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 : 56-21, 8/30/10 - See last page for vote
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
CONTINUED
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
CONTINUED
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.
CONTINUED
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.
CONTINUED
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
CONTINUED
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
CONTINUED
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)
CONTINUED
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
CONTINUED
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
CONTINUED
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.
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Bass, Beall, Block, Blumenfield,
Bradford, Brownley, Buchanan, Caballero, Charles
Calderon, Carter, Chesbro, Coto, Davis, De La Torre, De
Leon, Eng, Evans, Feuer, Fletcher, Fong, Fuentes, Gaines,
Galgiani, Gatto, Gilmore, Hagman, Hall, Hayashi,
Hernandez, Hill, Huber, Huffman, Lieu, Bonnie Lowenthal,
Ma, Mendoza, Monning, Nava, Nestande, Norby, V. Manuel
Perez, Portantino, Ruskin, Salas, Saldana, Skinner,
CONTINUED
SB 1163
Page
12
Solorio, Swanson, Torlakson, Torres, Torrico, Villines,
Yamada, John A. Perez
NOES: Adams, Anderson, Bill Berryhill, Tom Berryhill,
Conway, Cook, DeVore, Fuller, Garrick, Harkey, Jeffries,
Jones, Knight, Logue, Miller, Niello, Nielsen, Silva,
Smyth, Audra Strickland, Tran
NO VOTE RECORDED: Furutani, Vacancy, Vacancy
CTW:mw 8/31/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED