BILL ANALYSIS Ó
AB 2 X1
Page 1
Date of Hearing: February 20, 2013
ASSEMBLY COMMITTEE ON HEALTH X1
Richard Pan, Chair
AB 2 X1 (Pan) - As Introduced: January 29, 2013
SUBJECT : Health care coverage.
SUMMARY : Establishes health insurance market reforms contained
in the Patient Protection and Affordable Care Act (ACA) specific
to individual purchasers, such as prohibiting insurers from
denying coverage based on preexisting conditions; and makes
conforming changes to small employer health insurance laws
resulting from new draft federal regulations. Specifically,
this bill :
Risk Adjustment
California Specific Issue
1)Requires any data submitted by a health plan or health insurer
to the United States Secretary of Health and Human Services
(Secretary of HHS), or his or her designee, for purposes of
the risk adjustment program described in the ACA, to also be
concurrently submitted to the Department of Managed Health
Care (DMHC) or the California Department of Insurance (CDI).
Small Group Clean Up
Federal Conformity Issues
2)Revises existing law as amended by AB 1083 (Monning), Chapter
852, Statutes of 2012, to conform to federal rules and
prohibits a plan or solicitor from employing marketing
practices or benefit designs that will have the effect of
discouraging the enrollment of individuals with significant
health needs.
3)Requires a health plan or insurer to consider the claims
experience of all enrollees or insureds in all
nongrandfathered small employer health plan contracts or
health benefit plans, including those enrollees or insureds
who do not enroll in contracts through the California Health
Benefit Exchange, now called Covered California, to be members
of a single risk pool.
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4)Requires each plan year, a health plan or insurer to establish
an index rate for the small employer market in the state based
on the total combined costs for providing essential health
benefits (EHBs) within the single risk pool. Requires the
index rate to be adjusted on a market-wide basis based on the
total expected market-wide payments and charges under the risk
adjustment and reinsurance programs established for the state
pursuant to the ACA. Requires the premium rate to use the
applicable index rate, as adjusted for total expected
market-wide payments and charges under the risk adjustment and
reinsurance programs.
5)Authorizes a health plan or insurer to vary premium rates for
a particular nongrandfathered small employer health benefit
plan contract from its index rate based only on the following
actuarially justified plan-specific factors:
a) The actuarial value and cost-sharing design of the plan
contract or health benefit plan;
b) The plan contract's or health benefit plan's provider
network, delivery system characteristics, and utilization
management practices;
c) The benefits provided under the plan contract that are
in addition to the EHBs. Requires these additional
benefits to be pooled with similar benefits within the
single risk pool and the claims experience from those
benefits to be utilized to determine rate variations for
plan contracts that offer those benefits in addition to
EHBs; and,
d) With respect to catastrophic plans, the expected impact
of the specific eligibility categories for those plans.
6)Makes effective dates consistent with those required under
federal regulations.
7)With regard to special enrollment effective dates, makes
coverage effective no later than the first day of the first
calendar month beginning after the date the plan receives the
request, except in the case of birth, adoption, or placement
for adoption, which is the effective date of the birth,
adoption, or placement for adoption.
8)Revises existing law dealing with situations under which a
health plan or insurer may not be required to contract with a
small employer, such as lacking financial reserves, consistent
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with federal law.
9)Revises rating factors in existing law as follows: includes
references to the age rating curve established by the Centers
for Medicare and Medicaid Services (CMS), using the
individual's age as of the effective date of the contract and
specifies the three to one variation limitation is based upon
like individuals of different ages who are 21 years of age or
older, as described in federal regulations; six geographic
regions and for 2015 and thereafter, subject to federal
approval, 13 geographic regions. Requires the total premium
charged to be determined by the sum of the premiums of covered
employees and dependents in accordance with federal
regulations.
California Specific Issues
10)Deletes existing law that authorizes DMHC to discontinue the
offering of contracts based on financial capacity and other
reasons, as specified.
11)Deletes a provision in the Health and Safety Code that would
make specified provisions of AB 1083 inoperative if specified
provisions of the ACA dealing with guaranteed issue are
repealed.
12)Deletes existing law that makes the rating provisions
inoperative upon the repeal of specified sections of the ACA
(federal community rating requirements), and instead makes
operative rate limitations that were in place prior to 2013.
Uniform Benefits Summary
Federal Conformity Issue
13)Authorizes DMHC to waive or modify the requirements of
existing state law for the purposes of resolving duplication
or conflict with federal requirements. Requires DMHC to
implement this provision in a manner that preserves disclosure
requirements that exceed or are not in direct conflict with
federal requirements. Authorizes the implementation of this
section with all plan letters.
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Individual Market Miscellaneous Underwriting Related Provisions
California Specific Issues
14)Makes underwriting disclosure provisions inoperative except
for grandfathered plans.
15)Sunsets existing law in 2014 that allows individuals to
transfer once a year to a contract without underwriting.
16)Sunsets in 2014 existing law related to transferring to a new
coverage when a contract or policy is rescinded. Reinstates
this provision in 2014.
17)Sunsets notification and rate requirements related to Health
Insurance Portability and Accountability Act (HIPAA) coverage
and reinstates and revises those requirements to tie rates for
preferred provider organizations (PPOs) to the second lowest
cost silver plan rather than rates under the Major Risk
Medical Insurance Program (MRMIP).
18)Deletes an obsolete provision related to establishing a
risk-sharing mechanism for financing high risk individuals.
Child Access to Health Care Coverage
California Specific Issue
19)Requires health plans and insurers to provide a notice to all
applicants for coverage related to guarantee issue for
children about other options for enrollment including new open
enrollment options. Authorizes DMHC to develop a model notice
requirement, in consultation with CDI. Authorizes CDI to
develop a model notice requirement, in consultation with DMHC.
Exempts this model notice authority from the Administrative
Procedures Act (APA). Sunsets this article on January 1,
2014.
Individual Access to Health Care Coverage
California Specific Issues
20)Establishes definitions for individual market provisions,
similar to the definitions established for the small group in
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existing law. Defines health benefit plan as any individual
or group health plan or policy of health insurance as defined,
and specifies what it does not include, such as Medi-Cal.
Defines a dependent as the spouse or registered domestic
partner or child of an individual, subject to applicable terms
of the health benefit plan.
21)Requires every health plan or insurer offering individual
health benefit plans to comply with this chapter/part and
rules adopted thereunder and comply with the provisions of
this article/chapter.
22)Prohibits a health plan or insurer from requiring an
individual applicant or his or her dependent to fill out a
health assessment or medical questionnaire prior to
enrollment. Prohibits a health plan or insurer from acquiring
or requesting information that relates to a health
status-related factor from the applicant or his or her
dependent or any other source prior to enrollment.
23) Prohibits a health plan, insurer, solicitor, agent, or
broker from, directly or indirectly, engaging in the
following activities:
a) Encouraging or directing an individual to refrain from
filing an application for, or seeking, individual coverage
from another plan or health insurer or the California
Health Benefit Exchange because of the health status,
claims experience, industry, occupation, or geographic
location, provided that the location is within the plan's
approved service area of the individual; or,
b) Employing marketing practices or benefit designs that
will have the effect of discouraging the enrollment of
individuals with significant health needs.
24) Prohibits a health plan or health insurer from directly
or indirectly entering into any contract, agreement, or
arrangement with a solicitor, agent, or broker that
provides for or results in the compensation paid to a
solicitor, agent, or broker for the sale of an individual
health plan to be varied because of the factors described
in 23) a) above.
Federal Conformity Issues
25) Establishes requirements for a single risk pool similar
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to those described in the small group market.
26) Permits a health plan or insurer to vary premium rates
for a particular health benefit plan from its index rate
based only on the following actuarially justified
plan-specific factors:
a) The actuarial value and cost-sharing design of the
health benefit plan;
b) The health benefit plan's provider network, delivery
system characteristics, and utilization management
practices;
c) The benefits provided under the health benefit plan that
are in addition to the EHBs. These additional benefits
shall be pooled with similar benefits within a single risk
pool and the claims experience from those benefits are to
be utilized to determine rate variations for plans that
offer those benefits in addition to EHBs; and,
d) With respect to catastrophic plans the expected impact
of the specific eligibility categories for those plans.
27)Requires a health plan or insurer to fairly and affirmatively
offer, market, and sell all of the plan's health benefit plans
that are sold in the individual market for policy years on or
after January 1, 2014 to all individuals and dependents in
each service area in which the plan provides or arranges for
health care services. Limits enrollment to open enrollment
and special enrollment periods, as specified in 31) below.
28)Prohibits a health plan or insurer from imposing any
preexisting condition provision upon any individual.
29) Prohibits a health plan or insurer from establishing
rules for eligibility, including continued eligibility, of
any individual to enroll under the terms of an individual
health benefit plan based on any of the following factors:
a) Health status;
b) Medical condition, including physical and mental
illness;
c) Claims experience;
d) Receipt of health care;
e) Medical history;
f) Genetic information;
g) Evidence of insurability, including conditions arising
out of acts of domestic violence;
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h) Disability; and,
i) Any other health status-related factor as determined by
federal regulations, rules, or guidance issued pursuant
federal law.
30)Specifies a health plan or insurer is not required to offer
an individual health benefit plan or accept applications for
the plan under the following circumstances:
a) To an individual who does not live or reside within the
plan's approved service areas.
b) Within a specific service area if it demonstrates to the
director that it will not have sufficient health care
delivery resources to ensure that health care services will
be available and accessible to the individual because of
its obligations to existing enrollees; and it must apply
this provision uniformly to all individuals without regard
to the claims experience of those individuals or any health
status-related factor relating to those individuals. Bars
a health benefit plan from offering in that area until the
later of the 181st day after the date coverage is denied;
or, the date the plan notifies the director that it has the
ability to deliver services to individuals, and certifies
to the director that from the date of the notice it will
enroll all individuals requesting coverage in that area
from the plan. This does not limit the plan's ability to
renew coverage already in force or relieve the plan of the
responsibility to renew that coverage.
c) It does not have the financial reserves necessary to
underwrite additional coverage, and it applies this
uniformly to all individuals without regard to the claims
experience of those individuals or any health
status-related factor. Applies the same timeframe and
requirements above.
d) Provides that nothing in this bill shall be construed to
limit the director's authority to develop and implement a
plan of rehabilitation for a health plan whose financial
viability or organizational and administrative capacity has
become impaired to the extent permitted by ACA.
Federal Conformity Except g) and h) and 63 days
31)Establishes as an initial open enrollment period from October
1, 2013 to March 31, 2014, and annually after that from
October 15 to December 7. This is the period when individuals
can purchase health insurance through Covered California and
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in the commercial market. In addition, gives individuals 63
days to enroll under one of the following special enrollment
trigger events:
a) Loss of minimum essential coverage, as specified under
federal requirements;
b) Gaining a dependent or becoming a dependent;
c) Mandated coverage due to court order;
d) Released from incarceration;
e) Health benefit plan substantially violated a material
provision of the contract;
f) Gained access to a new health benefit plan as a result
of a permanent move;
g) Provider no longer participating in a plan and
individual has a specified condition;
h) Misinformed about minimum essential coverage; and,
i) For Covered California any events listed under federal
regulations.
Federal Conformity except tobacco rating is excluded
32)Permits only the following characteristics of an individual,
and any dependent thereof, for purposes of establishing the
rate of the health benefit plan:
a) Age, pursuant to age bands established by the Secretary
of HHS and the age rating curve established by CMS. Rates
based on age shall be determined using the individual's age
as of the date of the plan issuance or renewal, as
applicable, and shall not vary by more than three to one
for like individuals of different age who are age 21 or
older as described in federal regulations.
b) Geographic regions based on six regions for 2014, and 13
regions for 2015 and plan each year thereafter, subject to
federal approval if required, and obtained by DMHC and CDI.
Requires no later than June 1, 2017, DMHC/CDI in
collaboration with the Exchange and CDI/DMHC, to review the
geographic rating regions and the impacts of those regions
on the health care coverage market in California and make a
report to the appropriate policy committee of the
Legislature.
c) Whether the plan covers an individual or family, as
described in the ACA. (The rating variation permitted
shall be applied to each family member. However the total
premium shall be determined by the sum of the premiums for
each family member but for no more than the three oldest
members under age 21.)
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Disclosures
California Specific Issues
33)Requires a health plan or insurer outside the Exchange to
inform an applicant for coverage that he or she may be
eligible for lower cost coverage through the Exchange and the
Exchange enrollment period. (Does not apply to grandfathered
plans.)
34)Requires a health plan or insurer outside the Exchange to
issue a notice to a subscriber that he or she may be eligible
for lower cost coverage through the Exchange and shall inform
the subscriber of the applicable open enrollment period
provided through the Exchange. (Does not apply to
grandfathered plans.)
35)Requires a grandfathered health benefit plan to issue the
following notice annually and in any renewal material:
New improved health insurance options are available in
California. You currently have health insurance that is
exempt from many of the new requirements. For instance, your
plan may not include certain consumer protections that apply
to other plans, such as the requirement for the provision of
preventive health services without any cost sharing and the
prohibition against increasing your rates based on your health
status. You have the option to remain in your current plan or
switch to a new plan. Under the new rules, a health plan
cannot deny your application based on any health conditions
you may have. For more information about your options, please
contact the California Health Benefit Exchange, the Office of
Patient Advocate, your plan representative, an insurance
broker, or a health care navigator.
Marketing Prohibition
Federal Conformity Issue
36)Prohibits a health plan or health insurer from advertising or
marketing an individual health benefit plan that is
grandfathered for the purpose of enrolling a dependent for
policy years on or after January 1, 2014. Nothing prevents a
grandfathered plan from adding a dependent.
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Tie Back
California Specific Issue
37)Except as otherwise provided, this article/chapter shall only
be implemented to the extent that it meets or exceeds the
requirements set forth in the ACA.
Children's Health Insurance Program (CHIP) Continuation Coverage
California Specific Issues
38)Establishes definitions for the purposes of this provision.
Requires until January 1, 2014, or the date that is six months
following the operative date of this part, whichever is later,
every participating health, dental and vision plan to offer
coverage to a qualified beneficiary, who because of age
becomes disenrolled on or after January 1, 2012. Requires
the plan to offer the same coverage that the beneficiary had
immediately prior to disenrollment from the program or
coverage with benefits that are most equivalent to the
coverage that the beneficiary had immediately prior to
disenrollment from the program.
39)Requires a plan to notify a qualified beneficiary within 30
days of the operative date of this provision. Permits a
qualified beneficiary to elect coverage within 60 days of the
mailing of the notice.
40)Requires a qualified beneficiary receiving coverage pursuant
to this part to make premium payments of not more than 110% of
the average per subscriber payment made by the board or
department to all participating plans for coverage provided.
Regulatory Authority
California Specific Issue
41)Authorizes the Insurance Commissioner (IC) to adopt
regulations to implement the changes made to the Insurance
Code by this act pursuant to the APA, as specified. Requires
the IC to consult with the Director of the DMHC prior to
adopting any regulations pursuant to this section for the
purposes of ensuring consistency of regulations.
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EXISTING LAW :
1)Establishes DMHC to regulate health plans under the Knox-Keene
Health Care Services Plan Act of 1975 (Knox-Keene Act) in the
Health and Safety Code; CDI to regulate health insurers under
the Insurance Code; and, the Exchange to compare and make
available through selective contracting health insurance for
individual and small business purchasers as authorized under
the ACA.
2)Defines a grandfathered health plan as having the same meaning
as that term is defined in the ACA. Federal law defines
grandfathered health plan as any group health plan or health
insurance coverage to which Section 1251 applies (in general
coverage that existed as of March 23, 2010 which can only
enroll new individuals as dependents of existing covered
individuals).
3)Prohibits a nongrandfathered health benefit plan for group or
individual coverage from imposing any preexisting condition
provision or waivered condition upon any enrollee, and
requires on or after October 1, 2013 a plan to fairly and
affirmatively offer, market, and sell all small employer
health plan contracts for plan years on or after January 1,
2014 to all small employers in each service area, as specified
(pursuant to AB 1083).
4)Establishes that premium rates for small employer health
benefit plan contracts can vary only by age, pursuant to age
bands, established by the Secretary of HHS, and based on the
individual's birthday and shall vary by no more than three to
one for adults; includes 19 geographic regions, as specified,
with a report no later than June 1, 2017 reviewing the impact
of the regions on the coverage market in California; and,
whether the contract covers an individual or family, as
described in the ACA (pursuant to AB 1083).
5)Establishes as California's EHBs the Kaiser Small Group HMO
plan along with the following 10 ACA mandated benefits:
a) Ambulatory patient services;
b) Emergency services;
c) Hospitalization;
d) Maternity and newborn care;
e) Mental health and substance use disorder services,
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including behavioral health treatment;
f) Prescription drugs;
g) Rehabilitative and habilitative services and devices;
h) Laboratory services;
i) Preventive and wellness services and chronic disease
management; and,
j) Pediatric services, including oral and vision care.
6)Requires under the Health and Safety Code each plan to
disclose in a uniform benefits and coverage matrix specified
information to facilitate comparisons between plan contracts.
Requires under the Insurance Code, each insurer to provide in
easily understood language and in a uniform, clearly organized
manner, as prescribed by the IC, information necessary to
provide full and fair disclosure of the provisions of the
policy. Requires the form to include specified information
such as basic hospital coverage and the principal benefits and
coverage of the policy. Requires under federal law, pursuant
to the ACA, contains specified uniform benefit disclosures.
7)Requires health plans and insurers with contracts and policies
in the individual market to allow without medical underwriting
an individual to transfer once a year to a contract that has
equal or lesser benefits.
8)Requires health plans and health insurers with contracts and
policies in the individual market to offer an individual in a
contract or policy that was rescinded without medical
underwriting a new individual contract or policy with equal
benefits.
9)Establishes notification and rate requirements for individuals
eligible for coverage under HIPAA.
10)Establishes conditions for guaranteed issue of coverage for
children.
FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . This bill contains clean-up provisions
to AB 1083 which enacted insurance market reforms consistent
with the ACA affecting health insurance sold to small employer
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purchasers and establishes insurance market reforms consistent
with the ACA affecting the health insurance market for
individual purchasers. An important general objective of the
ACA state implementing legislation is to ensure that the rules
in the Exchange and outside the Exchange, as well as in both
the small group and individual markets, are as similar as
possible in an effort to avoid adverse selection.
Clean-up provisions are necessary because new draft federal
regulations have been issued which require updating of the AB
1083 provisions. In addition, while the Legislature approved
AB 1461 (Monning) and SB 961 (Ed Hernandez) in 2012, which
would have established insurance market rules for individual
purchasers, those bills were vetoed by the Governor because a
provision to link or "tie back" state law to federal law was
viewed as insufficient. As a result, Covered California has
initiated a Qualified Health Plan (QHP) solicitation process
based on assumptions of what might be the individual market
rules in California. Health insurers bidding to be QHPs must
submit premium bids to Covered California by March 31, 2013 in
order to ensure they receive regulatory review in time for
Covered California to begin marketing and offering those plans
in October of 2013. The rules established and revised by this
bill would apply to health insurance sold through Covered
California as well as insurance products sold in the
commercial market outside of Covered California, and need to
be in place as soon as possible in time for the regulatory
reviews required for QHPs. It is necessary to put the federal
rules in state law for state regulatory enforcement purposes.
On January 24, 2013, Governor Brown issued a proclamation to
convene the Legislature in Extraordinary Session to consider
and act upon legislation necessary to implement the ACA in the
areas of: a) California's private health insurance market,
rules and regulations governing the individual and small group
market; b) California's Medi-Cal program and changes necessary
to implement federal law; and, c) options that allow low-cost
health coverage through Covered California to be provided to
individuals who have income up to 200% of the federal poverty
level (FPL). This bill along with SB 2 X1 (Ed Hernandez)
address the first of the three areas identified in the
Governor's proclamation.
2)BACKGROUND . On March 23, 2010, the federal ACA (Public Law
111-148), as amended by the Health Care and Education
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Reconciliation Act of 2010 (Public Law 111-152) became law.
Among many other provisions, the new law makes statutory
changes affecting the regulation of and payment for certain
types of private health insurance. Beginning in 2014,
individuals will be required to maintain health insurance or
pay a penalty, with exceptions for financial hardship (if
health insurance premiums exceed 8% of household adjusted
gross income), religion, incarceration, and immigration
status. Several insurance market reforms are required, such
as prohibitions against health insurers imposing preexisting
health condition exclusions. These reforms impose new
requirements on states related to the allocation of insurance
risk, prohibit insurers from basing eligibility for coverage
on health status-related factors, allow the offering of
premium discounts or rewards based on enrollee participation
in wellness programs, impose nondiscrimination requirements,
require insurers to offer coverage on a guaranteed issue and
renewal basis, determine premiums based on adjusted community
rating (age, family, geography and tobacco use).
Additionally, by 2014 either a state will establish separate
exchanges to offer individual and small-group coverage or the
federal government will establish one. Exchanges will not be
insurers but will provide eligible individuals and small
businesses with access to private plans in a comparable way.
In 2014 some individuals with income below 400% of FPL will
qualify for credits toward their premium costs and subsidies
toward their cost-sharing for insurance purchased through an
exchange. California has established Covered California, as a
state-based exchange that is operating as an independent
government entity with a five-member Board of Directors.
The DHHS, Department of Treasury and Department of Labor have
issued proposed rules pertaining to the ACA on health
insurance market rules, Exchanges and EHBs. In the proposed
rules, comments on a number of topics were sought, including
strategies to avoid or minimize disruption of rates in the
current market and encourage timely enrollment in coverage in
2014. Information is also being solicited from both issuers
and states relative to the magnitude of the costs and benefits
associated with implementing these new requirements. DMHC,
CDI and Covered California submitted joint comments to the
federal government on the proposed rules.
3)U.S. SUPREME COURT . On June 28, 2012, the U.S. Supreme Court
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(SCOTUS) issued a decision on the constitutionality of two
major provisions of the ACA arising out of two cases in the
11th Circuit Court of Appeals, National Federation of
Independent Business v. Sebelius, and Florida v. Department of
Health and Human Services (2011) 11th Cir. Nos. 11-11021 &
11-11067. The two provisions reviewed were the individual
mandate and the Medicaid expansion. With regard to the
individual mandate, the ACA requires most people to maintain
minimum essential coverage for themselves and their
dependents. The mandate can be satisfied by obtaining
coverage through employer-sponsored insurance and individual
insurance plans, including those offered through the Exchange,
a grandfathered health plan, or government sponsored coverage.
According to a January 2012 Kaiser Family Foundation (KFF)
brief, the authors of the ACA believed that without the
individual mandate, the exchanges and private insurance market
reforms would not work effectively due to the adverse
selection effect of healthy people choosing to forego
insurance.
In a 5-4 decision the SCOTUS upheld the individual mandate
provisions of the ACA, but ruled unconstitutional the
mandatory nature of the Medicaid expansion provisions. With
regard to the individual mandate, the SCOTUS determined that
it must be construed as imposing a tax on those who do not
have health insurance and as such may be upheld as within
Congress's power under the Taxing Clause. The SCOTUS also
determined the Medicaid expansion violates the Constitution by
threatening states with the loss of their existing Medicaid
funding if they decline to comply with the expansion.
However, because of the Severability Clause in Medicaid, the
constitutional violation is fully remedied by precluding the
federal Secretary of HHS from applying the provision to
withdraw existing Medicaid funds for failure to comply with
the expansion requirements, but instead allowing the expansion
as a state option.
4)INDIVIDUAL MARKET . According to a 2011 report published by
the California HealthCare Foundation (CHCF), approximately 2
million Californians are covered through individually
purchased health insurance. About 40% of current individual
market purchasers would likely qualify for subsidies and
another 18% would be eligible for Medicaid (Medi-Cal in
California) if the ACA rules were in effect. There are
between five and seven million uninsured in the state and 39%
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(2.7 million) may be eligible for Medi-Cal, half (3.5 million)
may be eligible for subsidies to purchase individual
insurance, and 11% (800,000) would not likely qualify for
subsidies. More than one million of the uninsured are
undocumented immigrants, who would not qualify for subsidies
and would be excluded from the Exchange. At the time, CHCF
found that individual premiums varied by age as much as
five-fold, meaning a 60 year old would pay five times what a
25 year old might pay. However, there is evidence that
California individual market premiums are already closer to
the 2014 allowable 3:1 ratio. For example, 2013 premium rate
filings for the Anthem Blue Cross three most popular
non-grandfathered products all have age ratios below 3.9. In
addition, 2013 premiums in the state high risk pool, the
MRMIP, which bases rates on insurer filings of premiums for
open market individual coverage, have an age ratio for 64 year
olds that ranges from 2.3 to 2.9, depending on the health
plan. In the CHCF report, premiums ranged from $113 to $777
per month. Individual market insurance typically provides
comprehensive coverage. The CHCF report indicates that
individual coverage paid an average of 55% of medical
expenses, compared to 80-90% of expenses for group coverage.
Purchasers in the individual market pay 100% of their
coverage. The market is very price sensitive and purchasers
are medically screened by insurers concerned about high risk
consumers buying and keeping coverage. Three insurers serve
over 75% of the market: Anthem Blue Cross PPO, Blue Shield
PPO, and Kaiser HMO.
Historically, California's two regulators allow variation in
product design. Plans under DMHC must provide a defined set
of basic health care services, while plans under CDI have more
flexibility and may offer slimmer benefits. CDI-regulated
products are far more prevalent in the individual market.
With the implementation of the ACA, including requirements on
both DMHC and CDI licensed companies to offer products that
meet EHBs, less variation in product design is anticipated.
5)RATE SHOCK . According to a February 6, 2013, KFF article,
"Why Premiums Will Change for People Who Now Have Nongroup
Insurance," overall, it is expected that average, unsubsidized
premiums in the nongroup (individual) market will be somewhat
higher under the ACA as compared to today. This is because
many people will be getting better insurance with EHBs like
maternity care and mental health. (Note: California already
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mandates maternity and mental health parity for severe mental
illness). Also patient cost sharing for out-of-pocket costs
will be capped. Guaranteed access to coverage for people with
preexisting conditions may increase average premiums as many
people with higher costs come into the system. However, this
should be balanced by more, healthy, young uninsured
participating because of subsidies and the individual mandate.
Restricting access to coverage during annual and special
enrollment periods will reduce the likelihood that people will
wait until they develop health problems before seeking
coverage.
The ACA provides for $20 billion in transitional reinsurance to
offset adverse selection in the first three years of the
program. The ACA also redistributes the premium burden among
different enrollees by eliminating premium differences for
gender and limiting variation in premiums due to age to a
maximum of three to one. This has led to concerns about "rate
shock" but premium increases for young people are mitigated by
premium subsidies and that people under 30 can purchase
catastrophic coverage. The KFF article details how each of
the insurance market changes in the ACA may raise or lower
premiums overall or redistribute them among different groups
of people. In the big picture, the ACA addresses many of the
shortcomings of the current individual market. The more
competitive marketplace created under the ACA, greatly
enhanced by the structure of premium tax credits, will push in
the other direction forcing health plans to become more
efficient and better managers of the premiums they receive.
There is already some evidence that plans are working to
create less costly, more efficient networks to offer with
plans sold in exchanges.
6)TOBACCO RATING. Provisions of the ACA are intended to address
affordability of health care coverage. Subsidies for
purchasing health insurance will be available in the Exchange
for some individuals whose coverage costs exceed a certain
percentage of their income, and other individuals will be
exempt from the individual mandate if costs exceed a specified
percentage of their income (8%). Surcharges associated with
tobacco use and standards-based wellness incentive programs
could make coverage unaffordable for some populations and take
them out of the health insurance market altogether.
Alternatively, such programs could drive unhealthy individuals
into the Exchange where subsidies may be available. Taking
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tobacco rating as an example, a non-smoker with family income
of $17,700 would be charged $5,200 annual premium for a
tax-credit benchmark plan in the Exchange. With federal
subsidies available through the Exchange, this individual
would pay a $708 premium per year. A similarly situated
smoker would have to pay a tobacco surcharge (50% of premium
or $2,600) in addition to the $708 for a total premium (minus
the subsidies) of $3,308 which represents 18.7% of his or her
income. In this example, the smoker could opt out of the
mandate to purchase health insurance because the product is no
longer affordable. While the ACA allows for tobacco rating,
this bill does not including tobacco rating as a factor for
determining premium rates.
7)GEOGRAPHIC RATING REGIONS . The ACA requires that each state
establish geographic rating areas that must be applied
consistently inside and outside the Exchange. The proposed
federal rules allow states to establish rating areas by
selecting from the following options: a) one single rating
area for the state, b) no more than seven rating areas based
on county, three-digit zip code, or metropolitan statistical
areas (MSAs) and non-MSA geographic divisions, or, c) other
existing geographic divisions or a number of rating areas
greater than seven, if granted approval from CMS.
AB 1083 included a 19 rating region proposal, different than the
region proposal in this bill and SB 2 X1. The 19 represent an
expanded version of an earlier proposal developed by the
California Association of Health Plans (CAHP) that split up
Bay Area counties into their own regions because of an
incorrect interpretation related to how the subsidies would be
determined. To be consistent with the draft rules, this bill
establishes, for both the small group market and the
individual market, the geographic rating regions for the first
year to be the existing Pre-Existing Condition Insurance Plan
(PCIP) six rating regions. This bill then establishes 13
rating regions developed by CAHP for future years if federal
approval is granted, again consistent with the proposed rules.
See attached document for comparison of the regions. Covered
California has requested QHP bids due in March 2013 assuming
that the 19 rating regions included in AB 1083 enacted prior
to the issuance of draft federal regulations would be adopted
by the Legislature and approved by the Governor for the
individual market as well.
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8)TIE BACK STATE LAW TO THE ACA . As previously indicated,
Governor Brown vetoed AB 1461 and SB 961 because the tie back
provision was not sufficient to meet the Governor's concerns.
AB 1461 and SB 961 contained a tie back for the state
guarantee issue provision and the state community rating
provision, meaning that if the federal guarantee issue and
community rating requirements were to be repealed, the state
guarantee issue and community rating provisions would
automatically become inoperative at the state level. The
Brown administration has requested a broader tie-back to the
ACA that would also make inoperative state provisions
prohibiting preexisting condition exclusions and prohibiting
eligibility rules based on health status factors.
9)SUMMARY OF BENEFITS . Under the ACA, health insurers and group
health plans will be required to provide clear, consistent,
and comparable information about their health plan benefits
and coverage. Consumers will have access to forms that will
help them understand and evaluate their health insurance
choices. The forms include an easy-to-understand summary of
benefits and coverage and a uniform glossary of terms commonly
used in health insurance coverage such as "deductible" and
"co-payment".
Under the Knox-Keene Act, health plans are required to provide a
uniform health plan benefits and coverage matrix containing
the plan's major provisions in order to facilitate comparisons
between plan contracts. There is a similar requirement in the
Insurance Code. Many of the ACA requirements are already
included in the state requirements and there is concern that
insurers will be providing duplicative information which could
result in confusion. This bill proposes to address this by
giving DMHC authority to waive or modify the requirements of
existing state law for the purposes of resolving duplication
or conflict with federal requirements. This bill does not
include similar provisions for the CDI. As an alternative,
DMHC has proposed the following language:
(3) A health care service plan may satisfy the requirements
of this subdivision by providing the uniform summary of
benefits and coverage required under section 2715 of the
federal Public Health Service Act (42 U.S.C. 300gg-15) and
any rules or regulations issued thereunder. A health care
service plan that issues the uniform summary of benefits
referenced in this paragraph shall:
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(A) Ensure that all applicable benefit disclosure
requirements specified in this chapter and Title 28 of the
California Code of Regulations are met in other health plan
documents provided to enrollees under the provisions of
this chapter, and
(B) Advise applicants and enrollees, in a prominent place
in such plan documents referenced in subdivision (a), that
providers are prohibited from billing enrollees for
emergency services beyond the enrollee's copayments,
coinsurance and deductibles as provided in the enrollee's
health care service plan contract.
10)HIPAA . Under existing federal HIPAA law, people losing
access to group coverage can buy individual health insurance,
even if they have a pre-existing health condition. All health
plans that sell individual plans must offer a HIPAA product
and a person cannot be denied insurance because of their
medical history. State law, implemented by SB 265(Speier),
Chapter 810, Statutes of 2000, established the following
related to premiums for a HIPAA product:
a) For health plans and insurers offering contracts through
a PPO, the premium for a HIPAA eligible who is younger than
age 60, is prohibited from exceeding the average premium
paid by a MRMIP subscriber who is of the same age and
resides in the same geographic area as the HIPAA eligible;
b) For HIPAA eligible individuals between the ages of 60
and 64 who purchase PPO products, the premium is prohibited
from exceeding the average premium paid by a MRMIP
subscriber who is 59 years of age and resides in the same
geographic area as the federally defined individual; and,
c) For health plans and insurers that do not offer a PPO
product, the HIPAA eligible premium is capped at 170% of
the standard premium charged to an individual who is of the
same age and resides in the same geographic area as the
HIPAA eligible individual. However, for HIPAA eligibles
between the ages of 60 and 64, the premium is prohibited
from exceeding 170% of the standard premium charged to an
individual who is 59 years of age and resides in the same
geographic area as the HIPAA eligible.
In 2014 MRMIP, the state-sponsored health insurance risk
pool that subsidizes coverage for individuals who have been
unable to secure it in the market due to health problems or
high costs, should no longer be a needed program due to the
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reforms enacted in the ACA, such as guarantee issue. There
is also a question if HIPAA products will be needed after
2014. At a minimum because the HIPAA premiums for PPO
contracts are tied to MRMIP rates, a decision on HIPAA PPO
rates must be made.
11)RISK ADJUSTMENT . The ACA calls for a risk adjustment program
to help eliminate incentives for health plans and insurers to
avoid people with pre-existing conditions or those who are in
poor health. Risk adjustment is the idea of compensating
health plans or insurers who enroll patients with higher risk
and higher expected health expenditures such as those with
cancer, chronic heart or lung disease, dementia and
psychiatric illness. Under risk adjustment, health plans and
insurers that have an overall less healthy pool based on risk
factors or health expenditures receive supplemental payments
that come from payments made by health plans and insurers who
end up with lower overall risks and costs. The anticipated
result is that insurers can then compete on the basis of
quality and service, and not on the basis of whether they can
attract healthy people. The state is currently deferring to
the federal government's risk adjustment program. This bill
would require insurers to also submit to state regulators any
data submitted to the federal government. Questions have been
raised about what the regulators will do with this data.
12)CHIP CONTINUATION COVERAGE . This bill creates a new
requirement on health, dental, and vision plans covering the
Healthy Families population to offer to children aging out of
Healthy Families at age 19 the same coverage at a premium rate
of not more than 110% of the rate paid by the Managed Risk
Medical Insurance Board. This requirement applies to
individuals aging out of Healthy Families on or after January
1, 2012 and is in place until January 1, 2014 or six months
after the operative date of this bill. This is a new
provision intended to serve as a coverage bridge, particularly
for 19 year olds with preexisting conditions until the ACA
reforms are fully implemented in 2014.
13)SUPPORT . Supporters agree that this bill provides vital
protection to California consumers of health care coverage.
They write in support of the guaranteed issue of coverage
provisions that prohibit insurers from denying coverage based
on pre-existing conditions and other health status-related
factors. The California Public Interest Research Group
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(CALPIRG) writes that in 2009 nearly 6.5 million Californians
had pre-existing conditions that would have prevented them
from attaining coverage in the individual market and that
nationally 47% of individuals applying for insurance were
either denied or offered insurance at a much higher rate. The
Transgender Law Center argues that this bill will optimize
coverage for all Californians and is fully inclusive of
registered domestic partners to the same extent as spouses.
Health Access California (HAC) and CALPIRG point out that this
bill limits insurers to only raising rates one time per year
which improves price stability and helps individuals and
families to budget for their health coverage. Consumers Union
(CU) and HAC support the limitation of the geographic regions,
explaining that allowing more rating regions provides a
greater opportunity in the rate making process for
inappropriate targeting of certain subscribers forcing higher
rates on those targeted populations. HAC and CU agree that
while the ACA does allow for tobacco rating, this bill does
not; that tobacco rating has not been proven to reduce smoking
and can lead to pricing smokers, who need health insurance,
right out of the market.
14)SUPPORT IN CONCEPT . The 100% Campaign, Children's
Partnership, Children Now, and Children's Defense Fund,
California all write that they support this bill in concept.
They state the ACA implements considerable reforms including
banning discriminatory practices by insurance companies of
denying coverage to individuals with pre-existing conditions
and charging higher rates to individuals based on health
status. Currently, insurers are not allowed in California to
deny coverage to children based on a pre-existing condition,
but are still allowed to charge a sick child twice the premium
of a healthy child and this bill eliminates that practice.
Additionally, these groups believe that the notices to
consumers as required in this bill will assist families in
making better informed decisions on their health care
coverage.
15)OPPOSITION UNLESS AMENDED . CDI is opposed to this bill
unless it is amended. CDI writes that the selection of
geographic rating regions is one the most significant choices
the state has the authority to make that will impact the
affordability of health insurance for consumers. Currently
insurance companies and health plans set their own geographic
rating areas. CDI's actuarial staff conducted extensive
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analysis of the different rating region structures that have
been proposed. According to CDI's data the proposed six and
13 geographic regions would result in an estimated maximum
premium increases of 23% and 25% respectively; the 19 proposed
in AB 1461 would also result in an estimated 25% maximum
premium increase. CDI proposes an 18 region plan they argue
would best minimize premium disruption in the marketplace by
reducing it to a maximum of 8%.
The California Association of Health Plans and the Association
of California Life and Health Insurance Companies also have
taken an oppose unless amended position on this bill. The
both argue the guaranteed issue and community rating reforms
in this bill should be linked to the same reforms in the ACA
and that it would be a mistake for California to "go it alone"
without the federal protections of the ACA. They are
concerned that this bill is placing proposed federal rules
into statute and that more flexibility is needed in case these
rules are modified. Both associations claim that while the
current 19 geographic rating regions are not perfect, keeping
them would balance the need to avoid rate disruption to
existing enrollees with creating regions that reflect the cost
of care in local regional health care markets while maximizing
subsidies.
16)RELATED LEGISLATION .
a) SB 2 X1contains substantially similar provision and is a
companion measure to this bill. It is currently set for
hearing on February 20, 2013 in the Senate Health
Committee.
b) AB 1 X1 (John A. Pérez) implements various provisions of
the ACA regarding Medi-Cal eligibility and program
simplification including the use of the Modified Adjusted
Gross Income (MAGI) and expansion of eligibility in the
Medi-Cal program. AB 1 X1 is set to be heard in the
Assembly Health Committee on February 19, 2013.
c) SB 1 X1 (Ed Hernandez and Steinberg) implements various
provisions of the ACA regarding Medi-Cal eligibility and
program simplification including the use of the MAGI and
expansion of eligibility in the Medi-Cal program and is
currently set for hearing in the Senate Health Committee on
February 27, 2013. It is a companion bill to AB 1X 1.
d) SB 3 X1 (Ed Hernandez) establishes legislative intent to
enact legislation to create a bridge option to allow
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low-cost health coverage to be provided to individuals
within the Exchange. SB 3 X1 is currently in the Senate
Rules Committee waiting referral.
e) AB 18 (Pan) establishes legislative intent to enact
legislation to reform the individual health care coverage
market consistent with the ACA. AB 18 is currently in the
Assembly Rules Committee waiting referral.
f) SB 18 (Ed Hernandez) establishes legislative intent to
enact legislation to reform the individual health care
coverage market consistent with the ACA. SB 18 is
currently in the Senate Rules Committee waiting referral.
g) SB 20 (Ed Hernandez) establishes legislative intent to
enact legislation to establish the basic health program
described in the ACA. SB 20 is currently in the Senate
Rules Committee waiting referral.
h) SB 28 (Ed Hernandez and Steinberg) implement various
provisions of the ACA regarding Medi-Cal eligibility and
program simplification including the use of the MAGI and
expansion of eligibility in the Medi-Cal program. SB 28 is
currently pending in the Senate Health Committee.
17)PREVIOUS LEGISLATION .
a) AB 1083 reforms California's small group health
insurance laws to enact the ACA. Eliminates preexisting
condition requirements and establishes premium rating
factors based only on age, family size, and 19 geographic
regions, except for grandfathered plans. New guaranteed
issue provisions and the rating provisions are tied to
those provisions in the ACA. Should guaranteed issue and
rating factors be repealed in the ACA, California's
existing small group guaranteed issue and rating law
pre-ACA would become operative.
b) AB 1461 and SB 961 would have reformed the individual
market consistent with the ACA but both bills were vetoed.
The Governor's veto message states:
"I realize how important it is to align our
individual health insurance market rules with the
federal Patient Protection and Affordable Care Act.
This bill got almost all the way there.
Unfortunately, the measure failed to adequately link
our state reforms to the federal law. The
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Affordable Care Act requires insurers to provide
health coverage to all individuals regardless of
their health status. This mandate on insurers is
balanced by the mandate on individuals to obtain
health coverage, with federal subsidies available to
help lower-income people purchase it.
Without the strong foundation that federal law
provides, a state-level mandate on insurers alone
could encourage healthy people to wait until they
got sick or injured before purchasing coverage.
This would lead to skyrocketing premiums, making
coverage more unaffordable.
I look forward to working with the Legislature to
correct this problem and adopt the remaining
essential provisions of this bill."
c) AB 1453 (Monning), Chapter 854, Statutes of 2012 and SB
951 (Hernandez), Chapter 866, Statutes of 2012 establish
California's EHBs.
d) AB 1602 (John A. Pérez), Chapter 655, Statutes of 2010,
establishes the Exchange as an independent public entity to
purchase health insurance on behalf of Californians,
including those with incomes of between 100% and 400% of
the FPL and small businesses. Clarifies the powers and
duties of the board governing the Exchange relative to the
administration of the Exchange, determining eligibility and
enrollment in the Exchange, and arranging for coverage
under qualified insurers.
e) SB 900 (Alquist), Chapter 659, Statues of 2010,
establishes the Exchange and requires the Exchange to be
governed by a five-member board, as specified.
f) AB 1 X1 (Nuñez) of 2007 would have enacted the Health
Care Security and Cost Reduction Act, a comprehensive
health reform proposal including provisions to require
Health Action Incentive Rewards programs in group health
coverage and the Medi-Cal program. AB 1 X1 failed passage
in the Senate Health Committee.
REGISTERED SUPPORT / OPPOSITION :
AB 2 X1
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Support
American Federation of State, County and Municipal Employees,
AFL-CIO
California Academy of Family Physicians
California Primary Care Association
California Public Interest Research Group
Congress of California Seniors
Consumers Union
Greenlining Institute
Health Access California
National Association of Social Workers - California Chapter
Transgender Law Center
Opposition unless Amended
Association of California Life & Health Insurance Companies
California Association of Health Plans
California Department of Insurance
Analysis Prepared by : Teri Boughton / HEALTH X1/ (916)
319-2097