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--- AB 1180 | Page 2 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 AB 1180 | Page 3 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). AB 1180 | Page 4 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 AB 1180 | Page 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), AB 1180 | Page 6 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 AB 1180 | Page 7 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 AB 1180 | Page 8 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 AB 1180 | Page 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 AB 1180 | Page 10 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. AB 1180 | Page 11 -- END --