BILL ANALYSIS Ó
AB 52
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Date of Hearing: May 11, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 52 (Feuer) - As Amended: May 3, 2011
Policy Committee: HealthVote:12-7
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill establishes rate regulation, effective January 1,
2013, of California health plans and insurers (carriers) under
the jurisdiction of the Department of Managed Health Care (DMHC)
and the California Department of Insurance (CDI). Specifically,
this bill:
1)Prohibits health plans and insurers from increasing rates for
plans in the individual, small-group, and large-group market
without prior annual approval from DMHC or CDI. Defines rates
to include premiums, copayments, coinsurance, and deductibles.
2)Requires carriers to submit a number of data elements to CDI
and DMHC for the purposes of review. Applications are required
to include variables such as overhead loss ratio, reserves,
excess tangible net equity, surpluses, medical expenses,
salaries, bonuses, and payments for specified procedures.
3)Prohibits the approval or renewal of rates that are excessive,
inadequate, or discriminatory. Permits regulators to approve,
deny, or modify and proposed rate increase. Specifies factors
for regulators to consider in making such determinations.
4)Requires DMHC and CDI to post rate applications online and to
notify the public about any rate application. Requires rates
to be deemed approved by DMHC or CDI unless the respective
department conducts an application hearing.
5)Authorizes consumers to request an administrative hearing
within 45 days of the date of public notice. Requires these
hearings to be conducted by the Office of Administrative
Hearings.
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6)Subjects health plans and health insurers to penalties for
violations of provisions of this bill.
7)Authorizes DMHC and CDI to charge health plans and insurers
for the administrative costs associated with rate regulation
as created in this bill, and establishes a new special fund
for this purpose.
FISCAL EFFECT
1)Annual fee-supported special fund costs of at least $30
million to DMHC and CDI, combined, to process, review,
approve, post, and monitor activities related to rate increase
approvals. Workload to DMHC and CDI includes data collection,
actuarial analysis, consumer services, rate enforcement, legal
analysis, administrative law hearings, and continued
oversight.
This estimate is subject to significant uncertainty, as
workload would depend on plan behavior with respect to the
timing and number of proposed rate increases.
2)A significant increase in fee-supported special funds may be
required for several years and especially during major
coverage expansions in several years per requirements of the
federal Patient and Patient Protection and Affordable Care Act
(PL-111-148) (health reform). Actual costs may subside
earlier, depending on patterns of health coverage expansions
and related changes in insurance product pricing.
3)Federal health reform includes some support for states to
conduct general rate review and report to the federal
government about unjustified rates. California has received $3
million each year for the next three years, and may be
eligible for an additional $2 million. This federal funding
would offset any fee-supported special fund costs generated by
this bill.
4)Due to methodological difficulties in isolating the impact of
prior approval, there is little reliable scientific evidence
about the impact of rate review and the authority to reject
rate increases on long-term premium growth. Other states
report that prior approval has reduced rates of premium
growth, at least in the short term.
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COMMENTS
1)Rationale . According to the author, California should have
the authority to review health care coverage rate increases in
order to increase oversight of health insurance rates and slow
ever-escalating increases in premiums. He contends prior
approval of rates would prevent loss of health insurance
coverage as a result of steeply rising premium costs.
Furthermore, the author states that studies and recent
experience in other states provide evidence in support of a
robust prior rate approval system in California.
2)Increases in Premiums . Health insurance premiums have
historically grown at a rate significantly higher than
inflation, and premium growth continues to accelerate. One
large California insurer has garnered national attention by
proposing to increase premiums in the individual insurance
market by up to 39%. State and congressional hearings have
also been held on this topic. Both prior to and since the
implementation of SB 1163 (Leno), Chapter 661, Statutes of
2010, which requires carriers to submit detailed information
about proposed rate increases to DMHC and DOI, both regulators
have publicly questioned significant rate increases. In some
cases, carriers have responded by voluntarily lowering
proposed rates.
3)Impact of Rate Review on Premium Growth . There is little
reliable scientific evidence about the impact of rate review
and the authority to reject rate increases on long-term
premium growth. Researchers state that the lack of evidence
is associated with the difficulty in adjusting for all the
other factors that influence health care premiums and costs.
Recent experience in other states indicates that rate
regulation can reduce premiums, at least in the short term.
These experiences do not reflect longer-term impacts on the
quality of care, investments in capital equipment or
technology, or other potential broader impacts of tamping down
premium growth. However, Rhode Island indicates that their
rate approval process reduced health insurance premium growth
in the group market by 1.4- 3.6 percentage points as compared
to the premium growth requested by carriers. An assessment by
the New York State Insurance Department found that the
elimination of prior rate approval of in that state led to
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significantly higher premium growth than that which was
experienced under prior approval.
4)Opposition . Health plans and insurers, the California Medical
Association, the California Hospital Association, and the
Chamber of Commerce oppose this bill. Opponents indicate the
framework proposed in this bill increases bureaucratic
controls without reducing health care costs. Opponents
indicate the comparison to Proposition 103 is misplaced and
that savings in the car insurance market have accrued due to
judicial limitations imposed on law suits, safety changes, and
more rigorous enforcement of safety laws. Opponents are
concerned insurance rate regulation will further reduce access
to health coverage and product choice for consumers.
5)Related Legislation . AB 2578 (Jones and Feuer) of 2010, AB
1218 (Jones) of 2009, and AB 1554 (Jones) of 2008 were similar
to this bill. AB 2578 failed passage on the Senate Floor, AB
1218 failed passage in the Assembly Health Committee, and AB
1554 failed in the Senate Health Committee
SB 1163 (Leno), Chapter 661, Statutes of 2010, requires
carriers to file, with regulators, specified rate information
for individual and small group coverage at least 60 days prior
to implementing any rate change, as specified. It also
requires the filings in the case of large group contracts only
in the case of unreasonable rate increases, as defined by the
ACA, prior to implementing any such rate change.
Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081