BILL ANALYSIS Ó
AB 52
Page 1
ASSEMBLY THIRD READING
AB 52 (Feuer and Huffman)
As Amended May 3, 2011
Majority vote
HEALTH 12-7 APPROPRIATIONS 9-7
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|Ayes:|Monning, Ammiano, Atkins, |Ayes:|Fuentes, Blumenfield, |
| |Bonilla, Eng, Gordon, | |Bradford, Campos, Davis, |
| |Hayashi, | |Gatto, Hill, Lara, |
| |Roger Hernández, Bonnie | |Mitchell |
| |Lowenthal, Mitchell, V. | | |
| |Manuel Pérez, Williams | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Logue, Garrick, Mansoor, |Nays:|Harkey, Charles Calderon, |
| |Nestande, Pan, Silva, | |Donnelly, Nielsen, Norby, |
| |Smyth | |Solorio, Wagner |
| | | | |
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SUMMARY : Requires health care service plans (health plans)
licensed by the Department of Managed Health Care (DMHC) and
health insurers (collectively carriers) certificated by the
California Department of Insurance (CDI) (collectively
regulators), effective January 1, 2012, to apply for prior
approval of proposed rate increases, under specified conditions,
and imposes on regulators specific rate review criteria,
timelines, and hearing requirements. Specifically, this bill :
1)Prohibits any rate from being approved or remaining in effect
that is found to be excessive, inadequate, unfairly
discriminatory, or otherwise in violation of the standards
established by this bill. Prohibits carriers from
implementing a rate for a new product or change the rate it
charges, unless it submits an application and the application
is approved by regulators.
2)Permits regulators to approve, deny, or modify any proposed
rate for a new product or any rate change for an existing
product, as specified. Requires the regulators to review for
compliance, with the requirements in this bill, all rate
increases which become effective January 1, 2011, to December
31, 2011. Requires regulators to order the refund of payments
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made pursuant to any such rate, to the extent DMHC or CDI find
the rate to be excessive, inadequate, or unfairly
discriminatory.
3)Requires that all information submitted in a rate application
and all information submitted in support of the application be
subject to the California Public Records Act, except for
financial data, where the disclosure of which would be
competitively injurious to the carrier, as determined by the
regulator.
4)Requires regulators to notify the public of rate applications
submitted by carriers through a posting on regulator Web sites
and distribution to the major statewide media and to any
member of the public who requests placement on a mailing list
or electronic mail list to receive the notice. Requires the
regulator, if it holds a hearing on the application, to issue
a decision and findings within 100 days after the hearing.
5)Authorizes any person to initiate or intervene in any of the
proceedings, establishes parameters for judicial review, and
ensures the right of consumers to challenge final decisions by
the regulator in court, as specified, and requires the
regulator or the court to award reasonable costs, including
witness fees, for persons meeting specified requirements, and
requires the applicant to pay those fees.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
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
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(PPACA). Actual costs may subside earlier, depending on
patterns of health coverage expansions and related changes in
insurance product pricing.
3)PPACA 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.
COMMENTS : The author states that insurance rates continue to
escalate at a remarkable pace: from 1999 to 2009, health
insurance premiums for families rose 131%, while the general
rate of inflation increased just 28% during the same period,
according to a report by the Kaiser Family Foundation. The same
report concluded that states with robust and transparent rate
review and approval processes have greater power to protect
consumers from large rate increases. The author states that
this bill would bring California in line with 35 other states
that require some form of prior health insurance rate approval
by state regulators.
Regulation and oversight of health insurance in California is
split between two state departments, the DMHC and CDI. DMHC
regulates health plans, including HMOs and some Preferred
Provider Organization (PPO) plans. CDI regulates multiple lines
of insurance, including disability insurers offering health
insurance, generally PPO plans and traditional indemnity
coverage. Although DMHC and CDI both regulate carriers
providing health coverage, each department approaches that
regulation very differently. In general, DMHC has greater
authority and responsibility to review and approve health plan
products and benefit designs than CDI has to review health
insurance products under its purview. In California, health
insurance is generally not subject to rate regulation, with few
exceptions.
This bill proposes to confer direct rate regulation authority
for health coverage on both regulators, using language similar
to that enacted when the voters passed Proposition 103 (Prop
103) in 1988. Prop 103 currently applies to auto, homeowners,
and other forms of property/casualty insurance and, generally,
requires extensive examination of any rates proposed by
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insurers. CDI will find that proposed rates meet the one test
that they are not excessive, inadequate, or unfairly
discriminatory if the rates produce a return on surplus
(generally analogous to Tangible Net Equity for health plans and
insurers) of between -7% and +15%. The regulations implementing
Prop 103 were just finalized in 2006, nearly 20 years after
passage of Prop 103. During that time, CDI regulated rates
under draft regulations that were the subject of persistent
legal challenges and litigation by insurers. Consumer advocates
point out that during the decade after Prop 103 was adopted,
auto insurance rates in California went down by 4% while auto
insurance products remain broadly available and competitive, and
the uninsured motorist population declined by 38%. Nationally,
auto insurance rates rose over 25% during this period. In 2001,
the Consumer Federation of America selected Prop 103 as
resulting in the best practices in the nation with regard to
auto insurance regulation.
On March 23, 2010, President Obama signed the PPACA. Among
other provisions, the new law makes statutory changes affecting
the regulation of and payment for certain types of private
health insurance. In August 2010, DMHC and CDI received federal
funds available under PPACA for rate review activities (DMHC
received $607,998 and CDI received $392,002) to enhance the
DMHC's and CDI's information technology infrastructure to
support data collection and public disclosure of premium rates
through the National Association of Insurance Commissioners'
System for Electronic Rate and Form Filing, and hire actuaries
or obtain contractual actuarial services to develop premium rate
review process and review rate filings. According to DMHC, the
grant funds will allow both departments to improve the
collection of premium rate information; to enhance the depth and
breadth of current rate reviews; and, to build the
infrastructure necessary to enable each department to perform
the expanded range and significantly greater volume of rate
reviews required by PPACA.
Recent high profile rate increases proposed by major California
insurers have resulted in increased public and state scrutiny
into the actuarial analysis of those increases and has resulted
in withdrawal of those rate increases. This bill is supported
by a number of consumer, labor, and business groups. Supporters
write that health insurers are continuously increasing rates on
individual and group policyholders, and the uninsured often come
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from the most vulnerable communities of the state. Currently
seven million Californians still struggle to maintain their
health without insurance, and this demonstrates an urgent need
to pass state-level legislation that ensures strict regulation
of health insurance rates in the state. Supporters contend that
in order to keep costs down it is imperative that regulators
have the power to deny unreasonable rate increases. Supporters
further state that the increases in health insurance premiums
for individuals and small businesses revealed in recent months
have capped years of steady increases in overall premiums.
Anthem Blue Cross writes that because insurance rates are a
function of insurance costs, adding an additional layer of
regulation will only increase the cost of delivering health care
to Californians. The Civil Justice Association state that the
most troubling part of this bill allows any person to intervene
in any proceeding to "enforce any action of the department under
this article, and enforce any provision of this article on
behalf of him or herself or members of the public." Kaiser
Permanente Medical Program (KPMP) writes that supporters of this
bill assert that Prop 103 has lowered auto insurance rates - by
an astonishing $23 billion in 10 years - as a reason to impose
rate regulation on health insurance. KPMP believes the evidence
for this claim is dubious because proponents give no
consideration to the much more likely causal factors of
dramatically reduced accident rates and decreased liability
costs after the California Supreme Court prohibited third-party
bad faith lawsuits.
Previous legislation: AB 2578 (Jones and Feuer) of 2010, AB
1218 (Jones) of 2009, and AB 1554 (Jones) of 2008 would have
required health plans licensed by DMHC and health insurers
certificated by CDI, to annually submit for prior approval to
the respective regulator any increase in the rate charged to a
subscriber or insured, as specified, and would have imposed on
DMHC and CDI specific rate review criteria, timelines, and
hearing requirements. 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, and in the case of large group
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contracts only in the case of unreasonable rate increases, as
defined by the PPACA, prior to implementing any such rate
change.
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097
FN: 0001038