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 (more) SB 757 (Lieu) Page 2 of ? 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 SB 757 (Lieu) Page 3 of ? 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 SB 757 (Lieu) Page 4 of ? 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 SB 757 (Lieu) Page 5 of ? 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 SB 757 (Lieu) Page 6 of ? 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) **************