BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1083|
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THIRD READING
Bill No: AB 1083
Author: Monning (D), et al.
Amended: 8/15/11 in Senate
Vote: 21
SENATE HEALTH COMMITTEE : 5-2, 06/29/11
AYES: Hernandez, Alquist, De León, DeSaulnier, Wolk
NOES: Strickland, Anderson
NO VOTE RECORDED: Blakeslee, Rubio
SENATE APPROPRIATIONS COMMITTEE : 6-2, 08/15/11
AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
NOES: Walters, Emmerson
NO VOTE RECORDED: Runner
ASSEMBLY FLOOR : 50-27, 05/27/11 - See last page for vote
SUBJECT : Health care coverage
SOURCE : Health Access California
Small Business Majority
DIGEST : This bill makes a number of changes to state
laws governing the sale of small group health insurance
products to largely conform state law to provisions in the
federal Patient Protection and Affordable Care Act (PPACA)
including, pertaining to self-employed individuals, the
duration of premium rates, notification of availability of
coverage, and notice of material modifications by carriers.
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ANALYSIS :
General provisions
Existing federal law:
1.Establishes the PPACA (Public Law 111-148), which imposes
various requirements, some of which take effect on
January 1, 2014, on states, carriers, employers, and
individuals regarding health care coverage, including
coverage in the small group health insurance market.
2.Defines "grandfathered plan" as any group or individual
health insurance product that was in effect on March 23,
2010.
Existing state law:
1.Provides for the regulation of health plans by the
Department of Managed Health Care (DMHC) under the
Knox-Keene Health Care Service Plan Act of 1975, and for
the regulation of health insurers by the California
Department of Insurance (CDI) under provisions of the
Insurance Code (collectively referred to as regulators).
2.Establishes and specifies the duties and authority of the
California Health Benefit Exchange within state
government in a manner that is consistent with PPACA.
3.Requires as a condition of participation in the Exchange,
carriers that sell any products outside the Exchange to
fairly and affirmatively offer, market and sell all
products made available in the Exchange to individuals
and small employers purchasing coverage outside of the
Exchange.
4.Requires health plans to fairly and affirmatively offer,
market, and sell health coverage to small employers.
This is known as "guaranteed issue."
5.Requires health plans to offer, market, and sell all of
the health plan's contracts that are sold to small
employers, to any small employers in each service area in
which the plan provides health care services. This is
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known as an "all products" requirement.
PROVISIONS CONFORMING TO PPACA
Definition of "small employer"
Existing federal law:
1.Defines "small employer" as an employer who employed an
average of at least 1, but not more than 100 employees on
business days during the preceding calendar year.
2.Allows states the option to, prior to January 1, 2016,
define "small employer" as an employer who employed an
average of at least 1, but not more than 50 employees.
Existing state law:
1.Defines a small employer as 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 two, but no more than
50, eligible employees, the majority of whom were
employed within this state
This bill:
1.Maintains the existing state definition of small employer
(2 to 50 eligible employees) until January 1, 2014, and
implements the federal option to define small employer as
1 to 50 from January 1, 2014, until December 31, 2015.
2.Implements the federal definition of small employer as
having at least 1, but no more than 100 eligible
employees, as specified, on or after January 1, 2016.
3.Replaces an obsolete reference to an employer purchasing
program that is no longer in existence with a reference
to the Exchange.
4.Requires employer contribution requirements to be
consistent with PPACA.
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Definition of "eligible employee"
Existing federal law:
1.Defines the term "full-time employee" to mean, with
respect to any month, an employee who is employed on
average at least 30 hours of service per week.
Existing state law:
1.Defines an eligible employee as 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 at least 30 hours, at the employer's
place of business, who has met any statutory waiting
periods.
2.Deems permanent employees who work at least 20 hours but
not more than 29 hours eligible, if certain conditions
apply.
This bill:
1.Effective January 1, 2012, expands the definition of
eligible employee by calculating the hours in a normal
work week as an average of, rather than a minimum of, 30
hours per week over the course of a month.
2.Effective January 1, 2012, prohibits carriers from
establishing rules for eligibility, including continued
eligibility, of an individual, or dependent of an
individual, based on any other health status-related
factor as determined by the regulators.
Pre-existing condition exclusions
Existing federal law:
1.Prohibits, effective January 1, 2014, any carrier
offering group or individual health insurance coverage
that imposes any pre-existing condition exclusions.
2.Prohibits a carrier, except for grandfathered plans, from
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imposing any pre-existing condition provision upon any
child less than 19 years of age.
Existing state law:
1.Permits plans to exclude a "pre-existing condition" for
charges or expenses incurred during a specified period
following the employee's effective date of coverage, as
to a pre-existing condition, defined as 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.
2.Prohibits a plan contract for individual or group
coverage, other than grandfathered plans, from imposing
any pre-existing condition provision upon any child less
than 19 years of age.
This bill:
1.Prohibits, effective January 1, 2014, carriers from
limiting or excluding coverage for any individual based
on a pre-existing condition, whether or not any medical
advice, diagnosis, care, or treatment was recommended or
received before that date.
Waiting periods
Existing federal law:
1.Effective January 1, 2014, prohibits all insurance
products from requiring a waiting periods for individual
or group coverage longer than 90 days.
Existing state law:
2.Allows carriers who use pre-existing condition exclusions
in their products to impose up to a six month
pre-existing condition waiting period related to medical
conditions.
3.Allows carriers who do not use pre-existing condition
exclusions in their products to impose a waiting period
of up to 60 days.
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This bill:
1.Effective January 1, 2014, prohibits a carrier from
imposing a waiting period based on a pre-existing
condition, health status, or any other factor, as
specified.
2.Effective January 1, 2014, allows a carrier to impose a
waiting period of up to 90 days as a condition of
enrollment, if applied equally to all full-time employees
and if consistent with PPACA and any subsequent federal
rules, regulations or guidance.
3.Beginning January 1, 2013, requires a carrier providing
aggregate or specific stop-loss coverage, or any other
assumption of risk with reference to a health benefit
plan, to ensure that the plan meets all the waiting
period provisions in state law pertaining to small group
insurance policies.
Late enrollees
Existing state law:
1.Allows carriers to exclude late enrollees from group
coverage for more than 12 months from the date of the
application.
This bill:
1.Repeals authority for carriers to exclude late enrollees
from coverage for more than 12 months from the date of
the application on January 1, 2014, and instead permits
carriers to exclude late enrollees from coverage for up
to 90 days from the date of the late enrollee's
application.
2.Prohibits premiums from being charged to the late
enrollee until the exclusion period has ended.
Health status
Existing federal law:
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1.Effective in January 1, 2014, prohibits all health
insurance products, except grandfathered plans and
self-insured plans, from discriminating based on health
status, including medical history, domestic violence,
claims experience, and genetic information.
Existing state law:
1.Prohibits a policy or contract that covers two or more
employees from establishing 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:
Health status;
Medical condition, including physical and mental
illnesses;
Claims experience;
Receipt of health care;
Medical history;
Genetic information;
Evidence of insurability, including conditions
arising out of acts of domestic violence; and,
Disability.
This bill:
1.Effective January 1, 2012, adds to the list of health
status-related factors in existing law a prohibition
based on any other health status-related factor as
determined by the regulator.
2.Effective January 1, 2014, prohibits the use of a risk
adjustment factor in the determination of an individual
employee's premium within a group.
Essential health benefits
Existing federal law:
1.Establishes a list of categories of "essential health
benefits package" which individual and small group
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insurance products must provide beginning in 2014.
Existing state law:
1.Requires DMHC-regulated health plans to provide all
medically necessary basic health care services, as
defined. Permits DMHC to define the scope of the
services and to exempt plans from the requirement for
good cause. No similar provision is applicable to health
insurers regulated by CDI.
2.Defines disability insurance to include insurance
appertaining to injury, disablement, or death resulting
to the insured from accidents or sickness.
3.Defines, for statutes effective on or after January 1,
2002, the term "health insurance" to mean an individual
or group disability insurance policy that provides
coverage for hospital, medical, or surgical benefits, as
specified.
4.Defines, for statutes effective on or after January 1,
2008, the term "specialized health insurance policy" to
mean a policy of health insurance for covered benefits in
a single specialized area of health care, including
dental-only, vision-only, and behavioral health-only
policies.
This bill:
1.Changes the definition of health benefit plan to include
essential health benefits on or after January 1, 2014, as
defined consistent with PPACA.
2.Defines, for statutes effective on or after January 1,
2014, the term "health insurance" to mean individual or
group disability insurance policies, except for
grandfathered policies that provides essential health
benefits as defined in PPACA, as specified.
PROVISIONS NOT CONFORMING TO PPACA
Premium rates
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Existing federal law:
1.Effective January 1, 2014, permits carriers to vary
premiums in the individual and small group markets only
based on a geographic rating area, age of policyholder,
tobacco use, and whether the policy is for an individual
or family.
2.Prohibits premiums from varying by more than three to one
for adults.
3.Prohibits premiums from varying by more than 1.5 to one
for smokers.
4.Allows for the provision of wellness incentives by
employers to vary premiums up to 30 percent. May be
increased up to 50 percent up approval by the Secretary
of the federal Health and Human Services Agency.
Existing state law:
1.Establishes the following risk categories for rating
purposes: age, geographic region, and family
composition, plus the health benefit plan selected by the
small employer. Specifies age categories, family size
categories, and nine geographic regions.
2.Prohibits rates from being adjusted annually more than 10
percent, up or down, from the filed premium rates based
on an employer's industry, geographic location,
occupation, or claims experience. This is called the risk
adjustment factor.
This bill:
1.Eliminates the ability of carriers to impose a risk
adjustment factor to premium rates effective January 1,
2014.
2.Allows premium rate variation based upon age of no more
than three to one for adults effective January 1, 2014.
3.Does not allow for provisions of wellness incentives.
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4.Does not provide for smokers' premiums to vary.
OTHER PROVISIONS NOT ADDRESSED IN PPACA
Self-employed individuals
This bill:
1.Effective January 1, 2014, permits certain self-employed
individuals to, to the extent permitted under federal
law, at his or her discretion, enroll in the Exchange as
an individual rather than a small employer. Eligible
self-employed individuals are defined as those with at
least 50 percent of annual income from self-employment.
Rating periods
Existing state law:
1.Prohibits carriers, during the term of a group plan
contract or policy, from changing the rate of the
premium, copayment, coinsurance, or deductible during
specified time periods.
2.Defines a rating period as the period for which premium
rates established by a plan are in effect and requires
them to be in effect no less than six months.
This bill:
1.Defines a rating period as the period for which premium
rates established by a plan are in effect and requires
them to be in effect no less than twelve months (instead
of six), to the extent permitted under the federal
Patient Protection and Affordable Care Act.
Notifications
Existing state law:
1.Prohibits health plans and insurers from changing premium
rates or coverage policies without prior written
notification of the change to the contract holder or
policyholder.
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This bill:
1.Modifies the requirements for carriers to notify the
small employer about rate increases, and instead, on or
after January 1, 2013, requires carriers to notify the
small employer that the actual rates are required to be
the same for all small employers.
2.Requires solicitors to notify the small employer of the
availability of tax credits for certain employers, and
beginning January 1, 2014, of the availability of
coverage and tax credits through the Exchange.
Carrier filing requirements
Existing state law:
1.Requires carriers to file a notice of material
modification with their respective regulators at least 20
business days prior to renewing or amending a plan
contract, as specified.
This bill:
1.Requires carriers to file a notice of material
modification with their respective regulators at least 60
calendar days (rather than 20 business days) prior to
renewing or amending a plan contract, as specified.
Background
California's small group health insurance market
In 1992, under AB 1672 (Margolin and Hansen), Chapter 1128,
Statutes of 1992, California enacted a number of reforms to
the small group market, making health insurance more
accessible to small employers through guaranteed issue and
renewability provisions, regulating pre-existing conditions
limitations, underwriting protections, and disclosure
requirements. Before AB 1672, a carrier would examine an
employer's health history and could either increase the
premiums significantly or decline the entire group.
California's small group market has been shaped by
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guaranteed issue and other protections established in small
group reform in 1992. In this market, carriers may impose
participation requirements (i.e. 70 percent of eligible
employees must enroll) and contribution requirements (i.e.
employer must pay at least pay half of the premium). As a
result, enrollees in small group coverage typically pay a
fraction of their premium.
A 2011 California HealthCare Foundation report indicates
that 3.4 million, or nine percent, of Californians have
health coverage through small group insurance products.
Roughly 67 percent of small group products are regulated by
DMHC, compared to 33 percent regulated by CDI. In
addition, there are 2.2 million people who purchase
insurance for themselves in the individual market. Of
those 2.2 million, 32 percent are self-employed and another
26 percent work for small employers. Another 3 million
people who are uninsured have a head of family who works
for a small employer or is self-employed.
Small group reforms in PPACA
On March 23, 2010, President Obama signed the PPACA. This
federal law makes several significant changes to the group
and individual insurance markets. In general, PPACA
requires individuals, beginning in 2014, to maintain health
insurance coverage, with some exceptions. Employers are
not explicitly required to provide health benefits,
although certain employers with more than 50 employees may
be required to pay a penalty if they either (1) do not
provide insurance, under certain circumstances, or (2) the
insurance they provide does not meet specified
requirements. PPACA also eliminates the pricing of
premiums based on health status, limits the range of
premiums based on age, adds the self-employed to those
eligible for guaranteed issue of coverage, includes
wellness incentives in the coverage available to small
businesses and expands the rules to employers with one to
100 employees.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
CDI filings and oversight $0
$0$134Special*
*Insurance Fund
SUPPORT : (Verified 8/25/11)
Health Access California (co-source)
Small Business Majority (co-source)
California Medical Association
California Optometric Association
California Retired Teachers Association
CALPIRG
Congress of California Seniors
Latino Health Alliance
OPPOSITION : (Verified 8/25/11)
California Department of Insurance
California Association of Health Plans
Association of California Life and Health Insurance
Companies
ARGUMENTS IN SUPPORT : Health Access California writes in
support and states that this bill will make health
insurance more available to 5.3 million small business
owners, their employees and self-employed Californians.
The Small Business Majority (SBM), the other co-sponsor of
the bill, concurs and points out that California's small
businesses have suffered from skyrocketing health insurance
costs. SBM believes that it is critical to pass this
legislation to strengthen safeguards in California as the
bill eliminates the practice of determining rates based on
health status, reins in rates based on age by limiting
premiums that an older person must pay to a maximum of
three times the amount a younger person pays, and
guarantees coverage for the self-employed.
The Latino Health Alliance supports this bill because it
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conforms and phases-in new insurance market rules for small
businesses, particularly so that small employers don't get
additional premium spikes based on the health of their
workforce.
CALPIRG argues that, by expanding guaranteed issue to
self-employed individuals and sole proprietors, this bill
gives individuals more mobility and spurs economic growth
by allowing them to start new business ventures without the
risk of losing coverage. CALPIRG also points out that the
newly-included businesses, which are generally not
sufficiently large to negotiate the good health insurance
deals enjoyed by the largest businesses, will benefit from
the protections in the small group market, including
eligibility for the Exchange.
The California Medical Association agrees with the
proponents that it is important to strengthen safeguards in
California that are consistent with PPACA, and to make
insurance more available to small business owners, their
employees, and self-employed Californians.
ARGUMENTS IN OPPOSITION : The California Department of
Insurance (CDI) writes in opposition:
"CDI has several concerns with AB 1083 as proposed to be
amended and, in particular, has expressed concerns with the
following issues:
AB 1083 would dramatically weaken California's current
consumer protection standards by removing CDI's
authority to regulate certain health insurance
policies.
As proposed to be amended, the bill changes the broad
definition of "health insurance" currently found in
California Insurance Code section 106(b) to a narrow
definition that links "health insurance" to the
essential health benefits package (EHBP). CDI further
interprets the new definition of "health insurance" to
also narrow the existing definition to
non-grandfathered small group and individual health
insurance. We believe this proposed new definition
for "health insurance" would exclude other types of
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insurance such as large group and Medicare Supplement
insurance that are currently considered to be "health
insurance." We argue that excluding major types of
health insurance from the new definition of "health
insurance" deprives CDI of the authority to regulate
health insurance excluded from the definition. This
definition also creates tremendous confusion since a
product would be considered "health insurance" based
upon the date of issue regardless of whether or not it
was contained in the EHBP.
We interpret the narrow definition of "health
insurance" to limit the Insurance Commissioner's
ability to regulate types of health insurance that are
not small group and individual non-grandfathered
policies, including the large group and Medicare
Supplement insurance markets. According to your staff
and the bill's sponsor, this definition is being
changed to prevent hospital-only and limited benefit
policies from being sold. Narrowing the definition of
"health insurance" to exclude such policies does not
bar them from being sold, but rather narrowing the
definition to exclude them precludes CDI from
regulating these policies because our authority to
regulate is based on the definition of "health
insurance." Therefore, by removing large group
insurance and Medicare Supplement policies from the
definition of "health insurance," it would have the
unintended consequence of removing these policies from
related health insurance consumer protections and from
the regulatory oversight of CDI.
AB 1083 would change California law in areas where
federal guidance is either pending or only proposed.
As proposed to be amended, the bill changes
California's current small employer group size from
2-50 employees to 1-50 employees, makes changes to
current California "health insurance" laws regarding
what constitutes an "employee" for health insurance
purposes, and amends family groupings for premium
rating categories consistent with federal law and
proposed regulations. However, federal agencies have
specifically requested comments regarding how to count
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employees and how to define premium rating categories
in their proposed regulations. Given that these areas
are still being discussed at the federal level, we
believe it is more appropriate for these changes in
the law to wait until after the final regulations are
released and finalized before considering the changes
indicated above.
AB 1083 would make employees wait unnecessarily longer
for health insurance coverage.
California law currently allows an employer to set
their own waiting period for a new employee to be
eligible for health insurance coverage as long as the
waiting period is consistent for all new employees.
Once an employee is eligible and enrolled in coverage,
California law allows an insurer to either have a
60-day waiting or affiliation period where the person
is enrolled but no premium is paid and no services are
provided or a 6-month pre-existing period during which
no payments are provided for a pre-existing medical
condition. AB 1083 would take California's current
60-day waiting or affiliation period and change it to
90 days; your bill's sponsor has stated to CDI staff
that this is for purposes of federal ACA conformity.
However, upon review of the current federal definition
by CDI staff, the federal definition is very similar
to California's current definition of 60-day waiting
or affiliation period. Therefore, AB 1083 would
unnecessarily make consumers wait an additional
30-days to receive "health insurance" coverage when
federal and state law currently allow that waiting
period to be 60-days, not 90-days."
ASSEMBLY FLOOR : 50-27, 05/27/11
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Buchanan,
Butler, Charles Calderon, Campos, Carter, Cedillo,
Chesbro, Davis, Dickinson, Eng, Feuer, Fong, Fuentes,
Galgiani, Gordon, Hall, Hayashi, Roger Hernández, Hill,
Huber, Hueso, Huffman, Lara, Bonnie Lowenthal, Ma,
Mendoza, Mitchell, Monning, Pan, Perea, V. Manuel Pérez,
Portantino, Skinner, Solorio, Swanson, Torres,
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Wieckowski, Williams, Yamada, John A. Pérez
NOES: Achadjian, Bill Berryhill, Conway, Cook, Donnelly,
Fletcher, Beth Gaines, Garrick, Gatto, Grove, Hagman,
Halderman, Harkey, Jeffries, Jones, Knight, Logue,
Mansoor, Miller, Morrell, Nestande, Nielsen, Norby,
Olsen, Smyth, Valadao, Wagner
NO VOTE RECORDED: Furutani, Gorell, Silva
CTW:nl 8/25/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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