BILL ANALYSIS Ó
SB 51
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Date of Hearing: July 5, 2011
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 51 (Alquist) - As Amended: June 28, 2011
SENATE VOTE : 25-15
SUBJECT : Health care coverage.
SUMMARY : Establishes enforcement authority in California law to
implement provisions of the federal Patient Protection and
Affordable Care Act (PPACA) related to Medical Loss Ratio (MLR)
requirements on health plan and health insurers and prohibitions
on annual and lifetime benefits. Specifically, this bill :
1)Requires, to the extent required by federal law, every health
plan and health insurer that issues, sells, renews, or offers
contracts or policies for health care coverage to comply with
the annual and lifetime benefit requirements of PPACA and any
rules or regulations issues under that section, in addition to
any state laws or regulations that do not prevent the
application of those requirements.
2)Requires every health plan and health insurer that issues,
sells, renews, or offers health plan contracts or policies for
health care coverage, including a grandfathered health plan or
insurer, but not including specialized health plan contracts
or policies, to provide an annual rebate to each enrollee
under such coverage if the conditions under paragraph 3) below
exist.
3)Requires the rebate, on a pro rata basis, if the ratio of the
amount of premium revenue expended by the health plan or
insurer on the costs for covered clinical services and
activities that improve health care quality to the total
amount of premium revenue, excluding federal and state taxes
and licensing or regulatory fees, and after accounting for
payments or receipts for risk adjustment, risk corridors, and
reinsurance, is less than the following:
a) 85% for a health plan or insurer in the large group
market; or,
b) 80% for a health plan or insurer in the small group or
individual market.
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4)Requires every health plan and health insurer that issues,
sells, renews, or offers health plan contracts or health
insurance policies for health care coverage, including
grandfathered plans, to comply with the following MLRs:
a) 85% for a health plan or health insurer in the large
group market; or,
b) 80% for a health plan or health insurer in the small
group or individual market.
5)Requires the total amount of the annual rebate required under
this bill to be calculated in an amount equal to the product
of the following:
a) The amount by which the percentage described in
paragraph 3) above Ýthe 85% or 80% MLR standard] exceeds
the ratio described in 3) above Ýratio of the amount of
premium spent on health care to total premium, as
specified]; and,
b) The total amount of premium revenue, excluding federal
and state taxes and licensing or regulatory fees and after
accounting for payments or receipts for risk adjustment,
risk corridors, and reinsurance.
6)Requires health plans and health insurers to provide any
rebate owing to an enrollee no later than August 1 of the
calendar year following the year for which the MLR described
in 3) above was calculated.
7)Permits the Director of the Department of Managed Health Care
(DMHC) and the Insurance Commissioner (IC) of the California
Department of Insurance (CDI) to adopt regulations in
accordance with the Administrative Procedure Act that are
necessary to implement the MLR as described in PPACA and any
federal rules or regulations issued under that section.
8)Permits the Director of the DMHC and the IC to also adopt
emergency regulations, as specified, when it is necessary to
address specific conflicts between state and federal law that
prevent implementation of federal law and guidance. Requires
the initial adoption of the emergency regulations to be deemed
an emergency and necessary for the immediate preservation of
the public peace, health, safety, or general welfare.
9)Requires DMHC and CDI to consult with each other in adopting
necessary regulations, and in taking any other action for the
purpose of implementing this bill.
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10)Requires this bill to only be implemented to the extent
required by federal law and to comply with, and not exceed,
the scope of definitions in the federal Public Health Services
Act and the MLR requirements of PPACA, and any rules or
regulations issued under that section.
11)Exempts from the provisions of this bill a specialized health
insurance policy, a health insurance policy offered in the
Medi-Cal program, Healthy Families, California Major Risk
Medical Insurance program, or the Federal Temporary High Risk
Insurance Pool.
EXISTING STATE LAW :
1)Provides for the regulation of health plans by the DMHC under
the Knox-Keene Health Care Service Plan Act of 1975, and for
the regulation of health insurers by the CDI under provisions
of the Insurance Code.
2)Prohibits health plans from expending for administrative costs
in any fiscal year an excessive amount of the aggregate dues,
fees and other periodic payments received by the plan for
providing health care services to its subscribers or
enrollees. Includes in the term "administrative costs," costs
incurred in connection with the solicitation of subscribers or
enrollees for the plan. Permits a plan to expend additional
sums of money for administrative costs provided such money is
not derived from revenue obtained from subscribers or
enrollees of the plan.
3)Requires a health plan contract to provide to subscribers and
enrollees basic health care services, as specified, except
that the DMHC Director may, for good cause, by rule or order
exempt a plan contract or any class of plan contracts from
that requirement. Requires the DMHC Director to define the
scope of each basic health care service that health care
service plans are required to provide as a minimum for
licensure. Provides that a health plan is not prohibited
from charging subscribers or enrollees a copayment or a
deductible for a basic health care service or from setting
forth, by contract, limitations on maximum coverage of basic
health care services, provided that the copayments,
deductibles, or limitations are reported to, and held
unobjectionable by, the DMHC Director.
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4)Requires the IC to, after notice and hearing, withdraw
approval of an individual or mass-marketed policy of
disability insurance if after consideration of all relevant
factors the commissioner finds that the benefits provided
under the policy are unreasonable in relation to the premium
charged. Requires the IC to, from time to time as conditions
warrant, after notice and hearing, promulgate such reasonable
rules and regulations, and amendments and additions thereto,
as are necessary to establish the standard or standards by
which the commissioner shall withdraw approval of any such
policy.
EXISTING STATE REGULATION :
1)Requires an established health plan with more than 15%
administrative costs, or a new health plan with more than 25%
administrative costs to justify the costs to the DMHC Director
or institute procedures to reduce the costs.
2)Requires benefits provided by a hospital, medical or surgical
policy to be deemed to be reasonable in relation to premiums
if the insurer's projected medical loss ratios in the
individual market, calculated using the method described in
the interim final rule, as specified, under PPACA, are not
less than 80%.
EXISTING FEDERAL LAW (PPACA) :
1)Establishes the PPACA which among other provisions includes
requirements on health plans and health insurers to annually
submit to the federal Department of Health and Human Services
(DHHS) ratios of incurred losses to earned premiums or MLRs,
and requires beginning in 2012, health plans and health
insurers offering group or individual health coverage to
provide an annual rebate to enrollees if an MLR is less than
85% for its large group business, or 80% for its small or
individual group business.
2)Permits restricted annual limits on coverage for essential
benefits through 2013, and
prohibits health plans and health insurers from establishing
lifetime or annual limits on the dollar value of benefits that
are not essential benefits, to the extent such limits are
otherwise permitted, for any participant or beneficiary for
any participant or beneficiary starting in 2014.
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3)Permits individuals to retain any group or individual coverage
in which the individual was enrolled on September 23, 2010 in
a "grandfathered plan." Under a grandfathered plan coverage
can be renewed, additional family members can be added and new
employees and their families can be added.
4)Applies some, but not all, provisions of PPACA to
grandfathered health plans and insurers. Subjects
grandfathered health plans and insurers to the prohibition on
lifetime limits, the restrictions on rescission, the
prohibition on excessive waiting periods, the requirement to
cover adult children to age 26, and for employer based
coverage, the prohibition on preexisting condition
restrictions on children and prohibition on restriction of
annual limits. To remain grandfathered, plans cannot make
significant coverage changes that reduce benefits or increase
costs.
5)Defines essential health benefits to include at least
preventive services, primary care, chronic disease management,
emergency care, mental health, prescription drugs, pediatric
care, and other services.
FISCAL EFFECT : According to the Senate Appropriations
Committee, any costs to CDI to implement these provisions would
be minor and absorbable. On January 25, 2011, the Office of
Administrative Law approved emergency regulations promulgated by
CDI that give the Insurance Commissioner the authority to
enforce federal MLR requirements in the individual market; they
expire July 26, 2011, and CDI is in the process of promulgating
non-emergency regulations to meet these requirements. Costs to
DMHC for regulations and for staff actuaries and financial
examiners to ensure that rebates were made annually would be
approximately $445,000 in FY 2011-2012, $750,000 in both FY
2012-2013 and FY 2013-2014, and $900,000 annually ongoing in
special funds.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, as part of
PPACA, the federal government developed MLR for both group and
individual health insurance. Additionally, PPACA stops the
practice of capping annual and lifetime benefits. To
implement fully these patient protections, California needs to
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provide enforcement authority. This bill would provide clear
statutory authority that the state may enforce the MLR, and
removal of the benefit caps. Additionally, this bill provides
DMHC and the CDI limited authority to issue emergency
regulations to respond to changes in federal guidance that
result in specific conflicts between state and federal law
that prevent implementation of federal law.
2)PPACA AND MLR . The PPACA ÝPublic Law (P.L.) 111-148] was
signed into law on March 23, 2010. On March 30, 2010, PPACA
was amended by P.L. 111-152, the Health Care and Education
Reconciliation Act of 2010. In general, P.L. 111-148 and its
amendments are referred to as PPACA. According to a recent
report on insurance regulation and PPACA published by the
California HealthCare Foundation (CHCF), PPACA imposes greater
transparency and accountability on health plans and insurers
by requiring that they publicly report spending of health
insurance premium dollars and meet federal MLR standards.
PPACA requires health plans and insurers that do not meet the
federal MLR standards to provide rebates to enrollees
beginning in 2012. The MLR interim final rule (IFR) issued by
HHS in December 2010 requires health plans and insurers to
submit specified MLR data and information directly to HHS for
products offered by the health plan or insurer, based on
detailed standards recommended by the National Association of
Insurance Commissioners. The DHHS will be responsible for
direct enforcement of the MLR reporting and rebate
requirements. The IFR provides for the imposition of federal
civil monetary penalties if health plans and insurers fail to
comply with the reporting and rebate requirements.
According to the CHCF report, states are permitted to
establish more stringent MLR requirements as long as the state
requires issuers to also submit the MLR data directly to the
state. States can also request the DHHS adjust the MLR
requirement for a specific state if that state determines an
80% MLR will destabilize the state's individual market.
Twelve states and the territory of Guam have requested MLR
adjustments: Maine; New Hampshire; Nevada; Kentucky; Florida;
Georgia; North Dakota; Iowa; Louisiana; Kansas; Delaware; and,
Indiana. DHHS may also accept the findings of audits
conducted by state regulators on the validity and accuracy of
the MLR data health plans and insurers submit.
3)SUPPORT . The CDI is sponsoring this bill to further
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strengthen health insurance rate regulation in California by
expanding the MLR requirements to all health insurance and by
requiring rebates in conformity to current federal law.
According to CDI, this compliance allows consumers with the
benefit of federal MLR from the outset of the rate, rather
than having to wait from eight to 20 months for a premium
refund. The federal law is measured retrospectively on an
annual basis, based solely on actual experience, aggregating
all of a company's policies in a given market segment in a
single MLR figure. CDI states that this bill implements
broader protections to California consumers by conforming
California law to the minimum MLR requirements of federal
health reform. The California Teachers Association and others
support the provisions that require compliance with
prohibitions on annual and lifetime limits on the dollar value
of benefits. Proponents argue that illnesses like cancer can
easily cause individuals to reach such limits.
4)OPPOSITION . America's Health Insurance Plans (AHIP) believes
this bill potentially conflicts with federal law. According
to AHIP, the MLR framework in this bill fails to take into
account the evolving nature of the federal requirements,
potentially creating conflicting frameworks. AHIP states that
the federal definitions, calculations and timelines may change
due to congressional action, litigation or regulatory
reporting changes, and that this bill adds administrative
costs due to increased regulatory burden on California
regulators.
5)RELATED LEGISLATION . AB 52 (Feuer) requires health plans
licensed by DMHC and health insurers certificated by CDI,
effective January 1, 2012, to apply for prior approval of
proposed rate increases, under specified conditions, and
imposes on regulators specific rate review criteria,
timelines, and hearing requirements. AB 52 is pending in the
Senate Health Committee.
6)PREVIOUS LEGISLATION . SB 890 (Alquist) of 2010, among other
things, would have required health plans and health insurers
to meet federal annual and lifetime limits and MLR in
specified provisions of the federal health care reform law,
and any federal rules or regulations issued under those
provisions. SB 890 was vetoed by the Governor.
SB 316 (Alquist) of 2009 would have broadened an existing
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statutory disclosure requirement that health plans and
insurers must meet requiring plans, insurers, their employees
or their agents to disclose in writing the MLR for the
previous calendar year when presenting a plan for examination
or sale to any individual or group consisting of 25 or fewer
individuals. SB 316 was referred to the Assembly Health
Committee, but never scheduled for hearing.
AB 812 (De La Torre) of 2009 would have required health plans
and health insurers to report to DMHC and CDI the MLR for each
policy issued amended or renewed in California each year. AB
812 was held in the Assembly Appropriations Committee.
SB 1440 (Kuehl) of 2008 - Would have required health plans and
health insurers to spend at least 85% of premiums on health
care benefits, a requirement known as MLR. SB 1440 was vetoed
by the Governor.
7)COMMENTS AND QUESTIONS .
a) Recent amendments exempt plans and polices offered in
the Medi-Cal Program, Healthy Families Program, California
Major Risk Medical Insurance Program, or Federal Temporary
High Risk Insurance Pool from this bill. It is unclear if
the private market reforms adopted under PPACA which apply
to products sold to groups (employers) and individuals
include products available through public programs. It
stands to reason that they do not. In at least one section
of the Interim Final Rule there is discussion that earned
premium excludes premium assessments paid to or subsidies
received from Federal and State high risk pools. The
author and sponsors may wish to consider alternative
language that states:
"Nothing in this section shall be construed to apply
to a health care service plan contract or insurance
policy issued, sold, renewed or offered for health
care services or coverage provided to the Medi-Cal
program (Chapter 7 (commencing with Section 14000)
of Part 3 of Division 9 of the Welfare and
Institutions Code), Healthy Families Program (Part
6.2 (commencing with Section 12693) of Division 2 of
the Insurance Code), Access for Infants and Mothers
Program (Part 6.3 (commencing with Section 12695)
of Division 2 of the Insurance Code), the California
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Major Risk Medical Insurance Program (Part 6.5
(commencing with Section 12700) of Division 2 of the
Insurance Code) the Federal Temporary High Risk
Insurance Pool (Part 6.6 (commencing with Section
12739.5) of Division 2 of the Insurance Code) to the
extent consistent with the PPACA."
b) This bill authorizes the Director of DMHC and the IC to
consult with each other in adopting necessary regulations,
and in taking other action for the purpose of implementing
sections of this bill. With two California regulators
overseeing health insurance, despite best efforts, there
will continue to be disparities in enforcement of standards
and rules applied to regulated entities ultimately
affecting the enrollees and insureds they serve. Can
additional steps be taken to ensure consistent enforcement
action between the two departments in the best interest of
Californians?
REGISTERED SUPPORT / OPPOSITION :
Support
California Department of Insurance (sponsor)
American Federation of State, County and Municipal Employees
California Academy of Family Physicians
California Chiropractic Association
California Labor Federation
California Optometric Association
California Retired Teachers Association
California School Employees Association
California Teachers Association
Congress of California Seniors
Consumers Union
Disability Rights Legal Center
Health Access California
Opposition
America's Health Insurance Plans
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097
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