BILL ANALYSIS Ó
SB 1431
Page 1
SENATE THIRD READING
SB 1431 (De León)
As Amended August 21, 2012
Majority vote
SENATE VOTE :24-13
HEALTH 13-5 APPROPRIATIONS 12-5
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|Ayes:|Monning, Ammiano, Atkins, |Ayes:|Gatto, Blumenfield, |
| |Bonilla, Eng, Gordon, | |Bradford, |
| |Hayashi, | |Charles Calderon, Campos, |
| |Roger Hernández, Bonnie | |Davis, Fuentes, Hall, |
| |Lowenthal, Mitchell, Pan, | |Hill, Cedillo, Mitchell, |
| |V. Manuel Pérez, Williams | |Solorio |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Logue, Garrick, Mansoor, |Nays:|Harkey, Donnelly, |
| |Nestande, Silva | |Nielsen, Norby, Wagner |
| | | | |
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SUMMARY : Sets the stop-loss insurance attachment point for
small employers on policies issued on or after January 1, 2012,
at $45,000 for individuals and the greater of $15,000 times the
total number of covered employees and dependents, 130% of
expected claims, or $60,000. Specifically, this bill :
1)Requires a stop-loss insurer to offer coverage for all
employees and dependents of employees of a small employer and
not exclude any employee or dependent on the basis of actual
or expected health status-related factor (including but not
limited to: health status, medical condition, including both
physical and mental illnesses, claims experience, medical
history, receipt of health care, genetic information,
disability, evidence of insurability, including conditions
arising out of acts of domestic violence, or any other health
status-related factor as determined by the California
Department of Insurance (CDI)).
2)Requires a stop-loss insurer to renew, at the option of the
small employer, all stop-loss policies written, issued,
administered, or renewed on the effective date of this bill
except for cases of nonpayment, fraud, intentional
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misrepresentation, financial impairment, or the carrier ceases
to write, issue, or administer new stop-loss insurance
policies in this state, as specified.
3)Prohibits stop-loss insurance policies issued on or after
January 1, 2012, to a small employer from containing any of
the following provisions:
a) An individual attachment point for a policy year that is
lower than $45,000;
b) An aggregate attachment point for a policy year that is
lower than the greater of one of the following:
i) $15,000 times the total number of covered employees
and dependents;
ii) 130% of expected claims; or,
iii) $ 60,000.
c) A provision for direct coverage of an employee's health
claims.
4)Authorizes the Insurance Commissioner (IC) to adopt
regulations as may be necessary to carry out the purposes of
this bill, and requires the IC to comply with specified
administrative procedures.
5)Requires a stop-loss insurer that violates the provisions of
this bill to be subject to the remedies and administrative
penalties pertaining to other carriers, as specified.
Requires all fine and penalty moneys received to be deposited
in the General Fund.
6)Provides that a stop-loss insurance policy issued to a small
employer prior to January 1, 2012, or that is subsequently
renewed without decrease in the attachment point or other
substantial amendments, is exempt from this bill.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)Potential minor costs, in the range of $25,000 (Insurance
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Fund) to CDI if regulations are necessary.
2)By increasing the amount of risk a business must bear in order
to self-insure, this bill is likely to reduce the number of
new businesses choosing to self-insure, compared to the status
quo. Depending on the dynamics of the marketplace over the
next several years, how much this bill impacts the
marketplace, and what would have happened in its absence, this
bill could have countervailing effects as follows:
a) Some increase in Medi-Cal costs is possible if more
individuals become Medi-Cal eligible as a result of small
employers dropping coverage given this bill's new
requirements for stop-loss coverage;
b) This bill could potentially mitigate future increases in
the number of individuals that become Medi-Cal eligible by
reducing premiums in the California Health Benefit
(Exchange), thereby encouraging more employers to offer
coverage through the Exchange; and,
c) This bill may reduce losses in state premium tax
collection that may otherwise occur under the status quo,
if a significant number of small businesses choose to leave
the insured market and instead self-insure in absence of
this bill.
Given difficulty in predicting how small businesses would
respond to the particular attachment point required by the
bill, it is difficult to estimate the magnitude and direction
of any state fiscal impact.
COMMENTS : According to this bill's sponsor, CDI, as federal
health care reform goes into full effect, there will be
incentives for some small employers to self-insure and to
purchase stop-loss coverage. This situation could lead to a
significant exodus of small employers from the small group
insurance market, specifically those employers with young and
healthy employees. If this occurs, adverse selection could
leave a majority of the state's small businesses in a small
group insurance pool increasingly subject to skyrocketing
premiums. Even those that self-insure and buy a stop-loss
product may soon end up in this pool if the stop-loss carrier
decides to drop them.
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Without this bill, small group insurance premiums could rise to
unsustainable levels both inside and outside the Exchange.
Stop-loss insurers would continue to consider health status and
medical history in offering its products, cherry-picking which
small businesses to sell to and even which individuals to
exclude within a small group. According to CDI, this bill is
necessary to prevent the state's small group insurance market
from falling victim to adverse selection and unsustainable
premium levels, protecting California's small businesses, its
employees, and the success of the post Patient Protection and
Affordable Care Act insurance market.
It is unclear what impact recent amendments may have had on
support and opposition to this bill. Prior to the recent
amendments, Kaiser Permanente, Blue Shield of California, the
Small Business Majority, the Bay Area Council, Consumer
Federation of America, and others have expressed support for
this bill because of concerns about the impacts to the small
group health insurance market should small employers with
employees deemed "healthy risk" be enticed to drop out of the
market and instead self-insure. Proponents believe this bill
strikes a balance by permitting small employers to self-insure
and purchase stop-loss coverage but limiting what types of
stop-loss coverage can be sold. Proponents point to the 2012
Health Affairs article mentioned above, that noted enhanced
state regulatory guardrails around stop-loss products would help
assure the full promise of health reform, stating the "success
of market reforms may well depend on such efforts, which, if
successful, will encourage and enable insurers to compete based
on providing the best value in coverage design and care
management, rather than based on segmenting risks and exploiting
regulatory loopholes."
Prior to recent amendment, the California Chamber of Commerce,
the National Federation of Independent Business, the Coalition
of Small Disabled Veteran Businesses, and others opposed this
bill because they believe the attachment point should be very
low. It is unclear if recent amendments have changed the view
of prior opponents. Opponents argue that small businesses
struggle to provide health coverage for their employees and it
is imperative that affordable choices be available.
Self-insurance combined with stop-loss coverage for excessive,
unexpected claims, offers an option for some small employers.
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An unreasonably high level at which the stop-loss coverage would
apply essentially eliminates self-insurance as an option for
small employers.
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097
FN: 0005136