BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 51|
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THIRD READING
Bill No: SB 51
Author: Alquist (D)
Amended: 5/31/11
Vote: 21
SENATE HEALTH COMMITTEE : 6-3, 4/27/11
AYES: Hernandez, Alquist, De León, DeSaulnier, Rubio, Wolk
NOES: Strickland, Anderson, Blakeslee
SENATE APPROPRIATIONS COMMITTEE : 6-3, 5/26/11
AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
NOES: Walters, Emmerson, Runner
SUBJECT : Health care coverage
SOURCE : California Department of Insurance
DIGEST : This bill requires health plans and health
insurers to meet federal annual and lifetime limits and
medical loss ratio (MLR) requirements in specified
provisions of the federal health care reform law, as
specified, and authorizes the Director of the Department of
Managed Health Care (Director) and the Insurance
Commissioner (Commissioner) to promulgate regulations and
emergency regulations to implement requirements relating to
MLRs, as specified.
ANALYSIS :
Existing federal law:
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1. Prohibits, under the Patient Protection and Affordable
Care Act (Public Law 111 - 148) (PPACA), health care
services plans (HCSP) and health insurers offering group
or individual health insurance coverage from
establishing lifetime limits or unreasonable annual
limits on the dollar value of benefits for any
subscriber, enrollee or insured, as specified.
2. Requires, under PPACA, beginning not later than January
1, 2011, HCSP and insurers offering group or individual
health insurance coverage to provide an annual rebate to
each enrollee if the ratio of the amount of premium
revenue spent on clinical services and health quality
improvement activities to the total amount of premium
revenue for the plan year (MLR) is less than 85 percent
for group coverage and 80 percent for individual
coverage, as specified.
Existing state law:
1. Provides for the regulation of HCSP by the Department of
Managed Health Care (DMHC), and for the regulation of
health insurers by the California Department of
Insurance (CDI).
2. Prohibits a health plan from expending an excessive
amount of the payments received for providing health
care services to subscribers and enrollees for
administrative costs, as defined.
3. Limits administrative costs for HCSP regulated by DMHC
to 15 percent and establishes a minimum MLR for
CDI-regulated health insurers for specified individual
indemnity dental and vision policies at 50 percent, and
a minimum MLR for individual health insurance, excluding
indemnity payout policies, at 70 percent.
4. Requires the Commissioner to withdraw approval of an
individual or mass-marketed health insurance policy if
the Commissioner finds that the benefits provided under
the policy are unreasonable in relation to the premiums
charged, as specified.
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This bill:
1. Requires a health plan or insurer that issues, sells,
renews, or offers contracts for health care coverage to
meet federal annual and lifetime limits in a specified
provision of PPACA, and any federal rules or regulations
issued under that section, to the extent required by
federal law.
2. Requires HCSP and health insurers to meet any state laws
or regulations that do not prevent the application of
those federal annual and lifetime limit provisions, to
the extent required by federal law.
3. Requires every health plan and insurer, including
grandfathered HCSP or insurers (which are group or
individual health plan contracts or insurance policies
in effect as of March 23, 2010), to comply with the
following minimum MLRs:
85 percent for large group products.
80 percent for small group and individual market
products.
4. Requires every health plan and insurer, including
grandfathered HCSP or insurers, who do not meet or
exceed the annual MLR, to provide an annual rebate to
each enrollee or insured, as specified.
5. Establishes a methodology for the calculation of annual
rebates, and requires that a health plan or insurer
provide any rebate owing to an enrollee no later than
August 1 of the year following the year in which the
premium rate was in effect.
6. Authorizes the Director to promulgate regulations
regarding compliance with the provisions of this bill.
7. Requires DMHC and CDI to consult with each other in the
adoption of regulations, and in taking any action
related to implementation of this bill.
Background
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Medical loss ratio:
The amount of money that a health plan or health insurer
spends on medical care versus administrative expenses and
profit, is referred to in the health care industry as a
medical loss ratio, or a minimum loss ratio. California
law does not currently prescribe specific MLR requirements,
with the exception of individual health insurance policies.
The CDI sets a standard of "reasonableness" for the ratio
of medical benefits to the premium charged for individual
health insurance at 70 percent for new insurance policies
submitted after July 1, 2007, and for existing policies
that file rate increases.
For plans regulated by DMHC, existing regulations require
the administrative costs incurred by a health plan to be
reasonable and necessary, taking into consideration such
factors as the plan's stage of development. If the
administrative costs of an established health plan exceed
15 percent, or if the administrative costs of a plan in the
development phase exceed 25 percent, the plan is required
to demonstrate to the Director, if called upon to do so,
that its administrative costs are not excessive and are
justified under the circumstances, and/or that it has
instituted procedures to reduce administrative costs.
MLR requirements in federal health care reform:
PPACA requires HCSP and insurers offering coverage in the
large group market to meet a MLR of 85 percent, and HCSP
and insurers offering coverage in the small group market or
in the individual market to meet a MLR of 80 percent, or
such higher percentage as a state may by regulation
determine. In addition, the federal Secretary of Health
and Human Services (HHS) may adjust the MLR with respect to
a state for the individual market, if the Secretary
determines that the application of the 80 percent MLR may
destabilize the individual market in such state. The
federal law requires HCSP and insurers to provide annual
rebates on a pro rata basis if the plan does not meet or
exceeds the MLR requirement.
Federal guidance on MLR calculations:
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PPACA directed the National Association of Insurance
Commissioners (NAIC) to establish uniform definitions and
methodologies for the purposes of calculating the MLR by
December 31, 2010, for consideration by the federal
Secretary of HHS. The NAIC released such regulations in
October 2010, which were adopted by the federal Secretary
of HHS in November 2010 through interim federal guidance.
The guidance outlined disclosure and reporting
requirements, how insurance companies calculate MLR and
provide rebates, and how adjustments could be made to the
MLR standard to guard against market destabilization. It
also specified the types of services, fees and other
spending that health insurers may be able to count as
medical expenses under the new MLR requirements. Since
significant reforms will be implemented in 2014 that impact
MLR calculations, including reinsurance, risk corridors,
and risk adjustment, the federal guidance only addresses
years 2011 through 2013.
The Secretary of HHS also released a letter in September
2010, which specified that limited-scope vision and dental
coverage (also referred to in California law as specialized
HCSP and insurance products) are considered to be "excepted
benefits," and that the federal HHS does not intend to use
its resources to enforce PPACA provisions with respect to
those plans. It also stated that states have primary
enforcement authority regarding such plans.
State actions:
On January 25, 2011, the Office of Administrative Law
approved emergency regulations promulgated by CDI, giving
the Insurance Commissioner the authority to enforce MLR
requirements in the individual market established under
PPACA. These emergency regulations expire July 26, 2011.
In addition to the emergency regulations, CDI is also
pursuing regulations related to implementing federal MLR
requirements.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 5/27/11)
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California Department of Insurance (source)
American Federation of State, County and Municipal
Employees
California Academy of Family Physicians
California Children's Health Initiatives
California Communities United Institute
California Labor Federation
California Teachers Association
CALPIRG
Children Now
Children's Defense Fund California
Children's Partnership
Congress of California Seniors
Consumers Union
Greenlining Institute
Health Access California
PICO California
OPPOSITION : (Verified 5/27/11)
America's Health Insurance Plans
Anthem Blue Cross
Association of California Life and Health Insurance
Companies
California Association of Health Plans
Health Net
ARGUMENTS IN SUPPORT : CDI, the sponsor of this bill,
states that this bill incorporates the federal loss ratio
requirements into California law so that CDI can enforce
these additional requirements. The Commissioner asserts
that MLR minimum requirements are a way to ensure that
policyholders receive value for their premium dollars. By
implementing broader protections to California consumers by
conforming state law to federal health care reform, this
bill helps make vital health care coverage more available
to Californians.
Health Access California argues that this bill is a
dramatic improvement over earlier California law which
allowed CDI-regulated insurance products to cover as little
as 70 percent of the estimated lifetime medical costs, well
below a 70 percent annual MLR.
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Writing in support, the California Labor Federation argues
that the health insurance industry has seen record profits,
while skyrocketing health care costs have hurt workers,
employers and public health, and individuals and employers
struggle to afford coverage. The California Labor
Federation also cites a recent federal report that found
health insurance industry profits increased by 250 percent
between 2000 and 2009, 10 times faster than inflation, and
that the five largest health insurance companies took in
combined profits of $12.2 billion in 2009, up 56 percent
over 2008.
ARGUMENTS IN OPPOSITION : The California Association of
Health Plans (CAHP) opposes this bill, arguing that the
bill potentially conflicts with evolving federal
requirements. CAHP argues that, while the federal interim
final rules contain an extensive framework for the
calculation of MLRs and the requirements to issue enrollee
rebates, the federal requirements will continue to evolve
over the following months as interim final rules issued by
federal regulators are refined. CAHP asserts that it makes
little sense to require plans and carriers answer to both
state and federal regulators on the same matter of public
policy, and that any state bill instituting federal MLR
standards should be consistent with federal law and
regulations with respect to the process and timelines
associated with delivery of rebates.
The Association of California Life and Health Insurance
Companies (ACLHIC) points out that the bill uses undefined
concepts, such as "activities that improve health care
quality," and contains no guarantee that these concepts
would mirror the definitions in the final federal
regulations. ACLHIC further points out that the rebate due
date is confusing and creates a discrepancy between federal
reporting/rebating timeframes and the state proposed
timeframe.
CTW:kc 5/27/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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