BILL ANALYSIS Ó
AB 1461
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Date of Hearing: April 25, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1461 (Monning) - As Amended: April 9, 2012
Policy Committee: HealthVote:13-6
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill enacts reforms in the individual health insurance
market effective January 1, 2014, mirroring provisions in
federal law. Specifically, this bill, as it applies to health
plans in the individual market:
1) Prohibits health plans from excluding coverage of
preexisting conditions.
2) Requires guaranteed renewability of health plans.
3) Prohibits health plans from conditioning the issuance of
coverage on any health-status related factor ("guaranteed
issue").
4) Specifies certain limited exemptions to guaranteed issue
if a health plan lacks the ability to provide sufficient
health care services to an individual.
5) Limits the factors to be used for calculation of
premiums to age, geography, and family size ("community
rating").
6) Limits the sale of health plans to specified open
enrollment and special enrollment periods.
7) Specifies details of coverage start dates based on
premium payment.
8) Prohibits plans, agents, and brokers from encouraging
individuals to refrain from seeking coverage with a plan,
or to seek coverage through the Exchange, based on health
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status and other factors ("anti-steering").
9) Exempts grandfathered plans from most of these
provisions.
FISCAL EFFECT
1)One-time special fund costs to the California Department of
Insurance (CDI) and the Department of Managed Health Care
exceeding $200,000 (Managed Care Fund and Insurance Fund) to
modify regulations, to ensure plan licensure documentation and
practices reflect compliance with this bill's provisions, and
to handle consumer inquiries.
2)Unknown, potentially significant annual state costs to the
California Department of Insurance (CDI) and the Department of
Managed Health Care to enforce the provisions of this bill
depending upon insurer compliance with the new provisions and
the volume of consumer complaints.
3)If the Supreme Court strikes down provisions in federal law
that this bill mirrors, the individual market reforms in this
bill would have two major impacts beginning in 2014:
a) Demand on the state's high-risk pool program would be
dramatically reduced, resulting in direct state cost
savings. The state currently spends $31.8 million in
Proposition 99 tobacco tax revenues on the program, subject
to a maintenance of effort requirement until January 1,
2014.
b) If this bill is implemented in absence of an individual
mandate, new market dynamics would have uncertain impacts
on the demand for uncompensated care. Premiums in the
individual market may rise due to adverse selection, which
could price additional people out of the market and result
in more uninsured individuals and more uncompensated care.
On the other hand, individuals previously unable to
purchase insurance due to preexisting conditions would have
greater ability to purchase coverage, since they would be
guaranteed an offer of coverage at community-rated prices.
This could result in less demand for uncompensated care.
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Care for the uninsured is generally a local responsibility,
paid for by health facilities that provide charity care,
local funds, and federal grants and supplemental payments
to health facilities.
COMMENTS
1)Rationale . According to the author, this bill is necessary to
implement provisions of the federal Patient Protection and
Affordable Care Act (ACA) in California's individual health
insurance market. The author argues that while California has
a history of strong consumer protections in its insurance
market for small group purchasers, the state's individual
market has been referred to as the "wild west of health
insurance," with minimal restrictions on health insurers'
ability to deny coverage or charge higher rates based on
health status. The rules established in this bill will affect
individual insurance market plans operating both within and
outside the California Health Benefit Exchange.
2)Guaranteed Issue and Community Rating . State and federal
rules governing the issuance of health coverage depend on if
insurance is sought through the large-group market (mostly
larger employers and other groups), small-group market
(generally small employers), or the individual market (one
individual or family purchasing coverage directly). This bill
addresses the individual market.
The key provisions addressed in this bill are "guaranteed
issue" and "community rating" requirements. Some states
already have guaranteed issue in the individual market,
meaning health insurance must be offered to an individual
seeking coverage regardless of medical history or health
status.
Theoretically, insurers could circumvent guarantee issue
requirements by offering only very expensive policies to
high-risk individuals. However, most guaranteed issue
requirements are coupled with requirements for community
rating, which limits the variation in premiums by only
allowing certain factors (such as age, family size, and
geography) to be used in the calculation of premiums. In
simple terms, these requirements make coverage available for
everyone seeking it, at prices that reflect the average risk
in a community. It also means the financial risk associated
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with individuals with high health needs is spread among the
entire insured group. California currently has neither
community rating or guaranteed issue requirements in the
individual market, meaning an individual may be offered
coverage only at a very high cost or denied entirely. This
bill would implement both requirements, along with a related
prohibition on health plans ability to exclude coverage for
preexisting conditions. Federal law already requires this
beginning in 2014, but this is under Supreme Court review as
discussed below.
3)Federal Law and Supreme Court Challenge . One of the ACA's
major provisions, in addition to guaranteed issue and
community rating, is a requirement that individuals must
maintain health insurance or pay a penalty. The U.S. Supreme
Court is currently considering the constitutionality of this
"individual mandate," among other issues. In the absence of an
individual mandate to purchase health insurance, guaranteed
issue requirements can be disruptive to insurance markets
because of "adverse selection"- individuals who need health
care tend to purchase insurance, which then drives up prices,
which in turn forces more healthy people out of the market,
and so on. The Court is expected to decide in June of 2012
whether the individual mandate is constitutional and, if so,
whether it can be severed from the rest of the law. Possible
scenarios include the entire law being upheld, the individual
mandate being invalidated, the individual mandate along with
guaranteed issue and community rating being invalidated, or
the entire law being invalidated.
As stated, the provisions of this bill mirror those in the
federal ACA. Two policy choices are made in this bill that are
more specific or restrictive than that allowed under the ACA.
a) Tobacco rating. The ACA limits the rating factors which
can be used to determine health insurance rates to age,
geography, family size, and tobacco-use; this bill does not
allow rating based on tobacco use.
b) Open enrollment . This bill restrict sale of all plans in
the individual market to defined open enrollment and
special enrollment periods, whereas federal rules only
require this of plans sold through the Exchange.
1)California Health Benefit Exchange. The federal ACA describes
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basic responsibilities of state-based health insurance
exchanges, which are intended to function as risk-pooling
mechanisms and marketplaces that offer for sale a variety of
standardized health plans to individuals and small businesses.
California's Exchange was established by AB 1602 (John A.
Pérez), Chapter 655, Statutes of 2010 and SB 900 (Alquist),
Chapter 659, Statues of 2010, and the five-member Exchange
Board has been meeting monthly since April 2011.
Federal subsidies for individuals under 400% of poverty will
be available only for plans purchased through the Exchange.
To ensure a balanced mix of health risk inside the Exchange by
creating a level playing field, the author is attempting to
align the open enrollment rules for the commercial market
outside the Exchange with those that apply inside the
Exchange. The anti-steering provisions also are intended to
protect the Exchange's health risk pool.
2)Opposition . Health plan trade groups are opposed to the
imposition of guaranteed issue and community rating without an
individual mandate to purchase coverage, which they maintain
could be extremely disruptive to the market if the federal
mandate is struck down. They indicate studies of other
"guaranteed-issue" states that do not have a coverage mandate
have found this requirement increased health insurance
premiums in the individual market significantly. In addition,
Blue Shield of California favors the inclusion of tobacco use
as a rating factor in setting premiums.
3)Related Legislation . SB 961 (Ed Hernandez) is a companion bill
to this bill, containing identical provisions.
AB 1083 (Monning), pending on the Senate Floor, establishes
reforms in the small group health insurance market to
implement the ACA.
4)Previous Legislation . AB 1 X1 (Nunez) of 2007, which failed
passage in the Senate Health Committee, enacted the Health
Care Security and Cost Reduction Act, a comprehensive health
care reform proposal that included an individual mandate,
community rating, and guaranteed issue requirements.
Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081
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