BILL ANALYSIS Ó AB 1846 Page 1 Date of Hearing: April 24, 2012 ASSEMBLY COMMITTEE ON HEALTH William W. Monning, Chair AB 1846 (Gordon) - As Amended: March 29, 2012 SUBJECT : Consumer operated and oriented plans. SUMMARY : Establishes a licensing framework at the California Department of Insurance (CDI) for Consumer Operated and Oriented Plans (CO-OPs), which may be established and seeks funding under the Patient Protection and Affordable Care Act (ACA). Specifically, this bill : 1)Requires the CDI Commissioner (IC) to have the authority to issue a certificate of authority to a CO-OP that has been organized as a nonprofit member organization or nonprofit member corporation under the laws of this state. 2)Permits the IC to also issue a certificate of authority to a foreign CO-OP that has been organized as a nonprofit member organization or nonprofit member corporation under the laws of another state, provided that the entity meets the requirements governing CO-OPs under the ACA and this bill. Requires a CO-OP seeking or maintaining a certificate of authority pursuant to this bill to be subject to the same fees that are imposed on mutual insurers. 3)Requires a domestic or foreign insurer admitted as a CO-OP insurer to be subject to the same "paid-in-capital" or "capital paid-in" requirements as are imposed on domestic and foreign mutual insurers pursuant to existing law, as specified. 4)Requires a domestic or foreign insurer admitted as a CO-OP insurer to be subject to all of the provisions of this bill and all applicable rules and regulations of the IC, including but not limited to, the general provisions governing issuance of a certificate of authority, as specified, of the examination provisions, as specified, of the risk based capital requirements, as specified, and the financial statement of filing requirements, as specified. Requires the provisions of this bill and the rules and regulations of the IC to be construed in consideration of the fundamental nature of a CO-OP insurer. Requires, in the event of any direct conflict in provisions, the provisions of this bill to AB 1846 Page 2 prevail. 5)Requires a solvency loan obtained by a CO-OP to be treated as a surplus and not to be subject to the same requirements as are imposed on mutual insurers, as specified. Permits the IC to request any documentation relating to a CO-OP's start-up loan or solvency loan. 6)Requires a CO-OP to be subject to the same securities permit requirements that are imposed upon mutual insurers, as specified; but, requires the IC to have the authority to waive the requirements, as specified, upon a determination that they are not applicable following a full review of the CO-OP's plan of operations and any other documents as requested by the IC prior to the admission of the CO-OP. 7)Requires specified provisions to apply to any insurer admitted as a CO-OP insurer; however any loans received by the CO-OP in the form of a solvency or start-up loan shall not be construed as any form of subsidy, ownership, or financial control of the CO-OP insurer within the meaning of existing law. 8)Requires a CO-OP to be subject at all times to the prohibitions in the ACA against converting or selling to a for-profit or nonconsumer-operated entity at any time after receiving a solvency loan. Requires a CO-OP to not undertake any transaction that would result in the CO-OP implementing a governance structure that does not meet the standards contained in ACA. Requires any violations of these prohibitions to constitute grounds for revocation of the CO-OP insurer's certificate of authority, in addition to any other grounds in this bill for revocation of the certificate. 9)Makes a CO-OP insurer insolvent if its surplus becomes less than the amount of paid-in capital required of a capital stock company to qualify to transact the class of disability and health insurance. States that the conservation and liquidation provisions of existing law, as specified, shall apply to CO-OP insurers. 10) States that in addition to any applicable requirements in this bill for maintaining a certificate of authority, a CO-OP is required at all times to be in full compliance with the requirements of the ACA governing CO-OPs. 11) Authorizes the IC to request the federal AB 1846 Page 3 government's certification that a CO-OP is in compliance with the requirements of the ACA governing CO-OPs, as well as the status of the CO-OPs compliance with its obligations under any loan or loan modification agreement. 12) Authorizes CDI to adopt regulations implementing this bill pursuant to the Administrative Procedure Act, as specified. 13) Establishes several definitions including that a CO-OP means a nonprofit member organization or nonprofit member corporation that has been established consistent with the requirements of the ACA and implementing regulations and remains in full compliance with those requirements. EXISTING LAW : 1)Licenses and regulates health care service plans at the Department of Managed Health Care (DMHC) and disability insurers, including health insurance, at the CDI. 2)Establishes the ACA, which among other provisions, imposes new requirements on individuals, employers, and health insurance issuers; restructures the private health insurance market; sets minimum standards for health coverage; provides financial assistance to certain individuals, and small employers; and authorizes states to establish health benefit exchanges for individuals and small business to compare health insurance products and purchase policies from among four categories: Bronze, Silver, Gold, and Platinum, and for some purchasers, obtain subsidies and tax credits. 3)Establishes, under the ACA, the CO-OP program to foster the creation of qualified nonprofit health insurance issuers to offer qualified health plans (QHP) in the individual and small group market in the states in which the issuers are licensed to offer such plans. 4)Requires, under the ACA, any reference to a QHP to be deemed to include a QHP offered through the CO-OP program or a multistate plan, unless specifically provided for otherwise. 5)Establishes the California Health Benefit Exchange (Exchange) as an independent public entity to purchase health insurance on behalf of Californians, including those with income up to AB 1846 Page 4 400% of the federal poverty level (FPL), and small businesses. Establishes a five member governing board. 6)Requires the Exchange board to determine the minimum requirements a carrier must meet to be considered for participation in the Exchange, and the standards and criteria for selecting QHPs to be offered through the Exchange that are in the best interest of qualified individuals and qualified small employers. 7)Requires the Exchange board to consistently and uniformly apply these requirements, standards, and criteria to all carriers. Requires the board, in the course of selectively contracting for health care coverage through the Exchange, to seek to contract with carriers so as to provide health care coverage choices that offer optimal combination of choice, value, quality, and service. FISCAL EFFECT : This bill has not yet been analyzed by a fiscal committee. COMMENTS : 1)PURPOSE OF THIS BILL . According to the author, the ACA (Section 1322) anticipates the licensing of at least one CO-OP in each state as a health issuer (either as an insurer or a health maintenance organization (HMO)). The author states that those seeking to form a CO-OP may apply for $3.8 billion in federal funds in 2011-12 and are expected to be up and running in time to offer insurance products in the Exchange by October 2013. Since there is no current statutory framework, this bill would establish a licensing framework for CO-OPs which would allow California entities to participate in the program and receive federal funding. The author contends that this program is not self-executing, and therefore requires enabling legislation. It is the author's intent that CDI be given the authority to regulate the operations of the CO-OP once it is up and running. 2)BACKGROUND . The ACA (Public Law (P.L.) 111-148) was signed into law on March 23, 2010. On March 30, 2010, ACA was amended by P.L. 111-152, the Health Care and Education Reconciliation Act of 2010, to impose new requirements on individuals, employers, and health plans; restructure the private health insurance market; set minimum standards for health coverage; and, provide financial assistance to certain AB 1846 Page 5 individuals and, in some cases, small employers. The ACA requires individuals, beginning in 2014, to maintain health insurance, with some exceptions. The ACA enables and supports the creation of state health benefit exchanges. An exchange will provide eligible individuals and small businesses with access to insurance in a comparable way. The exchanges will include private health plans and multi-state plans. The ACA also creates a new CO-OP program, which will allow new nonprofit, member-run health insurance companies to be eligible for grants and loans. 3)CO-OPs . As part of the CO-OP program, the federal government will make $6 billion available to foster the creation of new nonprofit, member-run health insurance issuers that will offer qualified insurance in the individual and small group markets. The funds will be distributed as loans, which may be repaid, for start-up costs and grants for meeting solvency requirements. Priority for the funds will go to applicants that offer a QHP on a statewide basis that uses an integrated care model, and has significant private support. The federal Secretary of Health and Human Services (Secretary) will ensure that there is sufficient funding to establish at least one nonprofit issuer in each state. However if no one applies to be a CO-OP within a state, the Secretary may use amounts appropriated under the ACA for the awarding of grants to encourage the establishment of a CO-OP or the expansion of a CO-OP from another state. The federal law requires the following of CO-OPs: a) Be a nonprofit, member corporation under state law; b) Not be an existing organization, affiliate, or successor organization that provides insurance as of July 16, 2009; c) Substantially all of its activities must consist of issuing QHPs; d) Not be sponsored by a state, county, or local government or any government instrumentality; e) Incorporate ethics and conflict of interest standards protecting against insurance industry involvement; f) Governance subject to majority vote of its membership; g) Operated with strong consumer focus and accountability to members in accordance with regulations to be promulgated by the federal Secretary; h) Profits used to lower premiums, improve benefits, or other programs to improve quality of care; i) Meet all licensure and solvency requirements, rules on payment to providers, network adequacy standards, rate and AB 1846 Page 6 form filing rules and any other applicable state law; and, j) Coordinate with state insurance reforms by not offering a health plan in the state until that state has in effect the market reforms required under the law. There is at least one (and perhaps a few more) applications pending for CO-OP funding for California entities. 4)SUPPORT . According to the CDI, this bill would establish a framework for health CO-OPs to mirror what currently exists in the Insurance Code for mutual insurers and incorporate provisions unique to the CO-OP framework established by the ACA, including guidelines for formation, consumer governance, incorporation of a unique form of capitalization which relies on solvency loans from the federal government, and participation in the Exchange. CDI indicates that this bill would allow CO-OPs to become eligible for federal funding. To date more than ten states have received funds for CO-OPs located within their boundaries, including states such as New York and Oregon. The California Asian Pacific Chamber of Commerce believes the type of competition created by CO-OPs should and would be based on quality and value, and ultimately brings down prices for the policyholder. The Small Business Majority supports this bill because entrepreneurs are looking for innovative approaches to lower their health care costs while providing their workers with meaningful coverage. The Small Business Majority believes CO-OPs are a promising component of the ACA and that California law lacks a clear statutory framework for licensing CO-OPs. 5)OPPOSITION UNLESS AMENDED . Health Access California believes CO-OPs will undercut the effectiveness of the Exchange because federal law requires a state exchange to contract with a CO-OP and because, in California, the Exchange has been given authority to selectively contract with QHPs. Health Access fears the Exchange will not have bargaining power and consumers will be harmed if the Exchange cannot negotiate with CO-OPs on cost and quality. Health Access also raises questions about why this bill is needed, and if the Health and Safety Code should be included to allow CO-OP licensure as an HMO. Health Access doesn't believe a state must have a CO-OP. Health Access points out that a CO-OP is not an alternative to the public option and that CO-OPs are an alternative that violate many of the fundamental premises of the public option supported by consumer advocates. Health Access suggests the following concepts be considered in possible amendments, if AB 1846 Page 7 this legislation moves forward: a) Impose the same requirements on CO-OPs as other "participating carriers" that contract with Exchange, specifically Sections 100503, 100504, and 100505 of the Government Code. b) If a CO-OP refuses to accept any of the requirements of the Exchange or the CO-OP fails to offer a bid competitive with the bids offered by other participating carriers, the Exchange may impose on the CO-OP the same price, requirements, terms, conditions, and any other element of the contract imposed on other participating carriers. c) Require that the members of the CO-OP be the individual consumers rather than employers. d) Determine if the CO-OP should be a mutual benefit corporation under the Corporations Code in which the policyholders are the shareholders. California law allows three types of non-profit corporations: nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations. Nonprofit public benefit corporations include many hospitals and educational institutions. Some insurers are mutual benefit corporations in which the policyholders are the shareholders. e) Require a vote of the members to elect the CO-OP board. f) Prohibit any individual with financial interest in or income from an insurer, health plan or Multiple Employer Welfare Arrangement. g) Public disclosure of financial interests similar to what is required for state boards and commissions: this is more limited than disclosure required of legislators and elected officials because it is limited to financial interests relevant to the pertinent board or commission. h) Codify in California law all of the requirements of federal law. i) Apply to Health and Safety Code as well the Insurance Code. j) Require network adequacy standards that are in the Health and Safety Code and require medical surveys of network adequacy every three years. aa) Access to out-of-network specialists at the same cost sharing as in-network if the network does not include the appropriate specialist. bb) Access to out-of-network emergency care with no balance billing. AB 1846 Page 8 6)PREVIOUS LEGISLATION . a) AB 1602 (John a. Pérez), Chapter 655, Statutes of 2010, establishes the Exchange as an independent public entity to purchase health insurance on behalf of Californians, including those with incomes of between 100% and 400% FPL, and small businesses. Clarifies the powers and duties of the board governing the Exchange relative to the administration of the Exchange, determining eligibility and enrollment in the Exchange, and arranging for coverage under qualified carriers. b) SB 900 (Alquist), Chapter 659, Statues of 2010, establishes the Exchange and requires the Exchange to be governed by a five-member board, as specified. 7)AUTHOR'S AMENDMENTS . The author intends to request the committee adopt amendments to include the following intent language: It is the intent of the Legislature to ensure that all insureds in any Consumer Operated and Oriented Plan (CO-OP) be afforded the numerous consumer protections available to all other individuals covered by health insurance. It is the intent of the Legislature that any CO-OP operated in California be subject to all state requirements applicable to health insurers, including but not limited to, certificates of authority, state reserve, risk based capital requirements, and financial statement filings. It is the intent of the Legislature that before any CO-OP may offer any qualified health plan through the California Health Benefit Exchange that CO-OP must adhere to any California-specific standards established by the California Health Benefit Exchange. It is the intent of the Legislature that a CO-OP must be subject to the California Health Benefit Exchange's selective contracting requirements, including rate negotiations. The Legislature intends and declares that a CO-OP must comply with the same State and Federal standards as other health insurers. 8)POLICY QUESTIONS . a) Does California need to develop a statutory framework for CO-OPs? If a CO-OP is to be licensed to provide health insurance or act as a health care service plan in California, existing licensing structures are already in AB 1846 Page 9 place and it is unnecessary to establish a separate framework. If however, the state wishes to develop standards for CO-OPs beyond standard licensure for health insurers and health plans to put federal CO-OP standards in California law or to establish additional state standards, then legislation would be necessary to do this. This appears to be the sponsor's and author's intent with this bill. b) Should the Health and Safety Code also be amended to incorporate federal CO-OP standards or additional state standards for CO-OP entities wishing to be licensed as health plans? The committee may wish to request the author include amendments to this bill that would apply to DMHC licensed plans as well. REGISTERED SUPPORT / OPPOSITION : Support California Department of Insurance (sponsor) California Asian Pacific Chamber of Commerce Small Business Majority Oppose Unless Amended Health Access California Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097