BILL ANALYSIS Ó SENATE COMMITTEE ON HEALTH Senator Ed Hernandez, O.D., Chair BILL NO: SB 615 AUTHOR: Calderon AMENDED: August 6, 2012 HEARING DATE: August 15, 2012 CONSULTANT: Trueworthy PURSUANT TO SENATE RULE 29.10 SUBJECT : Multiple employer welfare arrangements: benefits. SUMMARY : Prohibits a multiple employer welfare arrangement (MEWA) from offering, marketing, representing, or selling any product, contract, or discount arrangement as minimum essential coverage or as compliant with the essential health benefits (EHBs) unless it meets the applicable requirements of minimum essential coverage or EHBs. Existing law: 1.Establishes the Patient Protection Affordability Care Act (ACA), which imposes various requirements, some of which take effect on January 1, 2014, on states, carriers, employers, and individuals regarding health care coverage. 2.Requires, under the ACA, carriers that offer coverage in the small group or individual market to ensure coverage includes EHBs, as defined. Provides that the EHB package will be determined by the federal Department of Health and Human Services Secretary and must include, at a minimum, ambulatory patient services, emergency services, hospitalizations, and prescription drugs, among other things. 3.Provides for regulation of health insurers by the California Department of Insurance (CDI) and designates limited authority to regulate MEWA to CDI, under the Insurance Code. 4.Prohibits a self-funded or partially self-funded MEWA from providing any benefits for any resident of this state without obtaining a certificate of compliance from the Insurance Commissioner. 5.Establishes various eligibility requirements on MEWAs in order to obtain a certificate of compliance, including that it be a nonprofit corporation, that it be established and maintained Continued--- SB 615 | Page 2 by a specified association with at least 200 paid members, and that benefits be offered only to association members. 6.Limits self-funded MEWAs to provide certain benefits which include medical, dental, and surgical benefits. 7.Requires a MEWA to offer health care coverage benefits to any newly eligible person and his or her dependents under terms and conditions no less favorable than those offered to the MEWA employers' existing employees and their dependents under specified circumstances. This bill: Prohibits a MEWA from offering, marketing, representing, or selling any product, contract, or discount arrangement as minimum essential coverage or as compliant with the EHBs unless it meets the applicable requirements of minimum essential coverage or EHBs. FISCAL EFFECT : This bill is keyed non-fiscal. PRIOR VOTES : Assembly Floor: 76- 1. Other votes not relevant. COMMENTS : 1.Author's statement. Self-funded or partially self-funded MEWAs may lawfully offer health plans that do not meet ACA standards for essential health benefits and minimum essential coverage. SB 615 ensures that the information provided about those plans accurately reflects whether they comply or do not comply with those standards. SB 615 is designed to avoid confusion that might arise as to whether health benefits offered through a MEWA meet federal health care reform standards. Self-funded or partially self-funded MEWAs, established under ERISA, are not required to provide EHBs or qualify as meeting minimum essential coverage as defined under the ACA. Some plans will likely meet those standards voluntarily while others might not. SB 615 sets minimum labeling and marketing standards related to whether MEWA plans offer EHB or qualify as minimum essential coverage. 2.MEWAs. 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 SB 615 | Page 3 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 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. MEWAs are subject to California's small group laws such as guaranteed access, renewability, and rate standards. According to CDI, MEWAs, compared to other insurers, have lower required surplus; no risk-based capital requirements; no guaranty fund coverage; and no premium tax. MEWA rates are filed with CDI for informational purposes. There are 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. 3.ACA. The ACA requires an individual and his or her dependents to have minimum essential coverage or pay a penalty, unless certain specified exemptions apply. The ACA requires employers with over 50 employees to provide minimum essential coverage and may assess penalties if an employee obtains a tax credit through a health benefit exchange. The ACA also establishes minimum EHBs to be covered by small group and individual plans both inside and outside a health benefit exchange. Because MEWAs are a form of an employee welfare benefit plan, which are a group health plan, they cannot be insurance issuers subject to the EHB requirements under federal law and MEWAs are not subject to the small group requirement of covering the EHBs. 4.Related legislation. SB 951 (Hernandez) and AB 1453 (Monning) SB 615 | Page 4 would designate the Kaiser Small Group HMO as California's benchmark plan to serve as the EHB benchmark standard. SB 951 is now pending before the Assembly Appropriations Committee, and AB 1453 is pending before the Senate Appropriations Committee. SB 961 (Hernandez) and AB 1461 (Monning) reform California's individual market. B 961 is pending before the Assembly Appropriations Committee, and AB 1461 is pending before the Senate Appropriations Committee. 5.Prior legislation. 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. 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. 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. SB 1880 (Machado), Chapter 357, Statutes of 2002, makes permanent the original MEWA regulatory program in 2002. SB 1465 (Machado), Chapter 317, Statutes of 1999, extends the sunset date to December 31, 2004, and requires CDI to evaluate and report on MEWAs. SB 1430 (Johnston), Chapter 1082, Statutes of 1994, requires MEWAs to obtain a certificate of compliance from CDI by December 1, 1995, authorizes CDI to set fiscal solvency standards, and 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. 6.Support. The California Association of Small Employer Health Plans supports SB 615 writing that MEWAs are exempt from the essential health provisions of the ACA and because there may SB 615 | Page 5 be tax consequences and/or subsidies available for these individuals and entities, it is important that employer members of MEWAs be notified whether health plans offered by these trusts meet the federal minimum EHBs. The Printing Industries of California write in support that SB 615 will insure the ability of MEWAs in the state to continue to serve workers in the printing industry as they believe they will meet the requirements set forth in the ACA. SUPPORT AND OPPOSITION : Support: California Association of Small Employer Health Plans Printing Industries of California Oppose: None received. -- END --