BILL ANALYSIS                                                                                                                                                                                                    

                             SENATE COMMITTEE ON HEALTH
                          Senator Ed Hernandez, O.D., Chair

          BILL NO:       AB 1453
          AUTHOR:        Monning
          AMENDED:       April 17, 2012
          HEARING DATE:  June 27, 2012
          CONSULTANT:    Trueworthy

           SUBJECT  :  Essential health benefits.
            SUMMARY  :  Designates the Kaiser Small Group HMO as California's 
          benchmark plan to serve as the essential health benefit (EHB) 

          Existing federal law:
          1.Establishes the Patient Protection Affordable Care Act (ACA), 
            which among other provisions, imposes new requirements on 
            individuals, employers, and health plans; restructures the 
            private health insurance market; sets minimum standards for 
            health coverage; establishes health benefit exchanges; and 
            provides financial assistance to certain individuals and small 

          2.Requires, under the ACA, each state, by January 1, 2014, to 
            establish an American Health Benefit Exchange that facilitates 
            the purchase of qualified health plans by qualified 
            individuals and qualified small employers.

          3.Requires, under the ACA, health plans and health insurers that 
            offer coverage in the small group or individual market, both 
            inside and outside of the Exchange, to ensure coverage 
            includes the EHB package.
          Existing state law:
          1.Provides for regulation of health insurers by the California 
            Department of Insurance (CDI) under the Insurance Code, and 
            provides for the regulation of health plans by the Department 
            of Managed Health Care (DMHC), pursuant to the Knox-Keene 
            Health Care Service Plan Act of 1975.

          2.Requires health plan contracts and health insurance policies 
            to cover various benefits.

          3.Establishes the California Health Benefit Exchange (Exchange) 
            to facilitate the purchase of qualified health plans by 


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            qualified individuals and qualified small employers by January 
            1, 2014.
          This bill:
          1.Requires individual and small group health plans and health 
            insurance policy contracts, both inside and outside of the 
            Exchange, to cover EHBs, as defined.

          2.Defines EHBs as the benefits and services covered by Kaiser 
            Small Group HMO, including the categories identified in the 

          3.Requires the services and benefits to be covered to the extent 
            they are medically necessary. Prohibits scope and duration 
            limits from exceeding the scope and duration limits imposed on 
            those services by the Kaiser Small Group HMO plan contract.

          4.Requires habilitative services to be provided for the same 
            services as, and under the same terms and conditions of, the 
            plan contract for rehabilitative services.

          5.Requires the same services and benefits for pediatric oral 
            care as provided by a specified federal plan to be provided as 
            an EHB.

          6.Prohibits plans from indicating or implying a contract or 
            policy meets the EHB standard unless it covers EHBs, as 

          7.Exempts self-insured group health plans, large group market 
            health plans, or grandfathered health plans.

           FISCAL EFFECT :  According to the Assembly Appropriations 
          Committee, this bill responds to pre-regulatory federal 
          guidance. The committee analysis assumes it is likely that 
          forthcoming federal regulations will reflect the guidance issued 
          thus far. If the federal regulations take a different approach, 
          potential costs of requiring all individual and small group 
          plans to meet the EHB standards are unknown but could be 
          significant to the extent a different approach requires the 
          state to defray the costs of state-mandated benefits. However, 
          given this bill includes protective language that requires this 
          bill to be implemented only to the extent that federal law or 
          policy does not require the state to defray the costs of 
          benefits included within the definition of EHBs, it should not 
          result in increased state costs. There could be minor legal 


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          costs to CDI and DMHC to make this determination. Regulatory and 
          enforcement costs as a result of this bill are minor and 
          absorbable. Costs will be incurred to ensure compliance with EHB 
          standards under federal law; additional workload as a result of 
          this bill will be minor.  
          PRIOR VOTES  :  
          Assembly Health:    13- 4
          Assembly Appropriations:12- 5
          Assembly Floor:     50- 25
          COMMENTS  :  
           1.Author's statement.  This bill establishes minimum benefits 
            that all health plans and insurers in the individual and small 
            group markets must cover. The benefits are based upon the 
            product with the largest enrollment in the small group market, 
            a Kaiser plan.  The benefits are comprehensive and affordable. 
            With the ACA's minimum essential health benefit requirement 
            Californians will no longer have to worry if the insurance 
            they are paying for is junk insurance. They can be assured 
            coverage for minimum services will be there when they need it. 

            A bulletin issued by the Center for Consumer Information and 
            Insurance Oversight (CCIIO) suggests that states are permitted 
            to select a single benchmark to serve as the EHB standard for 
            qualified health plans operating inside the state exchange and 
            plans offered in the individual and small group markets, with 
            an exception for grandfathered plans. For 2014 and 2015, 
            states have been given the choice among 10 options. If a state 
            does not choose a benchmark plan, CCIIO will use the largest 
            product in the state's small group market as the default. 
            CCIIO believes this approach will give states time to provide 
            a transition period to coordinate their benefit mandates while 
            minimizing the likelihood that the state would be required to 
            defray the costs of mandates in excess of the EHB. The federal 
            HHS Agency intends to assess the benchmark process for the 
            year 2016 and beyond.

            With this guidance in mind, the choice of the benchmark plan 
            is based on the following principles: a) Recognition of the 
            importance of existing state mandated benefits and 
            incorporation of as many state mandates as possible; b) 
            Protection of California's commitment to reproductive 
            services; c) Embracing the consumer oriented regulatory 
            framework in place at the DMHC; and d) Maintaining 


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            affordability for consumers. Through a process of comparison 
            to these principles other plans were eliminated and the Kaiser 
            Small Group HMO was chosen. Based on the information 
            available, the Kaiser Small Group HMO represents the best 
            benchmark plan choice for Californians. The Kaiser Small Group 
            HMO covers all of California's mandates and includes vision 
            exams. The contract covers reproductive services, is licensed 
            at DMHC as a Knox-Keene plan and complies with all of the 
            consumer rights and protections that go along with that, and 
            while the cost differentials among all of the options are not 
            significant, this plan falls in the middle.

          2.Background.  Effective January 1, 2014, federal law requires 
            Medicaid benchmark and benchmark-equivalent plans, plans sold 
            through the Exchange and the Basic Health Program (if 
            enacted), and health plans and health insurers providing 
            coverage to individuals and small employers to ensure coverage 
            of EHBs, as defined by the Secretary of the Department of 
            Health and Human Services (HHS). HHS is required to ensure 
            that the scope of EHBs is equal to the scope of benefits 
            provided under a typical employer plan, as determined by the 

            Under federal law, EHBs must include 10 general categories and 
            the items and services covered within the following 
                           Ambulatory patient services;
                           Emergency services;
                           Maternity and newborn care;
                           Mental health and substance use disorder 
                    services, including behavioral health treatment;
                           Prescription drugs;
                           Rehabilitative and habilitative services and 
                           Laboratory services;
                           Preventive and wellness services and chronic 
                    disease management; and
                           Pediatric services, including oral and vision 

          1.EHB Bulletin.  On December 16, 2011, the HHS CCIIO released an 
            EHB Bulletin proposing that EHBs be defined using a benchmark 
            approach. This gives states the flexibility to select a 
            benchmark plan that reflects the scope of services offered by 
            a "typical employer plan." If a state does not choose a 


                                                      AB 1453 | Page 5


            benchmark health plan, the default benchmark plan for the 
            state would be the largest plan by enrollment in the largest 
            product in the small group market. 
            EHBs must include coverage of services and items in all 10 
            statutory categories listed above, but states would choose one 
            of the following benchmark health insurance plans:
                 One of the three largest small group plans in the state 
               by enrollment-in California, these options are Anthem PPO 
               licensed by CDI, Kaiser HMO licensed by DMHC, or Anthem PPO 
               licensed by DMHC;
                 One of the three largest state employee health plans by 
               enrollment-in California, these options are CalPERS Blue 
               Shield Basic HMO, CalPERS Choice, or CalPERS Kaiser HMO; 
                 One of the three largest federal employee health plan 
               options by enrollment, which are Government Employee Health 
               Association, Blue Cross and Blue Shield (BCBS) Basic, or 
               BCBS Standard; or
                 The largest HMO plan offered in the state's commercial 
               market by enrollment, which is the Kaiser Large Group 
               Commercial HMO.   
          1.Frequently Asked Questions for EHB bulletin.  HHS issued a 
            Frequently Asked Questions for EHB bulletin to provide 
            additional guidance on HHS's intended approach in defining 
            EHB. The bulletin outlines three categories of benefits not 
            included in many of the health insurance plans - 1) pediatric 
            oral services, 2) pediatric vision services, and 3) 
            habilitative services. The bulletin describes rules to ensure 
            coverage of these categories, and this bill implements these 
            rules related to pediatric oral services and habilitative 
            services. Specifically, this bill requires a plan to cover 
            pediatric oral services at par with the largest federal plan 
            by enrollment, the federal BCBS Standard Option Service 
            Benefit Plan. The bill also requires habilitative services to 
            be covered at parity with rehabilitative services provided by 
            the Kaiser Small Group HMO.

          2.Milliman analysis.  In January 2012, the Exchange retained 
            consulting firm, Milliman, to analyze and compare the health 
            services covered by the 10 EHB California benchmark plan 
            options. Milliman found all the plans to be comprehensive and 
            found there to be only a very small cost difference between 
            the optional plans.

          3.Selection of EHB benchmark plan.  Federal guidance states that 


          AB 1453 | Page 6

            if a state selects a benchmark plan that does not include all 
            state-mandated benefits, the state must pay the costs of those 
            mandated benefits. Given the impact this could have on the 
            state's budget, it is appropriate for the Legislature to 
            select the benchmark plan. Further, given that the EHB 
            benchmark plan impacts plans outside of the Exchange, it is 
            reasonable for the Legislature to select to the benchmark 

            The Kaiser Small Group HMO includes all state mandates which 
            will protect the state budget and many of the items and 
            services are covered within the 10 required categories 
            requiring very few supplements from different plans.  

            Further, according to a recent data analysis complied by 
            Milliman, "the range in estimated plan costs due to the chosen 
            EHB benchmark is about 2.36% (101.87% to 104.23%)." Given this 
            very small difference, cost does not appear to be an 
            influential factor.

          4.Related legislation.  SB 961 (Hernandez) and AB 1461 (Monning) 
            would establish reforms in the individual health insurance 
            market to update California laws and implement the ACA.   SB 
            961 is pending in the Assembly Health Committee, and AB 1461 
            is pending in the Senate Health Committee.
          5.Prior legislation.  SB 51 (Alquist), Chapter 644, Statutes of 
            2011, establishes enforcement authority in California law to 
            implement provisions of the ACA related to medical loss ratio 
            requirements on health plans and health insurers and enacts 
            prohibitions on annual and lifetime benefits.
            SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB 1602 
            (Perez), Chapter 655, Statutes of 2010, established the 

          6.Support.  The California Children's Health Coverage Coalition 
            writes, in support of this bill, that the selection of a 
            robust EHB benchmark is the first step towards providing 
            children in the Exchange with the most comprehensive coverage 
            possible. The California Pan-Ethnic Health Network supports 
            this bill writing the bill will ensure that California's EHB 
            package covers a comprehensive package of health care services 
            both inside and outside of the Exchange. Consumers Union 
            writes that the marketplace today is flooded with plans 
            offering skimpy coverage and argues this bill will ensure 


                                                      AB 1453 | Page 7


            California's EHB will cover a comprehensive package of health 

          7.Support with amendments.  Western Center on Law & Poverty 
            (WCLP) requests that the bill specify that it is not adopting 
            the cost-sharing components of the Kaiser Small Group HMO plan 
            as part of the EHB standard. Additionally, this bill does not 
            explicitly address benefit substitution and insurer 
            flexibility, and WCLP requests adding language stating that 
            plans cannot substitute coverage of services even if such 
            substitutions are actuarially equivalent. National Health Law 
            Program (NHeLP) supports this bill but requests amending the 
            bill to include broader coverage of children for mental health 
            services. NHeLP also requests amending habilitative services 
            to mirror the Medicaid definition, and they request adding 
            language to prevent benefit substitutions. California 
            Speech-Language Hearing Association raises several issues 
            concerning habilitative services including that it should be 
            defined and that the definition should contrast with 

            Health Access California (Health Access) writes that while 
            this bill select a benchmark plan that is a Knox-Keene plan, 
            the bill does not include the necessary statutory underpinning 
            to assure that consumers with coverage regulated under the 
            Insurance Code have the same benefits as those with coverage 
            regulated under the Knox-Keene Act.  Health Access seeks 
            further amendments to assure such basic consumer protections.  
            Without this statutory foundation, insurers may find ways to 
            sidestep the apparent requirements of the law, imposing dollar 
            or visit limits on outpatient care or hospital stays, denying 
            access to prescription drugs for which there is no therapeutic 
            equivalent, or substituting one benefit for another. Health 
            Access writes this legislation is needed not only to select 
            the specific EHB product but to assure that both regulators 
            can enforce that standard in the individual and small group 
            markets outside the Exchange. 
          8.Oppose unless amended. The  California Chiropractic Association  
            (CCA) writes that in California seven of the benchmark plan 
            options include a chiropractic benefit. CCA is opposed to this 
            bill and asks that the legislature re-examine the possible 
            choices for an EHB plan to select one that includes 
            chiropractic benefits. Any health care reform program should 
            rely on access to chiropractic treatment to achieve the most 
            positive health and financial results.  


          AB 1453 | Page 8

            The California Association of Alcohol and Drug Program 
            Executives writes in opposition that this bill selects a 
            benchmark plan that does not meet the mental health and 
            substance abuse mandates in both the ACA and federal Mental 
            Health parity law.

            The California Association of Dental Plans (CADP) writes that 
            the bill designates the Federal Employees Dental and Vision 
            Insurance Program (FEDVIP) as the benchmark plan for pediatric 
            oral care. CADP argues this designation should be changed to 
            reflect a benchmark that is more appropriate for children's 
            oral health and that alternative is California's Healthy 
            Families Program

          9.Policy comments.
             a.   Medically necessary language.  Several organizations, 
               including health plans, providers and consumer groups, have 
               proposed alternative language clarifying the intent of 
               medically necessary. The author may wish to amend the 
               definition of medically necessary.
             b.   Habilitative services definition.  Several 
               organizations, including health plans, providers and 
               consumer groups, have proposed alternative definitions for 
               habilitative services. The federal government has not to 
               date issued guidance on this benefit. The author may wish 
               to amend the definition of habilitative services.
             c.   Benefit substitutions.  The current federal guidelines 
               issued to date appear to allow plans to offer benefits that 
               are "substantially equal" to the benefits of the benchmark 
               plan. The author may wish to include language preventing 
               benefit substitutions to give clarity on the issue.
             d.   Cost sharing.  The federal government has issued 
               guidance on cost-sharing rules and current federal 
               guidelines issued to date appear to keep the EHB benchmark 
               plan separate from cost-sharing rules. The author may wish 
               to add intent language clarifying the Kaiser Small Group 
               cost-sharing rules do not mandate a certain level of cost 
             e.   Mental health and substance abuse treatment. Opponents 
               have questioned if the Kaiser Small Group health plan meets 
               the requirements outlined in the ACA and in state and 
               federal mental health parity law. The author is currently 
               working on an analysis of this issue.
             f.   Dental benchmark plan.  Opponents have questioned using 
               the Federal Employees Dental and Vision Insurance Program 


                                                      AB 1453 | Page 9


               as the benchmark plan for children's dental. The author is 
               currently working on an analysis of this issue.
          Support:  Association of Regional Center Agencies
                    Autism Speaks 
                    California Association for Behavior Analysis 
                    California Black Health Network 
                    California Commission on Aging 
                    California Communities United Institute 
                    California Council of Community Mental Health Agencies 

                    California Coverage & Health Initiatives
                    California Pan-Ethnic Health Network
                    California Physical Therapy Association 
                    California Podiatric Medical Association 
                    California Primary Care Association
                    California Psychiatric Association 
                    California Speech-Language Hearing Association 
                    Children Now
                    Children's Defense Fund-California
                    The Children's Partnership
                    Congress of California Seniors 
                    Consumers Union
                    The Greenlining Institute 
                    Health Access California 
                    Mental Health America of California 
                    National Alliance on Mental Illness, California
                    National Health Law Program (if amended)
                    Planned Parenthood Affiliates of California
                    SEIU California 
                    United Ways of California
                    Western Center on Law and Poverty

          Oppose:   California Association of Alcohol and Drug Program 
                    Executives (unless amended)
                    California Chiropractic Association (unless amended)

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