BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 1163
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          SENATE THIRD READING
          SB 1163 (Leno)
          As Amended  August 18, 2010
          Majority vote 

           SENATE VOTE  :23-12  
           
           HEALTH              13-5        APPROPRIATIONS      12-5        
           
           ----------------------------------------------------------------- 
          |Ayes:|Monning, Ammiano, Carter, |Ayes:|Fuentes, Bradford,        |
          |     |De La Torre, De Leon,     |     |Huffman, Coto, Davis, De  |
          |     |Eng, Hayashi, Hernandez,  |     |Leon, Gatto, Hall,        |
          |     |Jones, Bonnie Lowenthal,  |     |Skinner, Solorio,         |
          |     |Nava, V. Manuel Perez,    |     |Torlakson, Torrico        |
          |     |Salas                     |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Fletcher, Conway, Gaines, |Nays:|Conway, Harkey, Miller,   |
          |     |Smyth, Audra Strickland   |     |Nielsen, Norby            |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY :  Requires health care service plans (health plans) and  
          health insurers to file with the Department of Managed Health  
          Care (DMHC) and the California Department of Insurance (CDI)  
          (regulators) specified rate information for individual and small  
          group at least 60 days prior to implementing any rate change.   
          Requires the filings in the case of large group contracts only  
          for unreasonable rate increases, as defined by the Patient  
          Protection and Affordable Care Act (PPACA) (Public Law 111-148),  
          prior to implementing any such rate change.  Increases, from 30  
          days to 60 days, the amount of time that health plan or insurer  
          provides written noticed to an enrollee or insured before a  
          change in premium rates or coverage becomes effective.  Requires  
          health plans and insurers that decline to offer coverage to or  
          deny enrollment for a group applying for coverage or that offer  
          group coverage at a rate that is higher than the standard rate  
          to, at the time of the denial or offer of coverage, provide the  
          applicant with the specific reason or reasons for the decision  
          in writing, in clear, easily understandable language.   
          Specifically,  this bill  :   

           Rate Review









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           1)Requires health plans and insurers to file with regulators all  
            required rate information for individual and small group at  
            least 60 days prior to implementing any rate change. Requires  
            the filings in the case of large group contracts only for  
            unreasonable rate increases, as defined by PPACA, prior to  
            implementing any such rate change. 

          2)Requires health plans and insurers to disclose to regulators  
            information regarding identifying and contact information,  
            contract forms, product and segment type, enrollment, annual  
            rates, earned premiums, incurred claims, average rate  
            increases and effective date of increase, review category,  
            number of affected subscribers/enrollees, overall annual  
            medical trend factor assumptions, amount of the projected  
            trend attributable to the use of certain factors, claims cost  
            and rate of changes, enrollee/insured cost-sharing, changes in  
            benefits, and consumer inquiries and complaints.

          3)Requires health plan subject to 1) above to also disclose  
            specified aggregate data for all rate filings in the  
            individual, small group, and large group health plan markets  
            related to the number and percentage of rate filings and the  
            plan's average rate increase by the following categories, as  
            specified.  

          4)Permits regulators to require health plans and insurers to  
            submit all rate filings to the National Association of  
            Insurance Commissioners' (NAIC) System for Electronic Rate and  
            Form Filing (SERFF).  Requires submission of rate filings to  
            SERFF to be deemed to be filing with regulators for purposes  
            of compliance with the rate filing requirements of this bill,  
            but requires plans and insurers to submit any other  
            information required comply with this bill.

          5)Requires rate filings to be consistent with applicable state  
            and federal laws, roles, and regulations, as specified.   
            Requires rate filings to be actuarially sound and to include a  
            certification by an independent actuary or actuarial firm that  
            the rate increase is reasonable or unreasonable and, if  
            unreasonable, that the justification for the increase is based  
            on accurate and sound actuarial assumptions.  Prohibits the  
            actuary or actuarial firm from being be an affiliate or a  
            subsidiary of, nor in any way owned or controlled by, a health  
            plan, health insurer or a trade association of health plans or  








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            insurers.  

          6)Prohibits an actuary or actuarial firm board member, director,  
            officer, or employee from serving as a board member, director,  
            or employee of a health plan or insurer.  Prohibits a health  
            plan, health insurer, or a trade association of health plans  
            board member, director, or officer from serving a board  
            member, director, officer, or employee of the actuary or  
            actuarial firm. 

          7)Prohibits anything in this bill from being construed to  
            preclude regulators from reviewing a proposed rate increase  
            for actuarial soundness or consistency with applicable state  
            or federal laws, roles, or regulations. 

          8)Requires all information submitted under this bill to be made  
            publicly available except, that contracted rates between a  
            health plan or insurer and an individual provider, including,  
            but not limited to, a health professional, medical group,  
            hospital, or hospital system, is deemed confidential  
            information that will not be divulged.  

          9)Requires all information to be submitted electronically.   
            Requires health plans and insurers to file the following  
            information, in plain language and in a manner and format  
            specified by regulators: 

             a)   Justifications for any unreasonable rate increases,  
               including all information and supporting documentation as  
               to why the rate increase is justified;

             b)   Overall annual medical trend factor assumptions in each  
               rate filing for all benefits;

             c)   Actual costs, disaggregated by aggregate benefit  
               category to include hospital inpatient, hospital  
               outpatient, physician services, prescription drugs and  
               other ancillary services, laboratory, and radiology; and,

             d)   The amount of the projected trend attributable to the  
               use of services, price inflation, or fees and risk for  
               annual plan contract trends by aggregate benefit category,  
               such as hospital inpatient, hospital outpatient, physician  
               services, prescription drugs and other ancillary services,  








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               laboratory, and radiology. 
          10)Requires the above information to be made readily available  
            to the public on regulators' Web site and the plan/insurer Web  
            site.  Requires the information to be made public for 60 days  
            prior to the implementation of the rate increase, but permits  
            this period to be extended if regulators need more time to  
            complete the rate review.  Requires regulators to consider any  
            public comment on a rate increase submitted to the DMHC during  
            the 60-day period.

          11)Exempts a number of programs and contracts from the rate  
            review provisions, including specialized health plan  
            contracts, Medicare supplement plans; Medi-Cal managed care,   
            Healthy Families Program, Access for Infants and Mothers  
            Program, the California Major Risk Medical Insurance Program,  
            the Federal Temporary High Risk Pool, and health plan  
            conversion contracts. 

          12)Permits regulators, in consultation with each other and on or  
            after July 1, 2011, to issue guidance to plans and insurers  
            regarding compliance with this bill.  Exempts such guidance  
            from being subject to the Administrative Procedure Act.   
            Permits regulators, in consultation with each other, to adopt  
            regulations to implement this bill.  Requires regulators to  
            work in consultation with each other in taking any action for  
            the purpose of implementing this bill.

          13)Permits regulators, whenever it appears that any person has  
            engaged, or is about to engage, in any act or practice  
            constituting a violation of this bill, including the filing of  
            inaccurate or unjustified rates or inaccurate or unjustified  
            rate information, to review the rate filing to ensure  
            compliance with the law.  Requires regulators, at a minimum,  
            to review for consistency with 5) above any unreasonable rate  
            increase.  Requires regulators to also review a proposed rate  
            increase if the plan proposing the increase is found to have a  
            pattern of filing inaccurate, unjustified, or unreasonable  
            rate increases. 

          14)Permits regulators to review other filings. 

          15)Requires regulators to report at least quarterly to the  
            Legislature on all rate filings that are unreasonable, not  
            actuarially sound, or otherwise not consistent with applicable  








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            state or federal laws or regulations, including, but not  
            limited to, those governing contracts, medical loss ratio,  
            rating rules, benefit designs, and benefit standards.

          16)Requires regulators, after conducting a rate review, to post  
            on its Web site any changes to the proposed rate increase,  
            including any documentation supporting those changes.   
            Requires regulators to post findings on its website if it  
            finds that an unreasonable rate increase is not justified or  
            that a rate filing contains inaccurate information. 

          17)Requires regulators, in a manner consistent with applicable  
            federal laws, rules, and regulations, to: 

             a)   Provide data to the United States Secretary of Health  
               and Human Services on health care service plan rate trends  
               in premium rating areas;

             b)   Provide to the United States Secretary of Health and  
               Human Services the number of, and a summary of the nature  
               of, inquiries and complaints related to health care service  
               plan rates that have been received for the past two plan  
               years; and,

             c)   Provide to the American Health Benefit Exchange  
               (established in California pursuant to the PPACA,  
               commencing with its creation, such information as may be  
               necessary to allow compliance with federal law, roles,  
               regulations, and guidance.  Requires regulators 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. 
           
          Consumer notification

           18)   Requires health plans and insurers that decline to offer  
            coverage to or deny enrollment for a group applying for  
            coverage or that offer group coverage at a rate that is higher  
            than the standard rate to, at the time of the denial or offer  
            of coverage, provide the applicant with the specific reason or  
            reasons for the decision in writing, in clear, easily  
            understandable language, as specified.

          19)   Increases, from 30 days to 60 days, the amount of time  








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            that a health plan or an insurer provides written noticed to  
            an enrollee or insured before a change in premium rates or  
            coverage becomes effective.  Requires the notice in 18) above,  
            and written notices regarding rate changes in existing law to  
            be in 12-point type.

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee:

          1)Increased costs of $1 million, combined, to DMHC and CDI to  
            comply with the increased reporting and oversight requirements  
            established by this bill.  These costs will likely be  
            supported by a federal grant. California recently applied to  
            the federal government for $1 million in funding to comply  
            with rate review requirements.

          2)The federal government has allocated $250 million over a  
            five-year period to support state efforts with regard to rate  
            review.

           COMMENTS  :  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 further states that provisions  
          of the bill increase the amount of time consumers have to research  
          and shop for comparable products, from 30 days to 60 days, because  
          existing law does not provide sufficient time for consumers to  
          either make alternative arrangements for coverage, or to plan for  
          the increased burden for their household or business. 

          On March 23, 2010, President Obama signed the PPACA.  The PPACA  








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          makes several fundamental changes to the private health insurance  
          market, including requiring the federal Department of Health and  
          Human Services (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 of DHHS 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 of DHHS 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 of DHHS $250 million to be  
          available for expenditure for grants to states.  The Secretary of  
          DHHS 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. 

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


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