BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 1461
AUTHOR: Monning
AMEDNED: April 9, 2012
HEARING DATE: June 27, 2012
CONSULTANT: Trueworthy
SUBJECT : Individual health care coverage.
SUMMARY : Reforms California's individual market in accordance
with the federal Patient Protection Affordability Care Act (ACA)
and applies its provisions to health plans and disability
insurers in the individual market; requires guaranteed issue of
individual market health plans and health insurance policies;
prohibits the use of preexisting conditions provisions;
establishes open and special enrollment periods consistent with
the California Health Benefit Exchange (Exchange); prohibits
conditioning the issuance or offering based on specified
discriminatory factors; prohibits specified marketing and
solicitation practices consistent with small group requirements;
requires guaranteed renewability of plans; and permits rating
factors based on age, geographic region and family size only.
Existing federal law:
1.Establishes the ACA, which imposes various requirements, some
of which take effect on January 1, 2014, on states, carriers,
employers, and individuals regarding health care coverage.
2.Requires each health insurance issuer that offers coverage in
the individual or group market to accept every employer and
individual that applies for that coverage and to renew that
coverage at the option of the plan sponsor or the individual.
3.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.
4.Allows the premium rate charged by a health insurance issuer
offering small group or individual coverage to vary only as
specified, and prohibits discrimination against individuals
based on health status.
5.Defines "grandfathered plan" as any group or individual health
Continued---
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insurance product that was in effect on March 23, 2010.
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 (Knox-Keene Act).
2.Requires health plans to fairly and affirmatively offer,
market, and sell health coverage to small employers. This is
known as "guaranteed issue."
3.Defines a preexisting condition provision as a contract
provision that excludes coverage for charges or expenses
incurred during a specified period following the employee's
effective date of coverage, 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.
4.Prohibits a plan contract for group coverage from imposing any
preexisting condition provision upon any child under 19 years
of age.
5.Prohibits a plan contract for individual coverage that is not
a grandfathered health plan within the meaning of the ACA from
imposing any preexisting condition provision upon any children
under 19 years of age.
6.Prohibits, with respect to the individual market child
coverage, except to the extent permitted by federal law,
carriers from conditioning the issuance or offering of
individual coverage on any of the following factors:
a. Health status;
b. Medical condition, including physical and mental
illness;
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; and
i. Any other health status-related factor as determined by
the regulators.
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7.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.
8.Establishes the following risk categories for rating purposes
in the small group market: 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, as determined by the
carriers.
9.Prohibits a plan in the small group market from, directly or
indirectly, entering 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
plan contract to be varied because of the health status,
claims experience, industry, occupation, or geographic
location of the small employer.
10.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:
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; and
h. Disability.
11.Establishes and specifies the duties and authority of the
Exchange within state government in a manner that is
consistent with the ACA. 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.
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This bill:
1.Applies its provisions to health plans and disability insurers
in the individual market and exempts grandfathered plans, as
defined in the ACA.
2.Prohibits a health benefit plan for group coverage and a plan
contract for individual coverage (except grandfathered plans,
as specified) issued, amended, or renewed on or after January
1, 2014, from imposing any preexisting condition provision
upon any individual.
3.Repeals a provision effective January 1, 2014, that would have
required the rate for any child to be identical to the
standard-risk rate.
4.Sunsets existing law, on December 31, 2013, related to rating
categories for child coverage.
5.Requires guaranteed issue of individual market health plans
and health insurance policies.
6.Requires every health plan and health insurer offering
individual health benefit plans, in addition to complying with
the Knox-Keene Act and specified provisions of the Insurance
Code and rules adopted thereunder, to comply with this bill.
7.Requires a plan, on or after January 1, 2014, to fairly and
affirmatively offer, market, and sell all of the plan's and
insurer's health benefit plans that are sold in the individual
market to all individuals in each service area in which the
plan or insurer provides or arranges for the provision of
health care services. Requires a plan or insurer to limit
enrollment to open enrollment periods and special enrollment
periods, as specified.
8.Requires a plan or insurer to provide an initial open
enrollment period from October 1, 2013, to March 31, 2014,
inclusive, and after January 1, 2015 annual enrollment periods
from October 15 to December 7, inclusive, of the preceding
calendar year.
9.Requires a plan or insurer to allow an individual to enroll in
or change individual health benefit plans, as a result of the
following triggering events:
a. He or she loses minimum essential coverage (MEC), as
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defined in the Internal Revenue Code, as specified. Loss of
MEC includes loss of that coverage due to the individual's
failure to pay premiums on a timely basis or situations
allowing for a rescission, as specified;
b. He or she gains a dependent or becomes a dependent
through marriage, birth, adoption, or placement for
adoption;
c. He or she becomes a resident of California;
d. He or she is mandated to be covered pursuant to a valid
state or federal court order; or
e. With respect to individual health benefit plans offered
through the Exchange, the individual meets any of the
requirements listed in federal regulations, as specified.
10.Requires an individual, with respect to individual health
benefit plans offered inside or outside the Exchange, to have
63 days from the date of a triggering event identified above
to apply for coverage from a health plan or insurer subject to
this bill.
11.Requires a health plan, with respect to individual health
plans offered outside the Exchange, after an individual
submits a completed application form for a plan, to notify,
within 30 days, the individual of the individual's actual
premium charges for that plan. Requires the individual to have
30 days in which to exercise the right to buy coverage at the
quoted premium charges.
12.Specifies effective dates associated with initial and annual
open enrollment periods depending upon when payment is
delivered or postmarked with respect to health benefit plans
offered inside and outside of the Exchange.
13.Prohibits, on or after January 1, 2014, a health plan or
health insurer from conditioning the issuance or offering of
an individual health benefit plan on any of the following
factors:
a. Health status;
b. Medical condition, including physical and mental
illness;
c. Claims experience;
d. Receipt of health care;
e. Medical history;
f. Genetic information;
g. Evidence of insurability, including conditions arising
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out of acts of domestic violence;
h. Disability; and
i. Any other health status-related factor as determined by
DMHC or CDI.
14.Prohibits a health plan offering coverage in the individual
market from rejecting the request of a subscriber during an
open enrollment period to include a dependent of the
subscriber.
15.Prohibits a health plan, health insurer, solicitor, agent or
broker, on or after January 1, 2014, from directly or
indirectly, engaging in the following activities:
a. Encouraging or directing an individual to refrain from
filing an application for individual coverage with a plan
because of the health status, claims experience, industry,
occupation, or geographic location, provided that the
location is within the plan's approved service area; and
b. Encouraging or directing an individual to seek
individual coverage from another plan or health insurer or
the Exchange because of the health status, claims
experience, industry, occupation, or geographic location,
provided that the location is within the plan's approved
services area.
16.Prohibits a health plan or insurer, on or after January 1,
2014, from not, directly or indirectly, entering into
contracts, agreement, or arrangement with a solicitor, agent
or broker that provides for or results in the compensation
paid to a solicitor for the sale of an individual health
benefit plan to be varied because of health status, claims
experience, industry, occupation, or geographic location of
the individual. Prohibits this provision from applying to a
compensation arrangement that provides compensation to a
solicitor, 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.
17.Requires all individual health plans to conform to specified
requirements, and to be renewable at the option of the
enrollee except as permitted to be canceled, rescinded, or not
renewed, as specified. Requires any plan that ceases to offer
for sale new individual health benefit plans, as specified, to
continue to be governed by specified law with respect to
business conducted under the specified law.
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18.Requires health plans issued, amended, or renewed on or after
January 1, 2014, to use only the following characteristics of
an individual, and any dependent thereof, for purposes of
establishing the rate of the individual health benefit plan
covering the individual and the eligible dependents thereof,
along with the health benefit plan selected by the individual:
a. Age, as described in regulations adopted by DMHC and CDI
that do not prevent the application of the ACA. Requires
the rates to be determined based on the individual's
birthday and requires them not to vary by more than three
to one for adults.
b. Geographic region. Requires, with respect to the 2014
plan year, the regions to be the same as those used by a
health benefit plan or contract entered into with the Board
of Administration of the Public Employees' Retirement
System. For subsequent plan years, requires the regions to
be determined by the Exchange in consultation with DMHC,
CDI, and other private and public purchasers of health care
coverage; and
c. Family size, as described in the ACA.
19.Requires the rating period for rates not to vary by any
factor not described above.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, one-time special fund costs to CDI and the DMHC
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. Unknown, potentially significant
annual state costs to CDI and DMHC to enforce the provisions of
this bill depending upon insurer compliance with the new
provisions and the volume of consumer complaints. 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: 1) 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 maintenance of effort requirement until January 1,
2014, and 2) 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
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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. 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.Author's statement. This bill is necessary to implement
provisions of the ACA in California's individual health
insurance market. California has a history of strong consumer
protections in its insurance market for small group purchasers
but California's individual market has been referred to the
"wild west of health insurance," with little or no
restrictions on health insurers in terms of their ability to
deny coverage based on preexisting conditions and from
charging higher rates based on health status, employment, or
any other factor. The ACA limits what factors plans can use to
determine premium rates, eliminates the use of preexisting
condition exclusions and requires plans to issue and renew
policies for willing purchasers. The rules established in this
bill will affect plans operating through the Exchange and in
the outside commercial insurance market for individual
purchasers. For consistency and to ensure a balanced mix of
health risk inside the Exchange, the author is attempting to
keep the rules for the commercial market outside the Exchange
the same, as much as possible, as inside the Exchange. The
reforms in this bill will help expand health insurance
coverage in the private commercial market and help millions of
Californians access health care in more cost effective manner.
2.Individual market. California's individual and small group
health insurance markets together currently serve just fewer
than 15 percent of the state's population, with approximately
2 million people being covered through individually purchased
health insurance. According to the California HealthCare
Foundation, under the ACA, these market segments will assume
importance beyond their numbers. In 2014, new requirements to
obtain coverage and financial assistance available through the
Exchange will increase the size of the individual market. New
market rules will change the types of products sold and the
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way coverage is priced. Under the ACA, it is expected that two
to three million Californians will be eligible for private
health care coverage.
Currently, individual premiums vary by age as much as
five-fold, meaning a 60-year-old would pay five times what a
25-year-old might pay. Premiums range from $113 to $777 a
month. Individual market insurance provides less
comprehensive coverage, paying an average of 55 percent of
medical expenses, compared to 80 to 90 percent of expenses for
group coverage. Currently purchasers in the individual market
pay 100 percent of their coverage; the market is very price
sensitive and purchasers are medically screened by insurers
concerned about high-risk consumers buying and keeping
coverage. In California, 3 carriers serve over 75 percent of
the market: Anthem Blue Cross PPO, Blue Shield PPO, and Kaiser
HMO. California's two regulators allow variation in product
design. Plans under DMHC must provide a defined set of basic
health care services, while plans under CDI have more
flexibility and may offer slimmer benefits. CDI-regulated
products are far more prevalent in the individual market.
3.Federal health care reform. On March 23, 2010, President
Obama signed the ACA (Public Law 111-148), as amended by the
Health Care and Education Reconciliation Act of 2010 (Public
Law 111-152). Among other provisions, the new law makes
statutory changes affecting the regulation of and payment for
certain types of private health insurance. Beginning in 2014,
individuals will be required to maintain health insurance or
pay a penalty, with exceptions for financial hardship (if
health insurance premiums exceed eight percent of household
adjusted gross income), religion, incarceration, and
immigration status. Several insurance market reforms are
required such as prohibitions against health insurers imposing
lifetime benefit limits and preexisting health condition
exclusions. These reforms impose new requirements on states
related to the allocation of insurance risk, prohibit insurers
from basing eligibility for coverage on health status-related
factors, allow the offering of premium discounts or rewards
based on enrollee participation in wellness programs, impose
nondiscrimination requirements, require insurers to offer
coverage on a guaranteed issue and renewal basis, determine
premiums based on adjusted community rating (age, family,
geography and tobacco use).
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Additionally, by 2014, either a state will establish separate
exchanges to offer individual and small group coverage, or the
federal government will establish one. Exchanges will not be
insurers but will provide eligible individuals and small
businesses with access to private plans in a comparable way.
In 2014, some individuals with income below 400 percent of the
federal poverty level (FPL) will qualify for credits toward
their premium costs and for subsidies toward their cost
sharing. California has established an Exchange that is
operating as an independent government entity with a
five-member Board of Directors. The ACA also expands the
Medicaid program to cover adults without children and expands
the income requirements to 138 percent of FPL based on
modified adjusted gross income rules.
4.U.S. Supreme Court. In March of 2012, the U.S. Supreme court
held three days of testimony on the constitutionality of two
major provision of the ACA arising out of two cases in the
11th Circuit Court of Appeals, National Federation of
Independent Business v. Sebelius and Florida v. Department of
Health and Human Services. The two provisions are the
individual mandate and the Medicaid expansion. With regard to
the individual mandate, the ACA requires most people to
maintain minimum essential coverage for themselves and their
dependents. The mandate can be satisfied by obtaining coverage
through employer-sponsored insurance, individual insurance
plans, including those offered through the Exchange, a
grandfathered health plan, or government-sponsored coverage.
According to a January 2012 Kaiser Family Foundation brief,
the authors of the ACA believed that without the individual
mandate, the exchanges and private insurance market reforms
would not work effectively due to the adverse selection effect
of healthy people choosing to forego insurance.
If the Court determines that the individual mandate is
unconstitutional, it must also decide whether the mandate is
severable from the rest of the ACA. If it is found to be
unconstitutional and not severable, the entire ACA could be
struck down. The Court could invalidate some provisions of the
law, but would have to determine whether the rest of the law
can function independently of the individual mandate provision
and whether Congress would have enacted the ACA's other
provisions without the mandate. The Court's decision is
expected at the end of June 2012.
5.Related legislation. SB 961 (Hernandez) is identical to this
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bill. SB 961 is pending in the Assembly Health Committee.
SB 951 (Hernandez) and AB 1453 (Monning) would designate the
Kaiser Small Group HMO as California's benchmark plan to serve
as the essential health benefit standard, as required by
federal health care reform. SB 951 is now pending before the
Assembly Health Committee, and AB 1453 is pending before the
Senate Health Committee.
6.Prior legislation. SB 51 (Alquist), Chapter 644, Statutes of
2011, established enforcement authority in California law to
implement provisions of the ACA related to medical loss ratio
requirements on health plans and health insurers and enacted
prohibitions on annual and lifetime benefits.
AB 2244 (Feuer), Chapter 656, Statutes of 2010, requires
guaranteed issue of health plan and health insurance products
for children beginning in January 1, 2011.
SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB 1602
(Perez), Chapter 655, Statutes of 2010, established the
California Health Benefit Exchange.
AB 1X 1 (Nunez) of 2008 would have enacted the Health Care
Security and Cost Reduction Act, a comprehensive health reform
proposal. AB 1X 1 died in the Senate Health Committee.
7.Support. Health Access California (HAC) writes in support
stating this bill will reform California's individual
insurance market to provide guaranteed issue and modified
community rating, as required under federal health reform. HAC
argues whether it is a consumer with a substandard
grandfathered plan or a consumer who is eligible for
subsidies, every consumer should be told that they can change
plans and carriers during open enrollment. The California
Primary Care Association writes that this bill will ensure
state statute reflects the protections provided for in the
ACA. California Pan-Ethnic Health Network writes in support
that the bill will ensure Californians, regardless of health
status, will be able to get the coverage they need.
8.Oppose unless amended. The California Association of Health
Plans (CAHP) and the Association of California Life and Health
Insurance Companies (ACLHIC) are opposed unless amended to
this bill, arguing the bill places some individual market and
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underwriting changes of the ACA into state law without tying
those changes to an individual coverage requirement that was
designed to help mitigate the cost impacts of adverse
selection. CAHP and ACLHIC contend the bill also deviate from
federal law in ways that will make it harder for health plans
and insurers to achieve the affordability goals of the ACA.
CAHP and ACLHIC write that rating based on tobacco use is a
tool that can be used to ensure that health conscious employee
populations are incentivized to purchase coverage. Prohibiting
tobacco use in rate development as allowed under the ACA
forces non-smokers to subsidize the cost of covering higher
risk smokers.
9.Policy comments.
a. Geographic regions. The ACA requires the state to
determine the geographic rating regions. The bill
currently defines geographic regions to be the same as
those used by a health benefit plan or contract entered
into with the Board of Administration of the Public
Employees' Retirement System. Concern has been raised that
this might not be the appropriate definition. The author is
working with stakeholders to create an appropriate
definition for geographic rating regions.
b. Notice to consumers. Pursuant to the ACA, AB 1461 keeps
intact grandfathered plans. However, enrollees of a
grandfathered plan should be notified that they have a
right to obtain different, and perhaps lower costing and
more comprehensive, health coverage. The author may wish to
consider adding a notice requirement to be sent to
enrollees of a grandfathered plan.
SUPPORT AND OPPOSITION :
Support: California Black Health Network
California Chiropractic Association
California Pan-Ethnic Health Network
California Primary Care Association
CALPIRG
Congress of California Seniors
Consumers Union
Health Access California
Managed Risk Medical Insurance Board
The Greenlining Institute
United Nurses Associations of California/Union of
Health Care Professionals
Oppose: Association of California Life and Health Insurance
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Companies
California Association of Health Plans
Blue Shield of California
America's Health Insurance Plans
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