is 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.

          2)Requires current notices health plans and insurers provide  
            regarding denials of individual coverage to be in clear and  
            easily understandable language.

          3)Requires a health plan or insurer that declines to offer  
            coverage or denies enrollment to any individual to quarterly  
            provide to DMHC, CDI, the Managed Risk Medical Insurance  
            Board, and the public all of the following until January 1,  
            2014: 
             a)   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; and,
             b)   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. 

          4)Requires DMHC and CDI to post on their respective Web sites  
            the following information for each product offered by a health  
            plan or insurer, and for all products offered by the health  
            plan/insurer:
             a)   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; and,
             b)   The written policies, procedures, or underwriting  
               guidelines whereby the health plan/insurer makes its  








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               decision to provide or to deny coverage to applicants. 

          5)Requires public reporting to be done in a manner consistent  
            with maintaining patient privacy. Requires academic  
            institutions and other entities, including those eligible for  
            the Consumer Participation Program and that have the capacity  
            to maintain patient privacy, to be able to obtain  
            patient-specific data without patient name or identifier.

          6)Deletes the prohibition against the public disclosure of  
            company-specific rating and underwriting criteria and  
            practices submitted to the Director of DMHC. 

           RATE REVIEW

           7)Increases, from 30 days to 180 days, the number of days  that  
            plans and insurers are required to 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. 

          8)Requires health plans and insurers, on or before June 1, 2011,  
            and for each rate filing thereafter, to disclose to DMHC and  
            CDI, for each rate filing in the individual, small employer,  
            and large group health plan markets, specified information  
            related to the company contact information, its products,  
            enrollment, premiums, claims, rate increases, medical trend  
            factor assumptions, changes in enrollee cost sharing and  
            benefits, and summaries of consumer inquiries and complaints  
            related to rates.  Requires health plans and insurers to also  
            disclose aggregate data related to the number and percentage  
            of rate filings, as specified. 

          9)Requires rate filings, including all supporting material, to  
            be publicly available on the DMHC and CDI Web sites.  Requires  
            all submissions to DMHC and CDI to be made electronically in  
            order to facilitate review.  Requires each rate filing to  
            include a summary of rate changes offered in plain language  
            for consumers.  Requires DMHC and CDI to post to their  
            respective Web sites information about the rate filing and  
            justification in an easy to understand language for the  
            public. 

          10)Requires health plans and insurers to post all proposed rate  
            increases, including all accompanying documentation, on their  








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            Web site.

          11)Requires DMHC and CDI to review each rate filing for  
            consistency with applicable state law and regulations as well  
            as federal law, regulations, rules, or other guidance and to  
            determine that it is actuarially sound.  Requires DMHC and CDI  
            to consider public comment on the rate filing for no less than  
            60 days and respond, as specified.  Requires DMHC and CDI to  
            conduct a public hearing on the rate filing on any of the  
            following grounds: 
             a)   A consumer or consumer advocacy organization requests a  
               hearing within 45 days of the rate filing.  If DMHC or CDI  
               grants a hearing, it must issue written findings in support  
               of that decision. 
             b)   If DMHC or CDI determines for any reason to hold a  
               hearing.
             c)   If DMHC or CDI finds that the rate filing does not  
               comply with the provisions of this section.

          12)Requires DMHC and CDI, after completing a rate review, to  
            post to their respective Web site any changes to the rates and  
            the reason for those changes, including any documentation to  
            support those changes.  

          13)Requires DMHC and CDI, consistent with federal law, rules,  
            and guidance, to: 
             a)   Provide data on health plan rate trends in premium  
               rating areas and a summary of the nature of consumer  
               inquiries and complaints related to health plan rates that  
               have been received for the past two plan years to the  
               United States Secretary of Health and Human Services (DHHS  
               Secretary).
             b)   Commencing with the creation of the American Health  
               Benefit Exchange (Exchange), provide to the Exchange such  
               information as may be necessary to allow compliance with  
               federal law, rules, and guidance.  Requires DMHC and CDI to  
               develop an interagency agreement with the Exchange to  
               facilitate the reporting of information regarding rate  
               filings that is consistent with the responsibilities of the  
               Exchange. 

          14)Requires DMHC and CDI to apply for grant funding from the  
            federal government for the purposes of rate review consistent  
            with the requirements of federal law, rules, and guidance.   
            Requires additional costs and expenses associated with rate  








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            reviews to be supported by fees, as specified.

           EXISTING LAW  :

          1)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.

          2)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.  Requires a notice  
            of an increase in the premium rate to include the reasons for  
            the rate increase.

          3)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.

          4)Requires health plans and health insurers to annually file  
            with DHMC or CDI 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.  


          5)Permits a health plan or insurer to comply with this  
            requirement by submitting to DMHC or CDI underwriting  
            materials or resource guides provided to plan solicitors or  








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            solicitor firms, provided that those materials include the  
            information required to be submitted. 

           FISCAL EFFECT  :   According to the Senate Appropriations  
          Committee of a previous version of this bill:
                            Fiscal Impact (in thousands)
           Major Provisions         2010-11      2011-12       2012-13    Fund
           
          DMHC review of data      $240       $130     $140 Special*

          CDI review of data              $125              $210 $210  
          Special**

          *Managed Care Fund
          **Insurance Fund

           COMMENTS  :   

           1)PURPOSE OF THIS BILL  .  According to the author, this bill seeks to  
            provide California consumers, regulatory agencies and policymakers  
            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% led policymakers and DMHC and  
            CDI, 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 DMHC and CDI are required to provide to  
            the federal government.

            The author states that this bill 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.  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  








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            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.  


           2)FEDERAL HEALTH CARE REFORM  .  On March 23, 2010, President Obama  
            signed the Patient Protection and Affordable Care Act (PPACA)  
            (Public Law 111-148).  The PPACA makes several fundamental changes  
            to the private health insurance market, including requiring the  
            DHHS Secretary, 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 Web sites.

            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 PPACA 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  








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            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. 

           3)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  
            (Margolin), Chapter 1128, Statutes of 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 University of California, Los Angeles (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, purchasing alliance  
            representatives, advocates, and DMHC and CDI, 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 DMHC and CDI 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.  Firms in industries with high  
            rates of low-wage workers were identified by some interviewees  
            as experiencing difficulties in obtaining health insurance for  








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            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.

           4)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.  PPACA 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 DMHC and CDI 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 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% 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  








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            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 1%-2% 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.
           
           5)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  
            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  
            contrast6) 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.  

            Health Net 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.  Health Net 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  








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            the federal government issues its guidelines.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          Health Access California (sponsor)
          American Federation of State, County and Municipal Employees,  
          AFL-CIO
          California Alliance for Retired Americans
          California Chiropractic Association
          California Nurses Association
          California School Employees Association
          California Teachers Association
          Congress of California Seniors
          Consumers Union
           
            Opposition 
           
          Anthem Blue Cross
          Association of California Life & Health Insurance Companies
          California Association of Health Plans
          Health Net

           Analysis Prepared by  :    Melanie Moreno / HEALTH / (916)  
          319-2097