BILL ANALYSIS Ķ
AB 1180
Page 1
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
individuals.
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
2012).
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
committee.
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
provisions:
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
repealed.
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;
and,
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
factors.
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
apply.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Health Plans
%100 Campaign
California Coverage and Health Initiatives
Children Now
Children's Defense Fund-California
Children's Partnership
PICO California
Opposition
None on file.
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097