BILL NUMBER: AB 1083	CHAPTERED
	BILL TEXT

	CHAPTER  852
	FILED WITH SECRETARY OF STATE  SEPTEMBER 30, 2012
	APPROVED BY GOVERNOR  SEPTEMBER 30, 2012
	PASSED THE SENATE  AUGUST 29, 2012
	PASSED THE ASSEMBLY  AUGUST 30, 2012
	AMENDED IN SENATE  AUGUST 24, 2012
	AMENDED IN SENATE  AUGUST 15, 2012
	AMENDED IN SENATE  SEPTEMBER 2, 2011
	AMENDED IN SENATE  AUGUST 31, 2011
	AMENDED IN SENATE  AUGUST 15, 2011
	AMENDED IN SENATE  JULY 14, 2011
	AMENDED IN SENATE  JUNE 27, 2011
	AMENDED IN ASSEMBLY  MAY 24, 2011
	AMENDED IN ASSEMBLY  MAY 10, 2011
	AMENDED IN ASSEMBLY  MARCH 29, 2011

INTRODUCED BY   Assembly Member Monning
   (Principal coauthor: Assembly Member Feuer)

                        FEBRUARY 18, 2011

   An act to amend Sections 1385.01 and 1393.6 of, to add Sections
1348.95, 1357.19, and 1357.55 to, to add Article 3.16 (commencing
with Section 1357.500) and Article 3.17 (commencing with Section
1357.600) to Chapter 2.2 of Division 2 of, and to repeal and
addArticle 3.15 (commencing with Section 1357.50) of Chapter 2.2 of
Division 2 of, the Health and Safety Code, and to amend Section 10181
of, to add Sections 10127.19, 10198.10, and 10750 to, to add Chapter
8.01 (commencing with 10753) and Chapter 8.02 (commencing with
Section 10755) to Part 2 of Division 2 of, and to repeal and add
Article 7 (commencing with Section 10198.6) of Chapter 1 of Part 2 of
Division 2 of, the Insurance Code, relating to health care coverage.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1083, Monning. Health care coverage.
   Existing federal law, the federal Patient Protection and
Affordable Care Act (PPACA), enacts various health care coverage
market reforms that take effect with respect to plan years on or
after January 1, 2014. Among other things, PPACA requires each health
insurance issuer that offers health insurance coverage in the
individual or group market in a state to accept every employer and
individual in the state that applies for that coverage and to renew
that coverage at the option of the plan sponsor or the individual.
PPACA prohibits a group health plan and a health insurance issuer
offering group or individual health insurance coverage from imposing
any preexisting condition exclusion with respect to that plan or
coverage. PPACA allows the premium rate charged by a health insurance
issuer offering small group or individual coverage to vary only by
family composition, rating area, age, and tobacco use and prohibits
discrimination against individuals based on health status, as
specified. PPACA specifies that certain of these provisions do not
apply to grandfathered health plans, as defined.
   Existing law, the Knox-Keene Health Care Service Plan Act of 1975,
provides for the regulation of health care service plans by the
Department of Managed Health Care and makes a willful violation of
the act a crime. Existing law provides for the regulation of health
insurers by the Department of Insurance. Existing law provides for
the regulation of health care service plans and health insurers that
offer health benefit plans to small employers with regard to eligible
employees, as defined. Existing law requires a plan or insurer to
offer, market, and sell all of its small employer health benefit
plans to all small employers in each service area in which the plan
provides or arranges for the provisions of health care services and
provides certain limits on the rates for these plans. Existing law
prohibits a group health benefit plan from excluding coverage for an
individual on the basis of a preexisting condition provision for a
period greater than 6 months, except as specified.
   This bill would prohibit a health care service plan contract or
health insurance policy, on or after January 1, 2014, from imposing
any preexisting condition provision upon any individual, except as
specified. The bill would also enact provisions that apply to
nongrandfathered and grandfathered plans with respect to plan years
on or after January 1, 2014, consistent with PPACA. Among other
things, the bill would require a plan or insurer, on and after
October 1, 2013, to offer, market, and sell all of the plan's or
insurer's nongrandfathered plans that are sold in the small group
market to all small employers in each service area in which the plan
provides or arranges for the provision of health care services. The
bill would require nongrandfathered plans to provide open enrollment
periods consistent with federal law and special enrollment periods
and coverage effective dates consistent with the individual
nongrandfathered market and would authorize plans and insurers to use
only age, geographic region, and whether the plan covers an
individual or family for purposes of establishing rates for
nongrandfathered small employer plans, as specified. The bill would
enact other related provisions and make related conforming changes.
The bill would authorize the Department of Managed Health Care and
the Department of Insurance to adopt emergency regulations
implementing the bill's provisions regarding grandfathered plans by
August 31, 2013, as specified. The bill would make certain of these
provisions inoperative if the corresponding provisions of PPACA are
repealed and would make other related conforming changes. The bill
would require plans and insurers to report to the departments the
number of enrollees and covered lives that receive coverage under
specified contracts or policies, and would require the departments to
post that information on their Internet Web sites.
   Because a willful violation of the bill's provisions relative to
health care service plans would be a crime, the bill would impose a
state-mandated local program.
   The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that no reimbursement is required by this
act for a specified reason.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 1348.95 is added to the Health and Safety Code,
to read:
   1348.95.  Commencing March 1, 2013, and at least annually
thereafter, every health care service plan, not including a health
care service plan offering specialized health care service plan
contracts, shall provide to the department, in a form and manner
determined by the department in consultation with the Department of
Insurance, the number of enrollees, by product type, as of December
31 of the prior year, that receive health care coverage under a
health care service plan contract that covers individuals, small
groups, large groups, or administrative services only business lines.
Health care service plans shall include the enrollment data in
specific product types as determined by the department, including,
but not limited to, HMO, point-of-service, PPO, grandfathered, and
Medi-Cal managed care. The department shall publicly report the data
provided by each health care service plan pursuant to this section,
including, but not limited to, posting the data on the department's
Internet Web site. The department shall consult with the Department
of Insurance to ensure that the data reported is comparable and
consistent, does not duplicate existing reporting requirements, and
utilizes existing reporting formats.
  SEC. 2.  Section 1357.19 is added to the Health and Safety Code, to
read:
   1357.19.  This article shall not apply to a health care service
plan contract that is subject to Article 3.16 (commencing with
Section 1357.500) or Article 3.17 (commencing with Section 1357.600),
except as otherwise provided in those articles.
  SEC. 3.  Article 3.16 (commencing with Section 1357.500) is added
to Chapter 2.2 of Division 2 of the Health and Safety Code, to read:

      Article 3.16.  Nongrandfathered Small Employer Plans


   1357.500.  As used in this article, the following definitions
shall apply:
   (a) "Child" means a child described in Section 22775 of the
Government Code and subdivisions (n) to (p), inclusive, of Section
599.500 of Title 2 of the California Code of Regulations.
   (b) "Dependent" means the spouse or registered domestic partner,
or child, of an eligible employee, subject to applicable terms of the
health care service plan contract covering the employee, and
includes dependents of guaranteed association members if the
association elects to include dependents under its health coverage at
the same time it determines its membership composition pursuant to
subdivision (m).
   (c) "Eligible employee" means either of the following:
   (1) Any permanent employee who is actively engaged on a full-time
basis in the conduct of the business of the small employer with a
normal workweek of an average of 30 hours per week over the course of
a month, at the small employer's regular places of business, who has
met any statutorily authorized applicable waiting period
requirements. The term includes sole proprietors or partners of a
partnership, if they are actively engaged on a full-time basis in the
small employer's business and included as employees under a health
care service plan contract of a small employer, but does not include
employees who work on a part-time, temporary, or substitute basis. It
includes any eligible employee, as defined in this paragraph, who
obtains coverage through a guaranteed association. Employees of
employers purchasing through a guaranteed association shall be deemed
to be eligible employees if they would otherwise meet the definition
except for the number of persons employed by the employer. Permanent
employees who work at least 20 hours but not more than 29 hours are
deemed to be eligible employees if all four of the following apply:
   (A) They otherwise meet the definition of an eligible employee
except for the number of hours worked.
   (B) The employer offers the employees health coverage under a
health benefit plan.
   (C) All similarly situated individuals are offered coverage under
the health benefit plan.
   (D) The employee must have worked at least 20 hours per normal
workweek for at least 50 percent of the weeks in the previous
calendar quarter. The health care service plan may request any
necessary information to document the hours and time period in
question, including, but not limited to, payroll records and employee
wage and tax filings.
   (2) Any member of a guaranteed association as defined in
subdivision (m).
   (d) "Exchange" means the California Health Benefit Exchange
created by Section 100500 of the Government Code.
   (e) "In force business" means an existing health benefit plan
contract issued by the plan to a small employer.
   (f) "Late enrollee" means an eligible employee or dependent who
has declined enrollment in a health benefit plan offered by a small
employer at the time of the initial enrollment period provided under
the terms of the health benefit plan consistent with the periods
provided pursuant to Section 1357.503 and who subsequently requests
enrollment in a health benefit plan of that small employer, except
where the employee or dependent qualifies for a special enrollment
period provided pursuant to Section 1357.503. It also means any
member of an association that is a guaranteed association as well as
any other person eligible to purchase through the guaranteed
association when that person has failed to purchase coverage during
the initial enrollment period provided under the terms of the
guaranteed association's plan contract consistent with the periods
provided pursuant to Section 1357.503 and who subsequently requests
enrollment in the plan, except where that member or person qualifies
for a special enrollment period provided pursuant to Section
1357.503.
   (g) "New business" means a health care service plan contract
issued to a small employer that is not the plan's in force business.
   (h) "Preexisting condition provision" means a contract provision
that excludes coverage for charges or expenses incurred during a
specified period following the enrollee's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage. No health care
service plan shall limit or exclude coverage for any individual based
on a preexisting condition whether or not any medical advice,
diagnosis, care, or treatment was recommended or received before that
date.
   (i) "Creditable coverage" means:
   (1) Any individual or group policy, contract, or program that is
written or administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans. The term includes
continuation or conversion coverage but does not include accident
only, credit, coverage for onsite medical clinics, disability income,
Medicare supplement, long-term care, dental, vision, coverage issued
as a supplement to liability insurance, insurance arising out of a
workers' compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (2) The Medicare Program pursuant to Title XVIII of the federal
Social Security Act (42 U.S.C. Sec. 1395 et seq.).
   (3) The Medicaid Program pursuant to Title XIX of the federal
Social Security Act (42 U.S.C. Sec. 1396 et seq.).
   (4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
   (5) 10 U.S.C. Chapter 55 (commencing with Section 1071) (Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS)).
   (6) A medical care program of the Indian Health Service or of a
tribal organization.
   (7) A health plan offered under 5 U.S.C. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
   (8) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the Public Health Service Act,
as amended by Public Law 104-191, the Health Insurance Portability
and Accountability Act of 1996.
   (9) A health benefit plan under Section 5(e) of the Peace Corps
Act (22 U.S.C. Sec. 2504(e)).
   (10) Any other creditable coverage as defined by subsection (c) of
Section 2704 of Title XXVII of the federal Public Health Service Act
(42 U.S.C. Sec. 300gg-3(c)).
   (j) "Rating period" means the period for which premium rates
established by a plan are in effect and shall be no less than 12
months from the date of issuance or renewal of the plan contract.
   (k) (1) "Small employer" means any of the following:
   (A) For plan years commencing on or after January 1, 2014, and on
or before December 31, 2015, any person, firm, proprietary or
nonprofit corporation, partnership, public agency, or association
that is actively engaged in business or service, that, on at least 50
percent of its working days during the preceding calendar quarter or
preceding calendar year, employed at least one, but no more than 50,
eligible employees, the majority of whom were employed within this
state, that was not formed primarily for purposes of buying health
care service plan contracts, and in which a bona fide
employer-employee relationship exists. For plan years commencing on
or after January 1, 2016, any person, firm, proprietary or nonprofit
corporation, partnership, public agency, or association that is
actively engaged in business or service, that, on at least 50 percent
of its working days during the preceding calendar quarter or
preceding calendar year, employed at least one, but no more than 100,
eligible employees, the majority of whom were employed within this
state, that was not formed primarily for purposes of buying health
care service plan contracts, and in which a bona fide
employer-employee relationship exists. In determining whether to
apply the calendar quarter or calendar year test, a health care
service plan shall use the test that ensures eligibility if only one
test would establish eligibility. In determining the number of
eligible employees, companies that are affiliated companies and that
are eligible to file a combined tax return for purposes of state
taxation shall be considered one employer. Subsequent to the issuance
of a health care service plan contract to a small employer pursuant
to this article, and for the purpose of determining eligibility, the
size of a small employer shall be determined annually. Except as
otherwise specifically provided in this article, provisions of this
article that apply to a small employer shall continue to apply until
the plan contract anniversary following the date the employer no
longer meets the requirements of this definition. It includes any
small employer as defined in this paragraph who purchases coverage
through a guaranteed association, and any employer purchasing
coverage for employees through a guaranteed association. This
subparagraph shall be implemented to the extent consistent with
PPACA, except that the minimum requirement of one employee shall be
implemented only to the extent required by PPACA.
   (B) Any guaranteed association, as defined in subdivision (l),
that purchases health coverage for members of the association.
   (2) For plan years commencing on or after January 1, 2014, the
definition of an employer, for purposes of determining whether an
employer with one employee shall include sole proprietors, certain
owners of "S" corporations, or other individuals, shall be consistent
with Section 1304 of PPACA.
   (l) "Guaranteed association" means a nonprofit organization
comprised of a group of individuals or employers who associate based
solely on participation in a specified profession or industry,
accepting for membership any individual or employer meeting its
membership criteria, and that (1) includes one or more small
employers as defined in subparagraph (A) of paragraph (1) of
subdivision (k), (2) does not condition membership directly or
indirectly on the health or claims history of any person, (3) uses
membership dues solely for and in consideration of the membership and
membership benefits, except that the amount of the dues shall not
depend on whether the member applies for or purchases insurance
offered to the association, (4) is organized and maintained in good
faith for purposes unrelated to insurance, (5) has been in active
existence on January 1, 1992, and for at least five years prior to
that date, (6) has included health insurance as a membership benefit
for at least five years prior to January 1, 1992, (7) has a
constitution and bylaws, or other analogous governing documents that
provide for election of the governing board of the association by its
members, (8) offers any plan contract that is purchased to all
individual members and employer members in this state, (9) includes
any member choosing to enroll in the plan contracts offered to the
association provided that the member has agreed to make the required
premium payments, and (10) covers at least 1,000 persons with the
health care service plan with which it contracts. The requirement of
1,000 persons may be met if component chapters of a statewide
association contracting separately with the same carrier cover at
least 1,000 persons in the aggregate.
   This subdivision applies regardless of whether a contract issued
by a plan is with an association, or a trust formed for or sponsored
by an association, to administer benefits for association members.
   For purposes of this subdivision, an association formed by a
merger of two or more associations after January 1, 1992, and
otherwise meeting the criteria of this subdivision shall be deemed to
have been in active existence on January 1, 1992, if its predecessor
organizations had been in active existence on January 1, 1992, and
for at least five years prior to that date and otherwise met the
criteria of this subdivision.
   (m) "Members of a guaranteed association" means any individual or
employer meeting the association's membership criteria if that person
is a member of the association and chooses to purchase health
coverage through the association. At the association's discretion, it
also may include employees of association members, association
staff, retired members, retired employees of members, and surviving
spouses and dependents of deceased members. However, if an
association chooses to include these persons as members of the
guaranteed association, the association shall make that election in
advance of purchasing a plan contract. Health care service plans may
require an association to adhere to the membership composition it
selects for up to 12 months.
   (n) "Affiliation period" means a period that, under the terms of
the health care service plan contract, must expire before health care
services under the contract become effective.
   (o) "Grandfathered health plan" has the meaning set forth in
Section 1251 of PPACA.
   (p) "Nongrandfathered small employer health care service plan
contract" means a small employer health care service plan contract
that is not a grandfathered health plan.
   (q) "Plan year" has the meaning set forth in Section 144.103 of
Title 45 of the Code of Federal Regulations.
   (r) "PPACA" means the federal Patient Protection and Affordable
Care Act (Public Law 111-148), as amended by the federal Health Care
and Education Reconciliation Act of 2010 (Public Law 111-152), and
any rules, regulations, or guidance issued thereunder.
   (s) "Small employer health care service plan contract" means a
health care service plan contract issued to a small employer.
   (t) "Waiting period" means a period that is required to pass with
respect to an employee before the employee is eligible to be covered
for benefits under the terms of the contract.
   (u) "Registered domestic partner" means a person who has
established a domestic partnership as described in Section 297 of the
Family Code.
   1357.501.  This article shall apply only to nongrandfathered small
employer health care service plan contracts and only with respect to
plan years beginning on or after January 1, 2014.
   1357.502.  (a) A health care service plan providing or arranging
for the provision of essential health benefits, as defined by the
state pursuant to Section 1302 of PPACA, to small employers shall be
subject to this article if either of the following conditions is met:

   (1) Any portion of the premium is paid by a small employer, or any
covered individual is reimbursed, whether through wage adjustments
or otherwise, by a small employer for any portion of the premium.
   (2) The plan contract is treated by the small employer or any of
the covered individuals as part of a plan or program for the purposes
of Section 106 or 162 of the Internal Revenue Code.
   (b) This article shall not apply to health care service plan
contracts for coverage of Medicare services pursuant to contracts
with the United States government, Medicare supplement, Medi-Cal
contracts with the State Department of Health Care Services,
long-term care coverage, or specialized health care service plan
contracts.
   1357.502.5.  Nothing in this article shall be construed to
preclude the application of this chapter to either of the following:
   (a) An association, trust, or other organization acting as a
"health care service plan" as defined under Section 1345.
   (b) An association, trust, or other organization or person
presenting information regarding a health care service plan to
persons who may be interested in subscribing or enrolling in the
plan.
   1357.503.  (a) (1) On and after October 1, 2013, a plan shall
fairly and affirmatively offer, market, and sell all of the plan's
small employer health care service plan contracts for plan years on
or after January 1, 2014, to all small employers in each service area
in which the plan provides or arranges for the provision of health
care services.
   (2) On and after October 1, 2013, a plan shall make available to
each small employer all small employer health care service plan
contracts that the plan offers and sells to small employers or to
associations that include small employers in this state for plan
years on or after January 1, 2014.
   (3) A plan that offers qualified health plans through the Exchange
shall be deemed to be in compliance with paragraphs (1) and (2) with
respect to small employer health care service plan contracts offered
through the Exchange in those geographic regions in which the plan
offers plan contracts through the Exchange.
   (b) A plan shall provide enrollment periods consistent with PPACA
and set forth in Section 155.725 of Title 45 of the Code of Federal
Regulations. A plan shall provide special enrollment periods
consistent with the special enrollment periods required in the
individual nongrandfathered market in the state under Section
1399.849, except for the triggering events identified in paragraphs
(d)(3) and (d)(6) of Section 155.420 of Title 45 of the Code of
Federal Regulations with respect to plan contracts offered through
the Exchange.
   (c) No plan or solicitor shall induce or otherwise encourage a
small employer to separate or otherwise exclude an eligible employee
from a health care service plan contract that is provided in
connection with employee's employment or membership in a guaranteed
association.
   (d) Every plan shall file with the director the reasonable
employee participation requirements and employer contribution
requirements that will be applied in offering its plan contracts.
Participation requirements shall be applied uniformly among all small
employer groups, except that a plan may vary application of minimum
employee participation requirements by the size of the small employer
group and whether the employer contributes 100 percent of the
eligible employee's premium. Employer contribution requirements shall
not vary by employer size. A health care service plan shall not
establish a participation requirement that (1) requires a person who
meets the definition of a dependent in Section 1357.500 to enroll as
a dependent if he or she is otherwise eligible for coverage and
wishes to enroll as an eligible employee and (2) allows a plan to
reject an otherwise eligible small employer because of the number of
persons that waive coverage due to coverage through another employer.
Members of an association eligible for health coverage under
subdivision (m) of Section 1357.500, but not electing any health
coverage through the association, shall not be counted as eligible
employees for purposes of determining whether the guaranteed
association meets a plan's reasonable participation standards.
   (e) The plan shall not reject an application from a small employer
for a small employer health care service plan contract if all of the
following conditions are met:
   (1) The small employer offers health benefits to 100 percent of
its eligible employees. Employees who waive coverage on the grounds
that they have other group coverage shall not be counted as eligible
employees.
   (2) The small employer agrees to make the required premium
payments.
   (3) The small employer agrees to inform the small employer's
employees of the availability of coverage and the provision that
those not electing coverage must wait until the next open enrollment
or a special enrollment period to obtain coverage through the group
if they later decide they would like to have coverage.
   (4) The employees and their dependents who are to be covered by
the plan contract work or reside in the service area in which the
plan provides or otherwise arranges for the provision of health care
services.
   (f) No plan or solicitor shall, directly or indirectly, engage in
the following activities:
   (1) Encourage or direct small employers to refrain from filing an
application for coverage with a plan because of the health status,
claims experience, industry, occupation of the small employer, or
geographic location provided that it is within the plan's approved
service area.
   (2) Encourage or direct small employers to seek coverage from
another plan because of the health status, claims experience,
industry, occupation of the small employer, or geographic location
provided that it is within the plan's approved service area.
   (g) A plan shall not, directly or indirectly, enter into any
contract, agreement, or arrangement with a solicitor that provides
for or results in the compensation paid to a solicitor for the sale
of a health care service plan contract to be varied because of the
health status, claims experience, industry, occupation, or geographic
location of the small employer. This subdivision does not apply to a
compensation arrangement that provides compensation to a solicitor
on the basis of percentage of premium, provided that the percentage
shall not vary because of the health status, claims experience,
industry, occupation, or geographic area of the small employer.
   (h) (1) A policy or contract that covers a small employer, as
defined in Section 1304(b) of PPACA and in Section 1357.500, shall
not establish rules for eligibility, including continued eligibility,
of an individual, or dependent of an individual, to enroll under the
terms of the policy or contract based on any of the following health
status-related factors:
   (A) Health status.
   (B) Medical condition, including physical and mental illnesses.
   (C) Claims experience.
   (D) Receipt of health care.
   (E) Medical history.
   (F) Genetic information.
   (G) Evidence of insurability, including conditions arising out of
acts of domestic violence.
   (H) Disability.
   (I) Any other health status-related factor as determined by any
federal regulations, rules, or guidance issued pursuant to Section
2705 of the federal Public Health Service Act.
   (2) Notwithstanding Section 1389.1, a health care service plan
shall not require an eligible employee or dependent to fill out a
health assessment or medical questionnaire prior to enrollment under
a small employer health care service plan contract. A health care
service plan shall not acquire or request information that relates to
a health status-related factor from the applicant or his or her
dependent or any other source prior to enrollment of the individual.
   (i) A plan shall comply with the requirements of Section 1374.3.
   (j) (1) Except as provided in paragraph (2), this section shall
become inoperative if Section 2702 of the federal Public Health
Service Act (42 U.S.C. Sec. 300gg-1), as added by Section 1201 of
PPACA, is repealed, in which case health care services plans subject
to this section shall instead be governed by Section 1357.03 to the
extent permitted by federal law, and all references in this article
to this section shall instead refer to Section 1357.03 except for
purposes of paragraph (2).
   (2) Subdivision (b) of this section shall remain operative with
respect to health care service plan contracts offered through the
Exchange.
   1357.503.035.  (a) For plan contracts subject to this article, an
association that meets the definition of a guaranteed association, as
set forth in Section 1357.500, except for the requirement that 1,000
persons be covered, shall be entitled to purchase small employer
health coverage as if the association were a guaranteed association,
except that the coverage shall be guaranteed only for those members
of an association, as defined in subdivision (m) of Section 1357.500,
(1) who were receiving coverage or had successfully applied for
coverage through the association as of June 30, 1993, (2) who were
receiving coverage through the association as of December 31, 1992,
and whose coverage lapsed at any time thereafter because the
employment through which coverage was received ended or an employer's
contribution to health coverage ended, or (3) who were covered at
any time between June 30, 1993, and July 1, 1994, under a contract
that was in force on June 30, 1993.
   (b) An association obtaining health coverage for its members
pursuant to this section shall otherwise be afforded all the rights
of a guaranteed association under this chapter, including, but not
limited to, guaranteed renewability of coverage.
   1357.504.  (a) With respect to small employer health care service
plan contracts offered outside the Exchange, after a small employer
submits a completed application form for a plan contract, the health
care service plan shall, within 30 days, notify the employer of the
employer's actual premium charges for that plan contract established
in accordance with Section 1357.512. The employer
                        shall have 30 days in which to exercise the
right to buy coverage at the quoted premium charges.
   (b) (1) Except as provided in paragraph (2), when a small employer
submits a premium payment, based on the quoted premium charges, and
that payment is delivered or postmarked, whichever occurs earlier,
within the first 15 days of the month, coverage under the plan
contract shall become effective no later than the first day of the
following month. When that payment is neither delivered nor
postmarked until after the 15th day of a month, coverage shall become
effective no later than the first day of the second month following
delivery or postmark of the payment.
   (2) A health care service plan shall apply coverage effective
dates for plan contracts subject to this article consistent with the
coverage effective dates applicable to nongrandfathered individual
health care service plan contracts pursuant to Section 1399.849.
   (c) During the first 30 days after the effective date of the plan
contract, the small employer shall have the option of changing
coverage to a different plan contract offered by the same health care
service plan. If a small employer notifies the plan of the change
within the first 15 days of a month, coverage under the new plan
contract shall become effective no later than the first day of the
following month. If a small employer notifies the plan of the change
after the 15th day of a month, coverage under the new plan contract
shall become effective no later than the first day of the second
month following notification.
   1357.506.  (a) A small employer health care service plan contract
shall not impose a preexisting condition provision upon any
individual.
   (b) A plan contract may apply a waiting period of up to 60 days as
a condition of employment if applied equally to all eligible
employees and dependents and if consistent with PPACA. A plan
contract through a health maintenance organization, as defined in
Section 2791 of the federal Public Health Service Act, may impose an
affiliation period not to exceed 60 days. A waiting or affiliation
period shall not be based on a preexisting condition of an employee
or dependent, the health status of an employee or dependent, or any
other factor listed in subdivision (h) of Section 1357.503. An
affiliation period shall run concurrently with a waiting period.
During the waiting or affiliation period, the plan is not required to
provide health care services and no premium shall be charged to the
subscriber or enrollees.
   (c) In determining whether a waiting or affiliation period applies
to any person, a plan shall credit the time the person was covered
under creditable coverage, provided the person becomes eligible for
coverage under the succeeding plan contract within 62 days of
termination of prior coverage, exclusive of any waiting or
affiliation period, and applies for coverage with the succeeding plan
contract within the applicable enrollment period. A plan shall also
credit any time an eligible employee must wait before enrolling in
the plan, including any affiliation or employer-imposed waiting or
affiliation period. However, if a person's employment has ended, the
availability of health coverage offered through employment or
sponsored by an employer has terminated, or an employer's
contribution toward health coverage has terminated, a plan shall
credit the time the person was covered under creditable coverage if
the person becomes eligible for health coverage offered through
employment or sponsored by an employer within 180 days, exclusive of
any waiting or affiliation period, and applies for coverage under the
succeeding plan contract within the applicable enrollment period.
   (d) An individual's period of creditable coverage shall be
certified pursuant to subsection (e) of Section 2704 of Title XXVII
of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-3(e)).

   1357.507.  Nothing in this article shall be construed as
prohibiting a health care service plan from restricting enrollment of
late enrollees to open enrollment periods provided under Section
1357.503 as authorized under Section 2702 of the federal Public
Health Service Act.
   1357.508.  A small employer health care service plan contract
shall provide to subscribers and enrollees at least all of the
essential health benefits as defined by the state pursuant to Section
1302 of PPACA.
   1357.509.  To the extent permitted by PPACA, no plan shall be
required to offer a health care service plan contract or accept
applications for the contract pursuant to this article in the case of
any of the following:
   (a) To a small employer, if the small employer is not physically
located in a plan's approved service areas, or if an eligible
employee and dependents who are to be covered by the plan contract do
not work or reside within a plan's approved service areas.
   (b) (1) Within a specific service area or portion of a service
area, if a plan reasonably anticipates and demonstrates to the
satisfaction of the director that it will not have sufficient health
care delivery resources to ensure that health care services will be
available and accessible to the eligible employee and dependents of
the employee because of its obligations to existing enrollees.
   (2) A plan that cannot offer a health care service plan contract
to small employers because it is lacking in sufficient health care
delivery resources within a service area or a portion of a service
area may not offer a contract in the area in which the plan is not
offering coverage to small employers to new employer groups with more
than 50 eligible employees until the plan notifies the director that
it has the ability to deliver services to small employer groups, and
certifies to the director that from the date of the notice it will
enroll all small employer groups requesting coverage in that area
from the plan unless the plan has met the requirements of subdivision
(d).
   (3) Nothing in this article shall be construed to limit the
director's authority to develop and implement a plan of
rehabilitation for a health care service plan whose financial
viability or organizational and administrative capacity has become
impaired.
   (c) Offer coverage to a small employer or an eligible employee as
defined in paragraph (2) of subdivision (c) of Section 1357.500 that,
within 12 months of application for coverage, disenrolled from a
plan contract offered by the plan.
   (d) (1) The director approves the plan's certification that the
number of eligible employees and dependents enrolled under contracts
issued during the current calendar year equals or exceeds either of
the following:
   (A) In the case of a plan that administers any self-funded health
coverage arrangements in California, 10 percent of the total
enrollment of the plan in California as of December 31 of the
preceding year.
   (B) In the case of a plan that does not administer any self-funded
health coverage arrangements in California, 8 percent of the total
enrollment of the plan in California as of December 31 of the
preceding year. If that certification is approved, the plan shall not
offer any health care service plan contract to any small employers
during the remainder of the current year.
   (2) If a health care service plan treats an affiliate or
subsidiary as a separate carrier for the purpose of this article
because one health care service plan is qualified under the federal
Health Maintenance Organization Act (42 U.S.C. Sec. 300e et seq.) and
does not offer coverage to small employers, while the affiliate or
subsidiary offers a plan contract that is not qualified under the
federal Health Maintenance Organization Act (42 U.S.C. Sec. 300e et
seq.) and offers plan contracts to small employers, the health care
service plan offering coverage to small employers shall enroll new
eligible employees and dependents, equal to the applicable percentage
of the total enrollment of both the health care service plan
qualified under the federal Health Maintenance Organization Act (42
U.S.C. Sec. 300e et seq.) and its affiliate or subsidiary.
   (3) (A) The certified statement filed pursuant to this subdivision
shall state the following:
   (i) Whether the plan administers any self-funded health coverage
arrangements in California.
   (ii) The plan's total enrollment as of December 31 of the
preceding year.
   (iii) The number of eligible employees and dependents enrolled
under contracts issued to small employer groups during the current
calendar year.
   (B) The director shall, within 45 days, approve or disapprove the
certified statement. If the certified statement is disapproved, the
plan shall continue to issue coverage as required by Section 1357.503
and be subject to disciplinary action as set forth in Article 7
(commencing with Section 1386).
   (e) A health care service plan that, as of December 31 of the
prior year, had a total enrollment of fewer than 100,000 and 50
percent or more of the plan's total enrollment have premiums paid by
the Medi-Cal program.
   (f) A social health maintenance organization, as described in
subsection (a) of Section 2355 of the federal Deficit Reduction Act
of 1984 (Public Law 98-369), that, as of December 31 of the prior
year, had a total enrollment of fewer than 100,000 and has 50 percent
or more of the organization's total enrollment premiums paid by the
Medi-Cal program or Medicare Program, or by a combination of Medi-Cal
and Medicare. In no event shall this exemption be based upon
enrollment in Medicare supplement contracts, as described in Article
3.5 (commencing with Section 1358).
   1357.510.  The director may require a plan to discontinue the
offering of contracts or acceptance of applications from any small
employer or group upon a determination by the director that the plan
does not have sufficient financial viability, or organizational and
administrative capacity to ensure the delivery of health care
services to its enrollees. In determining whether the conditions of
this section have been met, the director shall consider, but not be
limited to, the plan's compliance with the requirements of Section
1367, Article 6 (commencing with Section 1375), and the rules adopted
thereunder.
   1357.512.  (a) The premium rate for a small employer health care
service plan contract shall vary with respect to the particular
coverage involved only by the following:
   (1) Age, pursuant to the age bands established by the United
States Secretary of Health and Human Services pursuant to Section
2701(a)(3) of the federal Public Health Service Act (42 U.S.C. Sec.
300gg(a)(3)). Rates based on age shall be determined based on the
individual's birthday and shall not vary by more than three to one
for adults.
   (2) (A) Geographic region. The geographic regions for purposes of
rating shall be the following:
   (i) Region 1 shall consist of the Counties of Alpine, Del Norte,
Siskiyou, Modoc, Lassen, Shasta, Trinity, Humboldt, Tehama, Plumas,
Nevada, Sierra, Mendocino, Lake, Butte, Glenn, Sutter, Yuba, Colusa,
Amador, Calaveras, and Tuolumne.
   (ii) Region 2 shall consist of the Counties of Napa, Sonoma,
Solano, and Marin.
   (iii) Region 3 shall consist of the Counties of Sacramento,
Placer, El Dorado, and Yolo.
   (iv) Region 4 shall consist of the County of San Francisco.
   (v) Region 5 shall consist of the County of Contra Costa.
   (vi) Region 6 shall consist of the County of Alameda.
   (vii) Region 7 shall consist of the County of Santa Clara.
   (viii) Region 8 shall consist of the County of San Mateo.
   (ix) Region 9 shall consist of the Counties of Santa Cruz,
Monterey, and San Benito.
   (x) Region 10 shall consist of the Counties of San Joaquin,
Stanislaus, Merced, Mariposa, and Tulare.
   (xi) Region 11 shall consist of the Counties of Madera, Fresno,
and Kings.
   (xii) Region 12 shall consist of the Counties of San Luis Obispo,
Santa Barbara, and Ventura.
   (xiii) Region 13 shall consist of the Counties of Mono, Inyo, and
Imperial.
   (xiv) Region 14 shall consist of the County of Kern.
   (xv) Region 15 shall consist of the ZIP Codes in Los Angeles
County starting with 906 to 912, inclusive, 915, 917, 918, and 935.
   (xvi) Region 16 shall consist of the ZIP Codes in Los Angeles
County other than those identified in clause (xv).
   (xvii) Region 17 shall consist of the Counties of San Bernardino
and Riverside.
   (xviii) Region 18 shall consist of the County of Orange.
   (xix) Region 19 shall consist of the County of San Diego.
   (B) No later than June 1, 2017, the department, in collaboration
with the Exchange and the Department of Insurance, shall review the
geographic rating regions specified in this paragraph and the impacts
of those regions on the health care coverage market in California,
and submit a report to the appropriate policy committees of the
Legislature.
   (3) Whether the contract covers an individual or family, as
described in PPACA.
   (b) The rate for a health care service plan contract subject to
this section shall not vary by any factor not described in this
section.
   (c) The rating period for rates subject to this section shall be
no less than 12 months from the date of issuance or renewal of the
plan contract.
   (d) This section shall become inoperative if Section 2701 of the
federal Public Health Service Act (42 U.S.C. Sec. 300gg), as added by
Section 1201 of PPACA, is repealed, in which case rates for health
care service plan contracts subject to this section shall instead be
subject to Section 1357.12, to the extent permitted by federal law,
and all references to this section shall be deemed to be references
to Section 1357.12.
   1357.514.  In connection with the offering for sale of a small
employer health care service plan contract subject to this article,
each plan shall make a reasonable disclosure, as part of its
solicitation and sales materials, of the following:
   (a) The provisions concerning the plan's right to change premium
rates and the factors other than provision of services experience
that affect changes in premium rates. The plan shall disclose that
claims experience cannot be used.
   (b) Provisions relating to the guaranteed issue and renewal of
contracts.
   (c) A statement that no preexisting condition provisions shall be
allowed.
   (d) Provisions relating to the small employer's right to apply for
any small employer health care service plan contract written,
issued, or administered by the plan at the time of application for a
new health care service plan contract, or at the time of renewal of a
health care service plan contract, consistent with the requirements
of PPACA.
   (e) The availability, upon request, of a listing of all the plan's
contracts and benefit plan designs offered, both inside and outside
the Exchange, to small employers, including the rates for each
contract.
   (f) At the time it offers a contract to a small employer, each
plan shall provide the small employer with a statement of all of its
small employer health care service plan contracts, including the
rates for each plan contract, in the service area in which the
employer's employees and eligible dependents who are to be covered by
the plan contract work or reside. For purposes of this subdivision,
plans that are affiliated plans or that are eligible to file a
consolidated income tax return shall be treated as one health plan.
   (g) Each plan shall do all of the following:
   (1) Prepare a brochure that summarizes all of its plan contracts
offered to small employers and to make this summary available to any
small employer and to solicitors upon request. The summary shall
include for each contract information on benefits provided, a generic
description of the manner in which services are provided, such as
how access to providers is limited, benefit limitations, required
copayments and deductibles, an explanation of the manner in which
creditable coverage is calculated if a waiting or affiliation period
is imposed, and a phone number that can be called for more detailed
benefit information. Plans are required to keep the information
contained in the brochure accurate and up to date and, upon updating
the brochure, send copies to solicitors and solicitor firms with whom
the plan contracts to solicit enrollments or subscriptions.
   (2) For each contract, prepare a more detailed evidence of
coverage and make it available to small employers, solicitors, and
solicitor firms upon request. The evidence of coverage shall contain
all information that a prudent buyer would need to be aware of in
making contract selections.
   (3) Provide copies of the current summary brochure to all
solicitors and solicitor firms contracting with the plan to solicit
enrollments or subscriptions from small employers.
   For purposes of this subdivision, plans that are affiliated plans
or that are eligible to file a consolidated income tax return shall
be treated as one health plan.
   (h) Every solicitor or solicitor firm contracting with one or more
plans to solicit enrollments or subscriptions from small employers
shall do all of the following:
   (1) When providing information on contracts to a small employer
but making no specific recommendations on particular plan contracts:
   (A) Advise the small employer of the plan's obligation to sell to
any small employer any small employer health care service plan
contract, consistent with PPACA, and provide the small employer, upon
request, with the actual rates that would be charged to that
employer for a given contract.
   (B) Notify the small employer that the solicitor or solicitor firm
will procure rate and benefit information for the small employer on
any plan contract offered by a plan whose contract the solicitor
sells.
   (C) Notify the small employer that upon request the solicitor or
solicitor firm will provide the small employer with the summary
brochure required under paragraph (1) of subdivision (g) for any plan
contract offered by a plan with which the solicitor or solicitor
firm has contracted to solicit enrollments or subscriptions.
   (D) Notify the small employer of the availability of coverage and
the availability of tax credits for certain employers consistent with
PPACA and state law, including any rules, regulations, or guidance
issued in connection therewith.
   (2) When recommending a particular benefit plan design or designs,
advise the small employer that, upon request, the agent will provide
the small employer with the brochure required by paragraph (1) of
subdivision (g) containing the benefit plan design or designs being
recommended by the agent or broker.
   (3) Prior to filing an application for a small employer for a
particular contract:
   (A) For each of the plan contracts offered by the plan whose
contract the solicitor or solicitor firm is offering, provide the
small employer with the benefit summary required in paragraph (1) of
subdivision (g) and the premium for that particular employer.
   (B) Notify the small employer that, upon request, the solicitor or
solicitor firm will provide the small employer with an evidence of
coverage brochure for each contract the plan offers.
   (C) Obtain a signed statement from the small employer
acknowledging that the small employer has received the disclosures
required by this section.
   1357.515.  (a) At least 20 business days prior to renewing or
amending a plan contract subject to this article which will be in
force on the operative date of this article, a plan shall file a
notice of material modification with the director in accordance with
the provisions of Section 1352. The notice of material modification
shall include a statement certifying that the plan is in compliance
with Section 1357.512. Any action by the director, as permitted under
Section 1352, to disapprove, suspend, or postpone the plan's use of
a plan contract shall be in writing, specifying the reasons that the
plan contract does not comply with the requirements of this chapter.
   (b) At least 20 business days prior to offering a plan contract
subject to this article, all plans shall file a notice of material
modification with the director in accordance with the provisions of
Section 1352. The notice of material modification shall include a
statement certifying that the plan is in compliance with Section
1357.512. Plans that will be offering to a small employer plan
contracts approved by the director prior to the effective date of
this article shall file a notice of material modification in
accordance with this subdivision. Any action by the director, as
permitted under Section 1352, to disapprove, suspend, or postpone the
plan's use of a plan contract shall be in writing, specifying the
reasons that the plan contract does not comply with the requirements
of this chapter.
   (c) Each plan shall maintain at its principal place of business
all of the information required to be filed with the director
pursuant to this section.
   (d) Nothing in this section shall be construed to limit the
director's authority to enforce the rating practices set forth in
this article.
   1357.516.  (a) Health care service plans may enter into
contractual agreements with qualified associations, as defined in
subdivision (b), under which these qualified associations may assume
responsibility for performing specific administrative services, as
defined in this section, for qualified association members. Health
care service plans that enter into agreements with qualified
associations for assumption of administrative services shall
establish uniform definitions for the administrative services that
may be provided by a qualified association or its third-party
administrator. The health care service plan shall permit all
qualified associations to assume one or more of these functions when
the health care service plan determines the qualified association
demonstrates the administrative capacity to assume these functions.
   For the purposes of this section, administrative services provided
by qualified associations or their third-party administrators shall
be services pertaining to eligibility determination, enrollment,
premium collection, sales, or claims administration on a per-claim
basis that would otherwise be provided directly by the health care
service plan or through a third-party administrator on a commission
basis or an agent or solicitor workforce on a commission basis. Each
health care service plan that enters into an agreement with any
qualified association for the provision of administrative services
shall offer all qualified associations with which it contracts the
same premium discounts for performing those services the health care
service plan has permitted the qualified association or its
third-party administrator to assume. The health care service plan
shall report to the department its schedule of discounts for each
administrative service.
   In no instance may a health care service plan provide discounts to
qualified associations that are in any way intended to, or
materially result in, a reduction in premium charges to the qualified
association due to the health status of the membership of the
qualified association. In addition to any other remedies available to
the director to enforce this chapter, the director may declare a
contract between a health care service plan and a qualified
association for administrative services pursuant to this section null
and void if the director determines any discounts provided to the
qualified association are intended to, or materially result in, a
reduction in premium charges to the qualified association due to the
health status of the membership of the qualified association.
   (b) For the purposes of this section, a qualified association is a
nonprofit corporation comprised of a group of individuals or
employers who associate based solely on participation in a specified
profession or industry that conforms to all of the following
requirements:
   (1) It accepts for membership any individual or small employer
meeting its membership criteria.
   (2) It does not condition membership directly or indirectly on the
health or claims history of any person.
   (3) It uses membership dues solely for and in consideration of the
membership and membership benefits, except that the amount of the
dues shall not depend on whether the member applies for or purchases
insurance offered by the association.
   (4) It is organized and maintained in good faith for purposes
unrelated to insurance.
   (5) It existed on January 1, 1972, and has been in continuous
existence since that date.
   (6) It has a constitution and bylaws or other analogous governing
documents that provide for election of the governing board of the
association by its members.
   (7) It offered, marketed, or sold health coverage to its members
for 20 continuous years prior to January 1, 1993.
   (8) It agrees to offer only to association members any plan
contract.
   (9) It agrees to include any member choosing to enroll in the plan
contract offered by the association, provided that the member agrees
to make required premium payments.
   (10) It complies with all provisions of this article.
   (11) It had at least 10,000 enrollees covered by association
sponsored plans immediately prior to enactment of Chapter 1128 of the
Statutes of 1992.
   (12) It applies any administrative cost at an equal rate to all
members purchasing coverage through the qualified association.
   (c) A qualified association shall comply with Section 1357.52.
  SEC. 4.  Article 3.15 (commencing with Section 1357.50) is added to
Chapter 2.2 of Division 2 of the Health and Safety Code, to read:

      Article 3.15.  Preexisting Condition Provisions


   1357.50.  (a) For purposes of this article, the following
definitions shall apply:
   (1) "Health benefit plan" means a health care service plan
contract that provides medical, hospital, and surgical benefits. The
term does not include coverage of Medicare services pursuant to
contracts with the United States government, Medicare supplement
coverage, or coverage under a specialized health care service plan
contract.
   (2) "Preexisting condition provision" means a contract provision
that excludes coverage for charges or expenses incurred during a
specified period following the enrollee's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.
   (3) "Creditable coverage" means:
   (A) Any individual or group policy, contract, or program that is
written or administered by a health insurer, nonprofit hospital
service plan, health care service plan, fraternal benefits society,
self-insured employer plan, or any other entity, in this state or
elsewhere, and                                             that
arranges or provides medical, hospital and surgical coverage not
designed to supplement other private or governmental plans. The term
includes continuation or conversion coverage but does not include
accident only, credit, coverage for onsite medical clinics,
disability income, Medicare supplement, long-term care insurance,
dental, vision, coverage issued as a supplement to liability
insurance, insurance arising out of a workers' compensation or
similar law, automobile medical payment insurance, or insurance under
which benefits are payable with or without regard to fault and that
is statutorily required to be contained in any liability insurance
policy or equivalent self-insurance.
   (B) The Medicare Program pursuant to Title XVIII of the federal
Social Security Act (42 U.S.C. Sec. 1395 et seq.).
   (C) The Medicaid Program pursuant to Title XIX of the federal
Social Security Act (42 U.S.C. Sec. 1396 et seq.).
   (D) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
   (E) 10 U.S.C. Chapter 55 (commencing with Section 1071) (Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS)).
   (F) A medical care program of the Indian Health Service or of a
tribal organization.
   (G) A health plan offered under 5 U.S.C. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
   (H) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the Public Health Service Act,
as amended by Public Law 104-191, the Health Insurance Portability
and Accountability Act of 1996.
   (I) A health benefit plan under Section 5(e) of the Peace Corps
Act (22 U.S.C. Sec. 2504(e)).
   (J) Any other creditable coverage as defined by subsection (c) of
Section 2704 of Title XXVII of the federal Public Health Service Act
(42 U.S.C. Sec. 300gg-3(c)).
   (4) "Waivered condition provision" means a contract provision that
excludes coverage for charges or expenses incurred during a
specified period of time for one or more specific, identified,
medical conditions.
   (5) "Affiliation period" means a period that, under the terms of
the health benefit plan, must expire before health care services
under the plan become effective.
   (6) "Waiting period" means a period that is required to pass with
respect to an employee before the employee is eligible to be covered
for benefits under the terms of the plan.
   (7) "Grandfathered health benefit plan" means a health benefit
plan that is a grandfathered health plan, as defined in Section 1251
of PPACA.
   (8) "Nongrandfathered health benefit plan" means a health benefit
plan that is not a grandfathered health plan as defined in Section
1251 of PPACA.
   (9) "PPACA" means the federal Patient Protection and Affordable
Care Act (Public Law 111-148), as amended by the federal Health Care
and Education Reconciliation Act of 2010 (Public Law 111-152), and
any rules, regulations, or guidance issued pursuant to that law.
   1357.51.  (a) A nongrandfathered health benefit plan for group or
individual coverage or a grandfathered health benefit plan for group
coverage shall not impose any preexisting condition or waivered
condition upon any enrollee.
   (b) A grandfathered health benefit plan for individual coverage
shall not exclude coverage on the basis of a waivered condition
provision or preexisting condition provision for a period greater
than 12 months following the enrollee's effective date of coverage,
nor limit or exclude coverage for a specific enrollee by type of
illness, treatment, medical condition, or accident, except for
satisfaction of a preexisting condition clause or waivered condition
provision pursuant to this article. Waivered condition provisions or
preexisting condition provisions contained in individual
grandfathered health benefit plans may relate only to conditions for
which medical advice, diagnosis, care, or treatment, including use of
prescription drugs, was recommended or received from a licensed
health practitioner during the 12 months immediately preceding the
effective date of coverage.
   (c) (1) A health benefit plan for group coverage may apply a
waiting period of up to 60 days as a condition of employment if
applied equally to all eligible employees and dependents and if
consistent with PPACA. A health benefit plan for group coverage
through a health maintenance organization, as defined in Section 2791
of the federal Public Health Service Act, shall not impose any
affiliation period that exceeds 60 days. A waiting or affiliation
period shall not be based on a preexisting condition of an employee
or dependent, the health status of an employee or dependent, or any
other factor listed in Section 1357.52. An affiliation period shall
run concurrently with a waiting period. During the waiting or
affiliation period, the plan is not required to provide health care
services and no premium shall be charged to the subscriber or
enrollees.
   (2) A health benefit plan for individual coverage shall not impose
any waiting or affiliation period.
   (d) In determining whether a preexisting condition provision, a
waivered condition provision, or a waiting or affiliation period
applies to an enrollee, a plan shall credit the time the enrollee was
covered under creditable coverage, provided that the enrollee
becomes eligible for coverage under the succeeding plan contract
within 62 days of termination of prior coverage, exclusive of any
waiting or affiliation period, and applies for coverage under the
succeeding plan within the applicable enrollment period. A plan shall
also credit any time that an eligible employee must wait before
enrolling in the plan, including any postenrollment or
employer-imposed waiting or affiliation period.
   However, if a person's employment has ended, the availability of
health coverage offered through employment or sponsored by an
employer has terminated, or an employer's contribution toward health
coverage has terminated, a plan shall credit the time the person was
covered under creditable coverage if the person becomes eligible for
health coverage offered through employment or sponsored by an
employer within 180 days, exclusive of any waiting or affiliation
period, and applies for coverage under the succeeding plan contract
within the applicable enrollment period.
   (e) An individual's period of creditable coverage shall be
certified pursuant to Section 2704(e) of Title XXVII of the federal
Public Health Service Act (42 U.S.C. Sec. 300gg-3(e)).
   1357.52.  A health benefit plan for group coverage shall not
establish rules for eligibility, including continued eligibility, of
an individual, or dependent of an individual, to enroll under the
terms of the plan based on any of the following health status-related
factors:
   (a) Health status.
   (b) Medical condition, including physical and mental illnesses.
   (c) Claims experience.
   (d) Receipt of health care.
   (e) Medical history.
   (f) Genetic information.
   (g) Evidence of insurability, including conditions arising out of
acts of domestic violence.
   (h) Disability.
   (i) Any other health status-related factor as determined by any
federal regulations, rules, or guidance issued pursuant to Section
2705 of the Public Health Service Act.
   1357.55.  This article shall become operative on January 1, 2014.
  SEC. 5.  Section 1357.55 is added to the Health and Safety Code, to
read:
   1357.55.  This article shall remain in effect only until January
1, 2014, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2014, deletes or extends
that date.
  SEC. 6.  Article 3.17 (commencing with Section 1357.600) is added
to Chapter 2.2 of Division 2 of the Health and Safety Code, to read:

      Article 3.17.  Grandfathered Small Employer Plans


   1357.600.  As used in this article, the following definitions
shall apply:
   (a) "Dependent" means the spouse or registered domestic partner,
or child, of an eligible employee, subject to applicable terms of the
health care service plan contract covering the employee, and
includes dependents of guaranteed association members if the
association elects to include dependents under its health coverage at
the same time it determines its membership composition pursuant to
subdivision (n).
   (b) "Eligible employee" means either of the following:
   (1) Any permanent employee who is actively engaged on a full-time
basis in the conduct of the business of the small employer with a
normal workweek of an average of 30 hours per week over the course of
a month, at the small employer's regular places of business, who has
met any statutorily authorized applicable waiting period
requirements. The term includes sole proprietors or partners of a
partnership, if they are actively engaged on a full-time basis in the
small employer's business and included as employees under a health
care service plan contract of a small employer, but does not include
employees who work on a part-time, temporary, or substitute basis. It
includes any eligible employee, as defined in this paragraph, who
obtains coverage through a guaranteed association. Employees of
employers purchasing through a guaranteed association shall be deemed
to be eligible employees if they would otherwise meet the definition
except for the number of persons employed by the employer. Permanent
employees who work at least 20 hours but not more than 29 hours are
deemed to be eligible employees if all four of the following apply:
   (A) They otherwise meet the definition of an eligible employee
except for the number of hours worked.
   (B) The employer offers the employees health coverage under a
health benefit plan.
   (C) All similarly situated individuals are offered coverage under
the health benefit plan.
   (D) The employee must have worked at least 20 hours per normal
workweek for at least 50 percent of the weeks in the previous
calendar quarter. The health care service plan may request any
necessary information to document the hours and time period in
question, including, but not limited to, payroll records and employee
wage and tax filings.
   (2) Any member of a guaranteed association as defined in
subdivision (n).
   (c) "In force business" means an existing health benefit plan
contract issued by the plan to a small employer.
   (d) "Late enrollee" means an eligible employee or dependent who
has declined enrollment in a health benefit plan offered by a small
employer at the time of the initial enrollment period provided under
the terms of the health benefit plan and who subsequently requests
enrollment in a health benefit plan of that small employer, provided
that the initial enrollment period shall be a period of at least 30
days. It also means any member of an association that is a guaranteed
association as well as any other person eligible to purchase through
the guaranteed association when that person has failed to purchase
coverage during the initial enrollment period provided under the
terms of the guaranteed association's plan contract and who
subsequently requests enrollment in the plan, provided that the
initial enrollment period shall be a period of at least 30 days.
However, an eligible employee, any other person eligible for coverage
through a guaranteed association pursuant to subdivision (n), or an
eligible dependent shall not be considered a late enrollee if any of
the following is applicable:
   (1) The individual meets all of the following requirements:
   (A) He or she was covered under another employer health benefit
plan, the Healthy Families Program, the Access for Infants and
Mothers (AIM) Program, the Medi-Cal program, or coverage through the
California Health Benefit Exchange at the time the individual was
eligible to enroll.
   (B) He or she certified at the time of the initial enrollment that
coverage under another employer health benefit plan, the Healthy
Families Program, the AIM Program, the Medi-Cal program, or coverage
through the California Health Benefit Exchange was the reason for
declining enrollment, provided that, if the individual was covered
under another employer health benefit plan, including a plan offered
through the California Health Benefit Exchange, the individual was
given the opportunity to make the certification required by this
subdivision and was notified that failure to do so could result in
later treatment as a late enrollee.
   (C) He or she has lost or will lose coverage under another
employer health benefit plan as a result of termination of employment
of the individual or of a person through whom the individual was
covered as a dependent, change in employment status of the individual
or of a person through whom the individual was covered as a
dependent, termination of the other plan's coverage, cessation of an
employer's contribution toward an employee's or dependent's coverage,
death of the person through whom the individual was covered as a
dependent, legal separation, or divorce; or he or she has lost or
will lose coverage under the Healthy Families Program, the AIM
Program, the Medi-Cal program, or coverage through the California
Health Benefit Exchange.
   (D) He or she requests enrollment within 30 days after termination
of coverage or employer contribution toward coverage provided under
another employer health benefit plan, or requests enrollment within
60 days after termination of Medi-Cal program coverage, AIM Program
coverage, Healthy Families Program coverage, or coverage through the
California Health Benefit Exchange.
   (2) The employer offers multiple health benefit plans and the
employee elects a different plan during an open enrollment period.
   (3) A court has ordered that coverage be provided for a spouse or
minor child under a covered employee's health benefit plan.
   (4) (A) In the case of an eligible employee, as defined in
paragraph (1) of subdivision (b), the plan cannot produce a written
statement from the employer stating that the individual or the person
through whom the individual was eligible to be covered as a
dependent, prior to declining coverage, was provided with, and
signed, acknowledgment of an explicit written notice in boldface type
specifying that failure to elect coverage during the initial
enrollment period permits the plan to impose, at the time of the
individual's later decision to elect coverage, a waiting period of no
longer than 60 days, unless the individual meets the criteria
specified in paragraph (1), (2), or (3).
   (B) In the case of an association member who did not purchase
coverage through a guaranteed association, the plan cannot produce a
written statement from the association stating that the association
sent a written notice in boldface type to all potentially eligible
association members at their last known address prior to the initial
enrollment period informing members that failure to elect coverage
during the initial enrollment period permits the plan to impose, at
the time of the member's later decision to elect coverage, a waiting
period of no longer than 60 days, unless the individual meets the
requirements of subparagraphs (A), (C), and (D) of paragraph (1) or
meets the requirements of paragraph (2) or (3).
   (C) In the case of an employer or person who is not a member of an
association, was eligible to purchase coverage through a guaranteed
association, and did not do so, and would not be eligible to purchase
guaranteed coverage unless purchased through a guaranteed
association, the employer or person can demonstrate that he or she
meets the requirements of subparagraphs (A), (C), and (D) of
paragraph (1), or meets the requirements of paragraph (2) or (3), or
that he or she recently had a change in status that would make him or
her eligible and that application for enrollment was made within 30
days of the change.
   (5) The individual is an employee or dependent who meets the
criteria described in paragraph (1) and was under a COBRA
continuation provision and the coverage under that provision has been
exhausted. For purposes of this section, the definition of "COBRA"
set forth in subdivision (e) of Section 1373.621 shall apply.
   (6) The individual is a dependent of an enrolled eligible employee
who has lost or will lose his or her coverage under the Healthy
Families Program, the AIM Program, the Medi-Cal program, or a health
benefit plan offered through the California Health Benefit Exchange
and requests enrollment within 60 days after termination of that
coverage.
   (7) The individual is an eligible employee who previously declined
coverage under an employer health benefit plan, including a plan
offered through the California Health Benefit Exchange, and who has
subsequently acquired a dependent who would be eligible for coverage
as a dependent of the employee through marriage, birth, adoption, or
placement for adoption, and who enrolls for coverage under that
employer health benefit plan on his or her behalf and on behalf of
his or her dependent within 30 days following the date of marriage,
birth, adoption, or placement for adoption, in which case the
effective date of coverage shall be the first day of the month
following the date the completed request for enrollment is received
in the case of marriage, or the date of birth, or the date of
adoption or placement for adoption, whichever applies. Notice of the
special enrollment rights contained in this paragraph shall be
provided by the employer to an employee at or before the time the
employee is offered an opportunity to enroll in plan coverage.
   (8) The individual is an eligible employee who has declined
coverage for himself or herself or his or her dependents during a
previous enrollment period because his or her dependents were covered
by another employer health benefit plan, including a plan offered
through the California Health Benefit Exchange, at the time of the
previous enrollment period. That individual may enroll himself or
herself or his or her dependents for plan coverage during a special
open enrollment opportunity if his or her dependents have lost or
will lose coverage under that other employer health benefit plan. The
special open enrollment opportunity shall be requested by the
employee not more than 30 days after the date that the other health
coverage is exhausted or terminated. Upon enrollment, coverage shall
be effective not later than the first day of the first calendar month
beginning after the date the request for enrollment is received.
Notice of the special enrollment rights contained in this paragraph
shall be provided by the employer to an employee at or before the
time the employee is offered an opportunity to enroll in plan
coverage.
   (e) "Preexisting condition provision" means a contract provision
that excludes coverage for charges or expenses incurred during a
specified period following the enrollee's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage. No health care
service plan shall limit or exclude coverage for any individual based
on a preexisting condition whether or not any medical advice,
diagnosis, care, or treatment was recommended or received before that
date.
   (f) "Creditable coverage" means:
   (1) Any individual or group policy, contract, or program that is
written or administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans. The term includes
continuation or conversion coverage but does not include accident
only, credit, coverage for onsite medical clinics, disability income,
Medicare supplement, long-term care, dental, vision, coverage issued
as a supplement to liability insurance, insurance arising out of a
workers' compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (2) The Medicare Program pursuant to Title XVIII of the federal
Social Security Act (42 U.S.C. Sec. 1395 et seq.).
   (3) The Medicaid Program pursuant to Title XIX of the federal
Social Security Act (42 U.S.C. Sec. 1396 et seq.).
   (4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
   (5) 10 U.S.C. Chapter 55 (commencing with Section 1071) (Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS)).
   (6) A medical care program of the Indian Health Service or of a
tribal organization.
   (7) A health plan offered under 5 U.S.C. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
   (8) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the Public Health Service Act,
as amended by Public Law 104-191, the Health Insurance Portability
and Accountability Act of 1996.
   (9) A health benefit plan under Section 5(e) of the Peace Corps
Act (22 U.S.C. Sec. 2504(e)).
   (10) Any other creditable coverage as defined by subsection (c) or
Section 2704(c) of Section 2704 of Title XXVII of the federal Public
Health Service Act (42 U.S.C. Sec. 300gg-3(c)).
   (g) "Rating period" means the period for which premium rates
established by a plan are in effect and shall be no less than 12
months from the date of issuance or renewal of the health care
service plan contract.
   (h) "Risk adjusted employee risk rate" means the rate determined
for an eligible employee of a small employer in a particular risk
category after applying the risk adjustment factor.
   (i) "Risk adjustment factor" means the percentage adjustment to be
applied equally to each standard employee risk rate for a particular
small employer, based upon any expected deviations from standard
cost of services. This factor may not be more than 110 percent or
less than 90 percent.
   (j) "Risk category" means the following characteristics of an
eligible employee: age, geographic region, and family composition of
the employee, plus the health benefit plan selected by the small
employer.
   (1) No more than the following age categories may be used in
determining premium rates:
   Under 30
   30-39
   40-49
   50-54
   55-59
   60-64
   65 and over
   However, for the 65 and over age category, separate premium rates
may be specified depending upon whether coverage under the plan
contract will be primary or secondary to benefits provided by the
Medicare Program pursuant to Title XVIII of the federal Social
Security Act (42 U.S.C. Sec. 1395 et seq.).
   (2) Small employer health care service plans shall base rates to
small employers using no more than the following family size
categories:
   (A) Single.
   (B) Married couple or registered domestic partners.
   (C) One adult and child or children.
   (D) Married couple or registered domestic partners and child or
children.
   (3) (A) In determining rates for small employers, a plan that
operates statewide shall use no more than nine geographic regions in
the state, have no region smaller than an area in which the first
three digits of all its ZIP Codes are in common within a county, and
divide no county into more than two regions. Plans shall be deemed to
be operating statewide if their coverage area includes 90 percent or
more of the state's population. Geographic regions established
pursuant to this section shall, as a group, cover the entire state,
and the area encompassed in a geographic region shall be separate and
distinct from areas encompassed in other geographic regions.
Geographic regions may be noncontiguous.
   (B) (i) In determining rates for small employers, a plan that does
not operate statewide shall use no more than the number of
geographic regions in the state that is determined by the following
formula: the population, as determined in the last federal census, of
all counties that are included in their entirety in a plan's service
area divided by the total population of the state, as determined in
the last federal census, multiplied by nine. The resulting number
shall be rounded to the nearest whole integer. No region may be
smaller than an area in which the first three digits of all its ZIP
Codes are in common within a county and no county may be divided into
more than two regions. The area encompassed in a geographic region
shall be separate and distinct from areas encompassed in other
geographic regions. Geographic regions may be noncontiguous. No plan
shall have less than one geographic area.
   (ii) If the formula in clause (i) results in a plan that operates
in more than one county having only one geographic region, then the
formula in clause (i) shall not apply and the plan may have two
geographic regions, provided that no county is divided into more than
one region.
   Nothing in this section shall be construed to require a plan to
establish a new service area or to offer health coverage on a
statewide basis, outside of the plan's existing service area.
   (k) (1) "Small employer" means any of the following:
   (A) For plan years commencing on or after January 1, 2014, and on
or before December 31, 2015, any person, firm, proprietary or
nonprofit corporation, partnership, public agency, or association
that is actively engaged in business or service, that, on at least 50
percent of its working days during the preceding calendar quarter or
preceding calendar year, employed at least one, but no more than 50,
eligible employees, the majority of whom were employed within this
state, that was not formed primarily for purposes of buying health
care service plan contracts, and in which a bona fide
employer-employee relationship exists. For plan years commencing on
or after January 1, 2016, any person, firm, proprietary or nonprofit
corporation, partnership, public agency, or association that is
actively engaged in business or service, that, on at least 50 percent
of its working days during the preceding calendar quarter or
preceding calendar year, employed at least one, but no more than 100,
eligible employees, the majority of whom were employed within this
state, that was not formed primarily for purposes of buying health
care service plan contracts, and in which a bona fide
employer-employee relationship exists. In determining whether to
apply the calendar quarter or calendar year test, a health care
service plan shall use the test that ensures eligibility if only one
test would establish eligibility. In determining the
                          number of eligible employees, companies
that are affiliated companies and that are eligible to file a
combined tax return for purposes of state taxation shall be
considered one employer. Subsequent to the issuance of a health care
service plan contract to a small employer pursuant to this article,
and for the purpose of determining eligibility, the size of a small
employer shall be determined annually. Except as otherwise
specifically provided in this article, provisions of this article
that apply to a small employer shall continue to apply until the plan
contract anniversary following the date the employer no longer meets
the requirements of this definition. It includes any small employer
as defined in this subparagraph who purchases coverage through a
guaranteed association, and any employer purchasing coverage for
employees through a guaranteed association. This subparagraph shall
be implemented to the extent consistent with PPACA, except that the
minimum requirement of one employee shall be implemented only to the
extent required by PPACA.
   (B) Any guaranteed association, as defined in subdivision (m),
that purchases health coverage for members of the association.
   (2) For plan years commencing on or after January 1, 2014, the
definition of an employer, for purposes of determining whether an
employer with one employee shall include sole proprietors, certain
owners of "S" corporations, or other individuals, shall be consistent
with Section 1304 of PPACA.
   (l) "Standard employee risk rate" means the rate applicable to an
eligible employee in a particular risk category in a small employer
group.
   (m) "Guaranteed association" means a nonprofit organization
comprised of a group of individuals or employers who associate based
solely on participation in a specified profession or industry,
accepting for membership any individual or employer meeting its
membership criteria, and that (1) includes one or more small
employers as defined in subparagraph (A) of paragraph (1) of
subdivision (k), (2) does not condition membership directly or
indirectly on the health or claims history of any person, (3) uses
membership dues solely for and in consideration of the membership and
membership benefits, except that the amount of the dues shall not
depend on whether the member applies for or purchases insurance
offered to the association, (4) is organized and maintained in good
faith for purposes unrelated to insurance, (5) has been in active
existence on January 1, 1992, and for at least five years prior to
that date, (6) has included health insurance as a membership benefit
for at least five years prior to January 1, 1992, (7) has a
constitution and bylaws, or other analogous governing documents that
provide for election of the governing board of the association by its
members, (8) offers any plan contract that is purchased to all
individual members and employer members in this state, (9) includes
any member choosing to enroll in the plan contracts offered to the
association provided that the member has agreed to make the required
premium payments, and (10) covers at least 1,000 persons with the
health care service plan with which it contracts. The requirement of
1,000 persons may be met if component chapters of a statewide
association contracting separately with the same carrier cover at
least 1,000 persons in the aggregate.
   This subdivision applies regardless of whether a contract issued
by a plan is with an association, or a trust formed for or sponsored
by an association, to administer benefits for association members.
   For purposes of this subdivision, an association formed by a
merger of two or more associations after January 1, 1992, and
otherwise meeting the criteria of this subdivision shall be deemed to
have been in active existence on January 1, 1992, if its predecessor
organizations had been in active existence on January 1, 1992, and
for at least five years prior to that date and otherwise met the
criteria of this subdivision.
   (n) "Members of a guaranteed association" means any individual or
employer meeting the association's membership criteria if that person
is a member of the association and chooses to purchase health
coverage through the association. At the association's discretion, it
also may include employees of association members, association
staff, retired members, retired employees of members, and surviving
spouses and dependents of deceased members. However, if an
association chooses to include these persons as members of the
guaranteed association, the association shall make that election in
advance of purchasing a plan contract. Health care service plans may
require an association to adhere to the membership composition it
selects for up to 12 months.
   (o) "Affiliation period" means a period that, under the terms of
the health care service plan contract, must expire before health care
services under the contract become effective.
   (p) "Grandfathered small employer health care service plan
contract" means a small employer health care service plan contract
that constitutes a grandfathered health plan.
   (q) "Grandfathered health plan" has the meaning set forth in
Section 1251 of PPACA.
   (r) "Nongrandfathered small employer health care service plan
contract" means a small employer health care service plan contract
that is not a grandfathered health plan.
   (s) "Plan year" has the meaning set forth in Section 144.103 of
Title 45 of the Code of Federal Regulations.
   (t) "PPACA" means the federal Patient Protection and Affordable
Care Act (Public Law 111-148), as amended by the federal Health Care
and Education Reconciliation Act of 2010 (Public Law 111-152), and
any rules, regulations, or guidance issued thereunder.
   (u) "Registered domestic partner" means a person who has
established a domestic partnership as described in Section 297 of the
Family Code.
   (v) "Small employer health care service plan contract" means a
health care service plan contract issued to a small employer.
   (w) "Waiting period" means a period that is required to pass with
respect to an employee before the employee is eligible to be covered
for benefits under the terms of the contract.
   1357.601.  This article shall apply only to grandfathered small
group health care service plan contracts and only with respect to
plan years commencing on or after January 1, 2014.
   1357.602.  (a) A health care service plan providing or arranging
for the provision of basic health care services to small employers
shall be subject to this article if either of the following
conditions are met:
   (1) Any portion of the premium is paid by a small employer, or any
covered individual is reimbursed, whether through wage adjustments
or otherwise, by a small employer for any portion of the premium.
   (2) The plan contract is treated by the small employer or any of
the covered individuals as part of a plan or program for the purposes
of Section 106 or 162 of the Internal Revenue Code.
   (b) This article shall not apply to health care service plan
contracts for coverage of Medicare services pursuant to contracts
with the United States government, Medicare supplement, Medi-Cal
contracts with the State Department of Health Care Services,
long-term care coverage, or specialized health care service plan
contracts.
   1357.603.  Nothing in this article shall be construed to preclude
the application of this chapter to either of the following:
   (a) An association, trust, or other organization acting as a
"health care service plan" as defined under Section 1345.
   (b) An association, trust, or other organization or person
presenting information regarding a health care service plan to
persons who may be interested in subscribing or enrolling in the
plan.
   1357.604.  (a) (1) A plan shall fairly and affirmatively renew a
grandfathered health plan contract with a small employer.
   (2) Each plan shall make available to each small employer all
nongrandfathered small employer health care service plan contracts
that the plan offers and sells to small employers or to associations
that include small employers in this state consistent with Article
3.1 (commencing with Section 1357).
   (3) No plan or solicitor shall induce or otherwise encourage a
small employer to separate or otherwise exclude an eligible employee
from a health care service plan contract that is provided in
connection with the employee's employment or membership in a
guaranteed association.
   (b) Every plan shall file with the director the reasonable
employee participation requirements and employer contribution
requirements that will be applied in renewing its grandfathered
health care service plan contracts. Participation requirements shall
be applied uniformly among all small employer groups, except that a
plan may vary application of minimum employee participation
requirements by the size of the small employer group and whether the
employer contributes 100 percent of the eligible employee's premium.
Employer contribution requirements shall not vary by employer size. A
health care service plan shall not establish a participation
requirement that (1) requires a person who meets the definition of a
dependent in subdivision (a) of Section 1357.600 to enroll as a
dependent if he or she is otherwise eligible for coverage and wishes
to enroll as an eligible employee and (2) allows a plan to reject an
otherwise eligible small employer because of the number of persons
that waive coverage due to coverage through another employer. Members
of an association eligible for health coverage under subdivision (n)
of Section 1357.600, but not electing any health coverage through
the association, shall not be counted as eligible employees for
purposes of determining whether the guaranteed association meets a
plan's reasonable participation standards.
   (c) No plan or solicitor shall, directly or indirectly, engage in
the following activities:
   (1) Encourage or direct small employers to refrain from filing an
application for coverage or renewal of coverage with a plan because
of the health status, claims experience, industry, occupation of the
small employer, or geographic location provided that it is within the
plan's approved service area.
   (2) Encourage or direct small employers to seek coverage from
another plan, or coverage offered through the California Health
Benefit Exchange, because of the health status, claims experience,
industry, occupation of the small employer, or geographic location
provided that it is within the plan's approved service area.
   (d) A plan shall not, directly or indirectly, enter into any
contract, agreement, or arrangement with a solicitor that provides
for or results in the compensation paid to a solicitor for the sale
of a health care service plan contract to be varied because of the
health status, claims experience, industry, occupation, or geographic
location of the small employer. This subdivision does not apply to a
compensation arrangement that provides compensation to a solicitor
on the basis of percentage of premium, provided that the percentage
shall not vary because of the health status, claims experience,
industry, occupation, or geographic area of the small employer or
small employer's employees.
   (e) A policy or contract that covers a small employer, as defined
in Section 1304(b) of PPACA and in subdivision (k) of Section
1357.600 shall not establish rules for eligibility, including
continued eligibility, of an individual, or dependent of an
individual, to enroll under the terms of the plan based on any of the
following health status-related factors:
   (1) Health status.
   (2) Medical condition, including physical and mental illnesses.
   (3) Claims experience.
   (4) Receipt of health care.
   (5) Medical history.
   (6) Genetic information.
   (7) Evidence of insurability, including conditions arising out of
acts of domestic violence.
   (8) Disability.
   (9) Any other health status-related factor as determined by any
federal regulations, rules, or guidance issued pursuant to Section
2705 of the federal Public Health Service Act.
   (f) A plan shall comply with the requirements of Section 1374.3.
   1357.606.  (a) For plan contracts expiring after July 1, 1994, 60
days prior to July 1, 1994, an association that meets the definition
of a guaranteed association, as set forth in Section 1357.600, except
for the requirement that 1,000 persons be covered, shall be entitled
to renew grandfathered small employer health care service plan
contracts as if the association were a guaranteed association, except
that the coverage shall be guaranteed only for those members of an
association, as defined in Section 1357.600, (1) who were receiving
coverage or had successfully applied for coverage through the
association as of June 30, 1993, (2) who were receiving coverage
through the association as of December 31, 1992, and whose coverage
lapsed at any time thereafter because the employment through which
coverage was received ended or an employer's contribution to health
coverage ended, or (3) who were covered at any time between June 30,
1993, and July 1, 1994, under a contract that was in force on June
30, 1993.
   (b) An association obtaining health coverage for its members
pursuant to this section shall otherwise be afforded all the rights
of a guaranteed association under this chapter, including, but not
limited to, guaranteed renewability of coverage.
   1357.607.  (a) A small employer health care service plan contract
shall not impose a preexisting condition provision upon any
individual.
   (b) A plan contract may apply a waiting period of up to 60 days as
a condition of employment if applied equally to all eligible
employees and dependents and if consistent with PPACA. A plan
contract through a health maintenance organization, as defined in
Section 2791 of the federal Public Health Service Act, may impose an
affiliation period not to exceed 60 days. A waiting or affiliation
period shall not be based on a preexisting condition of an employee
or dependent, the health status of an employee or dependent, or any
other factor listed in subdivision (e) of Section 1357.604. An
affiliation period shall run concurrently with a waiting period.
During the waiting or affiliation period, the plan is not required to
provide health care services and no premium shall be charged to the
subscriber or enrollees.
   (c) In determining whether a waiting or affiliation period applies
to any person, a plan shall credit the time the person was covered
under creditable coverage, provided the person becomes eligible for
coverage under the succeeding plan contract within 62 days of
termination of prior coverage, exclusive of any waiting or
affiliation period, and applies for coverage with the succeeding plan
contract within the applicable enrollment period. A plan shall also
credit any time an eligible employee must wait before enrolling in
the plan, including any affiliation or employer-imposed waiting or
affiliation period. However, if a person's employment has ended, the
availability of health coverage offered through employment or
sponsored by an employer has terminated, or an employer's
contribution toward health coverage has terminated, a plan shall
credit the time the person was covered under creditable coverage if
the person becomes eligible for health coverage offered through
employment or sponsored by an employer within 180 days, exclusive of
any waiting or affiliation period, and applies for coverage under the
succeeding plan contract within the applicable enrollment period.
   (d) An individual's period of creditable coverage shall be
certified pursuant to subsection (e) of Section 2704 of Title XXVII
of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-3(e)).

   1357.608.  Nothing in this article shall be construed as
prohibiting a health care service plan from restricting enrollment of
late enrollees to open enrollment periods consistent with federal
law.
   1357.609.  All grandfathered small employer health care service
plan contracts shall provide to subscribers and enrollees at least
all of the basic health care services included in subdivision (b) of
Section 1345, and in Section 1300.67 of the California Code of
Regulations.
   1357.610.  (a) No plan shall be required by the provisions of this
article:
   (1) To offer coverage under a small employer's health care service
plan contract to an otherwise eligible employee or dependent, when
the eligible employee or dependent does not work or reside within the
plan's approved service area, except as provided in Chapter 7
(commencing with Section 3750) of Part 1 of Division 9 of the Family
Code.
   (2) To offer coverage under a small employer's health care service
plan contract to an eligible employee, as defined in paragraph (2)
of subdivision (b) of Section 1357.600, who within 12 months of
application for coverage terminated from a small employer health care
service plan contract offered by the plan.
   (b) Nothing in this article shall be construed to limit the
director's authority to develop and implement a plan of
rehabilitation for a health care service plan whose financial
viability or organizational and administrative capacity has become
impaired.
   1357.611.  (a) The director may require a plan to discontinue the
renewal of grandfathered small employer health care service plan
contracts or the offering or acceptance of applications from any
group upon a determination by the director that the plan does not
have sufficient financial viability, or organizational and
administrative capacity to ensure the delivery of health care
services to its enrollees. In determining whether the conditions of
this section have been met, the director shall consider, but not be
limited to, the plan's compliance with the requirements of Section
1367, Article 6 (commencing with Section 1375), and the rules adopted
thereunder.
   (b) Nothing in this article shall be construed to limit the
director's authority to develop and implement a plan of
rehabilitation for a health care service plan whose financial
viability or organizational and administrative capacity has become
impaired.
   1357.612.  Premiums for grandfathered contracts renewed by plans
on or after January 1, 2014, shall be subject to the following
requirements:
   (a) (1) The premium for in force business shall be determined for
an eligible employee in a particular risk category after applying a
risk adjustment factor to the plan's standard employee risk rates.
The risk adjusted employee risk rates may not be more than 110
percent or less than 90 percent. The risk adjustment factor applied
to a small employer may not increase by more than 10 percentage
points from the risk adjustment factor applied in the prior rating
period. The risk adjustment factor for a small employer may not be
modified more frequently than every 12 months.
   (2) The premium charged a small employer for in force business
shall be equal to the sum of the risk adjusted employee risk rates.
The standard employee risk rates shall be in effect for no less than
12 months.
   (b) (1) For any small employer, a plan may, with the consent of
the small employer, establish composite employee and dependent rates
for renewal of in force business. The composite rates shall be
determined as the average of the risk adjusted employee risk rates
for the small employer, as determined in accordance with the
requirements of subdivision (a). The sum of the composite rates so
determined shall be equal to the sum of the risk adjusted employee
risk rates for the small employer.
   (2) The composite rates shall be used for all employees and
dependents covered throughout a rating period of 12 months, except
that a plan may reserve the right to redetermine the composite rates
if the enrollment under the contract changes by more than a specified
percentage during the rating period. Any redetermination of the
composite rates shall be based on the same risk adjusted employee
risk rates used to determine the initial composite rates for the
rating period. If a plan reserves the right to redetermine the rates
and the enrollment changes more than the specified percentage, the
plan shall redetermine the composite rates if the redetermined rates
would result in a lower premium for the small employer. A plan
reserving the right to redetermine the composite rates based upon a
change in enrollment shall use the same specified percentage to
measure that change with respect to all small employers electing
composite rates.
   1357.613.  Plans shall apply standard employee risk rates
consistently with respect to all small employers.
   1357.614.  In connection with the renewal of a grandfathered small
employer health care service plan contract, each plan shall make a
reasonable disclosure, as part of its solicitation and sales
materials, of the following:
   (a) The extent to which premium rates for a specified small
employer are established or adjusted in part based upon the actual or
expected variation in service costs of the employees and dependents
of the small employer.
   (b) The provisions concerning the plan's right to change premium
rates and the factors other than provision of services experience
that affect changes in premium rates.
   (c) Provisions relating to the guaranteed issue and renewal of
contracts.
   (d) Provisions relating to the effect of any waiting or
affiliation provision.
   (e) Provisions relating to the small employer's right to apply for
any nongrandfathered small employer health care service plan
contract written, issued, or administered by the plan at the time of
application for a new health care service plan contract, or at the
time of renewal of a health care service plan contract, consistent
with the requirements of PPACA.
   (f) The availability, upon request, of a listing of all the plan's
nongrandfathered small employer health care service plan contracts
and benefit plan designs offered, both inside and outside the
California Health Benefit Exchange, including the rates for each
contract.
   (g) At the time it renews a grandfathered small employer health
care service plan contract, each plan shall provide the small
employer with a statement of all of its nongrandfathered small
employer health care service plan contracts, including the rates for
each plan contract, in the service area in which the employer's
employees and eligible dependents who are to be covered by the plan
contract work or reside. For purposes of this subdivision, plans that
are affiliated plans or that are eligible to file a consolidated
income tax return shall be treated as one health plan.
   (h) Each plan shall do all of the following:
   (1) Prepare a brochure that summarizes all of its small employer
health care service plan contracts and to make this summary available
to any small employer and to solicitors upon request. The summary
shall include for each contract information on benefits provided, a
generic description of the manner in which services are provided,
such as how access to providers is limited, benefit limitations,
required copayments and deductibles, standard employee risk rates, an
explanation of the manner in which creditable coverage is calculated
if a waiting or affiliation period is imposed, and a phone number
that can be called for more detailed benefit information. Plans are
required to keep the information contained in the brochure accurate
and up to date and, upon updating the brochure, send copies to
solicitors and solicitor firms with which the plan contracts to
solicit enrollments or subscriptions.
   (2) For each contract, prepare a more detailed evidence of
coverage and make it available to small employers, solicitors, and
solicitor firms upon request. The evidence of coverage shall contain
all information that a prudent buyer would need to be aware of in
making contract selections.
   (3) Provide to small employers and solicitors, upon request, for
any given small employer the sum of the standard employee risk rates
and the sum of the risk adjusted employee risk rates. When requesting
this information, small employers, solicitors, and solicitor firms
shall provide the plan with the information the plan needs to
determine the small employer's risk adjusted employee risk rate.
   (4) Provide copies of the current summary brochure to all
solicitors and solicitor firms contracting with the plan to solicit
enrollments or subscriptions from small employers.
   For purposes of this subdivision, plans that are affiliated plans
or that are eligible to file a consolidated income tax return shall
be treated as one health plan.
   1357.615.  (a) At least 20 business days prior to renewing or
amending a small employer health care service plan contract subject
to this article, a plan shall file a notice of material modification
with the director in accordance with the provisions of Section 1352.
The notice of material modification shall include a statement
certifying that the plan is in compliance with subdivision (i) of
Section 1357.600 and Section 1357.612. The certified statement shall
set forth the standard employee risk rate for each risk category and
the highest and lowest risk adjustment factors that will be used in
setting the rates at which the contract will be renewed or amended.
Any action by the director, as permitted under Section 1352, to
disapprove, suspend, or postpone the plan's use of a plan contract
shall be in writing, specifying the reasons that the plan contract
does not comply with the requirements of this chapter.
   (b) Prior to making any changes in the risk categories, risk
adjustment factors or standard employee risk rates filed with the
director pursuant to subdivision (a), the plan shall file as an
amendment a statement setting forth the changes and certifying that
the plan is in compliance with subdivision (i) of Section 1357.600
and Section 1357.612. A plan may commence utilizing the changed risk
categories set forth in the certified statement on the 31st day from
the date of the filing, or at an earlier time determined by the
director, unless the director disapproves the amendment by written
notice, stating the reasons therefor. If only the standard employee
risk rate is being changed, and not the risk categories or risk
adjustment factors, a plan may commence utilizing the changed
standard employee risk rate upon filing the certified statement
unless the director disapproves the amendment by written notice.
   (c) Periodic changes to the standard employee risk rate that a
plan proposes to implement over the course of up to 12 consecutive
months may be filed in conjunction with the certified statement filed
under subdivision (a) or (b).

(d) Each plan shall maintain at its principal place of business all
of the information required to be filed with the director pursuant to
this section.
   (e) Each plan shall make available to the director, on request,
the risk adjustment factor used in determining the rate for any
particular small employer.
   (f) Nothing in this section shall be construed to limit the
director's authority to enforce the rating practices set forth in
this article.
   1357.616.  (a) Health care service plans may enter into
contractual agreements with qualified associations, as defined in
subdivision (b), under which these qualified associations may assume
responsibility for performing specific administrative services, as
defined in this section, for qualified association members. Health
care service plans that enter into agreements with qualified
associations for assumption of administrative services shall
establish uniform definitions for the administrative services that
may be provided by a qualified association or its third-party
administrator. The health care service plan shall permit all
qualified associations to assume one or more of these functions when
the health care service plan determines the qualified association
demonstrates the administrative capacity to assume these functions.
   For the purposes of this section, administrative services provided
by qualified associations or their third-party administrators shall
be services pertaining to eligibility determination, enrollment,
premium collection, sales, or claims administration on a per-claim
basis that would otherwise be provided directly by the health care
service plan or through a third-party administrator on a commission
basis or an agent or solicitor workforce on a commission basis.
   Each health care service plan that enters into an agreement with
any qualified association for the provision of administrative
services shall offer all qualified associations with which it
contracts the same premium discounts for performing those services
the health care service plan has permitted the qualified association
or its third-party administrator to assume. The health care service
plan shall apply these uniform discounts to the health care service
plan's risk adjusted employee risk rates after the health plan has
determined the qualified association's risk adjusted employee risk
rates pursuant to Section 1357.612. The health care service plan
shall report to the department its schedule of discounts for each
administrative service.
   In no instance may a health care service plan provide discounts to
qualified associations that are in any way intended to, or
materially result in, a reduction in premium charges to the qualified
association due to the health status of the membership of the
qualified association. In addition to any other remedies available to
the director to enforce this chapter, the director may declare a
contract between a health care service plan and a qualified
association for administrative services pursuant to this section null
and void if the director determines any discounts provided to the
qualified association are intended to, or materially result in, a
reduction in premium charges to the qualified association due to the
health status of the membership of the qualified association.
   (b) For the purposes of this section, a qualified association is a
nonprofit corporation comprised of a group of individuals or
employers who associate based solely on participation in a specified
profession or industry, that conforms to all of the following
requirements:
   (1) It accepts for membership any individual or small employer
meeting its membership criteria.
   (2) It does not condition membership directly or indirectly on the
health or claims history of any person.
   (3) It uses membership dues solely for and in consideration of the
membership and membership benefits, except that the amount of the
dues shall not depend on whether the member applies for or purchases
insurance offered by the association.
   (4) It is organized and maintained in good faith for purposes
unrelated to insurance.
   (5) It existed on January 1, 1972, and has been in continuous
existence since that date.
   (6) It has a constitution and bylaws or other analogous governing
documents that provide for election of the governing board of the
association by its members.
   (7) It offered, marketed, or sold health coverage to its members
for 20 continuous years prior to January 1, 1993.
   (8) It agrees to offer only to association members any plan
contract.
   (9) It agrees to include any member choosing to enroll in the plan
contract offered by the association, provided that the member agrees
to make required premium payments.
   (10) It complies with all provisions of this article.
   (11) It had at least 10,000 enrollees covered by association
sponsored plans immediately prior to enactment of Chapter 1128 of the
Statutes of 1992.
   (12) It applies any administrative cost at an equal rate to all
members purchasing coverage through the qualified association.
   (c) A qualified association shall comply with Section 1357.52.
   1357.618.  (a) The department may adopt emergency regulations
implementing this article no later than August 31, 2013. The
department may readopt any emergency regulation authorized by this
section that is the same as or substantially equivalent to an
emergency regulation previously adopted under this section.
   (b) The initial adoption of emergency regulations implementing
this section and the one readoption of emergency regulations
authorized by this section shall be deemed an emergency and necessary
for the immediate preservation of the public peace, health, safety,
or general welfare. The initial emergency regulations and the one
readoption of emergency regulations authorized by this section shall
be submitted to the Office of Administrative Law for filing with the
Secretary of State and each shall remain in effect for no more than
180 days, by which time final regulations may be adopted.
  SEC. 7.  Section 1385.01 of the Health and Safety Code is amended
to read:
   1385.01.  For purposes of this article, the following definitions
shall apply:
   (a) "Large group health care service plan contract" means a group
health care service plan contract other than a contract issued to a
small employer, as defined in Section 1357, 1357.500, or 1357.600.
   (b) "Small group health care service plan contract" means a group
health care service plan contract issued to a small employer, as
defined in Section 1357, 1357.500, or 1357.600.
   (c) "PPACA" means Section 2794 of the federal Public Health
Service Act (42 U.S.C. Sec. 300gg-94), as amended by the federal
Patient Protection and Affordable Care Act (Public Law (111-148)),
and any subsequent rules, regulations, or guidance issued under that
section.
   (d) "Unreasonable rate increase" has the same meaning as that term
is defined in PPACA.
  SEC. 8.  Section 1393.6 of the Health and Safety Code is amended to
read:
   1393.6.  For violations of Article 3.1 (commencing with Section
1357), Article 3.15 (commencing with Section 1357.50), Article 3.16
(commencing with Section 1357.500), and Article 3.17 (commencing with
Section 1357.600), the director may, after appropriate notice and
opportunity for hearing, by order levy administrative penalties as
follows:
   (a) Any person, solicitor, or solicitor firm, other than a health
care service plan, who willfully violates any provision of this
chapter, or who willfully violates any rule or order adopted or
issued pursuant to this chapter, is liable for administrative
penalties of not less than two hundred fifty dollars ($250) for each
first violation, and of not less than one thousand dollars ($1,000)
and not more than two thousand five hundred dollars ($2,500) for each
subsequent violation.
   (b) Any health care service plan that willfully violates any
provision of this chapter, or that willfully violates any rule or
order adopted or issued pursuant to this chapter, is liable for
administrative penalties of not less than two thousand five hundred
dollars ($2,500) for each first violation, and of not less than five
thousand dollars ($5,000) nor more than ten thousand dollars
($10,000) for each second violation, and of not less than fifteen
thousand dollars ($15,000) and not more than one hundred thousand
dollars ($100,000) for each subsequent violation.
   (c) The administrative penalties shall be paid to the Managed Care
Administrative Fines and Penalties Fund and shall be used for the
purposes specified in Section 1341.45.
   (d) The administrative penalties available to the director
pursuant to this section are not exclusive, and may be sought and
employed in any combination with civil, criminal, and other
administrative remedies deemed advisable by the director to enforce
the provisions of this chapter.
  SEC. 9.  Section 10127.19 is added to the Insurance Code, to read:
   10127.19.  Commencing March 1, 2013, and at least annually
thereafter, every health insurer, not including a health insurer
offering specialized health insurance policies, shall provide to the
department, in a form and manner determined by the department in
consultation with the Department of Managed Health Care, the number
of covered lives, by product type, as of December 31 of the prior
year, that receive health care coverage under a health insurance
policy that covers individuals, small groups, large groups, or
administrative services only business lines. Health insurers shall
include the unduplicated enrollment data in specific product types as
determined by the department, including, but not limited to, HMO,
point-of-service, PPO, grandfathered, and Medi-Cal managed care. The
department shall publicly report the data provided by each health
insurer pursuant to this section, including, but not limited to,
posting the data on the department's Internet Web site. The
department shall consult with the Department of Managed Health Care
to ensure that the data reported is comparable and consistent, does
not duplicate existing reporting requirements, and utilizes existing
reporting formats.
  SEC. 10.  Section 10181 of the Insurance Code is amended to read:
   10181.  For purposes of this article, the following definitions
shall apply:
   (a) "Large group health insurance policy" means a group health
insurance policy other than a policy issued to a small employer, as
defined in Section 10700, 10753, or 10755.
   (b) "Small group health insurance policy" means a group health
insurance policy issued to a small employer, as defined in Section
10700, 10753, or 10755.
   (c) "PPACA" means Section 2794 of the federal Public Health
Service Act (42 U.S.C. Sec. 300gg-94), as amended by the federal
Patient Protection and Affordable Care Act (Public Law 111-148), and
any subsequent rules, regulations, or guidance issued pursuant to
that law.
   (d) "Unreasonable rate increase" has the same meaning as that term
is defined in PPACA.
  SEC. 11.  Article 7 (commencing with Section 10198.6) is added to
Chapter 1 of Part 2 of Division 2 of the Insurance Code, to read:

      Article 7.  Preexisting Condition Provisions


   10198.6.  For purposes of this article, the following definitions
shall apply:
   (a) "Health benefit plan" means any group or individual policy of
health insurance, as defined in Section 106. The term does not
include coverage of Medicare services pursuant to contracts with the
United States government or coverage that provides excepted benefits
as described in Sections 2722 and 2791 of the federal Public Health
Service Act, subject to Section 10198.61.
   (b) "Preexisting condition provision" means a policy provision
that excludes coverage for charges or expenses incurred during a
specified period following the insured's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.
   (c) "Creditable coverage" means:
   (1) Any individual or group policy, contract, or program, that is
written or administered by a health insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans. The term includes
continuation or conversion coverage but does not include accident
only, credit, coverage for onsite medical clinics, disability income,
Medicare supplement, long-term care insurance, dental, vision,
coverage issued as a supplement to liability insurance, insurance
arising out of a workers' compensation or similar law, automobile
medical payment insurance, or insurance under which benefits are
payable with or without regard to fault and that is statutorily
required to be contained in any liability insurance policy or
equivalent self-insurance.
   (2) The federal Medicare Program pursuant to Title XVIII of the
federal Social Security Act (42 U.S.C. Sec. 1395 et seq.).
   (3) The Medicaid Program pursuant to Title XIX of the federal
Social Security Act (42 U.S.C. Sec. 1396 et seq.).
   (4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
   (5) 10 U.S.C. Chapter 55 (commencing with Section 1071) (Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS)).
   (6) A medical care program of the Indian Health Service or of a
tribal organization.
   (7) A health plan offered under 5 U.S.C. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
   (8) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the federal Public Health
Service Act, as amended by Public Law 104-191, the federal Health
Insurance Portability and Accountability Act of 1996.
   (9) A health benefit plan under Section 5(e) of the federal Peace
Corps Act (22 U.S.C. Sec. 2504(e)).
   (10) Any other creditable coverage as defined by subsection (c) of
Section 2704 of Title XXVII of the federal Public Health Service Act
(42 U.S.C. Sec. 300gg-3(c)).
   (d) "Waivered condition provision" means a contract provision that
excludes coverage for charges or expenses incurred during a
specified period of time for one or more specific, identified,
medical conditions.
   (e) "Grandfathered health benefit plan" means a health benefit
plan that is a grandfathered health plan, as defined in Section 1251
of PPACA.
   (f) "Nongrandfathered health benefit plan" means a health benefit
plan that is not a grandfathered health plan as defined in Section
1251 of PPACA.
   (g) "PPACA" means the federal Patient Protection and Affordable
Care Act (Public Law 111-148), as amended by the federal Health Care
and Education Reconciliation Act of 2010 (Public Law 111-152), and
any rules, regulations, or guidance issued pursuant to that law.
   10198.61.  (a) For purposes of this article, "health benefit plan"
does not include policies or certificates of specified disease or
hospital confinement indemnity provided that the carrier offering
those policies or certificates complies with the following:
   (1) The carrier files, on or before March 1 of each year, a
certification with the commissioner that contains the statement and
information described in paragraph (2).
   (2) The certification required in paragraph (1) shall contain the
following:
   (A) A statement from the carrier certifying that policies or
certificates described in this section (i) are being offered and
marketed as supplemental health insurance and not as a substitute for
coverage that provides essential health benefits as defined by the
state pursuant to Section 1302 of PPACA, and (ii) the disclosure form
as described in Section 10603 contains the following statement
prominently on the first page: "This is a supplement to health
insurance. It is not a substitute for essential health benefits or
minimum essential coverage as defined in federal law."
   (B) A summary description of each policy or certificate described
in this section, including the average annual premium rates, or range
of premium rates in cases where premiums vary by age, gender, or
other factors, charged for the policies and certificates issued or
delivered in this state.
   (3) In the case of a policy or certificate described in this
section and that is offered for the first time in this state for plan
years on or after January 1, 2014, the carrier files with the
commissioner the information and statement required in paragraph (2)
at least 30 days prior to the date such a policy or certificate is
issued or delivered in this state.
   (b) As used in this section, "policies or certificates of
specified disease" and "policies or certificates of hospital
confinement indemnity" mean policies or certificates of insurance
sold to an insured to supplement other health insurance coverage as
specified in this section. An insurer issuing a "policy or
certificate of specified disease" or a "policy or certificate of
hospital confinement indemnity" shall require that the person to be
insured is covered by an individual or group policy or contract that
arranges or provides medical, hospital, and surgical coverage not
designed to supplement other private or governmental plans.
   10198.7.  (a) A nongrandfathered health benefit plan for group or
individual coverage or a grandfathered health benefit plan for group
coverage shall not impose any preexisting condition provision or
waivered condition provision upon any individual.
   (b) A grandfathered health benefit plan for individual coverage
shall not exclude coverage on the basis of a waivered condition
provision or preexisting condition provision for a period greater
than 12 months following the individual's effective date of coverage,
nor limit or exclude coverage for a specific insured by type of
illness, treatment, medical condition, or accident, except for
satisfaction of a preexisting condition clause or waivered condition
provision pursuant to this article. Waivered condition provisions or
preexisting condition provisions contained in health benefit plans
may relate only to conditions for which medical advice, diagnosis,
care, or treatment, including use of prescription drugs, was
recommended or received from a licensed health practitioner during
the 12 months immediately preceding the effective date of coverage.
   (c) (1) A health benefit plan for group coverage may apply a
waiting period of up to 60 days as a condition of employment if
applied equally to all eligible employees and dependents and if
consistent with PPACA. A waitingperiod shall not be based on a
preexisting condition of an employee or dependent, the health status
of an employee or dependent, or any other factor listed in Section
10198.9. During the waiting period, the health benefit plan is not
required to provide health care services and no premium shall be
charged to the policyholder or insureds.
   (2) A health benefit plan for individual coverage shall not impose
a waiting period.
   (d) In determining whether a preexisting condition provision, a
waivered condition provision, or a waiting period applies to a
person, a health benefit plan shall credit the time the person was
covered under creditable coverage, provided that the person becomes
eligible for coverage under the succeeding health benefit plan within
62 days of termination of prior coverage, exclusive of any waiting
period, and applies for coverage under the succeeding plan within the
applicable enrollment period. A plan shall also credit any time that
an eligible employee must wait before enrolling in the plan,
including any postenrollment or employer-imposed waiting period.
However, if a person's employment has ended, the availability of
health coverage offered through employment or sponsored by an
employer has terminated, or an employer's contribution toward health
coverage has terminated, a carrier shall credit the time the person
was covered under creditable coverage if the person becomes eligible
for health coverage offered through employment or sponsored by an
employer within 180 days, exclusive of any waiting period, and
applies for coverage under the succeeding plan within the applicable
enrollment period.
   (e) An individual's period of creditable coverage shall be
certified pursuant to Section 2704(e) of Title XXVII of the federal
Public Health Service Act (42 U.S.C. Sec. 300gg-3(e)).
   10198.8.  This article applies to all health benefit plans that
provide benefits to residents of this state regardless of the situs
of the contract or group master policyholder.
   10198.9.  A health benefit plan for group coverage shall not
establish rules for eligibility, including continued eligibility, of
an individual, or dependent of an individual, to enroll under the
terms of the plan based on any of the following health status-related
factors:
   (a) Health status.
   (b) Medical condition, including physical and mental illnesses.
   (c) Claims experience.
   (d) Receipt of health care.
   (e) Medical history.
   (f) Genetic information.
   (g) Evidence of insurability, including conditions arising out of
acts of domestic violence.
   (h) Disability.
   (i) Any other health status-related factor as determined by any
federal regulations, rules, or guidance issued pursuant to Section
2705 of the federal Public Health Service Act.
   10198.10.  This article shall become operative on January 1, 2014.

  SEC. 12.  Section 10198.10 is added to the Insurance Code, to read:

   10198.10.  This article shall remain in effect only until January
1, 2014, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2014, deletes or extends
that date.
  SEC. 13.  Section 10750 is added to the Insurance Code, to read:
   10750.  This chapter shall not apply to a health benefit plan that
is subject to Chapter 8.01 (commencing with Section 10753) or
Chapter 8.02 (commencing with Section 10755), except as otherwise
provided in those chapters.
  SEC. 14.  Chapter 8.01 (commencing with Section 10753) is added to
Part 2 of Division 2 of the Insurance Code, to read:
      CHAPTER 8.01.  NONGRANDFATHERED SMALL EMPLOYER HEALTH INSURANCE



      Article 1.  Definitions


   10753.  (a) "Agent or broker" means a person or entity licensed
under Chapter 5 (commencing with Section 1621) of Part 2 of Division
1.
   (b) "Benefit plan design" means a specific health coverage product
issued by a carrier to small employers, to trustees of associations
that include small employers, or to individuals if the coverage is
offered through employment or sponsored by an employer. It includes
services covered and the levels of copayment and deductibles, and it
may include the professional providers who are to provide those
services and the sites where those services are to be provided. A
benefit plan design may also be an integrated system for the
financing and delivery of quality health care services which has
significant incentives for the covered individuals to use the system.

   (c) "Carrier" means a health insurer or any other entity that
writes, issues, or administers health benefit plans that cover the
employees of small employers, regardless of the situs of the contract
or master policyholder.
   (d) "Child" means a child described in Section 22775 of the
Government Code and subdivisions (n) to (p), inclusive, of Section
599.500 of Title 2 of the California Code of Regulations.
   (e) "Dependent" means the spouse or registered domestic partner,
or child, of an eligible employee, subject to applicable terms of the
health benefit plan covering the employee, and includes dependents
of guaranteed association members if the association elects to
include dependents under its health coverage at the same time it
determines its membership composition pursuant to subdivision (s).
   (f) "Eligible employee" means either of the following:
   (1) Any permanent employee who is actively engaged on a full-time
basis in the conduct of the business of the small employer with a
normal workweek of an average of 30 hours per week over the course of
a month, in the small employer's regular place of business, who has
met any statutorily authorized applicable waiting period
requirements. The term includes sole proprietors or partners of a
partnership, if they are actively engaged on a full-time basis in the
small employer's business, and they are included as employees under
a health benefit plan of a small employer, but does not include
employees who work on a part-time, temporary, or substitute basis. It
includes any eligible employee, as defined in this paragraph, who
obtains coverage through a guaranteed association. Employees of
employers purchasing through a guaranteed association shall be deemed
to be eligible employees if they would otherwise meet the definition
except for the number of persons employed by the employer. A
permanent employee who works at least 20 hours but not more than 29
hours is deemed to be an eligible employee if all four of the
following apply:
   (A) The employee otherwise meets the definition of an eligible
employee except for the number of hours worked.
   (B) The employer offers the employee health coverage under a
health benefit plan.
   (C) All similarly situated individuals are offered coverage under
the health benefit plan.
   (D) The employee must have worked at least 20 hours per normal
workweek for at least 50 percent of the weeks in the previous
calendar quarter. The insurer may request any necessary information
to document the hours and time period in question, including, but not
limited to, payroll records and employee wage and tax filings.
   (2) Any member of a guaranteed association as defined in
subdivision (s).
   (g) "Enrollee" means an eligible employee or dependent who
receives health coverage through the program from a participating
carrier.
   (h) "Exchange" means the California Health Benefit Exchange
created by Section 100500 of the Government Code.
   (i) "Financially impaired" means, for the purposes of this
chapter, a carrier that, on or after the effective date of this
chapter, is not insolvent and is either:
   (1) Deemed by the commissioner to be potentially unable to fulfill
its contractual obligations.
   (2) Placed under an order of rehabilitation or conservation by a
court of competent jurisdiction.
   (j) "Health benefit plan" means a policy of health insurance, as
defined in Section 106, for the covered eligible employees of a small
employer and their dependents. The term does not include coverage of
Medicare services pursuant to contracts with the United
                                  States government, or coverage that
provides excepted benefits, as described in Sections 2722 and 2791
of the federal Public Health Service Act, subject to Section 10701.
   (k) "In force business" means an existing health benefit plan
issued by the carrier to a small employer.
   (l) "Late enrollee" means an eligible employee or dependent who
has declined health coverage under a health benefit plan offered by a
small employer at the time of the initial enrollment period provided
under the terms of the health benefit plan consistent with the
periods provided pursuant to Section 10753.05 and who subsequently
requests enrollment in a health benefit plan of that small employer,
except where the employee or dependent qualifies for a special
enrollment period provided pursuant to Section 10753.05. It also
means any member of an association that is a guaranteed association
as well as any other person eligible to purchase through the
guaranteed association when that person has failed to purchase
coverage during the initial enrollment period provided under the
terms of the guaranteed association's health benefit plan consistent
with the periods provided pursuant to Section 10753.05 and who
subsequently requests enrollment in the plan, except where the
employee or dependent qualifies for a special enrollment period
provided pursuant to Section 10753.05.
   (m) "New business" means a health benefit plan issued to a small
employer that is not the carrier's in force business.
   (n) "Preexisting condition provision" means a policy provision
that excludes coverage for charges or expenses incurred during a
specified period following the insured's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.
   (o) "Creditable coverage" means:
   (1) Any individual or group policy, contract, or program, that is
written or administered by a health insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans. The term includes
continuation or conversion coverage but does not include accident
only, credit, coverage for onsite medical clinics, disability income,
Medicare supplement, long-term care, dental, vision, coverage issued
as a supplement to liability insurance, insurance arising out of a
workers' compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (2) The federal Medicare Program pursuant to Title XVIII of the
federal Social Security Act (42 U.S.C. Sec. 1395 et seq.).
   (3) The Medicaid Program pursuant to Title XIX of the federal
Social Security Act (42 U.S.C. Sec. 1396 et seq.).
   (4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
   (5) 10 U.S.C. Chapter 55 (commencing with Section 1071) (Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS)).
   (6) A medical care program of the Indian Health Service or of a
tribal organization.
   (7) A health plan offered under 5 U.S.C. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
   (8) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the federal Public Health
Service Act, as amended by Public Law 104-191, the federal Health
Insurance Portability and Accountability Act of 1996.
   (9) A health benefit plan under Section 5(e) of the federal Peace
Corps Act (22 U.S.C. Sec. 2504(e)).
   (10) Any other creditable coverage as defined by subdivision (c)
of Section 2704 of Title XXVII of the federal Public Health Service
Act (42 U.S.C. Sec. 300gg-3(c)).
   (p) "Rating period" means the period for which premium rates
established by a carrier are in effect and shall be no less than 12
months from the date of issuance or renewal of the health benefit
plan.
   (q) (1) "Small employer" means either of the following:
   (A) For plan years commencing on or after January 1, 2014, and on
or before December 31, 2015, any person, firm, proprietary or
nonprofit corporation, partnership, public agency, or association
that is actively engaged in business or service, that, on at least 50
percent of its working days during the preceding calendar quarter or
preceding calendar year, employed at least one, but no more than 50,
eligible employees, the majority of whom were employed within this
state, that was not formed primarily for purposes of buying health
benefit plans, and in which a bona fide employer-employee
relationship exists. For plan years commencing on or after January 1,
2016, any person, firm, proprietary or nonprofit corporation,
partnership, public agency, or association that is actively engaged
in business or service, that, on at least 50 percent of its working
days during the preceding calendar quarter or preceding calendar
year, employed at least one, but no more than 100, eligible
employees, the majority of whom were employed within this state, that
was not formed primarily for purposes of buying health benefit
plans, and in which a bona fide employer-employee relationship
exists. In determining whether to apply the calendar quarter or
calendar year test, a carrier shall use the test that ensures
eligibility if only one test would establish eligibility. In
determining the number of eligible employees, companies that are
affiliated companies and that are eligible to file a combined tax
return for purposes of state taxation shall be considered one
employer. Subsequent to the issuance of a health benefit plan to a
small employer pursuant to this chapter, and for the purpose of
determining eligibility, the size of a small employer shall be
determined annually. Except as otherwise specifically provided in
this chapter, provisions of this chapter that apply to a small
employer shall continue to apply until the plan contract anniversary
following the date the employer no longer meets the requirements of
this definition. It includes any small employer as defined in this
subparagraph who purchases coverage through a guaranteed association,
and any employer purchasing coverage for employees through a
guaranteed association. This subparagraph shall be implemented to the
extent consistent with PPACA, except that the minimum requirement of
one employee shall be implemented only to the extent required by
PPACA.
   (B) Any guaranteed association, as defined in subdivision (r),
that purchases health coverage for members of the association.
   (2) For plan years commencing on or after January 1, 2014, the
definition of an employer, for purposes of determining whether an
employer with one employee shall include sole proprietors, certain
owners of "S" corporations, or other individuals, shall be consistent
with Section 1304 of PPACA.
   (r) "Guaranteed association" means a nonprofit organization
comprised of a group of individuals or employers who associate based
solely on participation in a specified profession or industry,
accepting for membership any individual or employer meeting its
membership criteria which (1) includes one or more small employers as
defined in subparagraph (A) of paragraph (1) of subdivision (q), (2)
does not condition membership directly or indirectly on the health
or claims history of any person, (3) uses membership dues solely for
and in consideration of the membership and membership benefits,
except that the amount of the dues shall not depend on whether the
member applies for or purchases insurance offered by the association,
(4) is organized and maintained in good faith for purposes unrelated
to insurance, (5) has been in active existence on January 1, 1992,
and for at least five years prior to that date, (6) has been offering
health insurance to its members for at least five years prior to
January 1, 1992, (7) has a constitution and bylaws, or other
analogous governing documents that provide for election of the
governing board of the association by its members, (8) offers any
benefit plan design that is purchased to all individual members and
employer members in this state, (9) includes any member choosing to
enroll in the benefit plan design offered to the association provided
that the member has agreed to make the required premium payments,
and (10) covers at least 1,000 persons with the carrier with which it
contracts. The requirement of 1,000 persons may be met if component
chapters of a statewide association contracting separately with the
same carrier cover at least 1,000 persons in the aggregate.
   This subdivision applies regardless of whether a master policy by
an admitted insurer is delivered directly to the association or a
trust formed for or sponsored by an association to administer
benefits for association members.
   For purposes of this subdivision, an association formed by a
merger of two or more associations after January 1, 1992, and
otherwise meeting the criteria of this subdivision shall be deemed to
have been in active existence on January 1, 1992, if its predecessor
organizations had been in active existence on January 1, 1992, and
for at least five years prior to that date and otherwise met the
criteria of this subdivision.
   (s) "Members of a guaranteed association" means any individual or
employer meeting the association's membership criteria if that person
is a member of the association and chooses to purchase health
coverage through the association. At the association's discretion, it
may also include employees of association members, association
staff, retired members, retired employees of members, and surviving
spouses and dependents of deceased members. However, if an
association chooses to include those persons as members of the
guaranteed association, the association must so elect in advance of
purchasing coverage from a plan. Health plans may require an
association to adhere to the membership composition it selects for up
to 12 months.
   (t) "Grandfathered health plan" has the meaning set forth in
Section 1251 of PPACA.
   (u) "Nongrandfathered health benefit plan" means a health benefit
plan that is not a grandfathered health plan.
   (v) "Plan year" has the meaning set forth in Section 144.103 of
Title 45 of the Code of Federal Regulations.
   (w) "PPACA" means the federal Patient Protection and Affordable
Care Act (Public Law 111-148), as amended by the federal Health Care
and Education Reconciliation Act of 2010 (Public Law 111-152), and
any rules, regulations, or guidance issued thereunder.
   (x) "Waiting period" means a period that is required to pass with
respect to the employee before the employee is eligible to be covered
for benefits under the terms of the contract.
   (y) "Registered domestic partner" means a person who has
established a domestic partnership as described in Section 297 of the
Family Code.
   10753.01.  (a) For purposes of this chapter, "health benefit plan"
does not include policies or certificates of specified disease or
hospital confinement indemnity provided that the carrier offering
those policies or certificates complies with the following:
   (1) The carrier files, on or before March 1 of each year, a
certification with the commissioner that contains the statement and
information described in paragraph (2).
   (2) The certification required in paragraph (1) shall contain the
following:
   (A) A statement from the carrier certifying that policies or
certificates described in this section (i) are being offered and
marketed as supplemental health insurance and not as a substitute for
coverage that provides essential health benefits as defined by the
state pursuant to Section 1302 of PPACA, and (ii) the disclosure
forms as described in Section 10603 contains the following statement
prominently on the first page: "This is a supplement to health
insurance. It is not a substitute for essential health benefits or
minimum essential coverage as defined in federal law."
   (B) A summary description of each policy or certificate described
in this section, including the average annual premium rates, or range
of premium rates in cases where premiums vary by age, gender, or
other factors, charged for the policies and certificates issued or
delivered in this state.
   (3) In the case of a policy or certificate that is described in
this section and that is offered for the first time in this state
with respect to plan years on or after January 1, 2014, the carrier
files with the commissioner the information and statement required in
paragraph (2) at least 30 days prior to the date such a policy or
certificate is issued or delivered in this state.
   (b) As used in this section, "policies or certificates of
specified disease" and "policies or certificates of hospital
confinement indemnity" mean policies or certificates of insurance
sold to an insured to supplement other health insurance coverage as
specified in this section. An insurer issuing a "policy or
certificate of specified disease" or a "policy or certificate of
hospital confinement indemnity" shall require that the person to be
insured is covered by an individual or group policy or contract that
arranges or provides medical, hospital, and surgical coverage not
designed to supplement other private or governmental plans.

      Article 2.  Small Employer Carrier Requirements


   10753.02.  (a) This chapter shall apply only to nongrandfathered
health benefit plans and only with respect to plan years commencing
on or after January 1, 2014.
   (b) All carriers writing, issuing, or administering health benefit
plans that cover employees of small employers shall be subject to
this chapter if any one of the following conditions are met:
   (1) Any portion of the premium for any health benefit plan or
benefits is paid by a small employer, or any covered individual is
reimbursed, whether through wage adjustments or otherwise, by a small
employer for any portion of the premium.
   (2) The health benefit plan is treated by the small employer or
any of the covered individuals as part of a plan or program for the
purposes of Section 106 or 162 of the Internal Revenue Code.
   10753.02.1.  Any person or entity subject to the requirements of
this chapter shall comply with the standards set forth in Chapter 7
(commencing with Section 3750) of Part 1 of Division 9 of the Family
Code and Section 14124.94 of the Welfare and Institutions Code.
   10753.03.  The commissioner shall have the authority to determine
whether a health benefit plan is covered by this chapter, and to
determine whether an employer is a small employer within the meaning
of Section 10753.
   10753.04.  The commissioner may issue regulations that are
necessary to carry out the purposes of this chapter.
   10753.05.  (a) No group or individual policy or contract or
certificate of group insurance or statement of group coverage
providing benefits to employees of small employers as defined in this
chapter shall be issued or delivered by a carrier subject to the
jurisdiction of the commissioner regardless of the situs of the
contract or master policyholder or of the domicile of the carrier
nor, except as otherwise provided in Sections 10270.91 and 10270.92,
shall a carrier provide coverage subject to this chapter until a copy
of the form of the policy, contract, certificate, or statement of
coverage is filed with and approved by the commissioner in accordance
with Sections 10290 and 10291, and the carrier has complied with the
requirements of Section 10753.17.
   (b) (1) On and after October 1, 2013, each carrier shall fairly
and affirmatively offer, market, and sell all of the carrier's health
benefit plans that are sold to, offered through, or sponsored by,
small employers or associations that include small employers for plan
years on or after January 1, 2014, to all small employers in each
geographic region in which the carrier makes coverage available or
provides benefits.
   (2) A carrier that offers qualified health plans through the
Exchange shall be deemed to be in compliance with paragraph (1) with
respect to health benefit plans offered through the Exchange in those
geographic regions in which the carrier offers plans through the
Exchange.
   (3) A carrier shall provide enrollment periods consistent with
PPACA and set forth in Section 155.725 of Title 45 of the Code of
Federal Regulations. A carrier shall provide special enrollment
periods consistent with the special enrollment periods required in
the individual nongrandfathered market in the state, as set forth in
Section 10965.3, except for the triggering events identified in
paragraphs (d)(3) and (d)(6) of Section 155.420 of Title 45 of the
Code of Federal Regulations with respect to health benefit plans
offered through the Exchange.
   (4) Nothing in this section shall be construed to require an
association, or a trust established and maintained by an association
to receive a master insurance policy issued by an admitted insurer
and to administer the benefits thereof solely for association
members, to offer, market or sell a benefit plan design to those who
are not members of the association. However, if the association
markets, offers or sells a benefit plan design to those who are not
members of the association it is subject to the requirements of this
section. This shall apply to an association that otherwise meets the
requirements of paragraph (8) formed by merger of two or more
associations after January 1, 1992, if the predecessor organizations
had been in active existence on January 1, 1992, and for at least
five years prior to that date and met the requirements of paragraph
(5).
   (5) A carrier which (A) effective January 1, 1992, and at least 20
years prior to that date, markets, offers, or sells benefit plan
designs only to all members of one association and (B) does not
market, offer or sell any other individual, selected group, or group
policy or contract providing medical, hospital and surgical benefits
shall not be required to market, offer, or sell to those who are not
members of the association. However, if the carrier markets, offers
or sells any benefit plan design or any other individual, selected
group, or group policy or contract providing medical, hospital and
surgical benefits to those who are not members of the association it
is subject to the requirements of this section.
   (6) Each carrier that sells health benefit plans to members of one
association pursuant to paragraph (5) shall submit an annual
statement to the commissioner which states that the carrier is
selling health benefit plans pursuant to paragraph (5) and which, for
the one association, lists all the information required by paragraph
(7).
   (7) Each carrier that sells health benefit plans to members of any
association shall submit an annual statement to the commissioner
which lists each association to which the carrier sells health
benefit plans, the industry or profession which is served by the
association, the association's membership criteria, a list of
officers, the state in which the association is organized, and the
site of its principal office.
   (8) For purposes of paragraphs (4) and (6), an association is a
nonprofit organization comprised of a group of individuals or
employers who associate based solely on participation in a specified
profession or industry, accepting for membership any individual or
small employer meeting its membership criteria, which do not
condition membership directly or indirectly on the health or claims
history of any person, which uses membership dues solely for and in
consideration of the membership and membership benefits, except that
the amount of the dues shall not depend on whether the member applies
for or purchases insurance offered by the association, which is
organized and maintained in good faith for purposes unrelated to
insurance, which has been in active existence on January 1, 1992, and
at least five years prior to that date, which has a constitution and
bylaws, or other analogous governing documents which provide for
election of the governing board of the association by its members,
which has contracted with one or more carriers to offer one or more
health benefit plans to all individual members and small employer
members in this state.
   (c) On and after October 1, 2013, each carrier shall make
available to each small employer all health benefit plans that the
carrier offers or sells to small employers or to associations that
include small employers for plan years on or after January 1, 2014.
Notwithstanding subdivision (d) of Section 10753, for purposes of
this subdivision, companies that are affiliated companies or that are
eligible to file a consolidated income tax return shall be treated
as one carrier.
   (d) Each carrier shall do all of the following:
   (1) Prepare a brochure that summarizes all of its health benefit
plans and make this summary available to small employers, agents, and
brokers upon request. The summary shall include for each plan
information on benefits provided, a generic description of the manner
in which services are provided, such as how access to providers is
limited, benefit limitations, required copayments and deductibles, an
explanation of how creditable coverage is calculated if a waiting
period is imposed, and a telephone number that can be called for more
detailed benefit information. Carriers are required to keep the
information contained in the brochure accurate and up to date, and,
upon updating the brochure, send copies to agents and brokers
representing the carrier. Any entity that provides administrative
services only with regard to a health benefit plan written or issued
by another carrier shall not be required to prepare a summary
brochure which includes that benefit plan.
   (2) For each health benefit plan, prepare a more detailed evidence
of coverage and make it available to small employers, agents and
brokers upon request. The evidence of coverage shall contain all
information that a prudent buyer would need to be aware of in making
selections of benefit plan designs. An entity that provides
administrative services only with regard to a health benefit plan
written or issued by another carrier shall not be required to prepare
an evidence of coverage for that health benefit plan.
   (3) Provide copies of the current summary brochure to all agents
or brokers who represent the carrier and, upon updating the brochure,
send copies of the updated brochure to agents and brokers
representing the carrier for the purpose of selling health benefit
plans.
   (4) Notwithstanding subdivision (c) of Section 10753, for purposes
of this subdivision, companies that are affiliated companies or that
are eligible to file a consolidated income tax return shall be
treated as one carrier.
   (e) Every agent or broker representing one or more carriers for
the purpose of selling health benefit plans to small employers shall
do all of the following:
   (1) When providing information on a health benefit plan to a small
employer but making no specific recommendations on particular
benefit plan designs:
   (A) Advise the small employer of the carrier's obligation to sell
to any small employer any of the health benefit plans it offers to
small employers, consistent with PPACA, and provide them, upon
request, with the actual rates that would be charged to that employer
for a given health benefit plan.
   (B) Notify the small employer that the agent or broker will
procure rate and benefit information for the small employer on any
health benefit plan offered by a carrier for whom the agent or broker
sells health benefit plans.
   (C) Notify the small employer that, upon request, the agent or
broker will provide the small employer with the summary brochure
required in paragraph (1) of subdivision (d) for any benefit plan
design offered by a carrier whom the agent or broker represents.
   (D) Notify the small employer of the availability of coverage and
the availability of tax credits for certain employers consistent with
PPACA and state law, including any rules, regulations, or guidance
issued in connection therewith.
   (2) When recommending a particular benefit plan design or designs,
advise the small employer that, upon request, the agent will provide
the small employer with the brochure required by paragraph (1) of
subdivision (d) containing the benefit plan design or designs being
recommended by the agent or broker.
   (3) Prior to filing an application for a small employer for a
particular health benefit plan:
   (A) For each of the health benefit plans offered by the carrier
whose health benefit plan the agent or broker is presenting, provide
the small employer with the benefit summary required in paragraph (1)
of subdivision (d) and the premium for that particular employer.
   (B) Notify the small employer that, upon request, the agent or
broker will provide the small employer with an evidence of coverage
brochure for each health benefit plan the carrier offers.
   (C) Obtain a signed statement from the small employer
acknowledging that the small employer has received the disclosures
required by this paragraph and Section 10753.16.
   (f) No carrier, agent, or broker shall induce or otherwise
encourage a small employer to separate or otherwise exclude an
eligible employee from a health benefit plan which, in the case of an
eligible employee meeting the definition in paragraph (1) of
subdivision (f) of Section 10753, is provided in connection with the
employee's employment or which, in the case of an eligible employee
as defined in paragraph (2) of subdivision (f) of Section 10753, is
provided in connection with a guaranteed association.
   (g) No carrier shall reject an application from a small employer
for a health benefit plan provided:
   (1) The small employer as defined by subparagraph (A) of paragraph
(1) of subdivision (q) of Section 10753 offers health benefits to
100 percent of its eligible employees as defined in paragraph (1) of
subdivision (f) of Section 10753. Employees who waive coverage on the
grounds that they have other group coverage shall not be counted as
eligible employees.
   (2) The small employer agrees to make the required premium
payments.
   (h) No carrier or agent or broker shall, directly or indirectly,
engage in the following activities:
   (1) Encourage or direct small employers to refrain from filing an
application for coverage with a carrier because of the health status,
claims experience, industry,
            occupation, or geographic location within the carrier's
approved service area of the small employer or the small employer's
employees.
   (2) Encourage or direct small employers to seek coverage from
another carrier because of the health status, claims experience,
industry, occupation, or geographic location within the carrier's
approved service area of the small employer or the small employer's
employees.
   (i) No carrier shall, directly or indirectly, enter into any
contract, agreement, or arrangement with an agent or broker that
provides for or results in the compensation paid to an agent or
broker for a health benefit plan to be varied because of the health
status, claims experience, industry, occupation, or geographic
location of the small employer or the small employer's employees.
This subdivision shall not apply with respect to a compensation
arrangement that provides compensation to an agent or broker on the
basis of percentage of premium, provided that the percentage shall
not vary because of the health status, claims experience, industry,
occupation, or geographic area of the small employer.
   (j) (1) A health benefit plan offered to a small employer, as
defined in Section 1304(b) of PPACA and in Section 10753, shall not
establish rules for eligibility, including continued eligibility, of
an individual, or dependent of an individual, to enroll under the
terms of the plan based on any of the following health status-related
factors:
   (A) Health status.
   (B) Medical condition, including physical and mental illnesses.
   (C) Claims experience.
   (D) Receipt of health care.
   (E) Medical history.
   (F) Genetic information.
   (G) Evidence of insurability, including conditions arising out of
acts of domestic violence.
   (H) Disability.
   (I) Any other health status-related factor as determined by any
federal regulations, rules, or guidance issued pursuant to Section
2705 of the federal Public Health Service Act.
   (2) Notwithstanding Section 10291.5, a carrier shall not require
an eligible employee or dependent to fill out a health assessment or
medical questionnaire prior to enrollment under a health benefit
plan. A carrier shall not acquire or request information that relates
to a health status-related factor from the applicant or his or her
dependent or any other source prior to enrollment of the individual.
   (k) If a carrier enters into a contract, agreement, or other
arrangement with a third-party administrator or other entity to
provide administrative, marketing, or other services related to the
offering of health benefit plans to small employers in this state,
the third-party administrator shall be subject to this chapter.
   (l) (1) With respect to the obligation to provide coverage newly
issued under subdivision (c), to the extent permitted by PPACA, the
carrier may cease enrolling new small employer groups and new
eligible employees as defined by paragraph (2) of subdivision (f) of
Section 10753 if it certifies to the commissioner that the number of
eligible employees and dependents, of the employers newly enrolled or
insured during the current calendar year by the carrier equals or
exceeds: (A) in the case of a carrier that administers any
self-funded health benefits arrangement in California, 10 percent of
the total number of eligible employees, or eligible employees and
dependents, respectively, enrolled or insured in California by that
carrier as of December 31 of the preceding year, or (B) in the case
of a carrier that does not administer any self-funded health benefit
arrangements in California, 8 percent of the total number of eligible
employees, or eligible employees and dependents, respectively,
enrolled or insured by the carrier in California as of December 31 of
the preceding year.
   (2) Certification shall be deemed approved if not disapproved
within 45 days after submission to the commissioner. If that
certification is approved, the small employer carrier shall not offer
coverage to any small employers under any health benefit plans
during the remainder of the current year. If the certification is not
approved, the carrier shall continue to issue coverage as required
by subdivision (c) and be subject to administrative penalties as
established in Section 10753.18.
   (m) (1) Except as provided in paragraph (2), this section shall
become inoperative if Section 2702 of the federal Public Health
Service Act (42 U.S.C. Sec. 300gg-1), as added by Section 1201 of
PPACA, is repealed, in which case carriers subject to this section
shall instead be governed by Section 10705 to the extent permitted by
federal law, and all references in this chapter to this section
shall instead refer to Section 10705, except for purposes of
paragraph (2).
   (2) Paragraph (3) of subdivision (b) of this section shall remain
operative as it relates to health benefit plans offered through the
Exchange.
   10753.05.2.  (a) For contracts expiring after July 1, 1994, 60
days prior to July 1, 1994, an association that meets the definition
of guaranteed association, as set forth in Section 10753, except for
the requirement that 1,000 persons be covered, shall be entitled to
purchase small employer health coverage as if the association were a
guaranteed association, except that the coverage shall be guaranteed
only for those members of an association, as defined in Section
10753, (1) who were receiving coverage or had successfully applied
for coverage through the association as of June 30, 1993, (2) who
were receiving coverage through the association as of December 31,
1992, and whose coverage lapsed at any time thereafter because the
employment through which coverage was received ended or an employer's
contribution to health coverage ended, or (3) who were covered at
any time between June 30, 1993, and July 1, 1994, under a contract
that was in force on June 30, 1993.
   (b) An association obtaining health coverage for its members
pursuant to this section shall otherwise be afforded all the rights
of a guaranteed association under this chapter including, but not
limited to, guaranteed renewability of coverage.
   10753.06.  Every carrier shall file with the commissioner the
reasonable participation requirements and employer contribution
requirements that are to be included in its health benefit plans.
Participation requirements shall be applied uniformly among all small
employer groups, except that a carrier may vary application of
minimum employer participation requirements by the size of the small
employer group and whether the employer contributes 100 percent of
the eligible employee's premium. Employer contribution requirements
shall not vary by employer size. A carrier shall not establish a
participation requirement that (1) requires a person who meets the
definition of a dependent in subdivision (e) of Section 10753 to
enroll as a dependent if he or she is otherwise eligible for coverage
and wishes to enroll as an eligible employee and (2) allows a
carrier to reject an otherwise eligible small employer because of the
number of persons that waive coverage due to coverage through
another employer. Members of an association eligible for health
coverage eligible under subdivision (s) of Section 10753 but not
electing any health coverage through the association shall not be
counted as eligible employees for purposes of determining whether the
guaranteed association meets a carrier's reasonable participation
standards.
   10753.06.5.  (a) With respect to health benefit plans offered
outside the Exchange, after a small employer submits a completed
application, the carrier shall, within 30 days, notify the employer
of the employer's actual rates in accordance with Section 10753.14.
The employer shall have 30 days in which to exercise the right to buy
coverage at the quoted rates.
   (b) (1) Except as required under paragraph (2), when a small
employer submits a premium payment, based on the quoted rates, and
that payment is delivered or postmarked, whichever occurs earlier,
within the first 15 days of a month, coverage shall become effective
no later than the first day of the following month. When that payment
is neither delivered nor postmarked until after the 15th day of a
month, coverage shall become effective no later than the first day of
the second month following delivery or postmark of the payment.
   (2) A carrier shall apply coverage effective dates for health
benefit plans subject to this chapter consistent with the coverage
effective dates applicable to nongrandfathered individual health
benefit plans set forth in Section 10965.3.
   (c) During the first 30 days of coverage, the small employer shall
have the option of changing coverage to a different health benefit
plan offered by the same carrier. If a small employer notifies the
carrier of the change within the first 15 days of a month, coverage
under the new health benefit plan shall become effective no later
than the first day of the following month. If a small employer
notifies the carrier of the change after the 15th day of a month,
coverage under the new health benefit plan shall become effective no
later than the first day of the second month following notification.
   (d) All eligible employees and dependents listed on the small
employer's completed application shall be covered on the effective
date of the health benefit plan.
   10753.08.  (a) A health benefit plan shall not impose a
preexisting condition provision upon any individual.
   (b) A health benefit plan may apply a waiting period of up to 60
days as a condition of employment if applied equally to all eligible
employees and dependents and if consistent with PPACA. A waiting
period shall not be based on a preexisting condition of an employee
or dependent, the health status of an employee or dependent, or any
other factor listed in subdivision (j) of Section 10753. During the
waiting period, the health benefit plan is not required to provide
coverage and no premium shall be charged to the policyholder or
insureds.
   (c) In determining whether a waiting period applies to any person,
a carrier shall credit the time the person was covered under
creditable coverage, provided the person becomes eligible for
coverage under the succeeding plan contract within 62 days of
termination of prior coverage, exclusive of any waiting period, and
applies for coverage with the succeeding plan contract within the
applicable enrollment period. A carrier shall also credit any time an
eligible employee must wait before enrolling in the plan, including
any employer-imposed waiting period. However, if a person's
employment has ended, the availability of health coverage offered
through employment or sponsored by an employer has terminated, or an
employer's contribution toward health coverage has terminated, a
carrier shall credit the time the person was covered under creditable
coverage if the person becomes eligible for health coverage offered
through employment or sponsored by an employer within 180 days,
exclusive of any waiting period, and applies for coverage under the
succeeding health benefit plan within the applicable enrollment
period.
   (d) An individual's period of creditable coverage shall be
certified pursuant to subsection (e) of Section 2704 of Title XXVII
of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-3(e)).

   10753.09.  Nothing in this chapter shall be construed as
prohibiting a carrier from restricting enrollment of late enrollees
to open enrollment periods provided under Section 10753.05 as
authorized under Section 2702 of the federal Public Health Service
Act.
   10753.11.  To the extent permitted by PPACA, no carrier shall be
required by the provisions of this chapter:
   (a) To offer coverage to, or accept applications from, a small
employer as defined in subparagraph (A) of paragraph (1) of
subdivision (q) of Section 10753, where the small employer is not
physically located in a carrier's approved service areas.
   (b) To offer coverage to or accept applications from a small
employer as defined in subparagraph (B) of paragraph (1) of
subdivision (q) of Section 10753 where the small employer is seeking
coverage for eligible employees who do not work or reside in a
carrier's approved service areas.
   (c) To include in a health benefit plan an otherwise eligible
employee or dependent, when the eligible employee or dependent does
not work or reside within a carrier's approved service area, except
as provided in Section 10753.02.1.
   (d) To offer coverage to, or accept applications from, a small
employer for a benefits plan design within an area if the
commissioner has found that the carrier will not have the capacity
within the area in its network of providers to deliver service
adequately to the eligible employees and dependents of that employee
because of its obligations to existing group contractholders and
enrollees and that the action is not unreasonable or clearly
inconsistent with the intent of this chapter.
   A carrier that cannot offer coverage to small employers in a
specific service area because it is lacking sufficient capacity may
not offer coverage in the applicable area to new employer groups with
more than 50 eligible employees until the carrier notifies the
commissioner that it has regained capacity to deliver services to
small employers, and certifies to the commissioner that from the date
of the notice it will enroll all small groups requesting coverage
from the carrier until the carrier has met the requirements of
subdivision (h) of Section 10753.05.
   (e) To offer coverage to a small employer, or an eligible employee
as defined in paragraph (2) of subdivision (f) of Section 10753, who
within 12 months of application for coverage terminated from a
health benefit plan offered by the carrier.
   10753.12.  (a) A carrier shall not be required to offer coverage
or accept applications for benefit plan designs pursuant to this
chapter where the commissioner determines that the acceptance of an
application or applications would place the carrier in a financially
impaired condition.
   (b) The commissioner's determination shall follow an evaluation
that includes a certification by the commissioner that the acceptance
of an application or applications would place the carrier in a
financially impaired condition.
   (c) A carrier that has not offered coverage or accepted
applications pursuant to this chapter shall not offer coverage or
accept applications for any individual or group health benefit plan
until the commissioner has determined that the carrier has ceased to
be financially impaired.
   10753.13.  All health benefit plans subject to this chapter shall
be renewable with respect to all eligible employees or dependents at
the option of the policyholder, contractholder, or small employer
except as follows:
   (a) (1) For nonpayment of the required premiums by the
policyholder, contractholder, or small employer, if the policyholder,
contractholder, or small employer has been duly notified and billed
for the charge and at least a 30-day grace period has elapsed since
the date of notification or, if longer, the period of time required
for notice and any other requirements pursuant to Section 2703, 2712,
or 2742 of the federal Public Health Service Act (42 U.S.C. Secs.
300gg-2, 300gg-12, and 300gg-42) and any subsequent rules or
regulations has elapsed.
   (2) An insurer shall continue to provide coverage as required by
the policyholder's, contractholder's, or small employer's policy
during the period described in paragraph (1). Nothing in this section
shall be construed to affect or impair the policyholder's,
contractholder's, small employer's, or insurer's other rights and
responsibilities pursuant to the subscriber contract.
   (b) If the insurer demonstrates fraud or an intentional
misrepresentation of material fact under the terms of the policy by
the policyholder, contractholder, or small employer or, with respect
to coverage of individual enrollees, the enrollees or their
representative.
   (c) Violation of a material contract provision relating to
employer contribution or group participation rates by the
policyholder, contractholder, or small employer.
   (d) When the carrier ceases to write, issue, or administer new or
existing grandfathered or nongrandfathered small employer health
benefit plans in this state, provided, however, that the following
conditions are satisfied:
   (1) Notice of the decision to cease writing, issuing, or
administering new or existing small employer health benefits plans in
this state is provided to the commissioner, and to either the
policyholder, contractholder, or small employer at least 180 days
prior to the discontinuation of the coverage.
   (2) Small employer health benefit plans subject to this chapter
shall not be canceled for 180 days after the date of the notice
required under paragraph (1). For that business of a carrier that
remains in force, any carrier that ceases to write, issue, or
administer new or existing health benefit plans shall continue to be
governed by this chapter.
   (3) Except in the case where a certification has been approved
pursuant to subdivision (l) of Section 10753.05 or the commissioner
has made a determination pursuant to subdivision (a) of Section
10753.12, a carrier that ceases to write, issue, or administer new
health benefit plans to small employers in this state after the
passage of this chapter shall be prohibited from writing, issuing, or
administering new health benefit plans to small employers in this
state for a period of five years from the date of notice to the
commissioner.
   (e) When a carrier withdraws a benefit plan design from the small
employer market, provided that the carrier notifies all affected
policyholders, contractholders, or small employers and the
commissioner at least 90 days prior to the discontinuation of those
contracts, and that the carrier makes available to the small employer
all small employer benefit plan designs which it markets.
   (f) If coverage is made available through a bona fide association
pursuant to subdivision (q) of Section 10753 or a guaranteed
association pursuant to subdivision (r) of Section 10753, the
membership of the employer or the individual, respectively, ceases,
but only if that coverage is terminated under this subdivision
uniformly without regard to any health status-related factor of
covered individuals.
   10753.14.  (a) The premium rate for a health benefit plan issued,
amended, or renewed on or after January 1, 2014, shall vary with
respect to the particular coverage involved only by the following:
   (1) Age, pursuant to the age bands established by the United
States Secretary of Health and Human Services pursuant to Section
2701(a)(3) of the federal Public Health Service Act (42 U.S.C. Sec.
300gg(a)(3)). Rates based on age shall be determined based on the
individual's birthday and shall not vary by more than three to one
for adults.
   (2) (A) Geographic region. The geographic regions for purposes of
rating shall be the following:
   (i) Region 1 shall consist of the Counties of Alpine, Del Norte,
Siskiyou, Modoc, Lassen, Shasta, Trinity, Humboldt, Tehama, Plumas,
Nevada, Sierra, Mendocino, Lake, Butte, Glenn, Sutter, Yuba, Colusa,
Amador, Calaveras, and Tuolumne.
   (ii) Region 2 shall consist of the Counties of Napa, Sonoma,
Solano, and Marin.
   (iii) Region 3 shall consist of the Counties of Sacramento,
Placer, El Dorado, and Yolo.
   (iv) Region 4 shall consist of the County of San Francisco.
   (v) Region 5 shall consist of the County of Contra Costa.
   (vi) Region 6 shall consist of the County of Alameda.
   (vii) Region 7 shall consist of the County of Santa Clara.
   (viii) Region 8 shall consist of the County of San Mateo.
   (ix) Region 9 shall consist of the Counties of Santa Cruz,
Monterey, and San Benito.
   (x) Region 10 shall consist of the Counties of San Joaquin,
Stanislaus, Merced, Mariposa, and Tulare.
   (xi) Region 11 shall consist of the Counties of Madera, Fresno,
and Kings.
   (xii) Region 12 shall consist of the Counties of San Luis Obispo,
Santa Barbara, and Ventura.
   (xiii) Region 13 shall consist of the Counties of Mono, Inyo, and
Imperial.
   (xiv) Region 14 shall consist of the County of Kern.
   (xv) Region 15 shall consist of the ZIP Codes in Los Angeles
County starting with 906 to 912, inclusive, 915, 917, 918, and 935.
   (xvi) Region 16 shall consist of the ZIP Codes in Los Angeles
County other than those identified in clause (xv).
   (xvii) Region 17 shall consist of the Counties of San Bernardino
and Riverside.
   (xviii) Region 18 shall consist of the County of Orange.
   (xix) Region 19 shall consist of the County of San Diego.
   (B) No later than June 1, 2017, the department, in collaboration
with the Exchange and the Department of Managed Health Care, shall
review the geographic rating regions specified in this paragraph and
the impacts of those regions on the health care coverage market in
California, and make a report to the appropriate policy committees of
the Legislature.
   (3) Whether the health benefit plan covers an individual or
family, as described in PPACA.
   (b) The rate for a health benefit plan subject to this section
shall not vary by any factor not described in this section.
   (c) The rating period for rates subject to this section shall be
no less than 12 months from the date of issuance or renewal of the
health benefit plan.
   (d) This section shall become inoperative if Section 2701 of the
federal Public Health Service Act (42 U.S.C. Sec. 300gg), as added by
Section 1201 of PPACA, is repealed, in which case rates for health
benefit plans subject to this section shall instead be subject to
Section 10714, to the extent permitted by federal law, and all
references to this section shall be deemed to be references to
Section 10714.
   10753.16.  In connection with the offering for sale of a health
benefit plan subject to this chapter to small employers:
   Each carrier shall make a reasonable disclosure, as part of its
solicitation and sales materials, of the following:
   (a) The provisions concerning the carrier's ability to change
premium rates and the factors that affect changes in premium rates.
The carrier shall disclose that claims experience cannot be used.
   (b) Provisions relating to the guaranteed issue of policies and
contracts.
   (c) A statement that no preexisting condition provisions shall be
allowed.
   (d) Provisions relating to the small employer's right to apply for
any health benefit plan written, issued, or administered by the
carrier at the time of application for a new health benefit plan, or
at the time of renewal of a health benefit plan.
   (e) The availability, upon request, of a listing of all the
carrier's benefit plan designs offered, both inside and outside the
Exchange, including the rates for each benefit plan design.
   10753.17.  (a) No carrier shall provide or renew coverage subject
to this chapter until a statement has been filed with the
commissioner listing all of the carrier's health benefit plans
currently in force that are offered or proposed to be offered for
sale in this state, identified by form number, and, if previously
approved by the commissioner, the date approved by the commissioner.
   (b) No carrier shall issue, deliver, renew, or revise a health
benefit plan lawfully provided pursuant to subdivision (a) until all
of the following requirements are met:
   (1) The carrier files with the commissioner a statement of the
factors used to establish rates for the plan.
   (2) Either:
   (A) Thirty days expires after the statement is filed without
written notice from the commissioner specifying the reasons for his
or her opinion that the carrier's rating factors do not comply with
the requirements of this chapter.
   (B) Prior to that time the commissioner gives the carrier written
notice that the carrier's rating factors as filed comply with the
requirements of this chapter.
   (c) If the commissioner notifies the carrier, in writing, that the
carrier's rating factors do not comply with the requirements of this
chapter, specifying the reasons for his or her opinion, it is
unlawful for the carrier, at any time after the receipt of such
notice, to utilize the noncomplying health benefit plan or rating
factors in conjunction with the health benefit plans or benefit plan
designs for which the filing was made.
   (d) Each carrier shall maintain at its principal place of business
copies of all information required to be filed with the commissioner
pursuant to this section.
   (e) Each carrier shall make the information and documentation
described in this section available to the commissioner upon request.

   (f) Nothing in this section shall be construed to permit the
commissioner to establish or approve the rates charged to
policyholders for health benefit plans.
   10753.18.  (a) In addition to any other remedy permitted by law,
the commissioner shall have the administrative authority to assess
penalties against carriers, insurance producers, and other entities
engaged in the business of insurance or other persons or entities for
violations of this chapter.
   (b) Upon a showing of a violation of this chapter in any civil
action, a court may also assess the penalties described in this
chapter, in addition to any other remedies provided by law.
   (c) Any production agent or other person or entity engaged in the
business of insurance, other than a carrier, that violates this
chapter is liable for administrative penalties of not more than two
hundred fifty dollars ($250) for the first violation.
   (d) Any production agent or other person or entity engaged in the
business of insurance, other than a carrier, that engages in
practices prohibited by this chapter a second or subsequent time, or
who commits a knowing violation of this chapter, is liable for
administrative penalties of not less than one thousand dollars
($1,000) and not more than two thousand five hundred dollars ($2,500)
for each violation.
   (e) Any carrier that violates this chapter is liable for
administrative penalties of not more than two thousand five hundred
dollars ($2,500) for the first violation and not more than five
thousand dollars ($5,000) for each subsequent violation.
   (f) Any carrier that violates this chapter with a frequency that
indicates a general business practice or commits a knowing violation
of this chapter, is liable for administrative penalties of not less
than fifteen thousand dollars ($15,000) and not more than one hundred
thousand dollars ($100,000) for each violation.
   (g) An act or omission that is inadvertent and that results in
incorrect premium rates being charged to more than one policyholder
shall be a single violation for the purpose of this section.
                                                     10753.18.5.  (a)
(1) In addition to any other remedy permitted by law, whenever the
commissioner shall have reason to believe that any carrier,
production agent, or other person or entity engaged in the business
of insurance has violated this chapter, and that a proceeding by the
commissioner in respect thereto would be in the interest of the
public, the commissioner may issue and serve upon that entity an
order to show cause containing a statement of the charges, a
statement of the entity's potential liability under this chapter, and
a notice of a public hearing thereon before the Administrative Law
Bureau of the department to be held at a time and place fixed
therein, which shall not be less than 30 days after the service
thereof, for the purpose of determining whether the commissioner
should issue an order to that entity to pay the penalty imposed by
this chapter and such order or orders as shall be reasonably
necessary to correct, eliminate, or remedy the alleged violations of
this chapter, including, but not limited to, an order to cease and
desist from the specified violations of this chapter.
   (2) The hearings provided by this subdivision shall be conducted
in accordance with the Administrative Procedure Act (Chapter 5
(commencing with Section 11500) of Part 1 of Division 3 of Title 2 of
the Government Code), and the commissioner shall have all the powers
granted therein.
   (b) (1) Whenever it appears to the commissioner that irreparable
loss and injury has occurred or may occur to an insured, employer,
employee, or other member of the public because a carrier, production
agent, or other person or entity engaged in the business of
insurance has violated this chapter, the commissioner may, before
hearing, but after notice and opportunity to submit relevant
information, issue and cause to be served upon the entity such order
or orders as shall be reasonably necessary to correct, eliminate, or
remedy the alleged violations of this chapter, including, but not
limited to, an order requiring the entity to forthwith cease and
desist from engaging further in the violations which are causing or
may cause such irreparable injury.
   (2) At the same time an order is served pursuant to paragraph (1)
of this subdivision, the commissioner shall issue and also serve upon
the person a notice of public hearing before the Administrative Law
Bureau of the department to be held at a time and place fixed
therein, which shall not be less than 30 days after the service
thereof.
   (3) The hearings provided by this subdivision shall be conducted
in accordance with the Administrative Procedure Act (Chapter 5
(commencing with Section 11500) of Part 1 of Division 3 of Title 2 of
the Government Code), and the commissioner shall have all the powers
granted therein.
   (4) At any time prior to the commencement of a hearing as provided
in this subdivision, the entity against which the commissioner has
served an order may waive the hearing and have judicial review of the
order by means of any remedy afforded by law without first
exhausting administrative remedies or procedures.
   (c) If, after hearing as provided by subdivision (a) or (b), the
charges, or any of them, that an entity has violated this chapter are
found to be justified, the commissioner shall issue and cause to be
served upon that entity an order requiring that entity to pay the
penalty imposed by this chapter and such order or orders as shall be
reasonably necessary to correct, eliminate, or remedy the alleged
violations of this chapter, including, but not limited to, an order
to cease and desist from the specified violations of this chapter.
   (d) In addition to any other penalty provided by law or the
availability of any administrative procedure, if a carrier, after
notice and hearing, is found to have violated this chapter knowingly
or as a general business practice the commissioner may suspend the
carrier's certificate of authority to transact disability insurance.
The order of suspension shall prescribe the period of such
suspension. The proceedings shall be conducted in accordance with the
Administrative Procedure Act, Chapter 5 (commencing with Section
11500) of Part 1 of Division 3 of Title 2 of the Government Code and
the commissioner shall have all the powers granted therein.
   10753.18.55.  (a) Carriers may enter into contractual agreements
with qualified associations, as defined in subdivision (b), under
which these qualified associations may assume responsibility for
performing specific administrative services, as defined in this
section, for qualified association members. Carriers that enter into
agreements with qualified associations for assumption of
administrative services shall establish uniform definitions for the
administrative services that may be provided by a qualified
association or its third-party administrator. The carrier shall
permit all qualified associations to assume one or more of these
functions when the carrier determines the qualified association
demonstrates that it has the administrative capacity to assume these
functions.
   For the purposes of this section, administrative services provided
by qualified associations or their third-party administrators shall
be services pertaining to eligibility determination, enrollment,
premium collection, sales, or claims administration on a per-claim
basis that would otherwise be provided directly by the carrier or
through a third-party administrator on a commission basis or an agent
or solicitor workforce on a commission basis.
   Each carrier that enters into an agreement with any qualified
association for the provision of administrative services shall offer
all qualified associations with which it contracts the same premium
discounts for performing those services the carrier has permitted the
qualified association or its third-party administrator to assume.
The carrier shall apply these uniform discounts to the carrier's
rates pursuant to Section 10753.14. The carrier shall report to the
department its schedule of discounts for each administrative service.

   In no instance may a carrier provide discounts to qualified
associations that are in any way intended to, or materially result
in, a reduction in premium charges to the qualified association due
to the health status of the membership of the qualified association.
In addition to any other remedies available to the commissioner to
enforce this chapter, the commissioner may declare a contract between
a carrier and a qualified association for administrative services
pursuant to this section null and void if the commissioner determines
any discounts provided to the qualified association are intended to,
or materially result in, a reduction in premium charges to the
qualified association due to the health status of the membership of
the qualified association.
   (b) For the purposes of this section, a qualified association is a
nonprofit corporation comprised of a group of individuals or
employers who associate based solely on participation in a specified
profession or industry, that conforms to all of the following
requirements:
   (1) It accepts for membership any individual or small employer
meeting its membership criteria.
   (2) It does not condition membership, directly or indirectly, on
the health or claims history of any person.
   (3) It uses membership dues solely for and in consideration of the
membership and membership benefits, except that the amount of the
dues shall not depend on whether the member applies for or purchases
insurance offered by the association.
   (4) It is organized and maintained in good faith for purposes
unrelated to insurance.
   (5) It existed on January 1, 1972, and has been in continuous
existence since that date.
   (6) It has a constitution and bylaws or other analogous governing
documents that provide for election of the governing board of the
association by its members.
   (7) It offered, marketed, or sold health coverage to its members
for 20 continuous years prior to January 1, 1993.
   (8) It agrees to offer any plan contract only to association
members.
   (9) It agrees to include any member choosing to enroll in the plan
contract offered by the association, provided that the member agrees
to make required premium payments.
   (10) It complies with all provisions of this article.
   (11) It had at least 10,000 enrollees covered by
association-sponsored plans immediately prior to enactment of Chapter
1128 of the Statutes of 1992.
   (12) It applies any administrative cost at an equal rate to all
members purchasing coverage through the qualified association.
   (c) A qualified association shall comply with the requirements set
forth in Section 10198.9.
   10753.18.7.  Notwithstanding any other provision of law, no
provision of this chapter shall be construed to limit the
applicability of any other provision of the Insurance Code unless
such provision is in conflict with the requirements of this chapter.
  SEC. 15.  Chapter 8.02 (commencing with Section 10755) is added to
Part 2 of Division 2 of the Insurance Code, to read:
      CHAPTER 8.02.  GRANDFATHERED SMALL EMPLOYER HEALTH INSURANCE



      Article 1.  Definitions


   10755.  As used in this chapter, the following definitions shall
apply:
   (a) "Agent or broker" means a person or entity licensed under
Chapter 5 (commencing with Section 1621) of Part 2 of Division 1.
   (b) "Benefit plan design" means a specific health coverage product
issued by a carrier to small employers, to trustees of associations
that include small employers, or to individuals if the coverage is
offered through employment or sponsored by an employer. It includes
services covered and the levels of copayment and deductibles, and it
may include the professional providers who are to provide those
services and the sites where those services are to be provided. A
benefit plan design may also be an integrated system for the
financing and delivery of quality health care services which has
significant incentives for the covered individuals to use the system.

   (c) "Carrier" means any disability insurance company or any other
entity that writes, issues, or administers health benefit plans that
cover the employees of small employers, regardless of the situs of
the contract or master policyholder.
   (d) "Dependent" means the spouse or registered domestic partner,
or child, of an eligible employee, subject to applicable terms of the
health benefit plan covering the employee, and includes dependents
of guaranteed association members if the association elects to
include dependents under its health coverage at the same time it
determines its membership composition pursuant to subdivision (t).
   (e) "Eligible employee" means either of the following:
   (1) Any permanent employee who is actively engaged on a full-time
basis in the conduct of the business of the small employer with a
normal workweek of an average of 30 hours per week over the course of
a month, in the small employer's regular place of business, who has
met any statutorily authorized applicable waiting period
requirements. The term includes sole proprietors or partners of a
partnership, if they are actively engaged on a full-time basis in the
small employer's business, and they are included as employees under
a health benefit plan of a small employer, but does not include
employees who work on a part-time, temporary, or substitute basis. It
includes any eligible employee, as defined in this paragraph, who
obtains coverage through a guaranteed association. Employees of
employers purchasing through a guaranteed association shall be deemed
to be eligible employees if they would otherwise meet the definition
except for the number of persons employed by the employer. A
permanent employee who works at least 20 hours but not more than 29
hours is deemed to be an eligible employee if all four of the
following apply:
   (A) The employee otherwise meets the definition of an eligible
employee except for the number of hours worked.
   (B) The employer offers the employee health coverage under a
health benefit plan.
   (C) All similarly situated individuals are offered coverage under
the health benefit plan.
   (D) The employee must have worked at least 20 hours per normal
workweek for at least 50 percent of the weeks in the previous
calendar quarter. The insurer may request any necessary information
to document the hours and time period in question, including, but not
limited to, payroll records and employee wage and tax filings.
   (2) Any member of a guaranteed association as defined in
subdivision (t).
   (f) "Enrollee" means an eligible employee or dependent who
receives health coverage through the program from a participating
carrier.
   (g) "Financially impaired" means, for the purposes of this
chapter, a carrier that, on or after the effective date of this
chapter, is not insolvent and is either:
   (1) Deemed by the commissioner to be potentially unable to fulfill
its contractual obligations.
   (2) Placed under an order of rehabilitation or conservation by a
court of competent jurisdiction.
   (h) "Health benefit plan" means a policy or contract written or
administered by a carrier that arranges or provides health care
benefits for the covered eligible employees of a small employer and
their dependents. The term does not include accident only, credit,
disability income, coverage of Medicare services pursuant to
contracts with the United States government, Medicare supplement,
long-term care insurance, dental, vision, coverage issued as a
supplement to liability insurance, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (i) "In force business" means an existing health benefit plan
issued by the carrier to a small employer.
   (j) "Late enrollee" means an eligible employee or dependent who
has declined health coverage under a health benefit plan offered by a
small employer at the time of the initial enrollment period provided
under the terms of the health benefit plan and who subsequently
requests enrollment in a health benefit plan of that small employer,
provided that the initial enrollment period shall be a period of at
least 30 days. It also means any member of an association that is a
guaranteed association as well as any other person eligible to
purchase through the guaranteed association when that person has
failed to purchase coverage during the initial enrollment period
provided under the terms of the guaranteed association's health
benefit plan and who subsequently requests enrollment in the plan,
provided that the initial enrollment period shall be a period of at
least 30 days. However, an eligible employee, another person eligible
for coverage through a guaranteed association pursuant to
subdivision (t), or an eligible dependent shall not be considered a
late enrollee if any of the following is applicable:
   (1) The individual meets all of the following requirements:
   (A) He or she was covered under another employer health benefit
plan, the Healthy Families Program, the Access for Infants and
Mothers (AIM) Program, the Medi-Cal program, or coverage through the
California Health Benefit Exchange at the time the individual was
eligible to enroll.
   (B) He or she certified at the time of the initial enrollment that
coverage under another employer health benefit plan, the Healthy
Families Program, the AIM Program, the Medi-Cal program, or the
California Health Benefit Exchange was the reason for declining
enrollment provided that, if the individual was covered under another
employer health plan, the individual was given the opportunity to
make the certification required by this subdivision and was notified
that failure to do so could result in later treatment as a late
enrollee.
   (C) He or she has lost or will lose coverage under another
employer health benefit plan as a result of termination of employment
of the individual or of a person through whom the individual was
covered as a dependent, change in employment status of the
individual, or of a person through whom the individual was covered as
a dependent, the termination of the other plan's coverage, cessation
of an employer's contribution toward an employee or dependent's
coverage, death of the person through whom the individual was covered
as a dependent, legal separation, or divorce; or he or she has lost
or will lose coverage under the Healthy Families Program, the AIM
Program, the Medi-Cal program, or the California Health Benefit
Exchange.
   (D) He or she requests enrollment within 30 days after termination
of coverage or employer contribution toward coverage provided under
another employer health benefit plan, or requests enrollment within
60 days after termination of Medi-Cal program coverage, AIM Program
coverage, Healthy Families Program coverage, or coverage offered
through the California Health Benefit Exchange.
   (2) The individual is employed by an employer who offers multiple
health benefit plans and the individual elects a different plan
during an open enrollment period.
   (3) A court has ordered that coverage be provided for a spouse or
minor child under a covered employee's health benefit plan.
   (4) (A) In the case of an eligible employee as defined in
paragraph (1) of subdivision (e), the carrier cannot produce a
written statement from the employer stating that the individual or
the person through whom an individual was eligible to be covered as a
dependent, prior to declining coverage, was provided with, and
signed acknowledgment of, an explicit written notice in boldface type
specifying that failure to elect coverage during the initial
enrollment period permits the carrier to impose, at the time of the
individual's later decision to elect coverage, an exclusion from
coverage for a period of 12 months as well as a six-month preexisting
condition exclusion unless the individual meets the criteria
specified in paragraph (1), (2), or (3).
   (B) In the case of an eligible employee who is a guaranteed
association member, the plan cannot produce a written statement from
the guaranteed association stating that the association sent a
written notice in boldface type to all potentially eligible
association members at their last known address prior to the initial
enrollment period informing members that failure to elect coverage
during the initial enrollment period permits the plan to impose, at
the time of the member's later decision to elect coverage, an
exclusion from coverage for a period of 12 months as well as a
six-month preexisting condition exclusion unless the member can
demonstrate that he or she meets the requirements of subparagraphs
(A), (C), and (D) of paragraph (1) or meets the requirements of
paragraph (2) or (3).
   (C) In the case of an employer or person who is not a member of an
association, was eligible to purchase coverage through a guaranteed
association, and did not do so, and would not be eligible to purchase
guaranteed coverage unless purchased through a guaranteed
association, the employer or person can demonstrate that he or she
meets the requirements of subparagraphs (A), (C), and (D) of
paragraph (1), or meets the requirements of paragraph (2) or (3), or
that he or she recently had a change in status that would make him or
her eligible and that application for coverage was made within 30
days of the change.
   (5) The individual is an employee or dependent who meets the
criteria described in paragraph (1) and was under a COBRA
continuation provision and the coverage under that provision has been
exhausted. For purposes of this section, the definition of "COBRA"
set forth in subdivision (e) of Section 10116.5 shall apply.
   (6) The individual is a dependent of an enrolled eligible employee
who has lost or will lose his or her coverage under the Healthy
Families Program, the AIM Program, the Medi-Cal program, or the
California Health Benefit Exchange and requests enrollment within 60
days after termination of that coverage.
   (7) The individual is an eligible employee who previously declined
coverage under an employer health benefit plan, including a plan
offered through the California Health Benefit Exchange, and who has
subsequently acquired a dependent who would be eligible for coverage
as a dependent of the employee through marriage, birth, adoption, or
placement for adoption, and who enrolls for coverage under that
employer health benefit plan on his or her behalf and on behalf of
his or her dependent within 30 days following the date of marriage,
birth, adoption, or placement for adoption, in which case the
effective date of coverage shall be the first day of the month
following the date the completed request for enrollment is received
in the case of marriage, or the date of birth, or the date of
adoption or placement for adoption, whichever applies. Notice of the
special enrollment rights contained in this paragraph shall be
provided by the employer to an employee at or before the time the
employee is offered an opportunity to enroll in plan coverage.
   (8) The individual is an eligible employee who has declined
coverage for himself or herself or his or her dependents during a
previous enrollment period because his or her dependents were covered
by another employer health benefit plan, including a plan offered
through the California Health Benefit Exchange, at the time of the
previous enrollment period. That individual may enroll himself or
herself or his or her dependents for plan coverage during a special
open enrollment opportunity if his or her dependents have lost or
will lose coverage under that other employer health benefit plan. The
special open enrollment opportunity shall be requested by the
employee not more than 30 days after the date that the other health
coverage is exhausted or terminated. Upon enrollment, coverage shall
be effective not later than the first day of the first calendar month
beginning after the date the request for enrollment is received.
Notice of the special enrollment rights contained in this paragraph
shall be provided by the employer to an employee at or before the
time the employee is offered an opportunity to enroll in plan
coverage.
   (k) "Preexisting condition provision" means a policy provision
that excludes coverage for charges or expenses incurred during a
specified period following the insured's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.
   (l) "Creditable coverage" means:
   (1) Any individual or group policy, contract, or program, that is
written or administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans. The term includes
continuation or conversion coverage but does not include accident
only, credit, coverage for onsite medical clinics, disability income,
Medicare supplement, long-term care, dental, vision, coverage issued
as a supplement to liability insurance, insurance arising out of a
workers' compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
   (2) The federal Medicare Program pursuant to Title XVIII of the
federal Social Security Act (42 U.S.C. Sec. 1395 et seq.).
   (3) The Medicaid Program pursuant to Title XIX of the federal
Social Security Act (42 U.S.C. Sec. 1396 et seq.).
   (4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
   (5) 10 U.S.C. Chapter 55 (commencing with Section 1071) (Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS)).
   (6) A medical care program of the Indian Health Service or of a
tribal organization.
   (7) A health plan offered under 5 U.S.C. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
   (8) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the federal Public Health
Service Act, as amended by Public Law 104-191, the federal Health
Insurance Portability and Accountability Act of 1996.
   (9) A health benefit plan under Section 5(e) of the federal Peace
Corps Act (22 U.S.C. Sec. 2504(e)).
   (10) Any other creditable coverage as defined by subdivision (c)
of Section 2704 of Title XXVII of the federal Public Health Service
Act (42 U.S.C. Sec. 300gg-3(c)).
   (m) "Rating period" means the period for which premium rates
established by a carrier are in effect and shall be no less than 12
months from the date of issuance or renewal of the health benefit
plan.
   (n) "Risk adjusted employee risk rate" means the rate determined
for an eligible employee of a small employer in a particular risk
category after applying the risk adjustment factor.
   (o) "Risk adjustment factor" means the percent adjustment to be
applied equally to each standard employee risk rate for a particular
small employer, based upon any expected deviations from standard
claims. This factor may not be more than 110 percent or less than 90
percent.
   (p) "Risk category" means the following characteristics of an
eligible employee: age, geographic region, and family size of the
employee, plus the benefit plan design selected by the small
employer.
   (1) No more than the following age categories may be used in
determining premium rates:
   Under 30
   30-39
   40-49
   50-54
   55-59
   60-64
   65 and over
   However, for the 65 and over age category, separate premium rates
may be specified depending upon whether coverage under the health
benefit plan will be primary or secondary to benefits provided by the
federal Medicare Program pursuant to Title XVIII of the federal
Social Security Act.
   (2) Small employer carriers shall base rates to small employers
using no more than the following family size categories:
   (A) Single.
   (B) Married couple or registered domestic partners.
   (C) One adult and child or children.
   (D) Married couple or registered domestic partners and child or
children.
   (3) (A) In determining rates for small employers, a carrier that
operates statewide shall use no more than nine geographic regions in
the state, have no region smaller than an area in which the first
three digits of all its ZIP Codes are in common within
                                 a county, and shall divide no county
into more than two regions. Carriers shall be deemed to be operating
statewide if their coverage area includes 90 percent or more of the
state's population. Geographic regions established pursuant to this
section shall, as a group, cover the entire state, and the area
encompassed in a geographic region shall be separate and distinct
from areas encompassed in other geographic regions. Geographic
regions may be noncontiguous.
   (B) In determining rates for small employers, a carrier that does
not operate statewide shall use no more than the number of geographic
regions in the state than is determined by the following formula:
the population, as determined in the last federal census, of all
counties which are included in their entirety in a carrier's service
area divided by the total population of the state, as determined in
the last federal census, multiplied by nine. The resulting number
shall be rounded to the nearest whole integer. No region may be
smaller than an area in which the first three digits of all its ZIP
Codes are in common within a county and no county may be divided into
more than two regions. The area encompassed in a geographic region
shall be separate and distinct from areas encompassed in other
geographic regions. Geographic regions may be noncontiguous. No
carrier shall have less than one geographic area.
   (q) (1) "Small employer" means either of the following:
   (A) For plan years commencing on or after January 1, 2014, and on
or before December 31, 2015, any person, firm, proprietary or
nonprofit corporation, partnership, public agency, or association
that is actively engaged in business or service, that, on at least 50
percent of its working days during the preceding calendar quarter or
preceding calendar year, employed at least one, but no more than 50,
eligible employees, the majority of whom were employed within this
state, that was not formed primarily for purposes of buying health
benefit plans, and in which a bona fide employer-employee
relationship exists. For plan years commencing on or after January 1,
2016, any person, firm, proprietary or nonprofit corporation,
partnership, public agency, or association that is actively engaged
in business or service, that, on at least 50 percent of its working
days during the preceding calendar quarter or preceding calendar
year, employed at least one, but no more than 100, eligible
employees, the majority of whom were employed within this state, that
was not formed primarily for purposes of buying health benefit
plans, and in which a bona fide employer-employee relationship
exists. In determining whether to apply the calendar quarter or
calendar year test, a carrier shall use the test that ensures
eligibility if only one test would establish eligibility. In
determining the number of eligible employees, companies that are
affiliated companies and that are eligible to file a combined tax
return for purposes of state taxation shall be considered one
employer. Subsequent to the issuance of a health benefit plan to a
small employer pursuant to this chapter, and for the purpose of
determining eligibility, the size of a small employer shall be
determined annually. Except as otherwise specifically provided in
this chapter, provisions of this chapter that apply to a small
employer shall continue to apply until the plan contract anniversary
following the date the employer no longer meets the requirements of
this definition. It includes any small employer as defined in this
subparagraph who purchases coverage through a guaranteed association,
and any employer purchasing coverage for employees through a
guaranteed association. This subparagraph shall be implemented to the
extent consistent with PPACA, except that the minimum requirement of
one employee shall be implemented only to the extent required by
PPACA.
   (B) Any guaranteed association, as defined in subdivision (s),
that purchases health coverage for members of the association.
   (2) For plan years commencing on or after January 1, 2014, the
definition of an employer, for purposes of determining whether an
employer with one employee shall include sole proprietors, certain
owners of "S" corporations, or other individuals, shall be consistent
with Section 1304 of PPACA.
   (r) "Standard employee risk rate" means the rate applicable to an
eligible employee in a particular risk category in a small employer
group.
   (s) "Guaranteed association" means a nonprofit organization
comprised of a group of individuals or employers who associate based
solely on participation in a specified profession or industry,
accepting for membership any individual or employer meeting its
membership criteria which (1) includes one or more small employers as
defined in subparagraph (A) of paragraph (1) of subdivision (q), (2)
does not condition membership directly or indirectly on the health
or claims history of any person, (3) uses membership dues solely for
and in consideration of the membership and membership benefits,
except that the amount of the dues shall not depend on whether the
member applies for or purchases insurance offered by the association,
(4) is organized and maintained in good faith for purposes unrelated
to insurance, (5) has been in active existence on January 1, 1992,
and for at least five years prior to that date, (6) has been offering
health insurance to its members for at least five years prior to
January 1, 1992, (7) has a constitution and bylaws, or other
analogous governing documents that provide for election of the
governing board of the association by its members, (8) offers any
benefit plan design that is purchased to all individual members and
employer members in this state, (9) includes any member choosing to
enroll in the benefit plan design offered to the association provided
that the member has agreed to make the required premium payments,
and (10) covers at least 1,000 persons with the carrier with which it
contracts. The requirement of 1,000 persons may be met if component
chapters of a statewide association contracting separately with the
same carrier cover at least 1,000 persons in the aggregate.
   This subdivision applies regardless of whether a master policy by
an admitted insurer is delivered directly to the association or a
trust formed for or sponsored by an association to administer
benefits for association members.
   For purposes of this subdivision, an association formed by a
merger of two or more associations after January 1, 1992, and
otherwise meeting the criteria of this subdivision shall be deemed to
have been in active existence on January 1, 1992, if its predecessor
organizations had been in active existence on January 1, 1992, and
for at least five years prior to that date and otherwise met the
criteria of this subdivision.
   (t) "Members of a guaranteed association" means any individual or
employer meeting the association's membership criteria if that person
is a member of the association and chooses to purchase health
coverage through the association. At the association's discretion, it
may also include employees of association members, association
staff, retired members, retired employees of members, and surviving
spouses and dependents of deceased members. However, if an
association chooses to include those persons as members of the
guaranteed association, the association must so elect in advance of
purchasing coverage from a plan. Health plans may require an
association to adhere to the membership composition it selects for up
to 12 months.
   (u) "Grandfathered health benefit plan" means a health benefit
plan that constitutes a grandfathered health plan.
   (v) "Grandfathered health plan" has the meaning set forth in
Section 1251 of PPACA.
   (w) "Nongrandfathered health benefit plan" means a health benefit
plan that is not a grandfathered health plan.
   (x) "Plan year" has the meaning set forth in Section 144.103 of
Title 45 of the Code of Federal Regulations.
   (y) "PPACA" means the federal Patient Protection and Affordable
Care Act (Public Law 111-148), as amended by the federal Health Care
and Education Reconciliation Act (Public Law 111-152), and any rules,
regulations, or guidance issued thereunder.
   (z) "Waiting period" means a period that is required to pass with
respect to the employee before the employee is eligible to be covered
for benefits under the terms of the contract.
   (aa) "Registered domestic partner" means a person who has
established a domestic partnership as described in Section 297 of the
Family Code.
   10755.01.  (a) For purposes of this chapter, "health benefit plan"
does not include policies or certificates of specified disease or
hospital confinement indemnity provided that the carrier offering
those policies or certificates complies with the following:
   (1) The carrier files, on or before March 1 of each year, a
certification with the commissioner that contains the statement and
information described in paragraph (2).
   (2) The certification required in paragraph (1) shall contain the
following:
   (A) A statement from the carrier certifying that policies or
certificates described in this section (i) are being offered and
marketed as supplemental health insurance and not as a substitute for
coverage that provides essential health benefits as defined by the
state pursuant to Section 1302 of PPACA, and (ii) contain the
disclosure forms as described in Section 10603 with the following
statement prominently on the first page: "This is a supplement to
health insurance. It is not a substitute for essential health
benefits or minimum essential coverage as required under federal law."

   (B) A summary description of each policy or certificate described
in this section, including the average annual premium rates, or range
of premium rates in cases where premiums vary by age, gender, or
other factors, charged for the policies and certificates issued or
delivered in this state.
   (3) In the case of a policy or certificate that is described in
this section and that is offered for the first time in this state for
plan years on or after January 1, 2014, the carrier files with the
commissioner the information and statement required in paragraph (2)
at least 30 days prior to the date such a policy or certificate is
issued or delivered in this state.
   (b) As used in this section, "policies or certificates of
specified disease" and "policies or certificates of hospital
confinement indemnity" mean policies or certificates of insurance
sold to an insured to supplement other health insurance coverage as
specified in this section. An insurer issuing a "policy or
certificate of specified disease" or a "policy or certificate of
hospital confinement indemnity" shall require that the person to be
insured is covered by an individual or group policy or contract that
arranges or provides medical, hospital, and surgical coverage not
designed to supplement other private or governmental plans.

      Article 2.  Small Employer Carrier Requirements


   10755.02.  (a) This chapter shall apply only to grandfathered
health benefit plans and only with respect to plan years commencing
on or after January 1, 2014.
   (b) All carriers administering health benefit plans that cover
employees of small employers shall be subject to this chapter if any
one of the following conditions are met:
   (1) Any portion of the premium for any health benefit plan or
benefits is paid by a small employer, or any covered individual is
reimbursed, whether through wage adjustments or otherwise, by a small
employer for any portion of the premium.
   (2) The health benefit plan is treated by the small employer or
any of the covered individuals as part of a plan or program for the
purposes of Section 106 or 162 of the Internal Revenue Code.
   10755.02.1.  Any person or entity subject to the requirements of
this chapter shall comply with the standards set forth in Chapter 7
(commencing with Section 3750) of Part 1 of Division 9 of the Family
Code and Section 14124.94 of the Welfare and Institutions Code.
   10755.03.  The commissioner shall have the authority to determine
whether a health benefit plan is covered by this chapter, and to
determine whether an employer is a small employer within the meaning
of Section 10755.
   10755.04.  (a) The department may adopt emergency regulations
implementing this chapter no later than August 31, 2013. The
department may readopt any emergency regulation authorized by this
section that is the same as or substantially equivalent to an
emergency regulation previously adopted under this section.
   (b) The initial adoption of emergency regulations implementing
this section and the one readoption of emergency regulations
authorized by this section shall be deemed an emergency and necessary
for the immediate preservation of the public peace, health, safety,
or general welfare. The initial emergency regulations and the one
readoption of emergency regulations authorized by this section shall
be submitted to the Office of Administrative Law for filing with the
Secretary of State and each shall remain in effect for no more than
180 days, by which time final regulations may be adopted.
   (c) This section shall become operative on January 1, 2013.
   10755.05.  (a) (1) Each carrier, except a self-funded employer,
shall fairly and affirmatively renew all of the carrier's health
benefit plans that are sold to small employers or associations that
include small employers.
   (2) Nothing in this section shall be construed to require an
association, or a trust established and maintained by an association
to receive a master insurance policy issued by an admitted insurer
and to administer the benefits thereof solely for association
members, to offer, market or sell a benefit plan design to those who
are not members of the association. However, if the association
markets, offers or sells a benefit plan design to those who are not
members of the association it is subject to the requirements of this
section. This shall apply to an association that otherwise meets the
requirements of paragraph (6) formed by merger of two or more
associations after January 1, 1992, if the predecessor organizations
had been in active existence on January 1, 1992, and for at least
five years prior to that date and met the requirements of paragraph
(3).
   (3) A carrier which (A) effective January 1, 1992, and at least 20
years prior to that date, markets, offers, or sells benefit plan
designs only to all members of one association and (B) does not
market, offer or sell any other individual, selected group, or group
policy or contract providing medical, hospital and surgical benefits
shall not be required to market, offer, or sell to those who are not
members of the association. However, if the carrier markets, offers
or sells any benefit plan design or any other individual, selected
group, or group policy or contract providing medical, hospital and
surgical benefits to those who are not members of the association it
is subject to the requirements of this section.
   (4) Each carrier that sells health benefit plans to members of one
association pursuant to paragraph (3) shall submit an annual
statement to the commissioner which states that the carrier is
selling health benefit plans pursuant to paragraph (3) and which, for
the one association, lists all the information required by paragraph
(5).
   (5) Each carrier that sells health benefit plans to members of any
association shall submit an annual statement to the commissioner
which lists each association to which the carrier sells health
benefit plans, the industry or profession which is served by the
association, the association's membership criteria, a list of
officers, the state in which the association is organized, and the
site of its principal office.
   (6) For purposes of paragraphs (2) and (3), an association is a
nonprofit organization comprised of a group of individuals or
employers who associate based solely on participation in a specified
profession or industry, accepting for membership any individual or
small employer meeting its membership criteria, which do not
condition membership directly or indirectly on the health or claims
history of any person, which uses membership dues solely for and in
consideration of the membership and membership benefits, except that
the amount of the dues shall not depend on whether the member applies
for or purchases insurance offered by the association, which is
organized and maintained in good faith for purposes unrelated to
insurance, which has been in active existence on January 1, 1992, and
at least five years prior to that date, which has a constitution and
bylaws, or other analogous governing documents which provide for
election of the governing board of the association by its members,
which has contracted with one or more carriers to offer one or more
health benefit plans to all individual members and small employer
members in this state.
   (b) Each carrier shall make available to each small employer all
nongrandfathered health benefit plans that the carrier offers or
sells to small employers or to associations that include small
employers. Notwithstanding subdivision (d) of Section 10755, for
purposes of this subdivision, companies that are affiliated companies
or that are eligible to file a consolidated income tax return shall
be treated as one carrier.
   (c) Each carrier shall do all of the following:
   (1) Prepare a brochure that summarizes all of its health benefit
plans and make this summary available to small employers, agents, and
brokers upon request. The summary shall include for each health
benefit plan information on benefits provided, a generic description
of the manner in which services are provided, such as how access to
providers is limited, benefit limitations, required copayments and
deductibles, standard employee risk rates, an explanation of how
creditable coverage is calculated if a waiting period is imposed, and
a telephone number that can be called for more detailed benefit
information. Carriers are required to keep the information contained
in the brochure accurate and up to date, and, upon updating the
brochure, send copies to agents and brokers representing the carrier.
Any entity that provides administrative services only with regard to
a benefit plan design written or issued by another carrier shall not
be required to prepare a summary brochure which includes that
benefit plan design.
   (2) For each health benefit plan, prepare a more detailed evidence
of coverage and make it available to small employers, agents and
brokers upon request. The evidence of coverage shall contain all
information that a prudent buyer would need to be aware of in making
selections of benefit plan designs. An entity that provides
administrative services only with regard to a benefit plan design
written or issued by another carrier shall not be required to prepare
an evidence of coverage for that benefit plan design.
   (3) Provide to small employers and agents and brokers, upon
request, for any given small employer the sum of the standard
employee risk rates and the sum of the risk adjusted employee risk
rates. When requesting this information, small employers and agents
and brokers shall provide the plan with the information the plan
needs to determine the small employer's risk adjusted employee risk
rate.
   (4) Provide copies of the current summary brochure to all agents
or brokers who represent the carrier and, upon updating the brochure,
send copies of the updated brochure to agents and brokers
representing the carrier for the purpose of selling health benefit
plans.
   (5) Notwithstanding subdivision (c) of Section 10755, for purposes
of this subdivision, companies that are affiliated companies or that
are eligible to file a consolidated income tax return shall be
treated as one carrier.
   (e) No carrier, agent, or broker shall induce or otherwise
encourage a small employer to separate or otherwise exclude an
eligible employee from a health benefit plan which, in the case of an
eligible employee meeting the definition in paragraph (1) of
subdivision (e) of Section 10755, is provided in connection with the
employee's employment or which, in the case of an eligible employee
as defined in paragraph (2) of subdivision (e) of Section 10755, is
provided in connection with a guaranteed association.
   (f) No carrier or agent or broker shall, directly or indirectly,
engage in the following activities:
   (1) Encourage or direct small employers to refrain from filing an
application for coverage with a carrier because of the health status,
claims experience, industry, occupation, or geographic location
within the carrier's approved service area of the small employer or
the small employer's employees.
   (2) Encourage or direct small employers to seek coverage from
another carrier or the California Health Benefit Exchange because of
the health status, claims experience, industry, occupation, or
geographic location within the carrier's approved service area of the
small employer or the small employer's employees.
   (g) No carrier shall, directly or indirectly, enter into any
contract, agreement, or arrangement with an agent or broker that
provides for or results in the compensation paid to an agent or
broker for a health benefit plan to be varied because of the health
status, claims experience, industry, occupation, or geographic
location of the small employer or the small employer's employees.
This subdivision shall not apply with respect to a compensation
arrangement that provides compensation to an agent or broker on the
basis of percentage of premium, provided that the percentage shall
not vary because of the health status, claims experience, industry,
occupation, or geographic area of the small employer.
   (h) A policy or contract that covers a small employer, as defined
in Section 1304(b) of PPACA and in subdivision (q) of Section 10755
shall not establish rules for eligibility, including continued
eligibility, of an individual, or dependent of an individual, to
enroll under the terms of the plan based on any of the following
health status-related factors:
   (1) Health status.
   (2) Medical condition, including physical and mental illnesses.
   (3) Claims experience.
   (4) Receipt of health care.
   (5) Medical history.
   (6) Genetic information.
   (7) Evidence of insurability, including conditions arising out of
acts of domestic violence.
   (8) Disability.
   (9) Any other health status-related factor as determined by any
federal regulations, rules, or guidance issued pursuant to Section
2705 of the federal Public Health Service Act.
   (i) If a carrier enters into a contract, agreement, or other
arrangement with a third-party administrator or other entity to
provide administrative, marketing, or other services related to the
offering of health benefit plans to small employers in this state,
the third-party administrator shall be subject to this chapter.
   10755.05.1.  (a) For contracts expiring after July 1, 1994, 60
days prior to July 1, 1994, an association that meets the definition
of guaranteed association, as set forth in Section 10755, except for
the requirement that 1,000 persons be covered, shall be entitled to
purchase small employer health coverage as if the association were a
guaranteed association, except that the coverage shall be guaranteed
only for those members of an association, as defined in Section
10755, (1) who were receiving coverage or had successfully applied
for coverage through the association as of June 30, 1993, (2) who
were receiving coverage through the association as of December 31,
1992, and whose coverage lapsed at any time thereafter because the
employment through which coverage was received ended or an employer's
contribution to health coverage ended, or (3) who were covered at
any time between June 30, 1993, and July 1, 1994, under a contract
that was in force on June 30, 1993.
   (b) An association obtaining health coverage for its members
pursuant to this section shall otherwise be afforded all the rights
of a guaranteed association under this chapter including, but not
limited to, guaranteed renewability of coverage.
   10755.06.  Every carrier shall file with the commissioner the
reasonable participation requirements that will be required in
renewing its health benefit plans. Participation requirements of a
health benefit plan shall be applied uniformly among all small
employer groups, except that a carrier may vary application of
minimum employer participation requirements by the size of the small
employer group and whether the employer contributes 100 percent of
the eligible employee's premium. Employer contribution requirements
of a health benefit plan shall not vary by employer size. A carrier
shall not establish a participation requirement that (1) requires a
person who meets the definition of a dependent in subdivision (d) of
Section 10755 to enroll as a dependent if he or she is otherwise
eligible for coverage and wishes to enroll as an eligible employee
and (2) allows a carrier to reject an otherwise eligible small
employer because of the number of persons that waive coverage due to
coverage through another employer. Members of an association eligible
for health coverage eligible under subdivision (t) of Section 10755
but not electing any health coverage through the association shall
not be counted as eligible employees for purposes of determining
whether the guaranteed association meets a carrier's reasonable
participation standards.
   10755.08.  (a) A health benefit plan shall not impose a
preexisting condition provision upon any individual.
   (b) A health benefit plan may apply a waiting period of up to 60
days as a condition of employment if applied equally to all eligible
employees and dependents and if consistent with PPACA. A waiting
period shall not be based on a preexisting condition of an employee
or dependent, the health status of an employee or dependent, or any
other factor listed in subdivision (j) of Section 10705. During the
waiting period, the health benefit plan is not required to provide
health care services and no premium shall be charged to the
policyholder or insureds.
   (c) In determining whether a waiting period applies to any person,
a carrier shall credit the time the person was covered under
creditable coverage, provided the person becomes eligible for
coverage under the succeeding plan contract within 62 days of
termination of prior coverage, exclusive of any waiting period, and
applies for coverage with the succeeding plan contract within the
applicable enrollment period. A carrier shall also credit any time an
eligible employee must wait before enrolling in the plan, including
any employer-imposed waiting period. However, if a
                             person's employment has ended, the
availability of health coverage offered through employment or
sponsored by an employer has terminated, or an employer's
contribution toward health coverage has terminated, a carrier shall
credit the time the person was covered under creditable coverage if
the person becomes eligible for health coverage offered through
employment or sponsored by an employer within 180 days, exclusive of
any waiting period, and applies for coverage under the succeeding
health benefit plan within the applicable enrollment period.
   (d) A carrier providing aggregate or specific stop loss coverage
or any other assumption of risk with reference to a health benefit
plan shall provide that the plan meets all requirements of this
section concerning waiting periods. The requirements of this
subdivision shall only be exercised to the extent they are not
preempted by ERISA.
   (e) An individual's period of creditable coverage shall be
certified pursuant to subsection (e) of Section 2704 of Title XXVII
of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-3(e)).

   10755.09.  Nothing in this chapter shall be construed as
prohibiting a carrier from restricting enrollment of late enrollees
to open enrollment periods consistent with federal law.
   10755.11.  No carrier shall be required by the provisions of this
chapter:
   (a) To include in a health benefit plan an otherwise eligible
employee or dependent, when the eligible employee or dependent does
not work or reside within a carrier's approved service area, except
as provided in Section 10755.02.1.
   (b) To offer coverage to an eligible employee, as defined in
paragraph (2) of subdivision (e) of Section 10755, who within 12
months of application for coverage terminated from a health benefit
plan offered by the carrier.
   10755.13.  All grandfathered health benefit plans shall be
renewable with respect to all eligible employees or dependents at the
option of the policyholder, contractholder, or small employer except
as follows:
   (a) (1) For nonpayment of the required premiums by the
policyholder, contractholder, or small employer, if the policyholder,
contractholder, or small employer has been duly notified and billed
for the charge and at least a 30-day grace period has elapsed since
the date of notification or, if longer, the period of time required
for notice and any other requirements pursuant to Section 2703, 2712,
or 2742 of the federal Public Health Service Act (42 U.S.C. Secs.
300gg-2, 300gg-12, and 300gg-42) and any subsequent rules or
regulations has elapsed.
   (2) An insurer shall continue to provide coverage as required by
the policyholder's, contractholder's, or small employer's policy
during the period described in paragraph (1). Nothing in this section
shall be construed to affect or impair the policyholder's,
contractholder's, small employer's, or insurer's other rights and
responsibilities pursuant to the subscriber contract.
   (b) If the insurer demonstrates fraud or an intentional
misrepresentation of material fact under the terms of the policy by
the policyholder, contractholder, or small employer or, with respect
to coverage of individual enrollees, the enrollees or their
representative.
   (c) Violation of a material contract provision relating to
employer contribution or group participation rates by the
policyholder, contractholder, or small employer.
   (d) When the carrier ceases to write, issue, or administer new or
existing grandfathered or nongrandfathered small employer health
benefit plans in this state, provided, however, that the following
conditions are satisfied:
   (1) Notice of the decision to cease writing, issuing, or
administering new or existing small employer health benefits plans in
this state is provided to the commissioner, and to either the
policyholder, contractholder, or small employer at least 180 days
prior to the discontinuation of the coverage.
   (2) Small employer health benefit plans subject to this chapter
shall not be canceled for 180 days after the date of the notice
required under paragraph (1). For that business of a carrier that
remains in force, any carrier that ceases to write, issue, or
administer new or existing health benefit plans shall continue to be
governed by this chapter.
   (3) A carrier that ceases to write, issue, or administer new
health benefit plans to small employers in this state after the
passage of this chapter shall be prohibited from writing, issuing, or
administering new health benefit plans to small employers in this
state for a period of five years from the date of notice to the
commissioner.
   (e) When a carrier withdraws a health benefit plan from the small
employer market, provided that the carrier notifies all affected
policyholders, contractholders, or small employers and the
commissioner at least 90 days prior to the discontinuation of those
contracts, and that the carrier makes available to the small employer
all nongrandfathered small employer health benefit plans which it
markets and satisfies the requirements of Section 10714.
   (f) If coverage is made available through a bona fide association
pursuant to subdivision (q) of Section 10755 or a guaranteed
association pursuant to subdivision (s) of Section 10755, the
membership of the employer or the individual, respectively, ceases,
but only if that coverage is terminated under this subdivision
uniformly without regard to any health status-related factor of
covered individuals.
   10755.14.  Premiums for grandfathered health benefit plans written
or administered by carriers on or after the January 1, 2014, shall
be subject to the following requirements:
   (a) (1) The premium for new business shall be determined for an
eligible employee in a particular risk category after applying a risk
adjustment factor to the carrier's standard employee risk rates. The
risk adjusted employee risk rate may not be more than 110 percent or
less than 90 percent.
   (2) The premium charged a small employer for new business shall be
equal to the sum of the risk adjusted employee risk rates.
   (3) The standard employee risk rates applied to a small employer
for new business shall be in effect for no less than 12 months.
   (b) (1) The premium for in force business shall be determined for
an eligible employee in a particular risk category after applying a
risk adjustment factor to the carrier's standard employee risk rates.
The risk adjusted employee risk rate may not be more than 110
percent or less than 90 percent. The risk adjustment factor applied
to a small employer may not increase by more than 10 percentage
points from the risk adjustment factor applied in the prior rating
period. The risk adjustment factor for a small employer may not be
modified more frequently than every 12 months.
   (2) The premium charged a small employer for in force business
shall be equal to the sum of the risk adjusted employee risk rates.
The standard employee risk rates shall be in effect for 12 months.
   (c) (1) For any small employer, a carrier may, with the consent of
the small employer, establish composite employee and dependent rates
for renewal of in force business. The composite rates shall be
determined as the average of the risk adjusted employee risk rates
for the small employer, as determined in accordance with the
requirements of subdivisions (a) and (b). The sum of the composite
rates so determined shall be equal to the sum of the risk adjusted
employee risk rates for the small employer.
   (2) The composite rates shall be used for all employees and
dependents covered throughout a rating period of 12 months, except
that a carrier may reserve the right to redetermine the composite
rates if the enrollment under the health benefit plan changes by more
than a specified percentage during the rating period. Any
redetermination of the composite rates shall be based on the same
risk adjusted employee risk rates used to determine the initial
composite rates for the rating period. If a carrier reserves the
right to redetermine the rates and the enrollment changes more than
the specified percentage, the carrier shall redetermine the composite
rates if the redetermined rates would result in a lower premium for
the small employer. A carrier reserving the right to redetermine the
composite rates based upon a change in enrollment shall use the same
specified percentage to measure that change with respect to all small
employers electing composite rates.
   10755.15.  Carriers shall apply standard employee risk rates
consistently with respect to all small employers.
   10755.16.  In connection with the renewal of any grandfathered
health benefit plan to small employers:
   Each carrier shall make a reasonable disclosure, as part of its
solicitation and sales materials, of the following:
   (a) The extent to which the premium rates for a specified small
employer are established or adjusted in part based upon the actual or
expected variation in claims costs of the employees and dependents
of the small employer.
   (b) The provisions concerning the carrier's ability to change
premium rates and the factors other than claim experience which
affect changes in premium rates.
   (c) Provisions relating to the guaranteed issue of policies and
contracts.
   (d) Provisions relating to the prohibition of any preexisting
condition provision.
   (e) Provisions relating to the small employer's right to apply for
any nongrandfathered health benefit plan written, issued, or
administered by the carrier, at the time of application for a new
health benefit plan, or at the time of renewal of a health benefit
plan, consistent with the requirements of PPACA.
   (f) The availability, upon request, of a listing of all the
carrier's nongrandfathered health benefit plans, offered inside or
outside the California Health Benefit Exchange, including the rates
for each benefit plan design.
   10755.17.  (a) No carrier shall renew coverage subject to this
chapter until it has done all of the following:
   (1) A statement has been filed with the commissioner listing all
of the carrier's grandfathered health benefit plans currently in
force in this state, identified by form number, and, if previously
approved by the commissioner, the date approved by the commissioner
as well as the standard employee risk rate for each risk category for
each benefit plan design and the highest and lowest risk adjustment
factors that the carrier intends to use in determining rates for each
benefit plan design. When filing a new benefit plan design pursuant
to Section 10755.05, carriers may submit both the policy form and the
standard employee risk rates for each risk category at the same
time.
   (2) Either:
   (A) Thirty days expires after that statement is filed without
written notice from the commissioner specifying the reasons for his
or her opinion that the carrier's risk categories or risk adjustment
factors do not comply with the requirements of this chapter.
   (B) Prior to that time the commissioner gives the carrier written
notice that the carrier's risk categories and risk adjustment factors
as filed comply with the requirements of this chapter.
   (b) No carrier shall renew or revise a grandfathered health
benefit plan lawfully provided pursuant to subdivision (a), and no
carrier shall change the risk categories, risk adjustment factors, or
standard employee risk rates for a grandfathered health benefit plan
until all of the following requirements are met:
   (1) The carrier files with the commissioner a statement of the
specific changes which the carrier proposes in the risk categories,
risk adjustment factors, or standard employee risk rates.
   (2) Either:
   (A) Thirty days expires after such statement is filed without
written notice from the commissioner specifying the reasons for his
or her opinion that the carrier's risk categories or risk adjustment
factors do not comply with the requirements of this chapter.
   (B) Prior to that time the commissioner gives the carrier written
notice that the carrier's risk categories and risk adjustment factors
as filed comply with the requirements of this chapter.
   (c) Notwithstanding any provision to the contrary, when a carrier
is changing the standard employee risk rates of a health benefit plan
lawfully provided under subdivision (a) or (b) but is not changing
the risk categories or risk adjustment factors which have been
previously authorized, the carrier need not comply with the
requirements of paragraph (2) of subdivision (b), but instead shall
submit the revised standard employee risk rates for the health
benefit plan prior to renewing the health benefit plan.
   (d) When submitting filings under subdivision (a), (b), or (c), a
carrier may also file with the commissioner at the time of the
filings a statement of the standard employee risk rate for each risk
category the carrier intends to use for each month in the 12 months
subsequent to the date of the filing. Once the requirements of the
applicable subdivision (a), (b), or (c), have been met, these rates
shall be used by the carrier for the 12-month period unless the
carrier is otherwise informed by the commissioner in his or her
response to the filings submitted under subdivision (a), (b), or (c),
provided that any subsequent change in the standard employee risk
rates charged by the carrier which differ from those previously filed
with the commissioner must be newly filed in accordance with this
subdivision and provided that the carrier does not change the risk
categories or risk adjustment factors for the health benefit plan.
   (e) If the commissioner notifies the carrier, in writing, that the
carrier's risk categories or risk adjustment factors do not comply
with the requirements of this chapter, specifying the reasons for his
or her opinion, it is unlawful for the carrier, at any time after
the receipt of such notice, to utilize the noncomplying health
benefit plan, benefit plan design, risk categories, or risk
adjustment factors in conjunction with the health benefit plans or
benefit plan designs for which the filing was made.
   (f) Each carrier shall maintain at its principal place of business
copies of all information required to be filed with the commissioner
pursuant to this section.
   (g) Each carrier shall make the information and documentation
described in this section available to the commissioner upon request.

   (h) Nothing in this section shall be construed to permit the
commissioner to establish or approve the rates charged to
policyholders for health benefit plans.
   10755.18.  (a) In addition to any other remedy permitted by law,
the commissioner shall have the administrative authority to assess
penalties against carriers, insurance producers, and other entities
engaged in the business of insurance or other persons or entities for
violations of this chapter.
   (b) Upon a showing of a violation of this chapter in any civil
action, a court may also assess the penalties described in this
chapter, in addition to any other remedies provided by law.
   (c) Any production agent or other person or entity engaged in the
business of insurance, other than a carrier, that violates this
chapter is liable for administrative penalties of not more than two
hundred fifty dollars ($250) for the first violation.
   (d) Any production agent or other person or entity engaged in the
business of insurance, other than a carrier, that engages in
practices prohibited by this chapter a second or subsequent time, or
who commits a knowing violation of this chapter, is liable for
administrative penalties of not less than one thousand dollars
($1,000) and not more than two thousand five hundred dollars ($2,500)
for each violation.
   (e) Any carrier that violates this chapter is liable for
administrative penalties of not more than two thousand five hundred
dollars ($2,500) for the first violation and not more than five
thousand dollars ($5,000) for each subsequent violation.
   (f) Any carrier that violates this chapter with a frequency that
indicates a general business practice or commits a knowing violation
of this chapter, is liable for administrative penalties of not less
than fifteen thousand dollars ($15,000) and not more than one hundred
thousand dollars ($100,000) for each violation.
   (g) An act or omission that is inadvertent and that results in
incorrect premium rates being charged to more than one policyholder
shall be a single violation for the purpose of this section.
   10755.18.5.  (a) (1) In addition to any other remedy permitted by
law, whenever the commissioner shall have reason to believe that any
carrier, production agent, or other person or entity engaged in the
business of insurance has violated this chapter, and that a
proceeding by the commissioner in respect thereto would be in the
interest of the public, the commissioner may issue and serve upon
that entity an order to show cause containing a statement of the
charges, a statement of the entity's potential liability under this
chapter, and a notice of a public hearing thereon before the
Administrative Law Bureau of the department to be held at a time and
place fixed therein, which shall not be less than 30 days after the
service thereof, for the purpose of determining whether the
commissioner should issue an order to that entity to pay the penalty
imposed by this chapter and such order or orders as shall be
reasonably necessary to correct, eliminate, or remedy the alleged
violations of this chapter, including, but not limited to, an order
to cease and desist from the specified violations of this chapter.
   (2) The hearings provided by this subdivision shall be conducted
in accordance with the Administrative Procedure Act, Chapter 5
(commencing with Section 11500) of Part 1 of Division 3 of Title 2 of
the Government Code, and the commissioner shall have all the powers
granted therein.
   (b) (1) Whenever it appears to the commissioner that irreparable
loss and injury has occurred or may occur to an insured, employer,
employee, or other member of the public because a carrier, production
agent, or other person or entity engaged in the business of
insurance has violated this chapter, the commissioner may, before
hearing, but after notice and opportunity to submit relevant
information, issue and cause to be served upon the entity such order
or orders as shall be reasonably necessary to correct, eliminate, or
remedy the alleged violations of this chapter, including, but not
limited to, an order requiring the entity to forthwith cease and
desist from engaging further in the violations which are causing or
may cause such irreparable injury.
   (2) At the same time an order is served pursuant to paragraph (1)
of this subdivision, the commissioner shall issue and also serve upon
the person a notice of public hearing before the Administrative Law
Bureau of the department to be held at a time and place fixed
therein, which shall not be less than 30 days after the service
thereof.
   (3) The hearings provided by this subdivision shall be conducted
in accordance with the Administrative Procedure Act, Chapter 5
(commencing with Section 11500) of Part 1 of Division 3 of Title 2 of
the Government Code, and the commissioner shall have all the powers
granted therein.
   (4) At any time prior to the commencement of a hearing as provided
in this subdivision, the entity against which the commissioner has
served an order may waive the hearing and have judicial review of the
order by means of any remedy afforded by law without first
exhausting administrative remedies or procedures.
   (c) If, after hearing as provided by subdivision (a) or (b), the
charges, or any of them, that an entity has violated this chapter are
found to be justified, the commissioner shall issue and cause to be
served upon that entity an order requiring that entity to pay the
penalty imposed by this chapter and such order or orders as shall be
reasonably necessary to correct, eliminate, or remedy the alleged
violations of this chapter, including, but not limited to, an order
to cease and desist from the specified violations of this chapter.
   (d) In addition to any other penalty provided by law or the
availability of any administrative procedure, if a carrier, after
notice and hearing, is found to have violated this chapter knowingly
or as a general business practice the commissioner may suspend the
carrier's certificate of authority to transact disability insurance.
The order of suspension shall prescribe the period of such
suspension. The proceedings shall be conducted in accordance with the
Administrative Procedure Act, Chapter 5 (commencing with Section
11500) of Part 1 of Division 3 of Title 2 of the Government Code and
the commissioner shall have all the powers granted therein.
   10755.18.6.  (a) Carriers may enter into contractual agreements
with qualified associations, as defined in subdivision (b), under
which these qualified associations may assume responsibility for
performing specific administrative services, as defined in this
section, for qualified association members. Carriers that enter into
agreements with qualified associations for assumption of
administrative services shall establish uniform definitions for the
administrative services that may be provided by a qualified
association or its third-party administrator. The carrier shall
permit all qualified associations to assume one or more of these
functions when the carrier determines the qualified association
demonstrates that it has the administrative capacity to assume these
functions.
   For the purposes of this section, administrative services provided
by qualified associations or their third-party administrators shall
be services pertaining to eligibility determination, enrollment,
premium collection, sales, or claims administration on a per-claim
basis that would otherwise be provided directly by the carrier or
through a third-party administrator on a commission basis or an agent
or solicitor workforce on a commission basis.
   Each carrier that enters into an agreement with any qualified
association for the provision of administrative services shall offer
all qualified associations with which it contracts the same premium
discounts for performing those services the carrier has permitted the
qualified association or its third-party administrator to assume.
The carrier shall apply these uniform discounts to the carrier's risk
adjusted employee risk rates after the carrier has determined the
qualified association's risk adjusted employee risk rates pursuant to
Section 10755.14. The carrier shall report to the department its
schedule of discounts for each administrative service.
   In no instance may a carrier provide discounts to qualified
associations that are in any way intended to, or materially result
in, a reduction in premium charges to the qualified association due
to the health status of the membership of the qualified association.
In addition to any other remedies available to the commissioner to
enforce this chapter, the commissioner may declare a contract between
a carrier and a qualified association for administrative services
pursuant to this section null and void if the commissioner determines
any discounts provided to the qualified association are intended to,
or materially result in, a reduction in premium charges to the
qualified association due to the health status of the membership of
the qualified association.
   (b) For the purposes of this section, a qualified association is a
nonprofit corporation comprised of a group of individuals or
employers who associate based solely on participation in a specified
profession or industry, that conforms to all of the following
requirements:
   (1) It accepts for membership any individual or small employer
meeting its membership criteria.
   (2) It does not condition membership, directly or indirectly, on
the health or claims history of any person.
   (3) It uses membership dues solely for and in consideration of the
membership and membership benefits, except that the amount of the
dues shall not depend on whether the member applies for or purchases
insurance offered by the association.
   (4) It is organized and maintained in good faith for purposes
unrelated to insurance.
   (5) It existed on January 1, 1972, and has been in continuous
existence since that date.
   (6) It has a constitution and bylaws or other analogous governing
documents that provide for election of the governing board of the
association by its members.
   (7) It offered, marketed, or sold health coverage to its members
for 20 continuous years prior to January 1, 1993.
   (8) It agrees to offer any plan contract only to association
members.
   (9) It agrees to include any member choosing to enroll in the plan
contract offered by the association, provided that the member agrees
to make required premium payments.
   (10) It complies with all provisions of this article.
   (11) It had at least 10,000 enrollees covered by
association-sponsored plans immediately prior to enactment of Chapter
1128 of the Statutes of 1992.
   (12) It applies any administrative cost at an equal rate to all
members purchasing coverage through the qualified association.
   (c) A qualified association shall comply with the requirements set
forth in Section 10198.9.
   10755.18.7.  Notwithstanding any other provision of law, no
provision of this chapter shall be construed to limit the
applicability of any other provision of the Insurance Code unless
such provision is in conflict with the requirements of this chapter.
  SEC. 16.  Except as otherwise specified in this act, this act shall
be implemented to the extent that it meets or exceeds the
requirements set forth in the federal Patient Protection and
Affordable Care Act (Public Law 111-148), as amended by the federal
Health Care and Education Reconciliation Act of 2010 (Public Law
111-152), and any rules, regulations, or guidance issued pursuant to
that law.
  SEC. 17.  No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.