BILL ANALYSIS Ó
------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 1461|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: AB 1461
Author: Monning (D)
Amended: 8/21/12 in Senate
Vote: 21
SENATE HEALTH COMMITTEE : 6-3, 6/27/12
AYES: Hernandez, Alquist, De León, DeSaulnier, Rubio, Wolk
NOES: Harman, Anderson, Blakeslee
SENATE APPROPRIATIONS COMMITTEE : 5-2, 8/16/12
AYES: Kehoe, Alquist, Lieu, Price, Steinberg
NOES: Walters, Dutton
ASSEMBLY FLOOR : 50-27, 5/29/12 - See last page for vote
SUBJECT : Individual health care coverage
SOURCE : Author
DIGEST : This bill makes several changes to the
individual market for health care coverage. In particular,
this bill requires the guaranteed issue of coverage and
prohibits the use of preexisting conditions as a means of
setting rates.
ANALYSIS :
Existing federal law:
1. Establishes the Patient Protection Affordability Care
CONTINUED
AB 1461
Page
2
Act (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 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
CONTINUED
AB 1461
Page
3
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.
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
CONTINUED
AB 1461
Page
4
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 California Health Benefit Exchange (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.
This bill makes several changes to the individual market
for health care coverage. In particular, this bill
requires the guaranteed issue of coverage and prohibits the
use of preexisting conditions as a means of setting rates.
Background
Individual market . California's individual and small group
health insurance markets together currently serve just
fewer than 15% of the state's population, with
approximately two 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 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
CONTINUED
AB 1461
Page
5
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% of medical
expenses, compared to 80 to 90 percent of expenses for
group coverage. Currently purchasers in the individual
market pay 100% 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, three carriers serve over 75% 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.
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).
Additionally, by 2014, either a state will establish
separate exchanges to offer individual and small group
CONTINUED
AB 1461
Page
6
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% 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% of FPL based on modified adjusted gross income rules.
U.S. Supreme Court . In March 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.
CONTINUED
AB 1461
Page
7
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
One-time costs of about $370,000 to DMHC to adopt
regulations, review health plan filings, and respond to
consumer questions (Managed Care Fund).
One-time costs of about $600,000 to CDI to adopt
regulations and review health plan filings (Insurance
Fund). The higher projected costs to CDI reflect the
fact that the changes in this bill will change the
business practices of health insurers more than health
plans. Therefore, there will be greater workload to
adopt regulations and review changes to insurance
policies.
SUPPORT : (Verified 8/23/12)
California Black Health Network
California Chiropractic Association
California Pan-Ethnic Health Network
California Primary Care Association
California Public Interest Research Group
Congress of California Seniors
Consumers Union
Greenlining Institute
Health Access California
Managed Risk Medical Insurance Board
United Nurses Associations of California/Union of Health
Care Professionals
OPPOSITION : (Verified 8/23/12)
America's Health Insurance Plans
Association of California Life and Health Insurance
Companies (unless amended)
Blue Shield of California
California Association of Health Plans (unless amended)
ARGUMENTS IN SUPPORT : Health Access California (HAC)
states that this bill will reform California's individual
insurance market to provide guaranteed issue and modified
CONTINUED
AB 1461
Page
8
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
that the bill will ensure Californians, regardless of
health status, will be able to get the coverage they need.
ARGUMENTS IN OPPOSITION : 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 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.
ASSEMBLY FLOOR : 50-27, 5/29/12
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Brownley, Buchanan,
Butler, Charles Calderon, Campos, Carter, Chesbro, Davis,
Dickinson, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani,
Gatto, Gordon, 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,
Beth Gaines, Garrick, Gorell, Grove, Hagman, Halderman,
Harkey, Jeffries, Jones, Knight, Logue, Mansoor, Miller,
Morrell, Nestande, Nielsen, Norby, Olsen, Silva, Smyth,
CONTINUED
AB 1461
Page
9
Valadao, Wagner
NO VOTE RECORDED: Cedillo, Fletcher, Hall
CTW:m 8/23/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED