BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 52|
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THIRD READING
Bill No: AB 52
Author: Feuer (D) and Huffman (D), et al.
Amended: 6/1/11 in Assembly
Vote: 21
SENATE HEALTH COMMITTEE : 5-3, 7/6/11
AYES: Hernandez, Alquist, De León, DeSaulnier, Wolk
NOES: Strickland, Anderson, Blakeslee
NO VOTE RECORDED: Rubio
SENATE APPROPRIATIONS COMMITTEE : 6-3, 8/25/11
AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
NOES: Walters, Emmerson, Runner
ASSEMBLY FLOOR : 45-28, 6/2/11 - See last page for vote
SUBJECT : Health care coverage: rate approval
SOURCE : Author
DIGEST : This bill prohibits 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 Department of Insurance 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.
ANALYSIS : This bill prohibits the approval of any rate
CONTINUED
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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 requires
the departments in promulgating regulations to consider
whether the rate is reasonable in comparison to coverage
benefits.
Individual and Small Group Markets
This bill requires 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 prohibits 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 requires
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 the California Health Benefits Review Program
(CHBRP), DMHC regulates 67 percent and CDI regulates 33
percent of the small group market, which consists of
approximately 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.
Large Group Market
This bill requires all health plans and insurers for large
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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 prohibits 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 CHBRP, DMHC regulates 96.6 percent and the
Department of Insurance (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 permits 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.
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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 departments would be required to hold a
hearing upon a timely request for a hearing.
This bill requires the departments 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 permits the departments to charge plans and
insurers fees for the actual and reasonable costs related
to filing and reviewing an application. This bill
establishes the DMHC Health Rate Approval Fund and the CDI
Health Rate Approval Fund into which the fees would be
placed.
This bill permits 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 permits 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 also
requires the same carriers to submit a complete rate
application, which would be required to include SB 1163
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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
required by this bill will 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 five 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 approximately 8,300 filings annually. Each filing
review would take approximately 20 hours of DMHC staff
time.
Hearings and the Intervener
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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 requires that any health plan or health insurer
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 necessitates 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
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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 five 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
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$13,000Special**
review
DMHC retroactive rate at least $15,000 at
least $15,000 $0 Special**
approval
DMHC regulations and $1,250 $1,250 $0
Special**
one-time expenses
DMHC hearings likely in the millions of dollars
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annually Special**
* Insurance Fund
** Managed Care Fund
*** Some expenses could be offset by
approximately $1.4 million federal funds annually for
up to three years (actual fiscal years unknown) to be
shared between the departments
SUPPORT : (Verified 8/25/11)
AARP
ACLU of Southern California
AFSCME Retirees Chapter 36
Alameda County Superintendent of Schools Sheila Jordan
Alliance of Californians for Community Empowerment
American Diabetes Association
American Federation of State, County and Municipal
Employees
American Federation of Television and Radio Artists
American Indian Healing Center
AnewAmerica Community Corporation
Asian Business Association
Association of California School Administrators
Attorney General Kamala Harris
Bay Area Black United Fund, Inc.
Bel Air Beverly Crest Neighborhood Council
Black Business Association
Black Economic Council
Black Women for Wellness
Brain Injury Association of California
Brightline Defense Project
California Alliance for Retired Americans
California American College of Emergency Physicians
California Black Chamber of Commerce
California Black Women's Health Project
California Chiropractic Association
California Commission on Aging
California Communities United Institute
California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Council of the Blind
California Democratic Congressional Delegation
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California Family Resource Association
California Federation of Teachers
California Hispanic Chamber of Commerce
California Immigrant Policy Center
California Labor Federation
California Latinas for Reproductive Justice
California Mortgage Association
California National Organization for Women
California Neurology Society
California Nurses Association
California Pan-Ethnic Health Network
California Partnership
California Physical Therapy Association
California Primary Care Association
California Professional Firefighters
California Psychological Association
California Public Interest Research Group
California Rural Legal Assistance Foundation
California School Boards Association
California School Employees Association
California Senior Legislature
California Teachers Association
California Teamsters Public Affairs Council
California Women Lawyers
California Women's Agenda
CDF Firefighters Local
Children Now
Children's Defense Fund California
Children's Partnership
Clergy and Laity United for Economic Justice
Coalition for Humane Immigrant Rights of Los Angeles
COFEM - Consejo de Federaciones Mexicanas en Norteamérica
Community College League
Community Health Councils
Community Union, Inc.
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 Asian American Business Associations
Courage Campaign
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Disability Rights California
Disability Rights Legal Center
Doctors for America
Domar Group, Inc.
Engineers and Scientists of California
Fresno West Coalition for Economic Development
Friends Committee on Legislation of California
Glendale City Employees Association
Great Beginnings for Black Babies, Inc.
Greater Los Angeles African American Chamber of Commerce
Greenlining Institute
Having Our Say! Coalition
HCI/Project Amiga
Health Access California
Health Care for All - California
Health Care for All - San Gabriel Valley Chapter
Hispanic Business, Education and Training, Inc.
Hmong American Political Association
Hunger Action Los Angeles
Inland Empire Latino Coalition
Insurance Commissioner Dave Jones
International Longshore and Warehouse Union
International Longshore and Warehouse Union, Northern
California District Council
Jericho: A Voice for Justice
Korean American Democratic Committee
Korean Center, Inc.
Korean Churches for Community Development
Korean Health Education Information & Research Center
La Maestra Community Health Centers
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
Living Advantage, Inc.
Los Angeles City Council
Los Angeles Health Care Provider Alliance for Children
Madera County Democratic Central Committee
Marin County Board of Supervisors
Mayor of Los Angeles Antonio Villaraigosa
Mendocino Coast District Hospital
Mexican American Legal Defense and Education Fund
National Alliance on Mental Illness
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National Council of La Raza
National Federation of Filipino American Associations
National Korean American Service and Education Consortium
National Multiple Sclerosis Society-California Action
Network
National Physicians Alliance California
National Union of Healthcare Workers
North Valley Democratic Club
Older Women's League of California
ONE L.A.
Oregon Insurance Division
Organization of SMUD Employees
Our Weekly Newspaper, Los Angeles
Peace Officers' Research Association of California
Peralta Community College District
PICO California
Planned Parenthood Advocacy Project, Los Angeles County
Planned Parenthood Affiliates of California
Planned Parenthood of Los Angeles
Planned Parenthood of Santa Barbara, Ventura, and San Luis
Obispo Counties
Planned Parenthood, Mar Monte
Professional and Technical Engineers, Local 21
Professional Engineers in California Government
Progressive Democrats of the Santa Monica Mountains
Retired Public Employees Association
San Bernardino Public Employees Association
San Francisco African American Chamber of Commerce
San Luis Obispo County Employees Association
Santa Clara County Democratic Club
Santa Clarita Valley Fair Elections Committee
Santa Cruz County Board of Supervisors
Santa Rosa City Employees Association
SEIU Healthcare - Committee of Interns and Residents
Senate Health Committee
Senator Barbara Boxer
Senator Dianne Feinstein
Small Business Majority
Southern Christian Leadership Conference - Los Angeles
State Building and Construction Trades Council
Teamsters Joint Council 42
TELACU Millennium
UNITE HERE!
United Farm Workers
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United Food and Commercial Workers - Western States
Conference
University of California Cooperative Extension
Utility Workers Union of America, Local 132
Vietnamese-American Chamber of Commerce of Orange County
Ward Economic Development Corporation
West LA Democratic Club
Westchester Democratic Club
OPPOSITION : (Verified 8/25/11)
Alliance for Affordable Services
America's Health Insurance Plans
American Insurance Association
Anthem Blue Cross
Association of California Life & Health Insurance Companies
Association of Northern California Oncologists
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 Physicians Groups
California Brokers for Affordable Healthcare
California Chamber of Commerce
California Correctional Peace Officers Association Benefit
Trust Disability Plan
California Farm Bureau Federation
California Health Benefits Exchange
California Hospital Association
California Medical Association
California Public Employees Retirement System
California Taxpayers Association
Catholic Healthcare West
Central City Association of Los Angeles
Chico Chamber of Commerce
Civil Justice Association of California
CSAC Excess Insurance Authority
Culver City Chamber of Commerce
Folsom Chamber of Commerce
Fresno Chamber of Commerce
Fullerton Chamber of Commerce
Garden Grove Chamber of Commerce
Greater Corona Valley Chamber of Commerce
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Greater San Fernando Valley Chamber
Greater Stockton Chamber of Commerce
Hayward Chamber of Commerce
Healthnet
Howard Jarvis Taxpayers Association
Irvine Chamber of Commerce
Irwindale Chamber of Commerce
Kaiser Permanente
Kern County Taxpayers Association
League of California Cities
Long Beach Area Chamber of Commerce
Medical Oncology Association of Southern California
Modesto Chamber of Commerce
Montebello Chamber of Commerce
North Orange County Legislative Alliance
Orange Chamber of Commerce
Orange County Business Council
Orange County Taxpayers Association
Oxnard Chamber of Commerce
Palm Desert Chamber of Commerce
Pleasanton Chamber of Commerce
Rancho Cordova Chamber of Commerce
Regional Chamber of Commerce San Gabriel Valley
Sacramento County Taxpayers' League
San Diego East County Chamber of Commerce
San Diego Regional Chamber of Commerce
San Francisco Chamber of Commerce
San Jose Chamber of Commerce
Santa Clara Chamber of Commerce
Simi Valley Chamber of Commerce
Southwest California Legislative Council
United Chambers of Commerce
United Health Group
Ventura Chamber of Commerce
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 regulation of health insurance rates in
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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
six million California children with private coverage.
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
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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 this
bill 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 for patients. CHA also states that premiums
are increasing because the underlying costs of delivering
care continue to increase, and this bill 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,
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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.
ASSEMBLY FLOOR : 45-28, 6/2/11
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Butler, Charles
Calderon, Campos, Carter, Cedillo, Chesbro, Davis,
Dickinson, Eng, Feuer, Fong, Fuentes, Furutani, Gatto,
Gordon, Hayashi, Roger Hernández, Hill, Hueso, Huffman,
Lara, Bonnie Lowenthal, Ma, Mendoza, Mitchell, Monning,
V. Manuel Pérez, Portantino, Skinner, Swanson, Torres,
Wieckowski, Williams, Yamada, John A. Pérez
NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly,
Fletcher, Beth Gaines, Garrick, Grove, Hagman, Halderman,
Harkey, Jeffries, Jones, Knight, Logue, Mansoor, Miller,
Morrell, Nestande, Nielsen, Norby, Olsen, Pan, Silva,
Smyth, Valadao, Wagner
NO VOTE RECORDED: Buchanan, Galgiani, Gorell, Hall, Huber,
Perea, Solorio
CTW:mw 8/26/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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