BILL ANALYSIS Ó
AB 2 X1
Page 1
Date of Hearing: February 25, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2 X1 (Pan) - As Introduced: January 29, 2013
Policy Committee: HealthVote:13-6
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill implements individual health insurance market
provisions of the federal health reform law and makes changes to
recently enacted small group health insurance market reforms to
conform to federal rules. Specifically, this bill:
1)Imposes requirements on health insurers in the individual
market to guarantee issue of coverage, prohibit the use of
pre-existing condition provisions, and require the use of
specified criteria relating to age, geography and family size
when setting rates.
2)Makes conforming changes to legislation enacted last year
reforming small group health insurance market laws, based on
new draft federal regulations.
FISCAL EFFECT
Special fund costs to the Departments of Insurance (CDI
Insurance Fund) and Managed Health Care (DMHC Managed Care Fund)
to adopt/modify regulations, review plan and insurer filings and
respond to consumers. For CDI, costs are estimated at about
$600,000 for FY 2013-14 and $283,000 for 2014-15. DMHC's costs
will likely be in a similar but lower range because DMHC plans
will not be changing their business practices to the same extent
that will be required by CDI insurers.
COMMENTS
1)Rationale . This bill brings California's health insurance
laws into compliance with the federal Patient Protection and
Affordable Care Act (ACA). These changes are needed, and are
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being considered in a special session, so that health insurers
and regulators will have sufficient time to prepare for the
January 1, 2014 federal implementation date. When the ACA is
fully implemented, all individuals will be required to have
health insurance (individual mandate), with many different
ways to access that coverage, including employer sponsored
benefits, individual market coverage, and various public
programs.
2)Previous Legislation . Similar bills from last year, SB 961
(Hernández) and AB 1461 (Monning) were vetoed. The governor
stated that the ACA's requirement on insurers to sell to all
individuals regardless of health status was balanced by the
ACA's individual mandate and that the state legislation did
not "adequately link our state reforms to the federal law."
This "tie-back" to federal law has also been raised by
insurers and relates to the extent to which the bill's
provisions should be retained if federal law changes. The
backdrop for these discussions is the uncertainty raised by
lawsuits challenging the ACA's constitutionality shortly after
its 2010 enactment. The ACA was also a dominant issue in the
2012 presidential election. In June 2012, the U.S. Supreme
Court upheld the ACA, except for a provision related to the
Medicaid program. The issue appears to be settled, though
state or federal law is always subject to change.
AB 1083 (Monning), Chapter 854, Statutues of 2012, reformed
California's small group health insurance laws to conform to
the ACA.
3)Related Legislation . This bill is identical to SB 2 X1
(Hernández), which is pending on the Senate Floor. As AB 2 X1
and SB 2 X1 move through the legislative process several
outstanding issues will be considered.
4)Outstanding Issues .
a) Geographic Regions . This bill limits the ability of
insurers to vary rates for different individuals by
creating rules, based on ACA requirements and similar to
the rules governing California's small group health
insurance market for the last 20 years. The rules allow
rates to vary based on age, family size, and geographic
region. Generally, a small number of total regions would
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be expected to result in less rate variation throughout the
state. A large number of regions increases the likelihood
of redlining, where one person's rate might be
significantly higher or lower than the rate of a neighbor
living just a block away. There are no restrictions in the
current market to limit geographic rating.
This bill establishes six rating regions for 2014, with an
increase to 13 regions in 2015, subject to federal
approval. These 13 regions were developed by the
California Association of Health Plans (CAHP) last year and
an expanded version (19 regions) was adopted in AB 1083 for
the small group market. Insurers prefer the 19 rating
regions in AB 1083 for this bill, while consumer groups
support the bill's current provisions. The Department of
Insurance (CDI) asserts the geographic regions in the bill
will lead to rate increases of 20% or more for some
individuals. CDI proposes 18 regions, which are the result
of the department's actuarial analysis and do not correlate
to the 19 regions supported by CAHP.
b) Disclosure . This bill requires certain information to
be presented in a manner that facilitates comparison of
insurance products. California has a similar law and the
requirements in state and federal law may necessitate some
conforming changes at the state level.
c) Risk Adjustment . This bill requires any risk adjustment
data submitted to the federal government pursuant to the
ACA to also be submitted to state regulators. Risk
adjustment, which is part of the ACA, is intended to make
sure insurers compete on price and quality and not on
whether they are good at avoiding high-risk individuals.
The state is currently deferring to the federal government
on risk adjustment and there may be a question about the
state's role in collecting data.
Analysis Prepared by : Debra Roth / APPR. / (916) 319-2081