BILL ANALYSIS                                                                                                                                                                                                    



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          SENATE THIRD READING
          SB 1163 (Leno)
          As Amended  August 25, 2010
          Majority vote 

           SENATE VOTE  :23-12  
           
           HEALTH              15-1                                        
           
           -------------------------------- 
          |Ayes:|Monning, Fletcher,        |
          |     |Ammiano, Carter, Conway,  |
          |     |De La Torre, De Leon,     |
          |     |Eng,                      |
          |     |Gaines, Hayashi,          |
          |     |Hernandez, Jones, Nava,   |
          |     |V. Manuel Perez, Salas    |
          |     |                          |
          |-----+--------------------------|
          |Nays:|Audra Strickland          |
          |     |                          |
           -------------------------------- 
           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 rate filings to be actuarially sound and to include a  
          certification by an independent actuary that any increase is  
          reasonable or unreasonable.  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 large  
          group applying for coverage or that offer small group coverage  
          at a rate that is higher than the standard employee risk rate  
          to,  at the time of the denial or offer of coverage, provide the  
          applicant with reason for the decision, as specified.   
          Specifically,  this bill  :   









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           Rate Review

           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, at least 60  
            days prior to implementing any such rate change. 

          2)Requires health plans and insurers, for individual and small  
            group contracts, 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 administrative costs, actuarial certification, consumer  
            inquiries and complaints, and any other information required  
            to be reported under the PPACA.

          3)Requires health plan subject to 1) above to also disclose  
            specified aggregate data for all rate filings in the  
            individual and small group health plan markets related to the  
            number and percentage of rate filings and the plan's average  
            rate increase by the 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 to comply with this bill.

          5)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 and methodologies.  
             








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          6)Requires plans and insurers to contract with an independent  
            actuary to comply with 5) above. 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 insurers.   
            Prohibits a contracted 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 permit  
            regulators to establish rates for contractual health care  
            services. 

          8)Requires all information submitted under this bill to be made  
            publicly available by regulators except, that contracted rates  
            between a health plan or insurer and a provider or a large  
            group are deemed confidential information that will not be  
            made public.  

          9)Requires all information to be submitted to regulators  
            electronically.  Requires the information below to be made  
            available on regulators' and plan/insurers Web sites, as  
            specified, 60 days prior to the implementation of the rate  
            increase: 

             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 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  








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               annual plan contract trends by aggregate benefit category,  
               such as hospital inpatient, hospital outpatient, physician  
               services, prescription drugs and other ancillary services,  
               laboratory, and radiology.  Requires a health plan or  
               insurer that exclusively contracts with no more than two  
               medical groups to instead disclose the amount of their  
               actual trend experience for the prior contract year by  
               aggregate benefit category, using benefit categories that  
               are to the maximum extent possible the same or similar to  
               those used by other plans.
          10)Requires regulators to accept and post to their websites any  
            public comment on a rate increase submitted during the 60-day  
            period in 9) above.

          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, 2012, to issue guidance to plans and insurers  
            regarding compliance with this bill.  Exempts such guidance  
            from being subject to the Administrative Procedure Act.   
            Requires regulators to consult with each other when issuing  
            guidance, adopting necessary regulations, or posting  
            information on their websites.

          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. 

          14)Permits regulators to review other filings. 

          15)Requires regulators to report at least quarterly to the  
            Legislature on all unreasonable rate filings.

          16)Requires regulators to post on its Web site any changes to  
            the proposed rate increase, including any documentation  








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            supporting those changes.  Requires regulators to post  
            findings on its Web site 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 the U.S.  
               Department of Health and Human Services (DHHS) on health  
               care service plan rate trends in premium rating areas;

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

          Consumer notification

           18)   Requires health plans and insurers that decline to offer  
            coverage to or deny enrollment for a large 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  
            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.

           Grandfathered Plans  

          20)Deems a health plan or a health insurer to be in compliance  
            with the requirement in the small employer health insurance  
            law that health plans and health insurers fairly,  
            affirmatively offer, market and sell all of the benefit plans  
            designs it makes available (known as the "all products"  
            requirement) with respect to grandfathered plan contracts  
            under the PPACA, as long as:








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             a)   The plan/insurer offers to renew the grandfathered plan  
               contract unless the plan withdraws the plan contract/policy  
               from the small employer market; 

             b)   The plan/insurer provides appropriate notice of the  
               grandfathered status of the plan in any materials provided  
               to an enrollee of the contract describing the benefits  
               provided under the contract, as required under PPACA; and, 

             c)   The plan/insurer makes no changes to the benefits set  
               forth in the grandfathered plan contract other than those  
               required by state or federal law, regulation, rule or  
               guidance and those permitted to be made to a grandfathered  
               plan under PPACA.

           FISCAL EFFECT  :   According to the Assembly Appropriations  
          Committee analysis of a previous version of this bill:

          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,  








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          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. 


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


                                                                FN: 0006802