BILL ANALYSIS Ó
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 52
A
AUTHOR: Feuer and Huffman
B
AMENDED: June 1, 2011
HEARING DATE: July 6, 2011
5
CONSULTANT:
2
Chan-Sawin
FOR VOTE ONLY
SUBJECT
Health care coverage: rate approval
SUMMARY
Effective January 1, 2012, requires health care service
plans (health plans) and health insurers to apply for prior
approval of proposed rate increases, under specified
conditions, and imposes on the California Department of
Insurance (CDI) and Department of Managed Health Care
(DMHC) specific rate regulation criteria, timelines, and
hearing requirements.
CHANGES TO EXISTING LAW
Existing federal law:
Requires, under the federal Patient Protection and
Affordable Care Act (PPACA) (Public Law 111-148), the
federal Secretary (Secretary) of the Department of Health
and Human Services (DHHS), in conjunction with states, to
establish a process for the annual review of unreasonable
increases in premiums for health insurance coverage,
beginning with the 2010 plan year.
Continued---
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Requires the rate review process to require health
insurance issuers to submit to the Secretary and the state
a justification for an unreasonable premium increase prior
to the implementation of the increase. Requires health
plans and insurers to prominently post such information on
their websites. Requires the Secretary to ensure the
public disclosure of information on such increases and
justifications for all health plans and insurers.
Existing state law:
Provides for the regulation of health plans and insurers
(collectively referred to as carriers) by DMHC and CDI
(collectively referred to as regulators).
Establishes the California Health Benefit Exchange
(Exchange) within state government, and specifies the
duties and authority of the Exchange.
Prohibits any provision of the Knox-Keene Act to be
construed to permit the Director of DMHC to establish the
rates charged subscribers and enrollees for contractual
health care services, and prohibits the Director's
enforcement of the requirements of the state's small group
health law from being deemed to establish the rates charged
subscribers and enrollees for contractual health care
services.
Does not limit the premiums for individuals in the
individual health insurance market, except for individuals
eligible under federal law who previously had 18 months of
group coverage and who have exhausted COBRA/Cal-COBRA
coverage.
Requires health plans to fairly and affirmatively offer,
market, and sell health coverage to small employers. This
is known as "guaranteed issue." Requires health plans to
offer, market, and sell all of the health plan's contracts
that are sold to small employers to any small employers in
each service area in which the plan provides health care
services. This is known as an "all products" requirement.
Limits administrative costs for DMHC-regulated health plans
to 15 percent and establishes minimum medical loss ratios
(MLR) for CDI-regulated health insurers for specified
individual indemnity dental and vision policies (50
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
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percent), and MLRs for individual health insurance,
excluding indemnity payout policies (70 percent).
Establishes, through regulation, minimum MLRs for
individual health insurance products regulated by CDI.
Authorizes regulators to charge fees associated with
regulatory filings and, in addition, requires that the
regulatory enforcement programs be entirely paid for by
carrier fees and assessments.
Establishes the Consumer Participation Program within DMHC,
which allows for the awarding of reasonable advocacy and
witness fees to any person who meets specified criteria and
who has made a substantial contribution on behalf of
consumers to the adoption of a regulation, order, or
decision made by the Director.
Rate review requirements
Requires prior written notification of a change in premium
rates or coverage in a health plan or insurance policy to
the contract or policyholder before such a change may
become effective. Prohibits a carrier, during the term of
a group contract or policy, from changing the premium rate,
copayment, coinsurance, or deductible during specified
periods.
Requires carriers, 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.
Requires carriers, for large group contracts only, to
disclose to regulators filings for unreasonable rate
increases, as defined by PPACA, prior to implementing any
such rate change. Increases, from 30 days to 60 days, the
amount of time that a carrier provides written notice to an
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enrollee or insured before a change in premium rates or
coverage becomes effective.
Requires carriers 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.
Requires health plans, as specified, to disclose specified
aggregate data for all rate filings in the individual and
small group markets related to the number and percentage of
rate filings and the plan's average rate increase by the
categories, as specified.
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.
Requires carriers to contract with an independent actuary
to comply with rate review filing requirements. Prohibits
the actuary or actuarial firm from being be an affiliate, a
subsidiary, or in any way owned or controlled by a carrier
or a trade association of carriers. Prohibits a contracted
actuary or actuarial firm board member, director, officer,
or employee from serving as a board member, director, or
employee of a carrier. Prohibits a carrier or a trade
association of health plans' board member, director, or
officer from serving as a board member, director, officer,
or employee of the actuary or actuarial firm.
Requires all rate filing information, including any public
comment, to be made publicly available by regulators' and
carriers' websites, as specified, 60 days prior to the
implementation of the rate increase, except for contracted
rates between a carrier and a provider or a large group
subscriber, which are deemed confidential information.
Exempts a number of programs and contracts from the rate
review provisions, including specialized health plan
contracts, Medicare supplement plans, Medi-Cal managed
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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.
Permits regulators, whenever it appears that any person has
engaged, or is about to engage, in any act or practice
constituting a violation of state rate review requirements,
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.
This bill:
Prohibits any health carrier 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.
Defines "rate" as the charges assessed for a contract or
policy or anything that affects the charges associated with
such a contract or policy, including, but not limited to,
premiums, base rates, underwriting relativities, discounts,
copayments, coinsurance, deductibles, and any other
out-of-pocket costs.
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.
Permits the Insurance Commissioner and Director to approve,
deny, or modify any proposed rate for a new product or any
rate change for an existing product, as specified.
Specifies that the presence of competition in the market
shall not be considered in determining whether a rate
change is excessive, inadequate, or unfairly
discriminatory.
Makes this bill's provisions applicable to contracts and
policies offered in the individual or group market in
California, but exempts specified plans and policies,
including specialized health plan contracts, Medicare
supplement contracts, and contracts offered in the Medi-Cal
Program, the Healthy Families Program, the Access for
Infants and Mothers Program, the California Major Risk
Medical Insurance Program, the Federal Temporary High Risk
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Pool, health plan conversion contracts, or health plans
offered to a federally eligible defined individual.
Requires regulators to review rate applications pursuant to
regulations they promulgate to determine excessive,
inadequate, or unfairly discriminatory rates. Requires the
review to:
Consider, but not be limited to, medical expenses
and all nonmedical expenses, including, but not
limited to, the rate of return, overhead,
administration, surplus, reserves, investment income,
and any information submitted under the rate filing;
and
Take into account established actuarial principles.
Requires regulators, in promulgating such regulations, to
consider whether the rate is reasonable in comparison to
coverage benefits, and prohibits the Director or Insurance
Commissioner from approving any rate that does not comply
with the requirements of this bill.
Requires carriers to file a complete rate application 60
days prior to the effective date of any proposed rate
change or rate for a new product that would become
effective on or after January 1, 2012.
Prohibits carriers from implementing a rate change within
one year of the date of implementation of the most recently
approved rate change for each product in the individual or
small group market.
Requires carriers, for individual or small group rate
applications, to disclose 18 specified data elements beyond
those currently required under rate review, and for large
group rate applications, 44 specified data elements beyond
those currently required under rate review, in addition to
submitting any other information required pursuant to any
regulation adopted and related regulations. Permits
regulators to request from a carrier, and requires carriers
to provide, any information required under this article or
PPACA.
Requires the regulators to review for compliance with the
requirements in this bill, all rate increases which became
effective January 1, 2011. Requires regulators to order
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the refund of payments made pursuant to any such rate, to
the extent the regulator finds the rate to be excessive,
inadequate, or unfairly discriminatory.
Requires the rate application to be signed by the chief
executive officer and chief financial officer of the
carrier, and requires those officers to certify that the
representations, data, and information provided to support
the application are true.
Imposes the burden to provide evidence and documents
establishing, by a preponderance of the evidence, the
application's compliance with the requirements of this
bill, on the carrier.
Requires carriers to submit all information electronically.
Requires such information to be made public and posted no
less than 60 days after the date of public notice, as
specified. Requires the entirety of the rate application
to be made available upon request to regulators, except as
specified. Requires regulators to accept and post to their
websites any public comment on a proposed rate submitted
during the 60-day period.
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 related to
contracted rates between carriers and providers or large
group subscribers.
Requires regulators to notify the public of rate
applications submitted by carriers through a posting on the
regulator's websites, 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 regulators to issue a decision within 60 days
after the date of the public notice, unless the regulator
and the applicant agree to waive the 60-day period or the
regulator notices a public hearing on the application.
Requires the regulator, if a hearing is held on the
application, to issue a decision and findings within 100
days after the hearing. Requires regulators to hold a
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hearing on any of the following grounds:
An enrollee, or his or her representative, requests
a hearing within 45 days of the date of the public
notice, and the regulator grants the request for a
hearing.
The regulator determines for any reason to hold a
hearing on the application; or
The proposed change would exceed 10 percent of the
amount of the current rate, or would exceed 15 percent
for any individual subject to the rate increase, in
which case a hearing upon a timely request for a
hearing is required to be held.
If a hearing request is denied, requires the regulator to
issue written findings in support of a decision to deny a
hearing.
Requires all hearings to be conducted in accordance with
laws governing state administrative hearings, including
that the hearing be conducted by an administrative law
judge (ALJ) in the Department of General Services Office of
Administrative Hearings. Requires regulators to provide
notice of hearing, and provides that the decision of the
ALJ is subject to review by the regulators. Requires the
right to discovery to be liberally construed and requires
discovery disputes to be determined by the ALJ.
Specifies that, for the purposes of judicial review, a
decision by the regulator to hold a hearing on the
application is not a final order or decision. Makes a
decision not to hold a hearing on an application a final
order or decision for the purposes of judicial review.
Makes any final finding, determination, rule, ruling or
order made by the Director or Insurance Commissioner
subject to review by state courts. Requires review
proceedings to be in accordance with the provisions of the
Civil Code of Procedure. Authorizes and directs the court
to exercise its independent judgment on the evidence and
provides that, unless the weight of the evidence supports
the findings, determination, rule, ruling, or order of the
Director or Insurance Commissioner, it shall be annulled.
Requires any petition for review of any such findings,
determination, rule, ruling, or order to be filed within 60
days of the public notice of the order or decision.
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Authorizes an enrollee to initiate or intervene in any of
the proceedings related to this bill. Requires
compensation to be provided for reasonable advocate's fees,
reasonable expert witness fees, and other reasonable costs
to enrollees or policyholders for participation or
intervention, as specified. Defines an "enrollee" or
"policyholder" as a representative of one or more
enrollees, subscribers, or member of any health plan or
policyholders of a health insurer; or a group or
organization authorized pursuant to its articles of
incorporation or bylaws to represent the interests of
consumer enrollees, subscribers, members, or policyholders.
Requires the carrier to pay those fees.
Subjects carriers to penalties for violations of the
provisions in this bill.
Authorizes the regulators to charge fees to cover costs of
applications filed, and establishes two new state special
funds to receive those revenues for the sole purpose of
implementing this bill.
Permits regulators, on or before July 1, 2012, to issue
guidance regarding compliance with this bill, as specified.
Exempts guidance from the Administrative Procedure Act.
Requires regulators to have all necessary and proper powers
to implement this bill and requires the adoption of
regulations no later than January 1, 2013.
Requires the regulators to consult with the other
department, regarding the issuance of guidance, adoption of
necessary regulations, in posting information on the
regulator's website, and in taking any other action related
to implementation of this bill.
Authorizes the regulators to review any rate to ensure
compliance with this bill whenever it appears to the
regulator that any person has engaged, or is about to
engage, in any act or practice in violation of this bill.
Requires regulators to report to the Legislature at least
semiannually on all rate applications approved, modified,
or denied, as specified.
Requires regulators to post the following on their
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websites:
Any changes submitted by a plan to a rate
application, including any documentation submitted by
the plan supporting those changes;
Whether the regulator approved, denied, or modified
a proposed rate change; and
A finding that a proposed rate is excessive,
inadequate, or unfairly discriminatory, or that a rate
application contains inaccurate information.
Adds to the list of reasons for which the Director or
Insurance Commissioner may suspend or revoke any license,
or assess administrative penalties, if the carrier does not
comply with the provisions of this bill.
Makes various legislative findings and declarations related
to health insurance rates.
FISCAL IMPACT
According to the Assembly Appropriations Committee
analysis:
1)Annual fee-supported special fund costs of at least $30
million to regulators combined, to process, review,
approve, post, and monitor activities related to rate
increase approvals. Workload to regulators 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 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 a $3 million
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grant 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.
BACKGROUND AND DISCUSSION
According to the author, excessive health insurance rate
increases place health insurance out of the reach of
millions of families. The author asserts that skyrocketing
increases force business owners and employees to absorb
major costs or search for less expensive - and less
comprehensive - coverage options. Small business owners
need the stability that this measure provides through
ensuring that rates cannot be raised more than once per
year. The author states that insurance rates continue to
escalate at a remarkable pace, and points to a Kaiser
Family Foundation report that found, from 1999 to 2009,
health insurance premiums for families rose 131 percent,
while the general rate of inflation increased just 28
percent during the same period. 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 argues 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, give regulators the power to
protect Californians from excessive rate increases, and
help to keep insurance premiums affordable.
According to the author, regulators currently have the
authority to review whether or not proposed rate increases
are reasonable. If regulators find that a rate is
unreasonable, the carrier must provide a justification for
the rate increase. The author contends that neither
regulator has the authority to modify or reject rate
changes found to hurt consumers. The author further states
that California should have the authority to minimize
families' loss of health insurance coverage as a result of
steeply rising premium costs. That author believes that AB
52 would ensure crucial consumer protection by granting
regulators the authority to approve, deny, or modify rate
increases that are found to be excessive, inadequate, or
unfairly discriminatory.
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Rate regulation and rate review
Many states use "prospective" regulation of rates, while
others use "retrospective" regulation. Prospective
regulation includes prior review and/or approval of rates,
while retrospective regulation includes "file and use"
where the rates go into effect immediately, but the
regulator can take action if the rates are later determined
to be unreasonable under a standard such as one of the
above. When carriers wish to change their rates in a prior
approval system, they must file a rate application for
approval of their rate changes from the regulator before
they can put the new rates into effect. Many states with
prior approval of rates also have statutory clauses that
"deem" a rate approved if it is not acted on within 30 or
60 days by the regulator. Retrospective regulation often
relies on consumer complaints to indicate a problem with a
company's rates.
In 2004, the California HealthCare Foundation commissioned
a RAND study to analyze the likely effect of premium
regulation on the California health insurance market. RAND
researchers found no compelling need to regulate health
insurance premiums in California and noted that such
regulation could have unintended, adverse consequences on
consumers, such as reduction in the quality or quantity of
care, stricter utilization management, and discouraging
expensive technologies from coming to market while
motivating the introduction of cost-saving technologies.
The study recommended a number of steps to mitigate the
potential adverse consequences of rate regulation by:
Monitoring coverage and the quality of care that
enrollees and insureds receive;
Using objective indicators, such as insurers'
profits, over a two- or three-year period to judge
whether premium increases are appropriate;
Monitoring market participation among insurers; and
Monitoring technology adoption in California and in
states without premium regulation.
Rate regulation in other states
States vary greatly in their approach to regulation of
health insurance rates. Some states review proposed
increases in health insurance rates and disapprove them if
they are excessive. Other states lack the legal authority
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or resources to effectively review and/or disapprove rates.
In December 2010, the Kaiser Family Foundation released a
report on the rate review/approval process in all 50
states. Key findings include:
A state's statutory authority often tells little about
how rate review is actually conducted in the state. The
report found that having prior approval authority does
not necessarily protect consumers from large rate
increases, and often the rigor and thoroughness of the
regulator's review varies widely, depending on
motivation, resources, and staff capacity. Conversely,
some states that do not have rate regulation have been
able to get carriers to agree to rate reductions through
informal negotiations.
Few states regulate large group rates and most
concentrate on individual and small group markets. A
number of states only require certain carriers (i.e.,
non-profit Blue Cross Blue Shield plans or HMOs) to
undergo rate review, and exempt other commercial
carriers. Other states regulate rates through other
mechanisms such as a medical loss ratio (MLR) standard,
which allows carriers to avoid a state review of their
rates as long as they meet the standard. In most states,
rate regulation or review is limited to the individual
and small group markets.
Most states use a subjective standard to guide the review
and approval of rates. Common standards are that rates
cannot be "excessive, inadequate, or unfairly
discriminatory," or that "benefits are reasonable in
relation to premiums charged." The report found that such
subjective standards allow states to regulate rates with
more flexibility, but can make the process appear
arbitrary and opaque to consumers and the public.
Few states make rate filing information publicly
available. Generally, states require the public to
physically visit the regulator to access the documents in
a rate filing. Many states allow carriers to designate
some portions of the rate filing to be "trade secret" and
thus not available to the public, and two states have
statutes that explicitly label all information in a rate
filing as proprietary. Only a few states allow a
policyholder to request a public rate hearing. There is
no precedent for policyholders or third party
representatives to participate in the informal
back-and-forth between regulators and carriers that
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underpins the actual practice of rate review, but a
number of states have proposed using federal grant funds
to make rate filings more accessible and understandable
to the public.
Many states lack the capacity and resources to conduct an
adequate review. Rate review is not a mechanical
function, and requires significant expertise and nuanced
judgment calls. Many states do not have a sufficient
number of trained actuaries to review all filed rates.
States that do not have adequate resources or staffing
may miss those judgment calls or even mistakes made by a
carrier in its filing. States often don't have enough
resources to review all rates in a timely way and even in
fairly vigilant states, like Colorado, only 25 percent of
rate increases are reviewed.
The report concludes that states with prior approval
authority over rates appear to be better positioned to
negotiate reductions in rate requests filed by carriers.
In states that do not have this type of authority, it
generally took an egregious and unjustified rate increase
for them to ask for reductions. The report also points out
that regulatory resources and a culture of active review
may be equally important.
The National Association of Insurance Commissioners (NAIC),
in a written response to a federal request for information
regarding rate regulation, made the following points:
Most states do not review or approve rates for large
employers. NAIC also points out that most states review
rates separately for each licensed entity, even though
affiliated insurers often operate as one organization,
charging the same rates and even covering one group
through two different licensed entities.
Typically, the fully insured medical plans are negotiated
based on the employer's past experience and the insurer's
administrative expense for that employer. Self-insured
plans are not subject to state authority.
Stringent review of rate increases might lead to greater
variability. Carriers often try to keep their rate
increases stable over time, even though that means losing
money in bad years and making more money in good years.
If a rate increase is categorized as unreasonable,
carriers might reduce it to meet the standard of
reasonableness, resulting in the need for a higher
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increase the next year than would have occurred.
Those states that regulate rates usually review all rate
increases, not just the ones that fail some test such as
those listed above. Many states require annual rate
filings for comprehensive health insurance, even if the
rates are not changing. These requirements can provide a
history of a company's rates, and help preclude rate
"catch-up" when a company has neglected to increase the
rates for a long period.
Most states have different types of prospective or
retrospective rate regulation for different comprehensive
medical markets, such as individual, small employer,
association group, employer-paid, blanket coverage,
mini-medical coverage and state/local employee plans.
Health insurance regulation in California
Regulation and oversight of health insurance in California
is split between two state departments, the DMHC and CDI.
DMHC regulates health plans, including health maintenance
organizations (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. At the heart of the difference between
health plans and health insurers is the "promise to pay"
versus the "promise to deliver care." DMHC-licensed plans,
often referred to as Knox-Keene Health Care Service Plan
Act of 1975 (Knox-Keene) health plans, arrange for and
organize the delivery of health care and services through
contracted or owned providers and facilities and are
required to cover all medically necessary services.
Disability insurers protect against (indemnify) the expense
or charges (losses) associated with illness or injury and
typically provide coverage for defined benefits that may be
specifically limited in the policy, such as number of
visits or annual dollar limits.
The distinction between the two regulatory frameworks has
blurred over time because of the historical exceptions made
for two large PPO carriers, Blue Cross and Blue Shield, who
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offer PPO products under both regulators, but fundamental
differences remain in the expectations and regulatory
oversight by each regulator. 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. Medicare supplement
policies and contracts sold by both health plans and
insurers are subject to prior approval and regulation of
their MLR. Carriers are subject to specific marketing,
underwriting, and rating rules relating to health coverage
sold to small employer groups of 2 to 50. Both regulators
ensure compliance with the small group rating rules
primarily in response to complaints. CDI-regulated
insurers are subject to filing and review of rates, and
must meet minimum MLR standards, but only for individual
products. DMHC-regulated plans are limited to no more than
15 percent administrative costs, but DMHC does not include
profit as an administrative cost.
According to a July 2011 California HealthCare Foundation
report, DMHC-regulated health plans cover 21.6 million
individuals, compared to 2.6 million under CDI-regulated
health insurers.
Share of Commercial Covered Individuals, 2009
--------------------------------
| | DMHC | CDI |
|-----------+----------+---------|
|Individual | 35% | 65% |
|-----------+----------+---------|
|Small | 67% | 33% |
|Group | | |
|-----------+----------+---------|
|Large | 96% |4% |
|Group | | |
--------------------------------
The report also indicated that 93 percent of the covered
individuals under CDI are enrolled in health insurance
products sold by eight national companies. These eight
companies also have affiliates with some products licensed
under DMHC. In contrast, direct commercial enrollment
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accounted for 55 percent (roughly 11.8 million) of the
lives covered by DMHC-regulated plans, with the remainder
45 percent enrolled in plans contracting with Medi-Cal or
other public programs.
Rate review enacted in California
SB 1163 (Leno), Chapter 661, Statutes of 2010, enacted
legislation requiring carriers to submit detailed data and
actuarial justification for rate increases at least 60 days
in advance of increasing their customers' rates. The
carriers also must submit an analysis performed by an
independent actuary who is not employed by a plan or
insurer. It also required regulators to review rates,
determine if the rate increase is justified, and provide
such information online. Regulations issued May 2011 by
CDI and DMHC imposes such rate filings for individual and
small group contracts. DMHC's regulations specify that
health plans are not required to file premium rate
information for large group contracts. CDI's regulations
are silent on large group contracts. Although neither
department has the authority to modify or reject rate
changes found to hurt consumers, rate review has increased
transparency on rate increases in the individual and small
group market.
Both regulators use the same five basic factors in
considering if a rate is "unreasonable," which include (1)
MLR; (2) if the assumptions is supported by substantial
evidence; (3) whether the assumptions themselves are
reasonable; (4) if the information submitted in the filing
is incomplete, inadequate, or fail to provide sufficient
clarity and detail; and (5) whether the filed rates results
in premium differences between similar enrollees or that do
not reasonably correspond to differences in expected costs.
In addition to these five factors, CDI also requires
compliance an additional ten factors, while DMHC's
regulation state that DMHC may consider nine of those ten
factors in its review.
Rate review requirements in federal health reform
On March 23, 2010, President Obama signed PPACA into law.
Among other provisions, the new law makes statutory changes
affecting the regulation of and payment for certain types
of private health insurance. The law also significantly
expands health care coverage to currently uninsured
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
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individuals through public program expansions, a mandate to
purchase coverage, a temporary high-risk pool program, and
by requiring guaranteed issue of coverage. Millions of
currently uninsured people in California will obtain
coverage under the provisions of PPACA.
Section 2794 of PPACA requires the Secretary of DHHS, in
conjunction with states, to establish a process for the
annual review, beginning with the 2010 plan year of
unreasonable increases in premiums for health insurance
coverage. This process requires health insurance to submit
to the Secretary and the state a justification for an
unreasonable premium increase prior to the implementation
of the increase. Carriers must prominently post such
information on their Internet websites, and the Secretary
must ensure the public disclosure of information on such
increases and justifications for all health insurers.
Federal regulations issued in 2011 require rate review in
two phases:
In 2011, all carriers seeking rate increases of 10
percent or more in the individual and small group
markets are required to publicly disclose to states
the proposed increases and the justification for them.
Such increases are not presumed "unreasonable," but
will be analyzed to determine whether they are
unreasonable. Information about all such reviews done
by the states and DHHS, along with unreasonable
justifications provided by insurance companies, will
be posted on the DHHS website. The carrier will also
have to make its justification for a rate increase
available on its own website.
After 2011, a state-specific threshold will be set
for disclosure of rate increases, using data and
trends that better reflect cost trends particular to
that state. Any carrier seeking increases above that
state-specific threshold is required to under rate
filing and public disclosure.
Under the federal regulations, states with effective rate
review systems would conduct the reviews. If a state lacks
the resources or authority to do thorough actuarial
reviews, DHHS would conduct them. A formal federally
recognized definition of "unreasonable" increases has yet
to be established.
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PPACA also makes available $250 million to states in grants
for health insurance premium review from 2010 through 2014.
In August 2010, state regulators 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
(IT) infrastructure to support data collection and
public disclosure of premium rates through the NAIC's
System for Electronic Rate and Form Filing (SERFF);
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.
Prop 103: rate regulation in property-casualty insurance
market
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 in 1988 (Prop 103). Prop 103 currently
applies to auto, homeowners, and other forms of
property-casualty insurance and, generally, requires
extensive examination of any rates proposed by insurers.
CDI requires that proposed rates meet 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 carriers) of between
-7 and +15 percent.
It is worthwhile to note that Prop 103 regulations were
finalized in 2006, nearly 20 years after Prop 103 passed.
During that time, CDI-regulated rates were under draft
regulations that were the subject of persistent legal
challenges and litigation by insurers. Also, under the
property-casualty insurance markets, the coverage is
purchased on an individual or family basis, and not in
groups, which is common in health insurance. Lastly,
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
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DMHC-regulated health insurance is based on a "pre-paid
service" model and not an "indemnity" model which is common
in all insurance types regulated by CDI. Health insurance
coverage also contains a significantly higher number of
claims compared to other insurance types, where claims are
generated primarily based on adverse events.
Consumer advocates point out that during the decade after
Prop 103 was adopted, auto insurance rates in California
went down by 4 percent while auto insurance products remain
broadly available and competitive, and the uninsured
motorist population declined by 38 percent. Nationally,
auto insurance rates rose over 25 percent during this
period. However, during that same period, a number of
other events occurred to lower auto insurance rates,
including strong anti-fraud statutes in 1989, passage of
seat belt laws, changes in case law, and passage of
Proposition 213 (which, among other things, eliminated
punitive damages in situations where the injured party does
not themselves have auto insurance). Significant
innovations in auto technology have also been made, such as
anti-lock brakes, airbags, and electronic stability
control.
Health insurance costs
For many years, health spending growth has outpaced
inflation. The United States spends a larger share of its
gross domestic product (GDP) on health care than any other
major industrialized country. Expenditures for health care
represent 17 percent of the nation's GDP, compared to 5
percent in 1960. By 2019, the federal Centers for Medicare
and Medicaid Services project health care expenditures will
account for 19 percent of GDP. As costs have risen, health
care coverage has become more unaffordable. The 2010
California Employer Health Benefits Survey (CEHBS) found
health insurance premiums increased 8.1 percent in
California in 2010. Other key findings from CEHBS include:
Since 2002, premiums have increased 134.4 percent,
more than 5 times the 25.4 percent rise in
California's overall inflation rate.
Single-coverage premiums in California averaged
$5,463 in 2010 annually, significantly more than the
national average of $5,049. Premiums for family
coverage were $14,396. California workers contributed
$725 annually for single coverage in 2010, and $3,632
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for family coverage. The contribution for single
coverage in California is less than for workers
nationally ($899), but increased from 12 percent of
the premium in 2009 to 15 percent in 2010.
Enrollment in plans with a deductible of $1,000 or
more for single coverage has increased significantly
for workers in small firms (at 27 percent versus 7
percent in 2006).
Twenty-eight percent of California firms either
reduced benefits or increased cost sharing for
employees as a result of the economic downturn in
2010, up considerably from the fifteen percent who did
so in 2009. Cost sharing may continue to increase for
California workers. Just under half of large firms
(200 or more workers) are "very" or "somewhat" likely
to increase the amount workers' pay for coinsurance or
copayments in the next year. Sixty-eight percent are
"very" or "somewhat" likely to raise the amount
workers' pay toward premiums.
Related bills
SB 51 (Alquist) would require carriers to meet federal
annual and lifetime limits and MLR requirements in
specified provisions of the federal health care reform law,
as specified. Would also authorize the Director and the
Insurance Commissioner to issue guidance, as specified, and
promulgate regulations to implement requirements relating
to MLRs, as specified. Set for hearing on July 5, 2011 in
Assembly Health Committee.
AB 1083 (Monning) would, effective January 1, 2014, make a
number of changes to state laws governing the sale of small
group health insurance products to conform state law to
PPACA. Also requires solicitors to notify the small
employer of the availability of coverage through the
Exchange, makes premium rates established by carriers in
effect for 12 months. Set for hearing on June 29, 2011 in
Senate Health Committee.
Prior legislation
SB 890 (Alquist) of 2010 would have, among other things,
required carriers to meet federal annual and lifetime
limits and MLR requirements in PPACA. Vetoed by the
Governor.
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SB 900 (Alquist), Chapter 659, Statutes of 2010,
establishes the California Health Benefit Exchange as an
independent public entity within state government, requires
the Exchange to be governed by a board composed of the
Secretary of the California Health and Human Services
Agency, or his or her designee, and four other members
appointed by the Governor and the Legislature who meet
specified criteria.
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. Requires the filings for large group contracts
only in the case of unreasonable rate increases, as defined
by the PPACA, prior to implementing any such rate change.
Increases, from 30 days to 60 days, the amount of time that
a health plan or insurer provides written notice to an
enrollee or insured before a change in premium rates or
coverage becomes effective. Requires carriers 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, to
provide the applicant with reason for the decision, as
specified.
AB 1602 (John A. Pérez), Chapter 655, Statutes of 2010,
specifies the powers and duties of the Exchange relative to
determining eligibility for enrollment in the Exchange and
arranging for coverage under qualified health plans,
required the Exchange to provide health plan products in
all five of the federal benefit levels (platinum, gold,
silver, bronze and catastrophic), requires health plans
participating in the Exchange to sell at least one product
in all five benefit levels in the Exchange, requires health
plans participating in the Exchange to sell their Exchange
products outside of the Exchange, and requires health plans
that do not participate in the Exchange to sell at least
one standardized product designated by the Exchange in each
of the four levels of coverage, if the Exchange elects to
standardize products.
AB 2578 (Jones and Feuer) of 2010 would have required
carriers to file a complete rate application with
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regulators for a rate increase that will become effective
on or after January 1, 2012. Would have prohibited a
health plan or insurer's premium rate (defined to include
premiums, co-payments, coinsurance obligations,
deductibles, and other charges) from being approved or
remaining in effect that is excessive, inadequate, unfairly
discriminatory, as specified. Failed passage off the
Senate Floor.
SB 316 (Alquist) of 2009 would have, among other things,
broadened an existing MLR disclosure requirement that
currently applies to individuals and groups of 25 or fewer
individuals, to instead apply to individuals and groups of
50 or fewer individuals. An earlier version of the bill
contained similar MLR requirements to SB 51. Failed
passage out of Assembly Health Committee.
AB 812 (De La Torre) of 2009 would have required health
plans and health insurers to report to their respective
regulators the MLR of each health care plan product or
health insurance policy. Failed passage out of Assembly
Appropriations Committee.
AB 1218 (Jones) of 2009 was substantively similar to AB
2578 (Jones and Feuer) of 2010. Failed passage out of the
Assembly Health Committee.
SB 1440 (Kuehl) of 2008 was an identical measure to SB 316
as introduced. Vetoed by the Governor.
AB 1554 (Jones) of 2007 was substantively similar to AB
2578 (Jones and Feuer) of 2010 and AB 1219 (Jones) of 2009.
Failed passage out of Senate Health Committee.
ABX1 1 (Nunez) of 2007 among its provisions, would have, on
and after July 1, 2010, required full-service health plans
and health insurers to expend no less than 85 percent of
the after-tax revenues they receive from dues, fees,
premiums, or other periodic payments, on health care
benefits. The bill would have allowed plans and insurers
to average their administrative costs across all of the
plans and insurance policies they offer, with the exception
of Medicare supplement plans and policies and certain other
limited benefit policies, and would have allowed regulators
to exclude any new contracts or policies from this limit
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for the first two years they are offered in California.
"Health care benefits" would have been broadly defined to
include the costs of programs or activities which improve
the provision of health care services and improve health
care outcomes, as well as disease management services,
medical advice, and pay-for-performance payments. Failed
passage out of Senate Health Committee.
AB 8 (Nunez) of 2007 contained similar provisions to ABX1 1
with regard to the amount health plans and health insurers
would have been required to expend on health care benefits.
Vetoed by the Governor.
SB 1591 (Kuehl) of 2006 would have prohibited health
insurers from spending on administrative costs in any
fiscal year an excessive amount of aggregate dues, fees, or
other periodic payments received by the insurer. Would
have provided, for purposes of the bill, that
administrative costs include all costs identified in
current regulations applying to health plans. Would have
required CDI to develop regulations to implement the bill
by January 1, 2008, and would have provided that the bill
is to take effect on July 1, 2008. These provisions were
amended out of the bill.
SB 425 (Ortiz) of 2006 would have required carriers to
obtain prior approval for a rate increase, defined in a
similar manner to rates under AB 1218 of 2009. Failed
passage out of Senate Health Committee.
SB 26 (Figueroa) of 2004 would have required carriers to
obtain prior approval of rate increases from regulators, as
specified, and would have potentially required significant
refunds of premiums previously collected. Failed passage
out of the Senate Insurance Committee.
Arguments in support
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 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
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
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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. Supporters
state that recent rate filing under existing California law
suggest that HMOs and insurers are not accustomed to public
scrutiny of rates; they have failed to produce substantial
evidence to justify the proposed rate increases or even to
provide complete information about the reason for the rate
increases. Supporters state that at the same time rates
have been increased, the five largest health insurers saw
their profits increased by 56 percent. Supporters contend
that 35 states already require prior health insurance rate
approval by state regulators that this bill would protect
Californians from unreasonable and unnecessary health
insurance rate increases and greater oversight to the
health insurance industry.
Insurance Commissioner Dave Jones states that the barrage
of significant health insurance rate increases - some
coming multiple times in the same 12 month period on the
same policyholders - is unsustainable, and underscores why
the Insurance Commissioner and Director of DMHC need the
authority to reject excessive rate hikes. Currently,
health insurance companies hold all the cards when it comes
to deciding health insurance rates. Many consumers are now
purchasing products with higher deductibles and many have
dropped coverage altogether. The Commissioner states that
consumers are surprised to learn the Commissioner does not
have the authority to reject excessive health insurance
rate hikes.
Children's groups state that in the midst of a very
difficult economy, consumers and businesses struggle to pay
for health insurance and that they should have the
assurance that rates are fair and subject to approval by in
impartial regulator; and this is especially important for 6
million California children with private coverage.
Consumer Watchdog writes that like the auto insurers prior
to Prop 103, the health insurance industry is stashing
billions of dollars in excess surplus, unaffected by the
economic downturn. Consumer Watchdog determined that Blue
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Shield of California alone held $2.9 billion in excess
surplus, the amount needed to assure financial stability
under state law. Consumer Watchdog asserts that regulators
in California should be able consider this financial bloat
when determining reasonable rates.
CALPIRG states that while the Exchange will help consumers
and small businesses to find and compare health insurance
policies, it does not have the power to force insurers to
modify their rates. All it can do is choose to do is
refuse insurers entry into the Exchange market. While the
Exchange can negotiate for more affordable rates, the large
majority of Californians will be getting their health
coverage outside of the Exchange. AB 52 ensures that all
consumers are protected from unreasonable rate increases.
The California Labor Federation (CLF) states that recently
passed rate review legislation will help bring more
transparency to the rate filing process, but it falls short
of giving regulators necessary tools to check increases.
CLF notes that in May of this year, DMHC, for the first
time, declared a proposed rate increase was unreasonable,
yet Anthem Blue Cross, the carrier, is set to increase
rates anyway. CLF states that California's working
families need relief from the skyrocketing cost of health
care and AB 52 gives regulators the tools they need to keep
health insurance affordable and accessible, which is
important as the PPACA individual mandate takes effect.
The California School Employees Association states that it
is not uncommon for classified school employees to have
more than half of their paycheck taken to pay for their
health insurance premiums. AB 52 will address the
escalating costs of health care by giving the Insurance
Commissioner and DMHC the authority to approve, deny, or
modify rates that are excessive, inadequate, or unfairly
discriminatory.
U.S. Senator Dianne Feinstein states that it is critical to
protect California consumers and businesses and this bill
will give regulators the authority to reject excessive,
inadequate, or unfairly discriminatory rate increases.
Senator Feinstein further states that insurance companies
are driven by the need to return profits to shareholders,
and without properly oversight, will continue to raise
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
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rates and drop people from coverage to maximize profits.
Senator Feinstein contends that it is clear that
California's state regulators need authority to reject
excessive rate hikes.
Arguments in opposition
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. Blue Cross states that numerous
studies conclude that the primary drivers of premium cost
increases are due to increasing consumer utilization of
services and increasing provider prices.
Health Net writes that they administer hundreds of product
designs and each change varies the rate charged to the
purchaser, in some cases a product and its accompanying
rate is unique to one employer. Health Net states that
under rate regulation, after negotiating with the single
employer, the plan would have to request approval of a rate
that is already agreeable to the purchaser. Health Net
further asserts that given the responsibility of staff to
review proposed rates, it is likely that significant time
will pass before a plan and the employer know whether the
contract can take effect and that as a result, carriers are
likely to restrict variations in the contracts to limit the
number of reviews it must undergo.
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.
The California Hospital Association (CHA) states that AB 52
creates an expensive bureaucracy that would siphon millions
of dollars of critically needed funding away from direct
patient care. While these costs will ostensibly be borne
by carriers, CHA believes they will necessarily lead to
decreased payments to providers and increased cost-sharing
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
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for patients. CHA also states that premiums are increasing
because the underlying costs of delivering care continue to
increase, and AB 52 does not address the root causes of
those underlying cost increases, including the number of
uninsured, increasing costs for hospital and physician
"inputs" such as pharmaceuticals, biotechnology, new
diagnostic and therapeutic technologies, the aging
population, workforce shortages, legislative mandates, and
looming hospital seismic retrofit requirements. CHA also
asserts that providers are shifting costs to private payers
due to payment shortfalls from Medicare, Medi-Cal and other
public programs, which would be limited under rate
regulation.
The California Medical Association (CMA) state that
physicians, who are already reimbursed at unconscionably
low levels, are very concerned about the myriad unintended
consequences of this bill. CMA asserts that, if AB 52
passes, HMOs will merely force their providers to bear the
burden, leading to lower provider reimbursement, fewer
contracted physicians, reduced access and less time with
patients. Physicians will have very little, if any,
leverage against carriers, at a time when millions of
people are expected to gain coverage in 2014 and the state
should be investing in access and robust networks so that
coverage is not a false promise.
The California Association of Physician Groups (CAPG)
states that it is unclear how this bill relates to the
pending federal regulations on MLR and whether it would
require plans to calculate their administrative ratios by
including the overhead of delegated model groups. If the
two are aggregated, CAPG states that the delegated model
has been a major factor in the delivery of
lower-than-average HMO premiums in California over the last
15 years, and that this advantageous cost-control mechanism
could be eliminated overnight. CAPG also states that the
NAIC was acutely sensitive to this issue during its 2010
deliberations over the MLR model regulations and determined
that all capitated payments should be counted as a medical
expense.
The California Chamber of Commerce (CalChamber) states
that, although they share concerns about the rising costs
of healthcare, often times the only way employers can
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afford to offer health benefits is through a cost sharing
arrangement. While CalChamber understands the bill's
intent to reduce these out-of-pocket expenses that
employees must pay in the form of higher premiums and
cost-sharing, rate regulation does nothing to lower the
underlying causes of escalating medical costs and is a
distraction that avoids the difficult task of driving down
the cost of medical care. CalChamber asserts that simply
capping rates will not make costs disappear, but will
instead limit choices and quality for employers and their
employees.
The California Manufacturers & Technology Association
(CMTA) asserts that experience in other states clearly
demonstrates that the vast regulatory structure AB 52 will
impose has not saved money. Four out of five states with
the highest premiums in the individual market impose rate
regulation. CMTA states that it is obvious insurance
prices are dictated by the unique make-up of the market in
each state, and not as an effect of rate regulation. In
addition, CMTA argues that proponents wrongly presume price
controls for auto insurance will work for people, and
points to better-built cars, safer roads, tougher drunken
driving and seatbelt laws, and a Supreme court ruling
limiting third-party lawsuits as reasons for declining auto
insurance rates.
The Civil Justice Association states 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 himself or herself or members of the
public." They assert that provision would allow lawsuits
to be filed by uninjured parties who had suffered no harm.
The California Association of Joint Powers Authorities
(CAJPA) states that joint powers authorities set their
rates actuarially and first see rate data from their
actuary and underwriters. The underwriter must evaluate
claims history, trends, migration factors, etc. to have
their board approve a rate that is fiscally sound for this
program. Sometimes plan changes based on actuarial
recommendations are necessary to offset rate increase,
necessitating plan changes in an expeditious manner that
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
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may be delayed due to rate regulation. In addition, CAJPA
asserts that AB 52 overrides mid-year bargaining agreements
or modifications to existing bargaining agreements between
labor and management to adjust premiums, cost-sharing, or
any other level of service.
The California Association of Health Underwriters (CAHU)
states that AB 52 imposes yet another loss ratio on top of
multiple MLR requirements and an existing rate review
process. In addition, the prohibition against raising
rates no more frequently than once a year would in reality
be much longer, given the extensive periods set out in AB
52 for hearing and review. In addition, CAHU believes that
the bill's far-reaching public intervenor process
encourages the public to intervene in these adjustments
even if the overall premium rate remains unchanged, and
that Prop 103's intervenor provisions have transferred
millions of taxpayer dollars to the very same interveners
that sponsored the Prop 103 initiative years ago.
PRIOR ACTIONS
Assembly Health: 12- 7
Assembly Appropriations:9- 7
Assembly Floor: 45- 28
COMMENTS
1. Effect of the bill. This bill would apply to products
sold in the individual, small group, and large group
markets. It would also apply to products sold inside the
Exchange, CalPERS products that are not self-funded, and
commercial coverage products purchased by self-funded
plans, such as Taft-Hartley trusts. AB 52 also applies
retroactively to rate increases effective January 1, 2011.
2. Should large group products be subject to rate
regulation? This bill applies to products sold in the
individual, small group, and large group markets, a portion
of which is negotiated on an employer-by-employer,
contract-by-contract basis. In comparison, SB 1163 (Leno),
Chapter 661, Statutes of 2010, only requires rate review
filings in the individual and small group market. Unless
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
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an independent actuary has found a large group rate
increase to be "unreasonable" pursuant to PPACA and related
guidance, large group products are not subject to rate
review. Federal guidance applies primarily to individual
and small group products. Although many states have rate
regulation in various forms, few states actually regulate
large group rates. Large employers and associations
frequently negotiate rates with the insurer based on their
own experience, making each plan a unique product.
In a February 28, 2011 written response to a federal
inquiry regarding the inclusion of large group in federal
rate review requirements, the NAIC stated:
"The NAIC appreciates and strongly supports the
decision by HHS to exclude large group from this
proposed regulation, because large group rating
differs significantly from individual and small group
rating. This business is experience rated because the
number of insured lives makes each group at least
partially credible for rating purposes. This type of
rating plan is not amenable to evaluation on the basis
of percentage increases, so a different process will
be necessary if a future regulation addresses large
group rates. A large majority of states do not
regulate large group rates. If HHS decides to develop
a review process for large group rates in the future,
some important considerations include:
Greater emphasis should be placed on the
credibility of the experience used in the
experience-rated coverage.
Groups as small as 51 employees are
considered large employers and yet these groups
are not really large enough to self-fund or have
fully experience rated plans. To the extent that
large group rates are subject to review, at a
minimum, consideration should be given to the
size of the group and the degree to which the
group is experience rated. "
3. Direction to regulators on determination of excessive
and inadequate rates. AB 52 directs the regulators to
determine whether a rate is excessive, inadequate, or
unfairly discriminatory based on a consideration of several
factors including, but not limited to, medical and
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
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nonmedical expenses, the rate of return, overhead, and
administration, and surplus, reserves, and investment
income. The bill further directs the review to take into
account established actuarial principles. A more common
standard for review of insurance rates is whether the rate
is actuarially sound, which is usually defined as a rate
that is developed in accordance with generally accepted
actuarial principles. The departments' guidelines for
review of rates under SB 1163 use such a standard. Should
that standard also apply in AB 52?
4. Should Exchange products be subject to rate regulation?
California's Health Benefits Exchange was established as
an active purchaser, with the ability to negotiate and
selectively contract with insurers that offer a high-value
product in exchange for a large volume of enrollees. The
authorizing Exchange statutes also require products sold
within the Exchange to be made available outside of the
Exchange at the same rate. This provides the Exchange
Board the ability to reject rates for products in the
Exchange as well as a limited set of products outside of
the Exchange. It is unclear how rate regulation would
impact rates available to Exchange, but arguably if AB 52
were enacted, there could be a conflict between the rates
negotiated by the Exchange and those approved by the
regulators. A suggested amendment would be to exempt
Exchange products, while providing the Exchange authority
to request a review by regulators.
5. Independent review. The bill gives authority to the
elected Insurance Commissioner and a governor-appointed
Director of DMHC to regulate health insurance rates and
cost-sharing. Should an independent entity be authorized
to review rate filings and make determination or
recommendations to the regulators?
6. Underlying health care cost drivers not addressed.
While AB 52 focuses on health insurance premiums, it does
not address the fundamental and underlying factors driving
health care cost increases. To better address this, should
carriers be required to provide additional information on
cost-containment efforts undertaken by the carrier and
results of those efforts over time? Should carriers be
required to implement cost containment measures used by
large purchasers or proposed under PPACA? Should
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
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regulators be given the authority to evaluate and report on
disparities in provider rates underlying the premium rates?
7. Length of time for review. The bill directs regulators
to make a determination in 60 days but does not address
what happens when the regulator does not meet this
timeframe. The further out a carrier must submit a rate
for approval, the greater the uncertainty of the actuarial
values projected, which may lead carriers to use more
conservative assumptions in their rate filings. Should
filings not approved or disapproved within a certain
timeframe be deemed approved?
8. Reliance on legal proceedings. The processes
established in the bill for challenging and reviewing
regulators' decisions rely heavily on court proceedings.
The author may wish to consider an alternative approach
that uses an arbitration process prior to legal proceedings
to minimize the costs and delays associated with these
proceedings.
9. Interaction with existing rate review process. As the
bill is drafted, it is unclear if the proposed rate
regulation process will be a separate and additional
process from the rate review process proposed under SB 1163
(Leno), or if it would build upon the existing rate review
process. AB 52 also contains similar reporting
requirements to SB 1163. Staff recommends amendments to
better synchronize the rate review and rate approval
processes.
10. Definition of "excessive, inadequate, unfairly
discriminatory" is unclear. As drafted, AB 52 intends that
regulators develop such definitions. Under Prop 103
regulations, excessive and inadequate are defined to mean:
"Excessive" rates are rates that are expected to
yield the reasonably efficient insurer a profit that
exceeds a fair return on the investment used to
provide the insurance. In determining whether a rate
is excessive, the Commissioner shall consider the
competing interests of consumers in lower prices and
of investors in prices that yield high returns, and
the Commissioner shall consider the fact that
insurance is imbued with the public interest and is
sometimes legally required.
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
34
"Inadequate" rates are rates under which a
reasonably efficient insurer is not expected to have
the opportunity to earn a fair return on the
investment that is used to provide the insurance. In
determining whether a rate is inadequate, the
Commissioner shall consider the competing interests of
consumers in lower prices and of investors in prices
that yield high returns, and the Commissioner shall
consider that insurance is imbued with the public
interest and sometimes legally required.
11. Should regulators have the authority to determine the
scope of what an intervenor may intervene on? The bill
contains broad definitions of who can be an intervenor and
what an intervenor may intervene on (i.e. regulations,
filings prior and after a regular makes a finding, etc.).
Under DMHC's existing Consumer Participation Program, the
department has the authority to determine what an
intervenor may intervene on, which is not an authority
provided under AB 52.
12. Duplication of Consumer Participation Program under
DMHC. DMHC already has an existing Consumer Participation
Program, capped at $350,000 per year. The intervenor
provisions of this bill may result in two similar programs
under DMHC. Should the Consumer Participation Program be
consolidated with the intervenor process?
13. Suggested technical amendment:
(a) On page 3, strike out lines 11-12 inclusive
and insert:
As of 2009, more than 7.1 million Californians are
uninsured, or one in five Californians under 65
years of age.
(b) On page 6, strike out lines 38-40 inclusive
and insert:
(11) A line-item report of medical expenses,
including, but not limited to, aggregate totals
paid to hospitals, physicians and surgeons, and
costs associated with experimental or investigative
therapies.
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
35
(c) On page 8, line 2 replace "application" with
"filing"
(d) On page 8, strike out lines 36-37 inclusive
and insert:
services, laboratory, radiology, and costs
associated with experimental or investigative
therapies. A plan may provide
(e) On page 10, strike out line 16 inclusive and
insert:
totals paid to hospitals, physicians and surgeons,
and costs associated with experimental or
investigative therapies.
(f) On page 10, strike out lines 32-33 inclusive.
(g) On page 21, strike out lines 23-25 inclusive
and insert:
(11) A line-item report of medical expenses,
including, but not limited to, aggregate totals
paid to hospitals, physicians and surgeons, and
costs associated with experimental or investigative
therapies.
(h) On page 29, line 29 replace "application"
with "filing"
(i) On page 23, strike out lines 23-24 inclusive
and insert:
ancillary services, laboratory, radiology, and
costs associated with experimental or investigative
therapies. An insurer
(j) On page 24, strike out line 29 inclusive and
insert:
totals paid to hospitals, physicians and surgeons,
and costs associated with experimental or
investigative therapies.
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
36
(aa) On page 25, strike out lines 5-6 inclusive.
POSITIONS
Support: AARP
AFSCME Retirees Chapter 36
Alliance of Californians for Community
Empowerment
American Cancer Society, California Division
American Diabetes Association
American Indian Healing Center
AnewAmerica Community Corporation
Asian Business Association
Association of California School Administrators
Bay Area Black United Fund
Bel Air Beverly Crest Neighborhood Council
Black Business Association
Black Economic Council
Brain Injury Association of California
Brightline Defense Project
California Alliance for Retired Americans
California Association of Professional Scientists
California Black Chamber of Commerce
California Chiropractic Association
California Commission on Aging
California Communities United Institute
California Conference Board of the Amalgamated
Transit Union
California Conference of Machinists
California Democratic Congressional Delegation
California Family Resource Association
California Federation of Teachers
California Labor Federation
California Mortgage Association
California National Organization of Women
California Nurses Association
California Pan-Ethnic Health Network
California Physical Therapy Association
California Professional Firefighters
California Psychological Association
California Retired Teachers Association
California Rural Legal Assistance Foundation
California School Boards2- Association
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
37
California School Employees Association
California Senior Legislature
California Teachers Association
California Teamsters Public Affairs Council
California Women Lawyers
California Women's Agenda
CALPIRG
CDF Firefighters Local 2881
Children Now
Children's Defense Fund California
City of Los Angeles
City of Sacramento
Coalition for Humane Immigrant Rights of Los
Angeles
Committee of Interns and Residents/SEIU
Healthcare
Community College League of California
Community Union
Conference of California Bar Associations
Congress of California Seniors
Consortium of Physicians from Latin America
Consumer Attorneys of California
Consumer Federation of California
Consumer Watchdog
Consumers Union
Council of American Business Associations
Courage Campaign
Democratic Party of Sacramento County
Disability Rights California
Disability Rights Legal Center
Engineers and Scientists of California
Fresno West Coalition for Economic Development
Friends Committee on Legislation of California
Glendale City Employees Association
Greater Los Angeles African American Chamber of
Commerce
Having Our Say
HCI
Health Access California
Health Care for All - California
Hispanic Business, Education and Training
Hmong American Political Association
Inland Empire Latino Coalition
International Longshore and Warehouse Union
Korean American Democratic Committee
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
38
Korean Center, Inc.
Korean Churches for Community Development
Korean Health Education Information & Research
Center
La Maestra Family Clinic
Labor United for Universal Healthcare
Laborers' Locals 777 & 792
Latino Business Chamber of Greater Los Angeles
Latino Coalition for a Healthy California
Latino Health Alliance
Marin County Board of Supervisors
National Federation of Filipino American
Associations, Region 8, Northern California
National Multiple Sclerosis Society - California
Action Network
National Physicians Alliance - California
National Union of Healthcare Workers
North Valley Democratic Club
Northern California District Council of the
International Longshore and Warehouse Union
Older Women's League of California
Organization of SMUD Employees
Our Weekly Los Angeles
Peace Officers Research Association of California
PICO California
Planned Parenthood Advocacy Project of Los
Angeles County
Planned Parenthood Affiliates of California
Planned Parenthood Mar Monte
Planned Parenthood of Santa Barbara, Ventura and
San Luis Obispo Counties, Inc.
Planned Parenthood Pasadena and San Gabriel
Valley
Professional and Technical Engineers, Local 21
Professional Engineers in California Government
Sacramento Capitol Older Women's League
San Bernardino Public Employees Association
San Francisco African American Chamber of
Commerce
San Gabriel Valley Economic Partnership (if
amended)
San Luis Obispo County Employees Association
Santa Clarita Valley Fair Elections Committee
Santa Cruz County Board of Supervisors
Santa Rosa City Employees Association
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
39
SEIU California
Small Business Majority
Teamsters Joint Council 42
TELACU Millennium
The Children's Partnership
The Domar Group
The Greenlining Institute
Unitarian Universalist Legislative Ministry
Action Network-California
UNITE HERE!
United Food and Commercial Workers - Western
States Conference
Utility Workers Union of America, Local 132
Vietnamese-American Chamber of Commerce of Orange
County
Ward Economic Development Corporation
Westchester Democratic Club
Yolo County Democratic Central Committee
Barbara Boxer, United States Senator
Dave Jones, Insurance Commissioner
Dianne Feinstein, United States Senator
Sheila Jordan, Alameda County Superintendent of
Schools
Teresa Miller, Oregon Insurance Division
Administrator
Five individuals
Oppose:Altamed Health Services
America's Health Insurance Plans
Anthem Blue Cross
Association of California Life and Health
Insurance Companies
Barbara McClaskey Insurance Services
Blue Shield of California
Brea Chamber of Commerce
California Association of Health Plans
California Association of Health Underwriters
California Association of Joint Powers
Authorities
California Association of Physician Groups
California Chamber of Commerce
California Hospital Association
California Manufacturers and Technology
Association
California Medical Association
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
40
California Taxpayers Association
Catholic Healthcare West
Civil Justice Association of California
Community College League of California
CSAC Excess Insurance Authority
Folsom Chamber of Commerce
Fullerton Chamber of Commerce
Golden Empire Managed Care
Greater Bakersfield Chamber of Commerce
Greater Corona Valley Chamber of Commerce
Greater Fresno Area Chamber of Commerce
Greater Stockton Chamber of Commerce
Hayward Chamber of Commerce
Health Net
Hospital Corporation of America
Howard Jarvis Taxpayers Association
Irvine Chamber of Commerce
Kaiser Permanente
Kern County Taxpayers Association
Livermore Chamber of Commerce
Los Angeles County Medical Association
MemorialCare Medical Foundation
Modesto Chamber of Commerce
Monarch Healthcare
Montebello Chamber of Commerce
Nico Insurance
North American Medical Management California,
Inc.
North Orange County Legislative Alliance
Orange County Business Council
Orange County Taxpayers Association
Oxnard Chamber of Commerce
Palm Canyon Insurance Agency
Pioneer Medical Group
PrimeCare Medical Network, Inc.
Rancho Cordova Chamber of Commerce
Regional Chamber of Commerce San Gabriel Valley
San Diego County Taxpayers Association
San Diego Regional Chamber of Commerce
San Francisco Chamber of Commerce
Silicon Valley Leadership Group
Southwest California Legislative Council
SynerMed
UnitedHealth Group
Valley Industry & Commerce Association
STAFF ANALYSIS OF ASSEMBLY BILL 52 (Feuer and Huffman)Page
41
Ventura Chamber of Commerce
Five individuals
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