BILL ANALYSIS Ó
AB 2 X1
Page 1
ASSEMBLY THIRD READING
AB 2 X1 (Pan)
As Introduced January 29, 2013
Majority vote
HEALTH 13-6 APPROPRIATIONS 12-5
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|Ayes:|Pan, Ammiano, Atkins, |Ayes:|Gatto, Bocanegra, |
| |Bonilla, Bonta, Chesbro, | |Bradford, |
| |Gomez, | |Ian Calderon, Campos, |
| |Roger Hernández, | |Eggman, Gomez, Hall, |
| |Lowenthal, Mitchell, | |Holden, Pan, Quirk, Weber |
| |Nazarian, V. Manuel | | |
| |Pérez, Wieckowski | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Logue, Maienschein, |Nays:|Harkey, Bigelow, |
| |Mansoor, Nestande, | |Donnelly, Linder, Wagner |
| |Wagner, Wilk | | |
| | | | |
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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 :
Federal Conformity Issues
1)Revises existing law as amended by AB 1083 (Monning), Chapter 852,
Statutes of 2012, to conform to draft federal rules related to
risk pools 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.
2)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
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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 Essential Health Benefits (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.
3)Revises rating factors in existing small group 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; and, 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.
4)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.
5)Prohibits in the individual market a health plan or insurer from
imposing any preexisting condition provision upon any individual.
6)Prohibits in the individual market a health plan or insurer from
establishing rules for eligibility, including continued
eligibility, of any individual to enroll under the terms of an
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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;
h) Disability; and,
i) Any other health status-related factor as determined by
federal regulations, rules, or guidance issued pursuant to
federal law.
7) Specifies a health plan or insurer is not required to offer
an individual health benefit plan or accept applications for
the plan under specified circumstances, such as when an
individual does not live or reside within the plan's approved
service areas.
Federal Conformity Except g) and h) and 63 days
8)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, through the
California Health Benefit Exchange (Exchange), now called Covered
California, and 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;
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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
9)Permits in the individual market 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
Health and Human Services (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 each plan year thereafter, subject to
federal approval if required, and obtained by the Department of
Managed Health Care (DMHC) and the California Department of
Insurance (CDI). Requires no later than June 1, 2017, DMHC and
CDI in collaboration with the Exchange, 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 committees of the Legislature.
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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.)
California Specific Issues
10)Requires any data submitted by a health plan or health insurer to
the Secretary of HHS, or her designee, for purposes of the risk
adjustment program described in the ACA, to also be concurrently
submitted to the DMHC or CDI.
11)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. Sunsets
this article on January 1, 2014.
12)Establishes definitions for individual market provisions, similar
to the definitions established for the small group in 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.
13)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.)
14)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.)
15)Requires a grandfathered health benefit plan to issue the
following notice annually and in any renewal material:
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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.
16)Requires a plan participating in the Healthy Families program to
notify a qualified beneficiary within 30 days of the operative
date of opportunities to purchase or maintain coverage. Permits a
qualified beneficiary to elect coverage within 60 days of the
mailing of the notice.
17)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.
18)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.
EXISTING LAW :
1)Establishes DMHC to regulate health plans under the Knox-Keene
Health Care Services Plan Act of 1975 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
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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 of the ACA 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)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.
6)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.
7)Establishes notification and rate requirements for individuals
eligible for coverage under the Health Insurance Portability and
Accountability Act of 1996.
8)Establishes conditions for guaranteed issue of coverage for
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children.
FISCAL EFFECT : According to the Assembly Appropriations Committee,
this bill would have special fund costs to the 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
fiscal year 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 : 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 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, both
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
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the Legislature in Extraordinary Session to consider and act upon
legislation necessary to implement the ACA in the areas of: 1)
California's private health insurance market, rules and regulations
governing the individual and small group market; 2) California's
Medi-Cal program and changes necessary to implement federal law;
and, 3) 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. This bill along with SB 2 X1 (Ed
Hernandez) address the first of the three areas identified in the
Governor's proclamation.
On March 23, 2010, the federal ACA (Public Law 111-148), as amended
by the Health Care and Education 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,
and determine premiums based on adjusted community rating (age,
family, geography and tobacco use). Final rules were issued on the
ACA health insurance market rules on Friday, February 22, 2013.
According to a February 6, 2013, Kaiser Family Foundation (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 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
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uninsured people 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.
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. While the ACA allows for tobacco rating, this bill does
not include tobacco rating as a factor for determining premium
rates.
The ACA requires that each state establish geographic rating areas
that must be applied consistently inside and outside the Exchange.
The final federal rules allow states to establish rating areas by
selecting from the following options: 1) one or more rating areas
for the state; 2) based on county, three-digit zip code, or
metropolitan statistical areas (MSAs) and non-MSA geographic
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divisions; and, 3) are presumed adequate if the state established by
law, rule, regulation, bulleting or other executive action uniform
rating areas for the entire state as of January 1, 2013, or, the
state establishes them in the same manner after January 1, 2013,
that are no greater in number than the number of MSAs in the state
plus one (there are 26 MSAs in CA).
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 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.
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.
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.
This bill creates a new requirement on health, dental, and vision
plans covering the Healthy Families program (HFP) population to
offer to children aging out of HFP 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 HFP on or after January 1, 2012, and is in
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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.
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 (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.
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.
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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
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 that 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 oppose this bill
unless it is amended. They 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.
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097
FN:
0000018