BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1461|
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THIRD READING
Bill No: AB 1461
Author: Monning (D)
Amended: 8/24/12 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 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.
Senate Floor Amendments of 8/24/12 limit the bill to the
Health and Safety Code provisions; establish geographic
rating regions; prohibit a health care service plan from
acquiring or requesting information related to a health
status factor; and require if the federal Patient
Protection Affordability Care Act (ACA) provisions on
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guarantee issue and rating factors are repealed in the ACA,
these sections in state law would also be repealed.
ANALYSIS :
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 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."
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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.
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
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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 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:
1. Applies its provisions to health plans in the individual
market and exempts grandfathered plans, as defined in
the ACA.
2. Prohibits a health benefit plan 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. Prohibits a provision effective January 1, 2014, that
would have required the rate for any child to be
identical to the standard-risk rate.
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4. Sunsets existing law, on December 31, 2013, related to
rating categories for child coverage.
5. Requires guaranteed issue of individual market health
plans.
6. Requires a plan, on or after January 1, 2014, to fairly
and affirmatively offer, market, and sell all of the
plan'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 to limit enrollment to open enrollment periods and
special enrollment periods, as specified.
7. Requires a plan 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.
8. Requires a plan to allow an individual to enroll in or
change individual health benefit plans, as a result of
the following triggering events:
A. He/she loses minimum essential coverage (MEC), as
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/she gains a dependent or becomes a dependent;
C. He/she is mandated to be covered pursuant to a
valid state or federal court order;
D. He/she is no longer incarcerated;
E. Gains access to new plans as a result of a
permanent move;
F. When an individual is receiving services from a
contracting provider, as specified, and that provider
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is no longer participating in the health plan, or
G. With respect to individual health benefit plans
offered through the Exchange, the individual meets
any of the requirements listed in federal
regulations, as specified.
9. Requires an individual, with respect to individual
health benefit plans offered inside or outside the
Exchange, to have 60 days from the date of a triggering
event identified above to apply for coverage from a
health plan subject to this bill.
10.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.
11.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.
12.Prohibits, on or after January 1, 2014, a health plan
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;
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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 federal regulations, rules, or
guidance, as specified.
13.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.
14.Prohibits a health plan, or solicitor, 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.
15.Prohibits a health plan on or after January 1, 2014,
from not, directly or indirectly, entering into
contracts, agreement, or arrangement with a solicitor
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
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basis of percentage of premium, provided that the
percentage shall not vary because of the health status,
claims experience, industry, occupation, or geographic
area.
16.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, pursuant to age bands established by the U.S.
Secretary and requires them not to vary by more than
three to one for adults.
B. Geographic region. Provide for the geographic
rating regions to be as follows:
(1) Region 1 shall consist of
the counties of Alpine, Del Norte, Siskiyou,
Modoc, Lassen, Shasta, Trinity, Humboldt, Tehama,
Plumas, Nevada, Sierra, Mendocino, Lake, Butte,
Glenn, Sutter, Yuba, Colusa, Amador, Calaveras,
and Tuolumne.
(2) Region 2 shall consist of
the counties of Napa, Sonoma, Solano, and Marin.
(3) Region 3 shall consist of
the counties of Sacramento, Placer, El Dorado, and
Yolo.
(4) Region 4 shall consist of
the county of San Francisco.
(5) Region 5 shall consist of
the county of Contra Costa.
(6) Region 6 shall consist of
the county of Alameda.
(7) Region 7 shall consist of
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the county of Santa Clara.
(8) Region 8 shall consist of
San Mateo County.
(9) Region 9 shall consist of
the counties of Santa Cruz, Monterey, and San
Benito.
(10) Region 10 shall
consist of the counties of San Joaquin,
Stanislaus, Merced, Mariposa, and Tulare
(11) Region 11 shall
consist of the counties of Madera, Fresno, and
Kings.
(12) Region 12 shall
consist of the counties of San Luis Obispo, Santa
Barbara, and Ventura.
(13) Region 13 shall consist of the counties of
Mono, Inyo, and Imperial.
(14) Region 14 shall consist of Kern County.
(15) Region 15 shall consist of the ZIP Codes in
Los Angeles County starting with 906 to 912,
inclusive, 915, 917, 918, and 935.
(16) Region 16 shall consist of the ZIP Codes in
Los Angeles County other than those identified in
subparagraph (xv).
(17) Region 17 shall consist of the counties of
San Bernardino and Riverside.
(18) Region 18 shall consist of the county of
Orange.
(19) Region 19 shall consist of the county of San
Diego.
Authorizes the Department of Managed Health Care,
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in consultation with the Department of Insurance and
the Exchange, to review the geographic rating regions
and submit a report to the Legislature.
C. Whether the health benefit plan covers an
individual or family, as described in the ACA.
17.Requires the rating period for rates not to vary by any
factor not described above.
18.Prohibits a health plan from acquiring or requesting
information that relates to a health status factor from
an applicant or their dependent or any other source
prior to enrollment of the individual.
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
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
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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
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
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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.
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
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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 8/27/12)
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 8/27/12)
America's Health Insurance Plans
Association of California Life and Health Insurance
Companies
Blue Shield of California
California Association of Health Plans
ARGUMENTS IN SUPPORT : Health Access California (HAC)
states that 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
that the bill will ensure Californians, regardless of
health status, will be able to get the coverage they need.
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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,
Valadao, Wagner
NO VOTE RECORDED: Cedillo, Fletcher, Hall
CTW:m 8/27/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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