BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 1083| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 1083 Author: Monning (D), et al. Amended: 9/2/11 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. CONTINUED AB 1083 Page 2 Senate Floor Amendments of 9/2/11 make clarifying changes to the emergency regulation authority of the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI), make changes to the notification requirements imposed on solicitors, agents and brokers, reinstate existing law regarding creditable coverage in the Insurance Code, and make other technical and conforming changes. Senate Floor Amendments of 8/31/11impose a data reporting requirement on health care service plans and health insurers (commonly referred to as carriers), make corresponding changes to the duties of the California Department of Insurance and the Department of Managed Health Care (commonly referred to as regulators), make changes to the provisions related to affiliation and waiting periods, provide regulators with emergency regulatory authority to define age, family size, geographic region, and family categories consistent with PPACA, impose additional requirements on non-grandfathered individual and small group health insurance policies, add additional terms and definitions, and make other technical and clarifying changes. 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 DMHC under the Knox-Keene Health Care Service Plan Act of 1975, and CONTINUED AB 1083 Page 3 for the regulation of health insurers by 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 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 CONTINUED AB 1083 Page 4 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. Requires the change to "1" to be implemented only to the extent required by PPACA. 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. 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 CONTINUED AB 1083 Page 5 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 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: CONTINUED AB 1083 Page 6 1.Prohibits, effective January 1, 2014, carriers in the small group market 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: 1.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. 2.Allows carriers who do not use pre-existing condition exclusions in their products to impose a waiting period of up to 60 days. This bill: 1.Effective January 1, 2014, prohibits a carrier from imposing a waiting or affiliation 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 or affiliation period of no more than 60 days or up to 90 days for a late enrollee 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. Provides that an affiliation period shall run concurrently with any waiting period. 3.Beginning January 1, 2013, requires a carrier providing aggregate or specific stop-loss coverage, or any other CONTINUED AB 1083 Page 7 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. 4.Phases out the definition of "affiliation period" in the Insurance Code on December 13, 2013. 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: 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 CONTINUED AB 1083 Page 8 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 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 CONTINUED AB 1083 Page 9 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.Requires all nongrandfathered policies of individual health insurance, except Medicare supplement policies, as specified, to provide coverage for essential health benefits as defined in PPACA. PROVISIONS NOT CONFORMING TO PPACA Data Reporting 1.Requires carriers, except those offering specialized health plan contracts, or specialized health insurance policies, to report to their regulator unduplicated enrollment data, as specified, in specific product lines, as determined by the regulator, beginning March 1, 2012 and at least annually thereafter. 2.Requires regulators to publicly report the data provided by each carrier, as specified. Requires regulators to consult with each other to ensure that the data reported is comparable and consistent. Emergency Regulations 1.Authorizes regulators to issue regulations, including emergency regulations, to define age, family size, geographic region, and family categories consistent with CONTINUED AB 1083 Page 10 PPACA, as specified. Premium rates 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 CONTINUED AB 1083 Page 11 than three to one for adults effective January 1, 2014. 3.Does not allow for provisions of wellness incentives. OTHER PROVISIONS NOT ADDRESSED IN PPACA Self-employed individuals This bill: 1.Effective January 1, 2014, the definition of an employer, for purposes of determining whether an employer with one employer includes sole proprietors, certain owners of "S" corporations, or other individuals to be consistent with PPACA.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 CONTINUED AB 1083 Page 12 policyholder. 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, agents and brokers to notify a small employer of the availability of coverage and tax credits for certain employers, consistent with the federal health reform law and any subsequently issued rules, regulations, or guidance. 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 CONTINUED AB 1083 Page 13 premiums significantly or decline the entire group. California's small group market has been shaped by 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 CONTINUED AB 1083 Page 14 Local: Yes According to the Senate Appropriations Committee: Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund CDI filings and oversight $0 $0$134Special* *Insurance Fund SUPPORT : (Verified 9/6/11) 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 9/6/11) Anthem Blue Cross Association of California Life and Health Insurance Companies California Association of Health Plans California Chamber of Commerce Safeway, Inc. 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 CONTINUED AB 1083 Page 15 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 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 Chamber of Commerce (CalChamber) opposes this bill and writes the following: "AB 1083 purports to make changes to laws governing the sale of small group health coverage products to conform to provisions of the Act. However, the bill exceeds Federal law with provisions that we oppose, eliminating important protections and wellness incentives. AB 1083 creates unnecessary complexity by not adequately referencing provisions of the Act in order to provide clarity and ensure California law conforms to federal law. "A significant driver of health care costs is chronic disease. Therefore, the Act includes a provision to allow wellness incentives to vary premiums up to thirty percent, and to vary premiums for individuals that use tobacco. AB CONTINUED AB 1083 Page 16 1083 specifically prohibits the provision of wellness incentives and prohibits varying rates for tobacco users. CalChamber opposes the exclusion of this important reform that would contribute to encouraging health choices and thereby help drive down medical costs. "When the Act was implemented, President Obama responded to the concerns of the American people and made the promise that if you like your current health care plan, you can keep it. As such, the Act allows current health coverage plans, termed grandfathered plans, by allowing certain exemptions from provisions of the Act for these plans so that individuals can keep their current plan and employers can continue to offer the same plans to their employees. AB 1083 essentially eliminates the exceptions for grandfathered plans by bringing them under all the provisions of the Act and sunsets California's current small group laws." 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, 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 9/6/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED AB 1083 Page 17 CONTINUED