BILL ANALYSIS Ó
SB 51
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Date of Hearing: August 17, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 51 (Alquist) - As Amended: July 11, 2011
Policy Committee: HealthVote:13-6
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill codifies several health insurance market reforms
enacted by the federal Patient Protection and Affordable Care
Act (PPACA) (PL-111-148). Specifically, this bill:
1)Requires health plans and insurers (carriers) to comply with
annual and lifetime benefit limits.
2)Requires carriers to meet medical loss ratios (MLR).
Specifically, it requires carriers to spend a minimum
percentage of the premiums collected on patient care and
quality improvement activities (80% in individual and small
group health insurance markets, and 85% in the large group
market).
3)Requires, if MLR percentages are not met, rebates be issued to
policy holders on a pro rata basis.
4)Authorizes the Insurance Commissioner and the Department of
Managed Health Care (DMHC) to adopt regulations to implement
the measure, and allows emergency regulations if necessary to
address conflicts with federal rules. It also requires DMHC
and the Department of Insurance (CDI) to consult each other in
adopting necessary regulations and implementing the bill's
provisions.
5)Exempts public plans and specialized health plans (such as
dental and vision plans).
FISCAL EFFECT
1)One-time fee-supported (health plan fees) special fund costs
SB 51
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of $40,000 to DMHC to ensure plan compliance with the filing
requirements and to adopt regulations. CDI has already
promulgated time-limited emergency regulations and is in the
process of adopting regulations. Detailed rules implementing
federal MLR provisions have also been released by the federal
Department of Health and Human Services (DHHS).
2)CDI and DMHC will experience enforcements costs to review
financial statements, expand or conduct new audits, and
enforce rebate provisions. Costs to CDI are likely to be
minor and absorbable based on the department's existing
capacity to conduct similar reviews and audits. As this bill
will require DMHC to expand actuarial and financial review
capacity, DMHC will costs are likely to be in the range of
$200,000 to $600,000 in special fund costs annually.
3)The fiscal impact of MLR enforcement is uncertain. The actual
costs would depend upon plan compliance with the measure,
whether plans are meeting MLR requirements or must issue
rebates, and the extent to which there is disagreement between
carriers and regulators over the details of the calculations,
including actuarial assumptions and the allocation of costs to
the appropriate categories.
COMMENTS
1)Rationale . This bill is sponsored by the California Department
of Insurance (CDI) to provide state health insurance
regulators authority to enforce two provisions of federal law:
the repeal of annual/lifetime benefits limits and the
imposition of an MLR. The requirements in this bill largely
mirror federal law, but the bill provides more specificity
about when rebates are to be issued and provides explicit
statutory authority state enforcement.
2)Medical loss ratio (MLR) . MLR refers to the ratio of medical
benefits to premiums. This ratio gives some indication of what
percentage of premiums are spent on patient care as opposed to
administration, overhead and profit. A higher MLR is
considered more efficient. Federal rules regarding details of
the MLR calculations were released in December 2010. These
rules address the reporting of data with respect to the MLR
calculations, allocation of costs to various categories,
calculation of MLR, details about the rebate process, and
enforcement, including the imposition of civil penalties.
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3)Enforcement of MLR . This bill provides CDI and DMHC specific
authority to enforce the MLR provisions of federal law,
pursuant to federal rules. Traditionally, state agencies have
retained regulatory purview over health insurance.
Notwithstanding this well-established state role, the PPACA
gives the federal DHHS authority to enforce MLR provisions,
including reporting of data, calculation of and compliance
with MLR percentages, and payment of rebates. However, the
federal rules described above also provide DHHS the ability to
accept the finding of state audits in lieu of carrying out
direct enforcement activities.
4)Related Legislation . AB 52 (Feuer) requires health plans to
apply for prior approval of proposed rate increases. AB 52 is
pending in the Senate Appropriations Committee.
5)Previous Legislation . SB 890 (Alquist) in 2010, in its final
form, was substantially similar to SB 51. SB 890 was vetoed.
The governor indicated the bill was premature and would result
in unnecessary disclosure requirements that would change again
in 2014. This concern does not appear to apply to SB 51, as
federal regulations were released late last year.
Analysis Prepared by : Lisa Murawski / APPR. / (916) 319-2081