BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1431|
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THIRD READING
Bill No: SB 1431
Author: De León (D)
Amended: 5/1/12
Vote: 21
SENATE HEALTH COMMITTEE : 5-3, 4/25/12
AYES: Hernandez, Alquist, De León, DeSaulnier, Wolk
NOES: Harman, Anderson, Blakeslee
NO VOTE RECORDED: Rubio
SENATE APPROPRIATIONS COMMITTEE : 4-2, 5/14/12
AYES: Kehoe, Alquist, Lieu, Steinberg
NOES: Walters, Dutton
NO VOTE RECORDED: Price
SUBJECT : Stop-loss insurance coverage
SOURCE : Insurance Commissioner Dave Jones
DIGEST : This bill imposes certain requirements on
stop-loss insurance policies used by small employers that
self-insure for employee health benefits.
ANALYSIS :
Existing law:
1. Provides for the regulation of health insurers
(insurers) by the Department of Insurance (CDI) under
the Insurance Code.
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2. Prohibits a person from transacting any class of
insurance business, including health insurance, in this
state without first being an admitted insurer.
3. Prohibits an insurer from issuing any health insurance
policy once CDI notifies the health insurer that the
filed form does not comply with specified requirements.
4. Prohibits a health insurance policy from being issued or
delivered to any person in this state unless specified
requirements have been met, including that a copy of the
form and premium rates are filed with the Commissioner
of CDI.
5. Prohibits a group health plan and a health insurance
issuer offering group or individual health insurance
coverage from imposing any pre-existing condition
exclusion with respect to the plan or coverage
commencing January 1, 2014.
6. Establishes the federal Patient Protection and
Affordable Care Act (PPACA), which imposes various
requirements on states, carriers, employers, and
individuals regarding health care coverage.
7. Establishes and specifies the duties and authority of
the California Health Benefit Exchange (Exchange).
8. Requires carriers that sell any products outside the
Exchange, as a condition of participation in the
Exchange, to fairly and affirmatively offer, market, and
sell all products made available in the Exchange to
individuals and small employers purchasing coverage
outside of the Exchange.
This bill imposes certain requirements on insurance
carriers that provide stop-loss coverage to self-insured
customers with less than 50 employees. Specifically, this
bill:
1. Requires stop-loss carriers to offer coverage to all
employees and dependents of a small employer.
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2. Prohibits the stop-loss carrier from excluding any
employee or dependent based on actual or expected health
factors.
3. Prohibits stop-loss carriers from issuing policies to
self-insured employers with an individual attachment
point below $95,000. This bill also prohibits a policy
with an aggregate attachment point less than $19,000
times the number of covered employees, 120 percent of
covered claims, or $95,000.
Background
Self-insured health plans . Self-insurance is an
arrangement where the employer assumes direct financial
responsibility for the cost of providing health or
disability benefits to employees with its own funds.
Employers sponsoring self-funded plans typically contract
with a third-party administrator or insurer to provide
administrative services for the self-funded plan. The
terms of eligibility and coverage are set forth in a plan
document which includes provisions similar to those found
in a typical group health insurance policy. Such plans'
rights and obligations are governed under the Employee
Retirement Income Security Act of 1974 (ERISA). Under
ERISA, self-funded plans are exempt from state insurance
laws, including reserve requirements, mandated benefits,
premium taxes, and consumer protection regulations. ERISA
plans are also exempt from the PPACA requirements on
establishing essential health benefits. In some cases, the
employer may buy stop-loss coverage from an insurer to
protect the employer against very large claims.
Stop-loss insurance . Stop-loss insurance is sold to
employers that self-insure their employee's health care
coverage to limit the employer's financial exposure.
Stop-loss insurance is available in two forms:
1. Specific stop loss where coverage is initiated when a
claim reaches the threshold selected by the employer.
After the threshold is reached, the stop-loss policy
would pay claims up to the lifetime limit per employee.
2. Aggregate stop loss where coverage is initiated when the
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employer's self-insurance total group health claims
reach a stipulated threshold selected by the employer.
According to the Kaiser Family Foundation's 2011 Annual
Employer Health Benefits Survey, 58% of workers in
self-funded health plans are enrolled in plans covered by
stop-loss insurance. Workers in self-funded plans in small
firms are more likely than workers in self-funded plans in
larger firms to be in a plan with stop-loss protection (72%
compared to 57%). About 81% of workers in self-funded
plans that have stop-loss protection are in plans where the
stop-loss insurance limits the amount the plan spends on
each employee. The report's executive summary states the
average per employee claims cost, at which stop-loss
insurance begins paying benefits, is $78,321 for workers in
small firms (3 to 199) with stop-loss plans, and $208,280
for workers in larger firms with self-funded plans.
According to the California HealthCare Foundation 2011
California Employer Health Benefits Survey, one-third of
Californians were enrolled in a partly or completely
self-insured plan in 2011, which is nearly half of the
national average. Almost 30% of California employers with
a self-insured plan purchased stop-loss insurance in 2011
to protect them against large claims. Large firms were
significantly more likely than small firms to do so (84%
compared to 23%). This bill is limited to small employers
defined in California law as having between two and 50
employees.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
One-time costs up to $80,000 (Insurance Fund) to adopt
regulations.
Minor ongoing costs to enforce the bill's provisions
(Insurance Fund). CDI may face some costs to review
policy filings and respond to customer complaints under
the bill. However, the bill's provisions are likely to
limit the use of stop-loss policies by small employers,
limiting overall enforcement costs.
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SUPPORT : (Verified 5/15/12)
Insurance Commissioner Dave Jones (source)
Blue Shield of California
California Association of Physician Groups
Consumer Federation of America
Health Access California
Kaiser Permanente
SEIU California
OPPOSITION : (Verified 5/15/12)
California Association of Health Underwriters
California Chamber of Commerce
National Federation of Independent Business
Self-Insurance Institute of America, Inc.
Southwest California Legislative Council
ARGUMENTS IN SUPPORT : Insurance Commissioner Dave Jones,
the bill's sponsor, writes that this bill will protect the
state's small businesses from skyrocketing health premiums
by specifying minimum attachment points in stop-loss
insurance policies sold to small employers. Though
self-insurance is more common among large employers, there
are some small employers that make the decision to
self-insure, a decision that involves greater risk since
the health care costs of their employees could end up
costing more than expected. The Commissioner argues that
this bill is necessary to prevent the state's small group
insurance market from falling victim to adverse selection
and unsustainable premium levels and protecting
California's small businesses, its employees, and the
success of the post-PPACA insurance market.
Blue Shield of California writes that by increasing the
minimum attachment point for stop-loss coverage in the
small group market, this bill will send a strong signal to
the market that illusory self-insurance to small groups
will not be permitted. This bill is largely based upon
model legislation from the NAIC, which has been adopted in
some form by 16 states. Blue Shield states they are a
strong supporter of the PPACA and believes the state must
adopt policies that promote the success of the Exchange and
health reform.
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ARGUMENTS IN OPPOSITION : The California Chamber of
Commerce and the National Federation of Independent
Business write that this bill will severely limit small
employers' opportunity to select the most appropriate,
affordable health care coverage to their employees as
self-insurance. They argue that many small businesses in
California struggle to provide health care coverage for
their employees, and it is imperative that affordable
choices are available. Self-insurance combined with
stop-loss coverage for excessive, unexpected claims, offers
an option for some small employers. According to the
opposition, this bill seeks to create an unreasonably high
level at which the stop-loss coverage would apply. The
opposition also cites an August 2011 study by RAND,
"Employer self-insurance decisions and the implications of
the Patient Protection and Affordable Care Act as modified
by the Health Care and Education Reconciliation Act of 2010
(ACA)," which concluded that limiting small employers'
ability to self-insure is associated with a decline in the
total number of individuals enrolled in health insurance
coverage. The RAND model predicts that allowing
self-insurance mitigates this effect, so that total
enrollment is higher in scenarios where self-insurance is
allowed.
CTW:mw 5/15/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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