BILL ANALYSIS Ķ
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 1180
AUTHOR: Pan
AMENDED: June 20, 2013
HEARING DATE: July 3, 2013
CONSULTANT: Robinson-Taylor
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 several provisions in
existing law that implement the health insurance laws of the
federal Health Insurance Portability and Accountability Act of
1996 and additional provisions that provide former employees
rights to convert their group health insurance coverage to
individual market coverage without medical underwriting.
Existing law:
1.Establishes the Department of Managed Healthcare (DMHC) to
regulate health plans under the Knox-Keene Health Care
Services Plan Act of 1975 in the Health and Safety Code;
California Department of Insurance (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 Affordable Care
Act (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 non-grandfathered health benefit plan for group or
individual coverage from imposing any pre-existing 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 (Monning), Chapter 852, Statutes of
Continued---
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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.Establishes a formula establishing the upper limit for premium
charges for health care plans and health insurance.
Authorizes the plan and insurer to adjust the premium based on
family size, as specified.
6.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 percent 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 percent of the
premium.
7.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 the Federal Health Insurance
Portability and Accountability Act of 1996 (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."
8.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
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chronic illness or high-risk medical conditions.
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 non-group 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 with equal or
lesser benefits without medical underwriting pursuant
to AB 2889 (Frommer), Chapter 826, Statutes of 2006;
d. Requirements included in HIPAA conformity law
pursuant to SB 265 (Speier), Chapter 810, Statutes of
2000;
e. 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;
f. Except with regard to specified provisions, on
and after January 1, 2014, that are applicable only to
grandfathered individual health plan contracts
previously issued to federally eligible defined
individuals; and,
g. Requirements regarding health care service
plan coverage provided after the termination of the
pilot program under MRMIP (AB 1401).
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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.Requires carriers to issue notices to individuals affected by
this bill informing them of changes in insurance laws
beginning January 1, 2014. Requires uniform model notices to
be adopted by CDI and DMHC no later than September 1, 2013,
and exempts the departments from Administrative Procedure Act
for purposes of adopting the model notices. Permits the
Directors of CDI and DMHC to modify these model notices
specifically for the purposes of clarity, readability and
accuracy. Includes in this authority notices related to the
ending of the MRMIP pilot program and pursuant to provisions
under AB 792 (Bonilla) Chapter 851, Statutes of 2011.
4.Provides authority for MRMIB to promulgate emergency
regulations regarding the shortening of the reconciliation
process upon the termination of MRMIP.
5.Deletes the current formula and establishes a rate cap for
individuals enrolled in HIPAA grandfather products by limiting
the premium charged for coverage provided in 2014 to the rate
charged in 2013 multiplied by 1.09 and limits the rate of
growth thereafter, as specified. Establishes a formula with
respect to the rate charged for coverage provided in 2015 and
each subsequent year.
6.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).
7.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 (Speir) Chapter 810, Statutes
of 2000).
FISCAL EFFECT : According to the Assembly Appropriations
Committee analysis, this bill will result in minor costs, less
than $100,000, to CDI and DMHC to develop the notice model. The
analysis states that there will be negligible costs for the
provisions to make HIPAA and conversion laws inoperative and
subsequently operative if specified ACA changes occur. If those
ACA changes occur, this bill's provisions along with many other
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5
new state laws will need to be reevaluated for potential cost
issues.
PRIOR VOTES :
Assembly Health: 18- 0
Assembly Appropriations: 16- 1
Assembly Floor: 69- 1
COMMENTS :
1.Author's statement. Health plans and health insurance
companies believe that in a post ACA world where there is
guaranteed issue, renewability, community rating, prohibitions
on pre-existing condition exclusions, and many other
protections made available through the ACA, that certain 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 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
non-grandfathered 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 percent of household adjusted gross income),
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religion, incarceration, and immigration status. Several
insurance market reforms are required, such as prohibitions
against health insurers imposing pre-existing 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
non-discrimination 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 percent 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, 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 pre-existing 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
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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
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 pre-existing
medical condition (portability) and limit the waiting time
before a plan covers any pre-existing 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 (Hernandez) which would have implemented ACA
individual market reforms in California were vetoed by the
Governor 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 X1 2 (Pan) and SB
X1 2 (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
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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;
ii. Community rating;
iii. Prohibitions on pre-existing 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.Related legislation. AB X1 2 and SB X1 2 conform California
law to the ACA as it relates to the ability to sell and
purchase individual health insurance by prohibiting
pre-existing condition exclusions, establishing modified
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.
6.Prior legislation.
a. SB 265 (Speier), Chapter 810, Statutes of 2000, 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 (Thomson), Chapter 794, Statutes of 2002,
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
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9
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 (Montanez), Chapter 64, Statutes of 2004,
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 (Frommer), Chapter 826, Statutes of 2006,
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 (Monning), Chapter 852, Statutes of 2012,
reforms California's small group health insurance laws to
enact the ACA. Eliminates pre-existing 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
existing small group guaranteed issue and rating law
pre-ACA would become operative.
g. SB 961(Hernandez) and AB 1461(Monning) 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
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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."
7.Support. California Association of Health Plans writes that
this bill allows for transition of individuals eligible for
guarantee issue coverage under HIPAA into the new guarantee
issue market under the ACA. Further, this bill would require
health plans to provide HIPAA and conversion members with
appropriate and timely notice about their options in the new
guarantee issue market while simultaneously making inoperative
laws that are non-ACA compliant. California Association of
Health Underwriters writes that this bill will provide an
urgently needed state and federal conformity that will avoid
the problem of health plans having to sell products out of
compliance with the ACA.
SUPPORT AND OPPOSITION :
Support: California Association of Health Plans
California Association of Health Underwriters
California Coverage and Health Initiatives
Children's Defense Fund-California
Children Now
Children's Partnership
Health Access California
PICO California
United Ways of California
Oppose: None on file.
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