BILL ANALYSIS                                                                                                                                                                                                    






                             SENATE INSURANCE COMMITTEE
                           Senator Ronald Calderon, Chair


          AB 402 (Ammiano)    Hearing Date:  June 26, 2013  

          As Amended:June 4, 2013
          Fiscal:             No
          Urgency:       No

          VOTES:              Asm. Floor(05/02/13)57-12/Pass
                         Asm. Ins. (04/24/13)12-01/Pass


          SUMMARY:   Would, commencing July 1, 2014, require disability  
          income insurance policies to cover disability caused by severe  
          mental illness.
          
           
           DIGEST
           
          Existing law
            
          Defines disability income insurance as insurance against loss of  
          occupational earning capacity arising from injury, sickness, or  
          disablement.  
           
          
          This bill

            1.  Would require every disability income insurance policy  
              issued, amended, or renewed on or after July 1, 2014, to  
              provide coverage for disability resulting from severe mental  
              illness.

           2.  Would define "severe mental illness" to include:
               A.     Schizophrenia.
               B.     Schizoaffective disorder.
               C.     Bipolar disorder (manic-depressive illness).
               D.     Major depressive disorders, including postpartum  
                  depression.
               E.     Panic disorder.
               F.     Obsessive-compulsive disorder.
               G.     Pervasive developmental disorder or autism.
               H.     Anorexia nervosa.
               I.     Bulimia nervosa.




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          COMMENTS
           
          1.  Purpose of the bill  .  According to the author, mental health  
              parity laws require health care plans to cover severe mental  
              illness in the same manner as physical injury or illness.  
              State disability insurance provides partial wage replacement  
              to eligible workers who are unable to work because of a  
              mental or physical illness or injury which prevents a worker  
              from performing his or her regular or customary work. These  
              mental health parity laws do not currently extend to short  
              term disability income insurance policies that provide  
              temporary income replacement, and often explicitly exclude  
              the coverage of severe mental illness.

              Research demonstrates that mental health care provides  
              support and treatment to optimize a person's emotional and  
              psychological well-being. Under California law, treatment  
              for severe mental illness, like major depression or panic  
              disorders, must be covered by your health plan. However,  
              there is nothing preventing short term disability income  
              insurers from excluding certain or all severe mental  
              illnesses, even for a person who has a physician's  
              certification and qualifies for California State Disability  
              Insurance, the Federal Family and Medical Leave Act, or the  
              California Family Rights Act.

              Allowing individuals to utilize their short term income  
              replacement insurance to make ends meet while they are under  
              the care of a medical professional for treatment of a severe  
              mental illness and unable to work ensures the best possible  
              outcome for the individual, their family, and a healthy  
              return to employment.

              Removing the ability to exclude mental health illness or  
              injury in short term disability income insurance is a  
              benefit to employers, employees, and their communities.


           2.  Background  


               A.      Disability Income Insurance.  Disability income  
                  insurance provides benefits on account of the insured's  
                  inability, as a result of covered accident or sickness,  




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                  to perform certain activities as defined in the policy.   
                  (10 CCR 2540.5.)  Occupational policies cover the duties  
                  of a particular occupation; non-occupational policies  
                  indemnify the insured against a disability which  
                  prevents the insured from performing the work of any  
                  occupation.  (See Erreca v. West. States Life Ins. Co.  
                  (1942) 19 Cal.2d 388, 393.)  Disability policies may  
                  also be described as long or short-term.  Short-term  
                  policies may pay benefits for less than a year but  
                  typically no more than two.  Long-term policies pay  
                  benefits for a much longer period and may pay for up to  
                  a defined period (up to five years), up to an age (such  
                  as age 65), for the remainder of the insured's life,  
                  etc.  Disability income policies may be purchased as a  
                  member of a group (like those provided by the employer)  
                  or individually.


               B.      Permissible Exclusions from Coverage.  Disability  
                  income policies must be submitted to the Insurance  
                  Commissioner for review.  (Ins. Code  10290.)   The  
                  Commissioner may disapprove the policy for a variety of  
                  reasons, including if the policy is "economically  
                  unsound" for the consumer.  (Ins. Code  10291 and  
                  10291.5(a)(1).)  Current regulations deem disability  
                  policies of "real economic value" despite exclusions for  
                  "mental or emotional disorders or functional nervous  
                  disorders."  (10 CCR  2220.8.)  In practice, policies  
                  vary in regards to exclusions for severe mental illness.


               C.      Mental Health Parity in Health Coverage.  AB 88  
                  (Thomson), Chap. 534, Statutes of 1999, requires health  
                  care service plan contracts and health insurance  
                  policies to provide coverage for severe mental  
                  illnesses.  (Ins.  10144.5.)  The definition of "severe  
                  mental illness" in this bill is borrowed from AB 88,  
                  except that this bill specifically provides that the  
                  category of "major depressive disorders" specifically  
                  includes postpartum depression.  


               D.      No New Criminal Penalties.  Concerns were raised  
                  that a violation of the provisions of this bill might be  
                  read as a violation of Insurance Code Section 10401  
                  (making "any discrimination between insureds of the same  




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                  class in any manner whatsoever with relation to such  
                  insurance" a misdemeanor).  Committee staff has  
                  confirmed with the Department of Insurance that this  
                  bill does not create a new crime. 



           1.  Arguments in Support  


               A.      The author states that according to the 2010 United  
                  States census, approximately 1.2 million adults live  
                  with serious mental illness. Most of these adults  
                  continue to work right through their mental illness  
                  utilizing sick days on occasion when symptoms are  
                  severe. Occasionally, employees may need a longer period  
                  of time to adequately recover from a severe mental  
                  illness or transition onto a new medication. California  
                  State Disability Insurance can pay for a portion of an  
                  employee's salary, but to keep the employee's income  
                  whole, many rely on short term disability income  
                  insurance to make up the remaining lost wages and allow  
                  an injured person to continue paying mortgage, rent,  
                  tuition and car payments, as well as help cover expenses  
                  for food, child care and utilities. When these policies  
                  exclude coverage for mental illness or injury, these  
                  families are left with the decision of working against  
                  their doctor's orders and placing employers and fellow  
                  employees at risk or facing often unmanageable financial  
                  burdens. 


               B.      The author also explains that workplace mental  
                  health is a critical factor when building and  
                  maintaining a successful business. A healthy workforce  
                  impacts productivity and employee retention.  
                  Additionally, a well-balanced employee benefit plan is  
                  very attractive to most employees, especially one that  
                  contains an option to receive or purchase short-term  
                  disability income insurance to cover basic living costs  
                  if the employee gets sick or injured.









                                               AB 402 (Ammiano), Page 5




           1.  Arguments in Opposition   


              No registered opposition.



           2.  Suggested Amendments  


               A.      Short-term Disability Income Coverage.  According  
                  to the Department of Insurance, the Commissioner has  
                  approved policies that limit coverage for serious mental  
                  illness benefits for up to two years.  As written, this  
                  bill would create mandatory coverage for long and  
                  short-term polices and eliminate currently permissible  
                  limitations.  Committee staff has confirmed that it is  
                  the intent of the author that the bill applies to  
                  short-term policies only.  Accordingly, committee staff  
                  recommends amendments that limit application of the bill  
                  to policies providing benefits for two-years or less  
                  (there currently is no statutory distinction between  
                  short and long-term policies).  


               B.      Chaptering Problem.  Both this bill and SB 22  
                  (Beall) add Insurance Code Section 10144.53.  Committee  
                  staff recommends amendments that change the section  
                  number to avoid a chaptering problem.
           

           POSITIONS
           
          Support
           
          The Arc and United Cerebral Palsy California Collaboration
          California Communities United Institute
          California Pan-Ethnic Health Network
          California Psychological Association
          Mental Health America of California
          National Association of Social Workers, CA Chapter
           

          Opposition
               
          No registered opposition.




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          Consultant:   Hugh Slayden, (916) 651-4773