BILL ANALYSIS Ó SB 615 Page 1 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. SB 615 Page 2 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 SB 615 Page 3 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 SB 615 Page 4 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 SB 615 Page 5 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 SB 615 Page 6 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. SB 615 Page 7 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: SB 615 Page 8 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