BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 1846
AUTHOR: Gordon
AMENDED: June 14, 2012
HEARING DATE: June 20, 2012
CONSULTANT: Trueworthy
SUBJECT : Consumer operated and oriented plans.
SUMMARY : Creates the licensing framework under the California
Department of Insurance (CDI) and the Department of Managed
Health Care (DMHC) to establish consumer operated and oriented
plans (CO-OP) which are permitted under the federal Patient
Protection Affordable Care Act (ACA).
Existing federal law:
1.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.
2.Requires, under the ACA, the Secretary of the United States
Department of Health and Human Services (HHS) to establish the
CO-OP program for the purpose of fostering the creation of
qualified nonprofit health insurance issuers to offer
qualified health plans in the individual and small group
markets in the states in which they are licensed to offer
those plans and makes start-up and solvency loans available
for those purposes.
3.Requires, under the ACA, any reference to a Qualified Health
Plan (QHP) to be deemed to include a QHP offered through the
CO-OP program or a multistate plan, unless specifically
provided for otherwise.
Existing state law:
1.Provides for the regulation of health insurers by the CDI
under the Insurance Code and provides for the regulation of
Continued---
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health plans (collectively referred to as carriers) by the
DMHC, pursuant to the Knox-Keene Health Care Service Plan Act
of 1975.
2.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
400 percent of the federal poverty level (FPL), and small
businesses. Requires the use of a competitive process to
select carriers to participate in the Exchange. Establishes a
five-member governing board.
3.Requires the Exchange 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.
4.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.
This bill:
1.Authorizes the director of DMHC to issue a health care service
plan license, and the Insurance Commissioner to issue a
certificate of authority, to a CO-OP that has been organized
as a nonprofit member organization or nonprofit member
corporation or 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.
2.Requires a CO-OP seeking or maintaining a license to be
subject to the same fees that are imposed on other carriers.
3.Requires domestic and foreign CO-OPs to be subject to all
applicable rules and regulations including, but not limited
to, the issuance of a license, the operation and renewal
provisions, and the financial responsibility, and shall be
subject to any state laws.
4.Requires a CO-OP to be subject to the same requirements,
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terms, and conditions as those imposed on other carriers
participating in the Exchange.
5.Authorizes, if a CO-OP is unable to reach agreement with the
Exchange on terms, conditions, or price, the Exchange to
impose terms, conditions, or price on the CO-OP health care
service plan. Permits, if a CO-OP fails to comply with any of
the provisions of its contract with the Exchange, the Exchange
to impose contract sanctions, including monetary penalties.
Allows, to the extent permitted under federal law, the
Exchange to limit enrollment in the CO-OP offered through the
Exchange if the CO-OP fails to comply with Exchange contract
specifications.
6.Authorizes DMHC and CDI to request any documentation relating
to a CO-OP's start-up loan or solvency loan.
7.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.
8.Requires a CO-OP to do all of the following:
a. Implement policies and procedures to foster and ensure
member control of the organization. Requires a CO-OP to
meet the following requirements:
i. The CO-OP shall have governing documents that
incorporate governing rules that ensure that the
directors of the operational board are elected by a
majority vote of a quorum of the CO-OP members;
ii. All members of the CO-OP shall be eligible to
vote for each director on the CO-OP's operational board;
iii. Each member of the CO-OP shall have one vote in
the election of each director of the CO-OP's operational
board;
iv. The first elected directors of the CO-OP's
operational board shall be elected no later than one
year after the effective date on which the CO-OP
provides coverage to its first member; the entire
operational board shall be elected no later than two
years after the same date;
v. Elections of the directors on the CO-OP's
operational board shall be contested so that the total
number of candidates for vacant positions on the
operational board exceeds the number of vacant
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positions, except in cases where a seat is vacated
midterm due to death, resignation, or removal; and
vi. A two-thirds majority of the voting directors on
the operational board shall be members of the CO-OP.
b. Have an operational board of directors that meets the
following requirements:
i. Each director is required to have one vote
unless he or she is a nonvoting director;
ii. Positions on the board of directors are permitted
to be designated for individuals with specialized
expertise, experience, or affiliation and prohibits
those positions from constituting a majority of the
operational board;
iii. Representatives of any federal, state, or local
government, are prohibited from serving on the CO-OP's
formation board or operational board; and
iv. Each member of the formation or operational board
of a CO-OP is required to publicly disclose on the
website of the CO-OP his or her financial interest in
any health-related entity in excess of $1,000,
including, but not limited to, his or her ownership of
stocks or bonds of a health-related entity in excess of
$1,000.
c. Have governing documents that incorporate ethics,
conflict of interest, and disclosure standards. Requires at
a minimum, these standards to include the following:
i. A mechanism to identify potential ethical or
other conflicts of interest;
ii. A duty on the CO-OP's executive officers and
directors to publicly disclose all potential conflicts
of interest pursuant to the same standards required for
state boards or commissions;
iii. A process to determine the extent to which a
conflict exists;
iv. A process to address any conflict of interest;
and
v. A process to be followed in the event a director
or executive officer of the CO-OP violates the standards
described in this paragraph.
9.Requires a CO-OP to at all times be in full compliance with
the requirements of the ACA governing CO-OPs.
10.Authorizes DMHC and CDI to request the federal government's
certification that a CO-OP is in compliance as well as the
status of the CO-OP's compliance with its obligations under
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any loan or loan modification agreement.
11.Authorizes DMHC and CDI to develop regulations to implement
this bill.
12.Establishes definitions including that a CO-OP means a
nonprofit member organization or corporation consistent with
the ACA and remains in full compliance of the ACA
requirements.
13.Makes legislative findings and declarations including that a
CO-OP be subject to all state requirements applicable to
health insurers, that a CO-OP adhere to the standards of the
Exchange and be subject to the Exchange's selective
contracting requirements and that all insureds in a CO-OP be
afforded the consumer protections available to other
individuals covered by health insurance.
FISCAL EFFECT : According to the Assembly Appropriations
Committee analysis, CDI and DMHC will incur one-time
administrative costs, likely in the range of $100,000 (special
fund) to promulgate regulations, review federal requirements,
and establish policies and procedures specific to CO-OP
licensure. CDI and DMHC will also experience ongoing oversight
costs to the extent more CO-OPs become licensed. Most of this
workload would be required in absence of this bill if either
department received an application for licensure from a CO-OP.
By clarifying CO-OP licensure rules, this bill may streamline
the licensure process and avoid administrative costs related to
legal questions that may otherwise arise.
PRIOR VOTES :
Assembly Health: 13- 6
Assembly Appropriations:12- 5
Assembly Floor: 51- 26
COMMENTS :
1.Author's statement. The ACA anticipates the establishment of
consumer driven health coverage. Specifically, the ACA
describes CO-OPs and provides for the licensing of at least
one CO-OP in each state as a health insurer or Health
Maintenance Organization.
CO-OPs are a new type of health issuer that is directed by its
customers, uses profits for its customers' benefit, and is
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intended to offer individuals and small businesses affordable,
customer-friendly, high-quality health insurance options.
California currently lacks the necessary statutory framework
for the licensing and regulating of CO-OPs. AB 1846 clarifies
the CO-OP licensure rules, and streamlines the licensure
process. This bill would define a CO-OP as a non-profit,
member-run health plan that would be licensed under California
law to offer qualified health plans in the individual and
small group market. AB 1846 would also require CO-OPs to be
subject to the same requirements as other carriers that
contract with the state's Health Benefit Exchange.
2.CO-OPs. Beginning in 2014, the ACA creates a new CO-OP
program, which will allow new nonprofit, member-run health
cooperatives to be eligible for grants and loans. 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. To date, a total
of 12 non-profits offering coverage in 12 states have been
awarded $982,472,104.
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 HHS 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.
Under the ACA CO-OPs:
a. Must 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. Must have 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. Have its governance subject to majority vote of its
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membership;
g. Must operate with strong consumer focus and
accountability to members in accordance with regulations to
be promulgated by the federal Secretary;
h. Use profits to lower premiums, improve benefits, or
other programs to improve quality of care;
i. Must meet all licensure and solvency requirements, rules
on payment to providers, network adequacy standards, rate
and form filing rules and any other applicable state law;
and,
j. Must 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.
3.Double referral. This bill was heard in the Senate Insurance
Committee on June 13, 2012, and passed with a 5-3 vote.
4.Related legislation. SB 951 (Hernandez) selects the Kaiser
Small Group HMO as California's benchmark plan to define
essential health benefits (EHB). The Kaiser Small Group HMO
covers all state mandates and will ensure the state does not
defray additional costs. SB 951 is currently pending before
the Assembly Health Committee.
AB 1453 (Monning) selects the Kaiser Small Group HMO as
California's benchmark plan to define EHB. The Kaiser Small
Group HMO covers all state mandates and will ensure the state
does not defray additional costs. AB 1453 is currently pending
before the Senate Health Committee.
5.Prior legislation. SB 900 (Alquist) of 2010, Chapter 659, and
AB 1602 (Perez) of 2010, Chapter 655, established the
Exchange.
6.Support. CDI, the sponsor of this bill, writes that AB 1846
helps give options and resources to California consumers.
CO-OPs provide value to consumers by returning surplus revenue
to members in the form of lower premiums, lower cost sharing,
or expanded benefits. Furthermore, CO-OPs provide a
critically important opportunity to inject new choices into
the individual and small group insurance markets. Such
competition can and should help bring down prices, generate
competition based on quality and value, and encourage
innovation in provider reimbursement strategies.
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7.Support with amendments. Health Access California (HAC)
writes that that the idea behind the CO-OP was that in many
states, there is a single dominant insurer. For example, in
Maine, prior to various reforms that included the creation of
a public option, a single insurer had over 90 percent of the
market. This is also true in many other small states. However,
it is not true in California where there are five or more
carriers in both the individual and small group market. A
CO-OP is not necessary to create a minimum level of market
competition in California: that already exists. If CO-OPs are
allowed to be licensed in California at all, protections are
needed to assure that CO-OPs play on a level playing field
rather with an unfair advantage. HAC believes many of the
amendments taken to date provide many of those protections but
continue to seek further amendments to assure that any CO-OP
licensed in California meets high standards. HAC argues AB
1846 should add further specificity to the requirements of
federal law with respect to conflict of interest for the board
of directors and senior management of the CO-OP.
8.Policy comment. 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 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.
9.Amendments.
a. The author may wish to add conflict of interest language
requirements for the board of directors and senior
management of the CO-OP and may wish to also require public
disclosure of financial interests the board of directors
and senior management of the CO-OP.
b. The author may wish to update the Legislative intent
language to reflect the addition of DMHC licensed plans to
the provisions of this bill.
SUPPORT AND OPPOSITION :
Support: California Department of Insurance (sponsor)
Hacia Salud Health Insurance CO-OP
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Oppose: None received.
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