BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 51|
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UNFINISHED BUSINESS
Bill No: SB 51
Author: Alquist (D)
Amended: 9/1/11
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
SENATE FLOOR : 25-15, 6/1/11
AYES: Alquist, Calderon, Corbett, Correa, De León,
DeSaulnier, Evans, Hancock, Hernandez, Kehoe, Leno, Lieu,
Liu, Lowenthal, Negrete McLeod, Padilla, Pavley, Price,
Rubio, Simitian, Steinberg, Vargas, Wolk, Wright, Yee
NOES: Anderson, Berryhill, Blakeslee, Cannella, Dutton,
Emmerson, Fuller, Gaines, Harman, Huff, La Malfa, Runner,
Strickland, Walters, Wyland
ASSEMBLY FLOOR : Not available
SUBJECT : Health care coverage
SOURCE : Department of Insurance
DIGEST : This bill establishes enforcement authority in
California law to implement provisions of the federal
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Patient Protection and Affordable Care Act related to
Medical Loss Ratio (MLR) requirements on health plans and
health insurers and prohibitions on annual and lifetime
benefits.
Assembly Amendments (1) exclude specialized health plan
contracts or policies that are issued, sold, renewed, or
offered for health care services or coverage provided in
the Medi-Cal program from specified provisions of this
bill, and (2) provide that nothing in this bill's Health
and Safety Code provisions relating to MLR be construed to
apply to provisions of the Knox Keene Health Care Service
Plan Act of 1975 pertaining to financial statements,
assets, liabilities, and other accounting items, as
specified.
ANALYSIS :
Existing federal law:
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 Department of Insurance (CDI).
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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 Insurance Commissioner (IC) to withdraw
approval of an individual or mass-marketed health
insurance policy if the IC finds that the benefits
provided under the policy are unreasonable in relation
to the premiums charged, as specified.
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 certain conditions exist, relating to the
following MLRs:
A. 85 percent for a health plan or health insurer in
the large group market; or,
B. 80 percent for a health plan or health insurer in
the small group or individual market.
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3. Permits the Director of the DMHC (Director) and the IC
of the 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.
4. Permits the Director 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.
5. 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.
6. 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.
7. Requires that nothing in this bill's Health and Safety
Code provisions relating to MLR be construed to apply to
provisions of the Knox Keene Health Care Service Plan
Act of 1975 pertaining to financial statements, assets,
liabilities, and other accounting items, as specified.
Background
MLR . 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
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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 . 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.
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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 IC 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
According to the Assembly Appropriations Committee:
1. One-time fee-supported (health plan fees) special fund
costs 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 HHS Services.
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
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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.
SUPPORT : (Verified 9/8/11)
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 Public Interest Research Group
California Teachers Association
Children Now
Children's Defense Fund California
Children's Partnership
Congress of California Seniors
Consumers Union
Greenlining Institute
Health Access California
PICO California
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 IC 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.
Writing in support, the California Labor Federation argues
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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.
CTW:kc 9/8/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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