BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 52
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          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           |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           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 



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