BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1163| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 1163 Author: Leno (D), et al Amended: 8/25/10 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 SENATE FLOOR : 23-12, 6/3/10 AYES: Alquist, Calderon, Cedillo, Corbett, DeSaulnier, Ducheny, Florez, Hancock, Kehoe, Leno, Liu, Lowenthal, Negrete McLeod, Oropeza, Padilla, Pavley, Price, Romero, Simitian, Steinberg, Wiggins, Wolk, Yee NOES: Aanestad, Ashburn, Cogdill, Correa, Denham, Dutton, Huff, Runner, Strickland, Walters, Wright, Wyland NO VOTE RECORDED: Cox, Harman, Hollingsworth, Vacancy, Vacancy ASSEMBLY FLOOR : Not available SUBJECT : Health care coverage: denials: premium rates SOURCE : Health Access California CONTINUED SB 1163 Page 2 DIGEST : This bill requires health care service plans (health plans) and health insurers to file with the Department of Managed Health Care and the Department of Insurance (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 (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. Assembly Amendments require a health care service plan or health insurer to file rate information with the Department of Managed Health Care or the Department of Insurance, as specified, and requires that the information be made publicly available, as specified. The amendments authorize the departments to review these filings and conduct a public hearing under specified circumstances and requires the departments to post certain findings on their Internet Web sites. 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 SB 1163 Page 3 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 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: 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 SB 1163 Page 4 increases, as defined by the Patient Protection and Affordable Care Act (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 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' 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. SB 1163 Page 5 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. SB 1163 Page 6 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, 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 Web sites. 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 SB 1163 Page 7 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 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 Secretary of the United States Department of Health and Human Services on health care service plan rate trends in premium rating areas. B. Provide to the California Health Benefit Exchange (established pursuant to 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 SB 1163 Page 8 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 PPACA, as long as: 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. 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 : 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 $140Special* CDI review of data $125 $210 $210Special** * Managed Care Fund ** Insurance Fund SUPPORT : (Verified 5/27/10) (Unable to reverify) Health Access California (source) SB 1163 Page 9 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) (Unable to reverify) 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 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 SB 1163 Page 10 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 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 SB 1163 Page 11 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. CTW:mw 8/30/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****