BILL ANALYSIS                                                                                                                                                                                                    Ķ

                                                                  AB 1180
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          Date of Hearing:  April 23, 2013

                            ASSEMBLY COMMITTEE ON HEALTH
                                 Richard Pan, Chair
                     AB 1180 (Pan) - As Amended:  April 16, 2013
          SUBJECT  :  Health care coverage:  federally eligible defined  
          individuals:  conversion or continuation of coverage.

           SUMMARY  :  Makes inoperative because of the federal Patient  
          Protection and Affordable Care Act (ACA) several provisions in  
          existing law that implement the health insurance laws of the  
          federal Health Insurance Portability and Accountability Act of  
          1996 (HIPAA) and additional provisions that provide former  
          employees rights to convert their group health insurance  
          coverage to individual market coverage without medical  
          underwriting.  Specifically,  this bill  :  

          1)Makes several provisions in existing law inoperative on  
            January 1, 2014, related to:
             a)   HIPAA and conversion policies comparative benefit  
               matrices pursuant to AB 1401(Thomson), Chapter 794,  
               Statutes of 2002;
             b)   Conversion to nongroup coverage when the group policy  
               has been terminated by the employer including requirements  
               on carriers without individual market products to offer the  
               most popular health maintenance organization (HMO) model  
               plan or the most popular preferred provider organization  
               (PPO) plan with the greatest number of enrolled individuals  
               for its type of plan as of January 1 of the prior year, as  
               reported to the California Department of Managed Health  
               Care (DMHC) or the California Department of Insurance (CDI)  
               under the same cost sharing terms and conditions (AB 1401);  

             c)   Requirements that at least once a year a carrier permit  
               an individual who has been covered for at least 18 months  
               in an individual market plan to transfer to another plan or  
               policy without medical underwriting to a plan or policy  
               with equal or lesser benefits pursuant to AB 2889  
               (Frommer), Chapter 826, Statutes of 2006;
             d)   Article 11.5 in the Health and Safety Code and Chapter  
               9.5 in the Insurance Code related to HIPAA conformity law  
               pursuant to SB 265 (Speier), Chapter 810, Statutes of 2000;
             e)   Requirement that carriers offer the two most popular  
               products to HIPAA eligible individuals (SB 265);


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             f)   Conversion policy for employees or members with  
               insurance on an expense-incurred or service basis, other  
               than for a specific disease or for accidental injuries only  
               whose coverage has been terminated pursuant to SB 1846  
               (Russell), Chapter 1186, Statues of 1982; and, 
             g)   Except that with regard to b), d), and e) above, on and  
               after January 1, 2014, requires these provisions to apply  
               only to grandfathered individual health plan contracts  
               previously issued to federally eligible defined  

          2)Repeals 1) above if the federal mandate on individuals to  
            purchase insurance is repealed or amended to no longer apply  
            to the individual market.

          3)Deletes a provision which requires a health plan or disability  
            insurance policy to notify the former spouse of an employee  
            about the right to a conversion plan or policy, as specified,  
            and deletes obsolete inoperative dates (AB 254 (Montaņez),  
            Chapter 64, Statutes of 2004).

          4)Deletes a provision in existing law allowing carriers to elect  
            to establish a mechanism or method to share in the financing  
            of high risk individuals (AB 265).

           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 contracting with health plans and 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 a  
            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  
            permits new enrollment only for new employees or dependents).

          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  


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            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 (Monning), Chapter 852, Statutes of  

          4)Establishes that premium rates for small employer health  
            benefit plan contracts can vary only by age, pursuant to age  
            bands, established by the federal Secretary of the Department  
            of Health and Human Services (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.

          5)Requires health care service plans (plans) and disability  
            (health) insurers, (collectively carriers), to continue to  
            provide the same coverage for 18 months, or 29 or 36 months as  
            specified, to individuals who leave their employment.   The  
            federal law that governs this is referred to as the  
            Consolidated Omnibus Budget Reconciliation Act (COBRA),  
            applies to employers who have more than 20 employees, and  
            requires the terminated employee to pay 102% of the premium.   
            The state law that governs this is referred to as Cal-COBRA,  
            applies to employers that have two to 19 employees, and  
            requires the terminated employee to pay 110% of the premium.

          6)Requires plans and insurers to offer continued guaranteed  
            eligibility and guaranteed renewal for health insurance to  
            individuals who have exhausted their COBRA or Cal-COBRA.  The  
            federal law is known as HIPAA and provides national rules for  
            all insurers operating in the small employer marketplace.   
            HIPAA allows states to implement an "acceptable alternative  
            mechanism" to determine the rules for HIPAA.  State law allows  
            an eligible individual to pick either a "conversion policy" or  
            a "HIPAA policy."  

          7)Creates the Managed Risk Medical Insurance Board (MRMIB) which  
            administers the Major Risk Medical Insurance Program (MRMIP)  
            to provide major risk medical coverage to residents who are  
            unable to secure adequate private health coverage due to  
            chronic illness or high-risk medical conditions.


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           FISCAL EFFECT  :  This bill has not yet been analyzed by a fiscal  

           COMMENTS  :

           1)PURPOSE OF THIS BILL  .  Health plans and health insurance  
            companies believe that in a post ACA world where there is  
            guaranteed issue, renewability, community rating, prohibitions  
            on preexisting condition exclusions, and many other  
            protections made available through the ACA, that these HIPAA  
            and conversion requirements on carriers are no longer  
            necessary.  However, according to the author, these carriers  
            also requested, and in agreement, the Governor insisted that  
            certain federal ACA protections must be "tied back" to federal  
            law, so that if those ACA provisions are repealed, so too  
            would the major provisions of California's implementing ACA  
            legislation.  The author states that given these  
            circumstances, this bill is intended to make inoperative the  
            HIPAA and conversion provisions until such time as those ACA  
            protections are repealed, if ever.  Additionally, some  
            individuals who are in grandfathered plans will be able to  
            stay in such plans until, and unless, they choose  
            nongrandfathered ACA compliant coverage.  For those  
            individuals in HIPAA  PPO plans, the rating protections in  
            existing California law must be adjusted in the event MRMIP is  
            shut down, as is a possibility at some point in the future  
            because of the new ACA protections.   

           2)BACKGROUND  .  On March 23, 2010, the federal ACA (Public Law  
            (P.L.) 111-148), as amended by the Health Care and Education  
            Reconciliation Act of 2010 (P.L. 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  


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            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).

          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 the federal  
            poverty level 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.
           3)HIPAA  .  HIPAA of 1996 (P.L. 104-191), provides for changes in  
            the health insurance market such as the guaranteed  
            availability and renewability of health insurance coverage for  
            certain employees and individuals, and limits the use of  
            preexisting condition restrictions. HIPAA creates federal  
            standards for insurers, HMOs, and employer-provided health  
            plans, including those that self-insure.  It permits  
            substantial state flexibility for compliance with the  
            requirements on insurers.  HIPAA also includes tax provisions  
            relating to health insurance.  It permits a limited number of  
            small businesses and self-employed individuals to contribute  
            to tax-advantaged medical savings accounts established in  
            conjunction with high-deductible health insurance plans.  It  
            increases the deduction for health insurance that  
            self-employed taxpayers may claim.  In addition, it allows  
            long-term care expenses to be treated like deductible medical  
            expenses and clarifies the tax treatment of long-term care  
            insurance. Finally, HIPAA includes administrative  
            simplification and privacy provisions instructing the federal  
            Secretary of HHS to issue standards addressing the electronic  
            transmission of health information and the privacy of  
            personally identifiable medical information.

          The basic intent of HIPAA's health insurance provisions is to  
            lower the possibility that people and small employers will  
            lose existing health plan coverage, and to make it easier for  
            individuals to switch plans or to purchase coverage on their  


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            own if they lose employer-offered coverage.  The health  
            insurance reforms ensure that people who are moving from one  
            job to another or from employment to unemployment are not  
            denied health insurance because they have a preexisting  
            medical condition (portability) and limit the waiting time  
            before a plan covers any preexisting medical condition for  
            participants and beneficiaries in group health plans.  The  
            reforms were also intended to guarantee that individuals and  
            employers who choose to purchase coverage are able to find a  
            plan (guaranteed issue) and that individuals already covered,  
            as well as employers that offer coverage to their employees,  
            are able to renew their coverage (guaranteed renewal).   
            Finally, the health insurance provisions prohibit  
            discrimination on the basis of health status  
            (nondiscrimination) and require plans to offer special  
            enrollment periods.

           4)TIE BACK STATE LAW TO THE ACA  .  Last year, AB 1461 (Monning)  
            and SB 961 (Ed Hernandez) which would have implemented ACA  
            individual market reforms in California were vetoed by  
            Governor Brown because the tie back provision was not  
            sufficient to meet the Governor's concerns.  The Brown  
            Administration requested a broader tie-back to the ACA.  AB 2  
            1X (Pan) and SB 2 1X (Ed Hernandez) have been introduced which  
            together implement health insurance reforms in California in  
            the individual market, and include the following tie back  

             a)   Makes inoperative 12 months after the repeal of federal  
               guarantee issue and federal community rating provisions the  
               following California small group provisions:
               i)     Guarantee Issue;
               ii)    Community rating; and,
               iii)   Prohibition on eligibility rules based on health  
                 status and other factors.

             b)   Makes operative prior California small group law (pre  
               ACA) related to guarantee issue and rating requirements if  
               federal guarantee issue and federal community rating are  

             c)   Makes inoperative 12 months after the repeal of the  
               federal individual mandate the following California  
               individual market provisions:  
               i)     Guarantee issue;


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               ii)    Community rating;
               iii)   Prohibitions on preexisting condition provisions;  
               iv)    Prohibitions on eligibility rules based on health  
                 status and other factors.

             d)   Makes operative 12 months after the repeal of the  
               federal individual mandate the following California  
               individual market provisions:
               i)     Written policies on underwriting;
               ii)    Rescission requirements; and,
               iii)   Guarantee issue for children.

           5)SUPPORT  .  The California Association of Health Plans (CAHP)  
            supports this bill because CAHP believes this bill resolves an  
            important state-federal conformity issue by helping avoid a  
            situation where health plans, absent this legislation, would  
            be required to sell federal HIPAA and state conversion  
            products that are out of compliance with the ACA.  According  
            to CAHP with guarantee issue coverage available to all under  
            the ACA, existing laws requiring guaranteed coverage for  
            subgroups of individuals are obsolete and in direct conflict  
            with the ACA.  This is because state law places limits on the  
            rates charged to HIPAA and conversion eligible members that  
            cannot be met in the future because, under the ACA, rates may  
            only vary by the factors specifically outlined in federal law  
            and guidance.  Existing state law also requires HIPAA and  
            conversion offerings to be based on individual market products  
            that will no longer be ACA compliant in 2014 because of  
            comprehensive changes to benefits and cost-share arrangements.  
             This coverage can only continue for those in "grandfathered"  
            HIPAA and conversion plans that existed when President Obama  
            signed the ACA into law.  A tie-back mechanism is included in  
            this language that would reactivate the laws if relevant  
            provisions of the ACA are repealed at the federal level.  In  
            addition, those in grandfathered plans will still be able to  
            continue with their coverage.  An unresolved issue is what  
            rate will be charged to these members in "grandfathered"  
            plans, and we look forward to working with the author to  
            resolve this issue as soon as possible.

           6)RELATED LEGISLATION  .   AB 2 1X and SB 2 1X conform California  
            law to the ACA as it relates to the ability to sell and  
            purchase individual health insurance by prohibiting  
            preexisting condition exclusions, establishing modified  


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            community rating, requiring the guaranteed issue and renewal  
            of health insurance, and ending the practice of carriers  
            conditioning health insurance on health status, medical  
            condition, claims experience, genetic information or other  

           7)PREVIOUS LEGISLATION  .  

             a)   SB 265 put HIPAA in place in California which became law  
               on January 1, 2001, revises existing law to conform to the  
               federal HIPAA, including requiring carriers to issue their  
               two most popular health coverage products to federally  
               eligible individuals, as defined.

             b)   AB 1401 provides 36 months of Cal-COBRA coverage to  
               individuals with less than that length of coverage under  
               COBRA or Cal-COBRA, and creates a four-year pilot program  
               to provide coverage to the medically uninsurable by  
               implementing changes in the MRMIP and the private  
               individual health insurance market.  

             c)   AB 2759 (Levine), Chapter 489, Statutes of 2004,  
               preserves individual health care coverage to subscribers of  
               health plans and policyholders of insurance plans that  
               withdraw from a California service area.

             d)   AB 254 eliminates senior COBRA health insurance  
               eligibility for individuals who would have been eligible on  
               or after to January 1, 2005 (because HIPAA) offered more  
               affordable options.

             e)   AB 2889 requires carriers to permit an individual who  
               has been covered for at least 18 months under an individual  
               contract or policy to transfer, without medical  
               underwriting, to any other individual contract or policy,  
               as specified.

             f)   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  


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               existing small group guaranteed issue and rating law  
               pre-ACA would become operative.

             g)   AB 1461 and SB 961 of 2012 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  
                 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."

           8)Author's Amendments  .  The Assembly Rules Committee has  
            approved a request from the author to add an urgency clause to  
            this bill.  There are also technical amendments necessary to  
            correct some inaccurate cross references and to include the  
            actual sections, rather than Article/Chapter, that will be  
            made inoperative.  The following notice requirements will be  
            added to both the Health and Safety and Insurance Codes:

            (d)(1) At least sixty (60) days prior to the plan renewal  
            date, a carrier that does not otherwise issue individual  
            health insurance policies shall issue the notice described  
            below to any subscriber enrolled in an individual health  


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            insurance policy that is not a grandfathered health plan.
            (2) The notice shall be in at least 12 point type and shall  
            include the following information:
            (A) Notice that, as of the renewal date, the individual policy  
            will not be renewed.
            (B) It shall inform such individuals of the availability of  
            individual health coverage through Covered California and  
            include at least all of the following:  
            (i) That beginning on January 1, 2014, individuals seeking  
            coverage may not be denied coverage based on health status;
                                (ii) That the premium rates for coverage offered by a health  
            care service plan or a health insurer cannot be based on an  
            individual's health status;
            (iii) That individuals obtaining coverage through Covered  
            California may be eligible for premium subsidies and  
            cost-sharing subsidies; 
            (iv) That individuals seeking coverage must obtain this  
            coverage during an open or special enrollment period, and  
            describe the open and special enrollment periods that may  


          California Association of Health Plans
          %100 Campaign
          California Coverage and Health Initiatives
          Children Now
          Children's Defense Fund-California
          Children's Partnership
          PICO California

          None on file.
          Analysis Prepared by  :    Teri Boughton / HEALTH / (916) 319-2097