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); AB 1180 Page 2 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 AB 1180 Page 3 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. AB 1180 Page 4 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 AB 1180 Page 5 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 AB 1180 Page 6 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; AB 1180 Page 7 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 AB 1180 Page 8 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 AB 1180 Page 9 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 AB 1180 Page 10 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