BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 52 (Feuer)
Hearing Date: 8/15/2011 Amended: 6/1/2011
Consultant: Katie Johnson Policy Vote: Health 5-3
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BILL SUMMARY: AB 52 would prohibit health care service plans
and health insurers from implementing a rate for a new product
or instituting a rate change unless it submits an application to
the Department of Managed Health Care (DMHC) or the California
Department of Insurance (CDI) and the application is approved.
The Director of DMHC and the Insurance Commissioner would have
the authority approve, deny, or modify any proposed rate or rate
change.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
CDI rate approval review, $600 $1,000
$1,000Special*
hearings, appeals,
regulations, and retroactive
rate approval
DMHC rate approval $6,500 $13,000 $13,000
Special**
review
DMHC retroactive at least $15,000 at least $15,000
$0Special**
rate approval
DMHC regulations $1,250 $1,250 $0
Special**
and one-time expenses
DMHC hearings likely in the millions of
Special** dollars annually
*Insurance Fund
**Managed Care Fund
***Some expenses could be offset by approximately $1.4 million
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federal funds annually for up to 3 years (actual fiscal years
unknown) to be shared between the departments.
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
This bill would prohibit the approval of any rate that is found
to be excessive, inadequate, or unfairly discriminatory or
otherwise in violation of these provisions. These terms would be
defined through the regulatory process since they are not
defined in this bill. These provisions would apply to the
individual, small group, and large group markets except for
health plans contracted with the Department of Health Care
Services for Medi-Cal managed care and with the Managed Risk
Medical Insurance Board, Medicare supplement contracts, a health
plan conversion contract, or a health plan offered to a
federally eligible defined individual. This bill would require
the departments in promulgating regulations to consider whether
the rate is reasonable in comparison to coverage benefits.
Individual and Small Group Markets
This bill would require all health plans and insurers, for
individual and small group health plan contracts and health
insurance policies, to file with the departments a complete rate
application, as specified, for any proposed rate change or rate
for a new product that would become effective on or after
January 1, 2012. The application would be required to be filed
at least 60 days prior to the proposed effective date.
This bill would prohibit the implementation of a rate change
within one year of the date of implementation of the most
recently approved rate change for each product and would require
the plan or insurer to submit 18 specified data points,
including those required by SB 1163 (Leno), Chapter 661,
Statutes of 2010, as part of each application.
According to CHBRP, DMHC regulates 67 percent and CDI regulates
33 percent of the small group market, which consists of about
3.4 million lives. DMHC regulates 35 percent and CDI regulates
65 percent of the individual market, which consists of about 2.1
million lives of the individual and small group markets
respectively.
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Large Group Market
This bill would require all health plans and insurers for large
group health plan contracts and health insurance policies to
file with the departments a complete rate application, as
specified, for any proposed rate change or rate for a new
product that would become effective on or after January 1, 2012.
The application would be required to be filed at least 60 days
prior to the proposed effective date. This bill would prohibit
the implementation of a rate change within one year of the date
of implementation of the most recently approved rate change for
each product and would require the plan or insurer to submit 43
specified information points, including those required by SB
1163 and federal law, as part of each application.
According to the California Health Benefits Review Program, DMHC
regulates 96.6 percent and CDI regulates 3.4 percent of the
large group market, which consists of approximately 11.8 million
lives, excluding Medi-Cal and Healthy Families enrollees.
Requirements for All Applications
All information submitted to the department would be required to
be made publicly available by the departments, except that
contracted rates between a health plan and a provider and a
health plan and a large group subscriber would be deemed
confidential. The departments would be required to issue a
decision within 60 days on all rate applications, as specified.
This bill would permit the departments to notice a public
hearing on a rate increase, in which case the departments would
have 100 days in which to issue a decision.
The departments would be required to hold hearings for any of
the following reasons:
1) An enrollee, policy holder, or his/her representative,
requests a hearing within 45 days of the date of the public
notice and the department grants the request for a hearing;
if the department denies the request, it would be required
to issue written findings in support of that decision;
2) The departments determine for any reason to hold a
hearing;
3) The proposed change would exceed 10 percent of the
amount of the current rate under which the plan contracts,
or would exceed 15 percent for any individual insured or
enrollee subject to the rate increase, in which case the
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departments would be required to hold a hearing upon a
timely request for a hearing.
This bill would require the department to notify the public of
any rate application by a health plan or insurer. Courts would
have the final review over any department final finding,
determination, rule, or order.
An enrollee or policyholder would be permitted to intervene in
any proceeding pursuant to these provisions and any advocate's,
expert witness', or other reasonable costs would be paid
compensated. The departments would also be able to make awards
to the enrollee or insured as specified to be paid by the rate
applicant.
This bill would permit the departments to charge plans and
insurers fees for the actual and reasonable costs related to
filing and reviewing an application. This bill would establish
the Department of Managed Health Care Health Rate Approval Fund
and the Department of Insurance Health Rate Approval Fund into
which the fees would be placed.
This bill would permit the departments to issue guidance on or
before July 1, 2012, related to the implementation of these
provisions without being subject to the Administrative
Procedures Act; regulations would be required to be adopted no
later than January 1, 2013. This bill would permit the
departments to suspend or revoke licenses for failure to comply
with these provisions. The departments would be required to
submit reports semiannually to the Legislature.
Annual Review
Under SB 1163, health insurers and health plans with products in
the individual and small group markets are required to submit
their rates for review by both CDI and DMHC 60 days prior to
their effective date. This bill would also require the same
carriers to submit a complete rate application, which would be
required to include SB 1163 required information plus 17 other
items. If the departments choose to review the rate application
and conduct SB 1163 rate review concurrently, then the
additional review costs associated with the extra data required
by this bill would likely be minor.
For the large group market, the rate application filings
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required by this bill would also be in addition to those
required by SB 1163, which requires that health care service
plans in the large group market submit to the departments any
rates that would be unreasonable, as defined by federal law, at
least 60 days prior to their taking effect. Although it is
unknown how many SB 1163 rate filings would occur in the large
group market, it is estimated that up to 15 percent would be
unreasonable rates. Thus, CDI and DMHC would need to conduct
reviews of rates submitted pursuant to this bill on about 85
percent of the rates in the large group market.
Since CDI regulates less than 5 percent of the large group
market, additional filing, review and approval of large group
rate applications and approval of small group and individual
market rates are not expected to exceed $1 million in Insurance
Fund monies annually.
Costs to DMHC to augment its review of SB 1163 small group and
individual rate filings would likely be relatively minor.
However, since it regulates over 95 percent of the large group
market, and it would review only approximately 15 percent of
large group rate increases under SB 1163, there would be a
significant increase in workload associated with the filing,
review, and approval of the other 85 percent of large group
market rate increases at a cost of approximately $13 million
annually. It is estimated that DMHC would receive approximately
13,000 filings for the large group market. If DMHC were to
discount the total filings by 25 percent for the self-funded
market and 15 percent for the existing SB 1163 review process,
there would be about 8,300 filings annually. Each filing review
would take approximately 20 hours of DMHC staff time.
Hearings and the Intervener
Although it is unknown how many hearings would be conducted
annually, costs to DMHC could be in the millions of dollars
annually to pay for staff preparation time and administrative
law judge services if at least 100 hearings were held. CDI does
not expect significant costs due to hearings. Additionally,
there could be costs to compensate an intervener in the hundreds
of thousands to millions of dollars annually depending on the
number of interveners and the number of hearings.
Retrospective Rate Review and Approval
This bill would require that any health plan or health insurer
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rate change that became effective for the period January 1,
2011, to December 31, 2011, would be subject to review and
approval pursuant to these provisions. Costs to CDI would likely
be minor and absorbable. Costs to DMHC could be at least $30
million, assuming at least half of the expected 8,300 large
group rate filings were submitted and reviewed by the
department. If this workload were expected to be completed
within the 2012 calendar year, DMHC would likely need to
contract out to complete the one-time workload.
Additional Potential Fiscal Effects
There could be a fiscal effect to the California Public
Employees Retirement System (CalPERS) potentially in the tens of
millions of dollars if this bill would necessitate it to begin
its rate negotiation process earlier than it does now. If the
rate negotiation process started earlier, CalPERS would use less
actual data and more assumptions to calculate the rates,
therefore the rates could be more uncertain and engender higher
or lower rate increases. CalPERS is funded approximately 55
percent General Fund and 45 percent special and other funds.
Costs to the California Health Benefit Exchange (Exchange) are
unknown, but it would likely see a fiscal effect like CalPERS'.
Exchange administrative functions are expected to be funded by
special funds through the California Health Trust Fund.
Additionally, premiums charged for health care coverage products
within the Exchange are required to be the same for identical
products offered outside of the Exchange. It is unknown how this
would interact with this bill's rate approval.
Federal Funding for Rate Review and Regulation
The Patient Protection and Affordable Care Act (ACA) makes
available funds for states conducting rate review and prior
approval for up to 5 years. CDI and DMHC received a $1 million
grant in FY 2010-2011. The departments are currently preparing
to apply for a total grant of $4.3 million in federal funds to
be spent over a three-year time period, or about $1.4 million
annually that would be equally divided between the departments.
If this bill were to pass, California could also be eligible for
additional grant funding as a state that would conduct prior
rate approval.
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