BILL ANALYSIS                                                                                                                                                                                                    Ó






                             SENATE JUDICIARY COMMITTEE
                             Senator Noreen Evans, Chair
                              2011-2012 Regular Session


          SB 757 (Lieu)
          As Amended April 28, 2011
          Hearing Date: May 3, 2011
          Fiscal: Yes
          Urgency: No
          EDO
                    

                                       SUBJECT
                                           
                                   Discrimination

                                      DESCRIPTION  

          Existing law requires health care service plans, health insurers 
          and all other insurers regulated by the California Department of 
          Insurance to provide coverage to the registered domestic partner 
          of an employee that is equal to the coverage it provides to the 
          spouse of those persons.  Existing law also requires that every 
          policy marketed, issued, or delivered to a resident of this 
          state, regardless of the situs of the contract must comply with 
          the laws of California, but provides for an exemption from this 
          rule for policies which are issued outside of California to an 
          employer whose principal place of business and majority of 
          employees are located outside of California. 

          This bill would require that every policy or certificate for 
          health insurance that is marketed, issued, or delivered to a 
          resident of California, regardless of the situs of the contract 
          or master group policy holder must offer or provide coverage for 
          a registered domestic partner that is equal to the coverage 
          provided to the spouse of an employee, insured, or policyholder.

                                      BACKGROUND  

          In 1993, AB 1100 (Brown, Chapter 1210, Statutes of 1993) and SB 
          590 (Torres, Chapter 1209, Statutes of 1993) passed by the 
          Legislature and signed by the Governor.  These bills were 
          identical.  Both bills required that every policy and 
          certificate for disability insurance be subject to the laws of 
          California. Both bills also exempted policies issued outside of 
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          California to an employer whose principal place of business and 
          majority of employees are outside of California. 

          In 2004, AB 2208 created the California Insurance Equality Act 
          (Kehoe, Chapter 488, Statutes of 2004) which prohibited 
          insurance providers from issuing policies or plans that 
          discriminate against domestic partners and required insurance 
          plans that include coverage of spouses to include the same 
          coverage for domestic partners. 

          The California Department of Insurance (CDI) only has 
          jurisdiction to regulate insurance providers that are licensed 
          with the state.  In order to become licensed with the state, the 
          insurance company must apply for the license with the CDI.  This 
          application is specifically for insurance companies seeking to 
          do business within the State of California.  If a company 
          contracts with an insurance provider that is based in 
          California, or markets to California residents, that insurance 
          provider must abide by California law. 

          There are, however, California residents who are employed by an 
          employer out of state.  The out-of-state employer generally 
          contracts with one insurance company for all of their employees. 
           Presumably, the insurance company is most likely located within 
          the state that the business is incorporated, or the state where 
          most of its employees reside.  In the majority of states, the 
          laws of the state where the insurance company is licensed will 
          dictate.  However, there are currently twelve states that 
          exercise extraterritorial jurisdiction of health insurance law 
          for health insurance policies.  The twelve states are Alaska, 
          Arkansas, Connecticut, Delaware, Indiana, Kansas, Mississippi, 
          Montana, North Carolina, Oklahoma, Utah and Washington.  In 
          these states, health insurers are required to provide benefits 
          consistent with the state law in which an employee resides.   

          This bill would make California one of these extraterritorial 
          states by requiring that every policy or certificate for health 
          insurance that is marketed, issued, or delivered to a resident 
          of California, regardless of the situs of the contract or master 
          group policy holder must offer or provide coverage for a 
          registered domestic partner that is equal to the coverage 
          provided to the spouse of an employee, insured, or policyholder.

                                CHANGES TO EXISTING LAW
           
           Existing law  provides that every policy or certificate of 
                                                                      



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          disability insurance covering hospital, medical, or surgical 
          expenses marketed, issued, or delivered to a resident of this 
          state, regardless of the situs of the contract shall comply with 
          the laws of California. Existing law also provides for an 
          exemption from this rule for policies of disability insurance 
          which are issued outside of California to an employer whose 
          principal place of business and majority of employees are 
          located outside of California. (Ins. Code Sec. 10112.5.)

           Existing law  provides that any policy of group health insurance 
          may not offer or provide coverage for a registered domestic 
          partner that is not equal to the coverage provided to the spouse 
          of an employee, insured, or policyholder. (Ins. Code Sec. 
          10121.7.)

           This bill  would require that every policy or certificate for 
          health insurance that is marketed, issued, or delivered to a 
          resident of California, regardless of the situs of the contract 
          or master group policy holder must offer or provide coverage for 
          a registered domestic partner that is equal to the coverage 
          provided to the spouse of an employee, insured, or policyholder.
                                        COMMENT
           
          1.  Stated need for the bill  
          
          The sponsor, Equality California, writes:
          
            Equality California is proud to sponsor your bill, SB 757, the 
            Insurance Nondiscrimination Act.  This bill would provide that 
            any health insurance policy issued to or intended to cover any 
            person residing in California shall provide coverage for 
            registered domestic partners that is equal to the coverage 
            provided to a spouse and comply with the nondiscrimination 
            requirements of California law. 

            California has established strong laws prohibiting 
            discrimination in the issuance of insurance policies in the 
            state. Existing laws require California-based insurers to 
            provide the same coverage to domestic partners that they 
            provide to spouses.

            SB 757 would clarify that any health care service plan 
            contract, health insurance policy, or any other insurance 
            policy that is issued to or intended to cover any person 
            residing in California must provide coverage for domestic 
            partners that is equal to the coverage provided to a spouse 
                                                                      



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            and comply with all nondiscrimination requirements in 
            California law. While California based insurers must already 
            comply with this requirement, this bill would apply to any 
            out-of-state insurance company providing policies to 
            California residents.

          2.  Out-of-state insurers required to comply with California law  

          Under existing law, if a policy for disability insurance is 
          issued outside of California to an employer whose principal 
          place of business and majority of employees are located outside 
          of California, the CDI does not require those policies to comply 
          with state insurance law.  As a result, the insurers are not 
          required to offer equal coverage for a registered domestic 
          partner that is equal to the coverage provided to the spouse of 
          an employee, as is required of insurance companies licensed in 
          this state.  This bill would require that every health insurance 
          policy that is marketed, issued, or delivered to a resident of 
          California must comply with the California requirement of 
          offering equal coverage for a registered domestic partner as 
          provided to the spouse of an employee. 
          
          The sponsor of this bill, Equality California, notes 
          "multi-state companies that do business in California often 
          contract with out-of-state health insurance companies to provide 
          benefits to employees.  Those employees that live in California 
          and who are in a domestic partnership are often the victims of 
          discrimination because those out-of-state insurers do not 
          provide equal benefits to domestic partners.  Because of this 
          practice, domestic partners and employers are often forced to 
          switch insurers to purchase coverage that treats spouses and 
          domestic partners equally."  This is a potential loop-hole in 
          the law which this bill seeks to fix by requiring that any 
          policy delivered to a resident of this state must comply with 
          California's nondiscrimination laws.  

          In 2003, the Legislature provided that registered domestic 
          partners should have the same rights, protections, and benefits 
          as are granted to spouses. (AB 205 (Goldberg) Chapter 421, 
          Statutes of 2003.)  The following year, the California 
          Legislature enacted the California Insurance Equality Act which 
          required all insurance plans to provide equal coverage to 
          registered domestic partners as to spouses.  (AB 2208 (Kehoe) 
          Chapter 488, Statutes of 2004.)  However, because of the 
          exemption for insurance policies issued outside of California to 
          businesses whose principal place of business and the majority of 
                                                                      



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          its employees reside, the California Insurance Equality Act is 
          unenforceable against these policies. As a result, some 
          residents of California who are in a domestic partnership may be 
          discriminated against in the provision of benefits if they are 
          employed by an out-of-state company who contracts for insurance 
          benefits with another out-of-state company. Rather than allowing 
          companies to profit from this type of discrimination, 
          out-of-state insurers should be held to the same standard as 
          in-state insurers when offering benefits to California 
          residents.  

          3.  Potential enforcement issues  

          Existing law provides for the regulation of insurance companies 
          licensed with the California Department of Insurance (CDI).  If 
          an insurance company is licensed with the state and they are not 
          complying with state law, CDI is authorized to take enforcement 
          action against the insurer, including rescinding their license 
          with the state.  This bill seeks to require out-of-state 
          insurers, not licensed in the state, to comply with California's 
          anti-discrimination laws.  The courts have found that California 
          may constitutionally regulate an out-of-state insurer marketing 
          directly to a California resident (People v. United Nat'l Life 
          Ins. Co. (1967) 66 Cal.2d 577), however regulating an 
          out-of-state insurer who has contracted with an out-of-state 
          company who happens to have employees in California is a novel 
          question.  In response to staff inquires on this issue, the CDI 
          responds with "the Department could bring an injunction against 
          an insurer under ÝInsurance Code Section] 12928.6. . . we 
          estimate about a really small universe of circumstances here." 

          4.  Federal ERISA preemption  

          The Employee Retirement Income Security Act of 1974 (ERISA) is a 
          federal law that, among other things, sets minimum standards for 
          private companies that voluntarily establish health plans. The 
          purpose is to provide protection for individuals in these plans. 
           ERISA does not regulate group insurance established or 
          maintained by government entities. It is estimated that ERISA 
          governs approximately 2.5 million health benefit plans sponsored 
          by private employers nationwide, covering approximately 134 
          million Americans. Section 514 (a) of ERISA specifically 
          provides for preemption of any state law in conflict with the 
          ERISA provision of benefits.  There are two major limitations on 
          state insurance law under ERISA. The first is the "deemer 
          clause" which preempts state law for employer self-funded 
                                                                      



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          benefit plans.  The second limitation relates to the available 
          remedies.  Specifically if state law provides for a remedy that 
          ERISA does not include, the state law is preempted.  Based on 
          this specific preemption this bill may raise questions as to its 
          application to an ERISA-sponsored health insurance plan. 


           Support  :  None Known

           Opposition  :  None Known

                                        HISTORY
           
           Source  :  Equality California

           Related Pending Legislation  : None Known

           Prior Legislation  :  

          AB 2208 (Kehoe, Chapter 488, Statutes of 2004) required a health 
          care service plan and a health insurer to provide coverage to 
          the registered domestic partner of an employee that is equal to 
          the coverage it provides to the spouse of those persons and 
          extended those requirements to all other forms of insurance 
          regulated by the Department of Insurance.

          SB 590 (Torres, Chapter 1209, Statutes of 1993.) See Background. 


          AB 1100 (Brown, Chapter 1210, Statutes of 1993.)  See 
          Background. 

           Prior Vote  :  Senate Committee on Health (Ayes 6, Noes 3) 

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