BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 615
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          Date of Hearing:  July 3, 2012

                            ASSEMBLY COMMITTEE ON HEALTH
                              William W. Monning, Chair
                    SB 615 (Calderon) - As Amended:  June 18, 2012

           SENATE VOTE :  Not relevant.
           
          SUBJECT  :  Multiple employer welfare arrangements: benefits.

           SUMMARY  :  Prohibits multiple employer welfare arrangements 
          (MEWAs) from offering, issuing, selling, or renewing health care 
          coverage benefits unless the MEWA discloses whether the benefits 
          constitute minimum essential coverage (MEC) as defined by the 
          federal Patient Protection and Affordable Care Act (ACA).  
          Specifically,  this bill  :  

          1)States that the federal ACA enacted various health care 
            coverage market reforms that become operative on January 1, 
            2014, and it is the intent of the Legislature to encourage 
            MEWAs regulated by this article to provide certain essential 
            health benefits (EHBs) to the extent not inconsistent with 
            Employee Retirement Income Security Act of 1974 (ERISA).

          2)Prohibits, notwithstanding any other provision of law, 
            commencing January 1, 2014, a MEWA from offering, issuing, 
            selling, or renewing health care coverage benefits unless the 
            MEWA discloses in all marketing materials and solicitations 
            whether the benefits constitute MEC, as defined in the ACA.

           EXISTING LAW  :  

          1)Establishes, pursuant to federal law, ERISA, which sets 
            minimum standards for most voluntarily established pension and 
            health plans in private industry to provide protection for 
            individuals in these plans.  Prevents under ERISA states from 
            regulating employer health benefits directly but does allow 
            states to regulate health insurance purchased by employers. 

          2)Provides for, pursuant to ERISA, the formation of MEWAs as an 
            alternative to health insurance programs, health maintenance 
            organizations (HMOs), and preferred provider organizations 
            (PPOs), and allows states to establish regulations and fiscal 
            standards for MEWAs, as long as those rules are not 
            inconsistent with ERISA.








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          3)Limits states in their ability to regulate anything but the 
            reserve and contribution levels of fully insured plans, but 
            allows states to subject self-funded and partially-self funded 
            MEWAs to all state insurance laws not inconsistent with ERISA.

          4)Provides for the regulation of health insurers by the 
            California Department of Insurance (CDI), and confers limited 
            authority to regulate MEWAs on CDI, under provisions of the 
            Insurance Code.

          5)Requires, under the ACA, a health insurance issuer that offers 
            health insurance coverage in the individual or small group 
            market to ensure that such coverage includes the EHB package, 
            as specified, and that include at least the following 
            categories:

             a)   Ambulatory patient services;
             b)   Emergency services;
             c)   Hospitalization;
             d)   Maternity and newborn care;
             e)   Mental health and substance use disorder services, 
               including behavioral health treatment;
             f)   Prescription drugs;
             g)   Rehabilitative and habilitative services and devices;
             h)   Laboratory services;
             i)   Preventive and wellness services and chronic disease 
               management; and,
             j)   Pediatric services, including oral and vision care.

          6)Requires, under the ACA, employers with at least 50 full-time 
            equivalent employees who do not offer MEC, and who have at 
            least one employee receiving a premium tax credit or cost 
            sharing subsidy in an exchange to pay a penalty of $2,000 
            annually times the number of full-time employees minus 30.  
            The penalty increases each year by the growth in insurance 
            premiums.  If the employer does not offer coverage to his or 
            her workers that pays for at least 60% of covered health care 
            expenses and the employee chooses to buy coverage in a health 
            benefit exchange, or, if any employees have to pay more than 
            9.5% of family income for the employer coverage, and the 
            employee receives a premium tax credit, the employer must pay 
            a penalty of $3,000 annually for each full-time employee who 
            receives a tax credit, up to a maximum of $2,000 times the 
            number of full-time employees minus 30.  The penalty is 








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            increased each year by the growth in insurance premiums.

          7)Requires, under the ACA, individuals and their dependents to 
            maintain MEC or pay a penalty, unless the individuals and 
            their dependents are eligible for exemptions, including:  
            religious conscience, not lawfully present, incarcerated, 
            cannot afford coverage, have income below the tax filing 
            threshold, are members of Indian tribes, or are subject to 
            hardships, as specified.

          8)Defines, under the ACA, MEC as coverage under government 
            sponsored programs, employer-sponsored plans, plans in the 
            individual market, grandfathered plans, and other coverage 
            such as state health benefits risk pool.

          FISCAL EFFECT  :  None

           COMMENTS  :

           1)PURPOSE OF THIS BILL .  The author writes that current state 
            law does not address whether MEWAs must offer health plans 
            that cover EHBs.  In fact, the ACA exempted self-funded or 
            partially self-funded ERISA plans such as MEWA trusts.  As 
            such, unless there is an obligation to disclose whether the 
            health plans offered by MEWAs cover MEC, employers who are 
            members of the MEWAs and who purchase health care benefits 
            from the MEWA will not be aware of whether the health plan 
            meets the MEC pursuant to the ACA.  This bill seeks to 
            establish disclosure requirements on California regulated 
            MEWAs associated with MEC and EHBs.   
           
           2)MEWAs  .  According to a July 2003 California HealthCare 
            Foundation (CHCF) report, self-insured MEWAs were authorized 
            in 1995 in California.  A MEWA is a type of group purchasing 
            arrangement for small businesses, self-employed individuals, 
            and people with seasonal jobs, such as agricultural workers.  
            The law allows only MEWAs that filed an application by 
            November 1995 to be eligible for licensing, which means no new 
            MEWAs can be licensed in California.  MEWAs provide an 
            alternative to traditional coverage by allowing employers to 
            band together in order to purchase health insurance or 
            self-insure health benefits.  Some MEWAs provide coverage to 
            people who might otherwise not have access to health 
            insurance.  For example in the agriculture industry workers 
            tend to be seasonal and part-time and work in rural areas 








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            where managed care plans are less dominant.  Plan coverage in 
            the traditional employer market is typically available for 
            full-time employees, not seasonal workers.  

          Some MEWAs that self-insure collect premiums from enrollees for 
            a special trust account established to pay medical claims.  
            Fully insured MEWAs contract with insurance companies or 
            health plans to provide benefits.  Self-insured MEWAs avoid 
            premium taxes paid by commercial insurers and are subject to 
            less stringent solvency requirements.   Self-insured MEWAs 
            provide a range of benefit packages.  Employers can choose to 
            offer more comprehensive coverage to management and more basic 
            plans to low-wage workers.  The ability to offer low-cost 
            options allows low-wage workers to obtain coverage with 
            employers covering 100% of the premium.  CDI regulates both 
            licensed MEWAs and their coverage.  Most, but not all, 
            consumer protections that apply to enrollees in fully insured 
            products also apply to MEWA enrollees.  MEWAs are subject to 
            California's small group laws such as guaranteed access, 
            renewability, and rate standards.  

            According to the CDI, MEWAs, compared to other insurers have 
            lower required surplus; no Risked Based Capital requirements; 
            no guaranty fund coverage; and no premium tax. However, MEWAs 
            must have stop loss insurance and are statutorily presumed to 
            be subject to all insurance statutes, but that is a rebuttable 
            presumption for laws that are applicable and not inconsistent 
            with ERISA or the code. In addition, pursuant to current law, 
            MEWA rates are filed with the CDI for informational purposes.  
            According to the California Association of Small Employer 
            Health Plans (CASEHP), there are only four MEWAs operating in 
            California: Printing Industry Association of Southern 
            California Trust; Western Growers of California Trust; 
            California Society of Certified Public Accountants Trust; and, 
            United Agribusiness League Trust.  The CHCF report indicates 
            that all three of the four MEWAs are both self and fully 
            insured in some geographic areas, depending on the needs of 
            their membership and the availability of policies from 
            insurers.   Coverage offered through self-insured MEWAs is 
            priced to compete with carriers when options are available.  
                
            3)ACA  .  The ACA requires an individual and his or her dependents 
            to have MEC or pay a penalty unless certain exemptions apply.  
            The ACA requires employers with over 50 employees to provide 
            MEC and may assess penalties if an employee obtains a tax 








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            credit through a health benefit exchange.  The ACA also 
            establishes minimum EHBs, which are health care benefits that 
            are required to be covered by small group and individual (not 
            grandfathered) plans both inside and outside a health benefit 
            exchange.  According to the sponsor a fully insured MEWA is 
            not subject to ACA market reforms (no pre-existing condition 
            exclusions, no annual or lifetime limits, dependent coverage, 
            preventive services, etc.,) but the coverage purchased from 
            the health insurance issuer is subject to the market reforms 
            of the ACA including the requirement to cover EHBs in the 
            individual and small group markets.  The sponsor indicates 
            that self-funded or partially self-funded MEWAs that are also 
            employee welfare benefit plans are subject to the ACA market 
            reforms as a group health plan but are not required to cover 
            EHBs.  Additionally, self-funded or partially funded MEWAs 
            that are not employee welfare benefit plans are subject to the 
            ACA market reforms as a health insurance issuer and must 
            provide EHBs in the individual and small group markets.  The 
            CDI agrees.  According to CDI, the EHB statute at 42 USC 
            300gg-6 states: "A health insurance issuer that offers health 
            insurance coverage in the individual or small group market 
            shall ensure that such coverage includes the essential health 
            benefits package required under section 1302(a) of the Patient 
            Protection and Affordable Care Act Ý42 USCS § 18022(a)]." 
            MEWAs are not "health insurance issuers." Section 
            2791(b)(1)-(2) of the PHSA defines insurance coverage as 
            coverage "offered by a health insurance issuer" and that same 
            section states that a health insurance issuer "does not 
            include a group health plan." (2791(b)(1)-(2).) Under 2791(a) 
            a group health plan is an employee welfare benefit plan as 
            defined under ERISA. Under ERISA MEWAs are a form of employee 
            welfare benefit plan (29 USC 1002(40).)  In addition, the 
            Insurance Code states that "A multiple employer welfare 
            arrangement shall comply with the criteria set forth for an 
            employee welfare benefit plan in order to qualify for a 
            certificate of compliance." Therefore, since MEWAs are a form 
            of employee welfare benefit plan, which are a group health 
            plan, they cannot be insurance issuers subject to the EHB 
            requirements under federal law. MEWAs are not subject to the 
            small group requirement of covering the EHBs only.  

           4)EHB  .  On December 16, 2011, the federal Department of Health 
            and Human Services Center for Consumer Information and 
            Insurance Oversight released an EHB Bulletin proposing that 
            EHBs be defined using a benchmark approach.  This gives states 








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            the flexibility to select a benchmark plan that reflects the 
            scope of services offered by a "typical employer plan."  If a 
            state does not choose a benchmark health plan, the default 
            benchmark plan for the state would be the largest plan by 
            enrollment in the largest product in the small group market, 
            which is also the Kaiser HMO.  EHBs must include coverage of 
            services and items in all 10 statutory categories, but states 
            can choose among the following benchmark health insurance 
            plans:
             a)   One of the three largest small group plans in the state 
               by enrollment, in California these options are Anthem PPO 
               licensed by CDI, Kaiser HMO licensed by the Department of 
               Managed Health Care (DMHC), or Anthem PPO licensed by DMHC;

             b)   One of the three largest state employee health plans by 
               enrollment, in California these options are the California 
               Public Employees' Retirement System (CalPERS) Blue Shield 
               Basic HMO, CalPERS Choice, or CalPERS Kaiser HMO; 

             c)   One of the three largest federal employee health plan 
               options by enrollment, which are Government Employee Health 
               Association, Blue Cross Blue Shield (BCBS) Basic, or BCBS 
               Standard; or,

             d)   The largest HMO plan offered in the state's commercial 
               market by enrollment, which is the Kaiser Large Group 
               Commercial HMO.  

           5)SUPPORT  .  This bill is sponsored by CASEHP, which is an 
            association of California MEWAs.  According to CASEHP, 
            together those ERISA trust plans provide health care benefits 
            to over 100,000 employees and their dependents.  Members of 
            the CASEHP have provided health care benefits to their 
            employer members for several decades.  As such, it is 
            important to their continued operation to be transparent by 
            providing full disclosure of whether health care benefits 
            provided by these trusts meet the coverage requirement of the 
            ACA.  
           6)RELATED LEGISLATION  .  

             a)   SB 951 (Ed Hernandez) selects the Kaiser Small Group HMO 
               as California's benchmark plan to serve as the EHB 
               standard, as required by federal law.  SB 951 is pending 
               before the Assembly Health Committee.









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             b)   AB 1453 (Monning) selects the Kaiser Small Group HMO as 
               California's benchmark plan to serve as the EHB standard, 
               as required by federal law.  AB 1453 is pending in the 
               Senate Appropriations Committee.  SB 951 and AB 1453 are 
               companion measures.

           7)PREVIOUS LEGISLATION  .  

             a)   SB 1430 (Johnston), Chapter 1082, Statutes of 1994, 
               requires MEWAs to obtain a certificate of compliance from 
               CDI by December 1, 1995, and authorizes CDI to set fiscal 
               solvency standards, imposes upon MEWAs the same mandated 
               benefits imposed upon health insurers.  SB 1430 also limits 
               MEWAs to covering only employers in a similar trade, 
               profession, or industrial association.  

             b)   SB 1465 (Machado), Chapter 317, Statutes of 1999, 
               extends the sunset to December 31, 2004 and requires CDI to 
               evaluate and report on MEWAs.  

             c)   SB 1880 (Machado), Chapter 357, Statutes of 2002, made 
               permanent the original MEWA regulatory program in 2002.

             d)   SB 212 (Machado), Chapter 320, Statutes of 2003, 
               authorizes MEWAs to utilize mutual funds to invest excess 
               funds.  The intent of SB 212 was to allow MEWAs to earn a 
               higher return on investments but to limit mutual fund 
               investing to excess funds.  

             e)   AB 493 (Frommer), Chapter 218, Statutes of 2005, allows 
               for limited investment by MEWAs, using specified limited 
               proportions of MEWA assets, in bond mutual funds subject to 
               strict criteria.

             f)   AB 1188 (Coto), Chapter 428, Statutes of 2008, 
               authorizes a self-funded or partially self-funded MEWA to 
               use the excess assets of the MEWA to purchase an office 
               building or buildings that are used for its principal 
               operations and business, as specified.

           1)SUGGESTED AMENDMENTS  .  To address the sponsor's intent the 
            committee may wish to suggest amendments to delete confusing 
            intent language and replace section 742.40 (c) with the 
            following:









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               Commencing January 1, 2014, a multiple employer welfare 
               arrangement shall not offer, market, represent or sell 
               any product, contract or discount arrangement as minimum 
               essential coverage or as compliant with the essential 
               health benefits requirement in federal law, unless it 
               meets those requirements of the Patient Protection and 
               Affordable Care Act.

           


          REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Association of Small Employer Health Plans (sponsor)
           
            Opposition 
           
          None on file.

           Analysis Prepared by  :    Teri Boughton / HEALTH / (916) 319-2097