BILL ANALYSIS Ó AB 1962 Page 1 Date of Hearing: April 8, 2014 ASSEMBLY COMMITTEE ON HEALTH Richard Pan, Chair AB 1962 (Skinner) - As Introduced: February 19, 2014 SUBJECT : Dental plans: medical loss ratios: rebates. SUMMARY : Requires specialized health plans and insurers of dental coverage to maintain a minimum medical loss ratio (MLR) or provide an annual rebate to enrollees or insureds in those policies, as specified. Specifically, this bill : 1)Requires dental health plans and insurers to provide an annual rebate to each enrollee in such coverage, on a pro rata basis, if the amount of the premium revenue expended for clinical services and quality improvement activities is less than 85% for health plans and insurers offering large group dental coverage or less than 80% for health plans and insurers offering individual and small group dental coverage. 2)Establishes the rebate calculation as the percentage by which the exceeds the required minimum ratios in 1) above, multiplied by total premium revenue, excluding from the premium revenue federal and state taxes, licensing or regulatory fees and payments for risk adjustment risk corridors and reinsurance. 3)Requires dental health plans and insurers to provide any rebate owing by August 1 of the calendar year following the year for which the ratio is calculated. 4)Authorizes the California Department of Insurance (CDI) and the Department of Managed Health Care (DMHC) to adopt regulations to implement this bill, including emergency regulations, requires the regulations to be parallel to the regulations adopted by CDI and DMHC related to the MLRs and rebates for health coverage and requires the two departments to consult in the adoption of the regulations and implementation of this bill. 5)Excludes dental plan coverage in specified government-sponsored programs from the requirements in this bill, including Medi-Cal and Medicare. AB 1962 Page 2 EXISTING LAW : 1)Establishes the CDI to regulate health insurers and the DMHC to regulate to regulate health plans, including specialized health plan contracts and health insurance policies covering a single benefit or service, such as dental or vision care. 2)Requires health plans and insurers to provide an annual rebate to each enrollee, on a pro rata basis, if the amount of the premium revenue expended for clinical services and quality improvement activities is less than 85% for health plans and insurers offering large group health coverage or less than 80% for health plans and insurers offering individual and small group health coverage. 3)Establishes the rebate calculation as the percentage by which the MLR exceeds the required minimum ratios in 1) above, multiplied by total premium revenue, excluding from the premium revenue federal and state taxes, licensing or regulatory fees, and payments for risk adjustment risk corridors and reinsurance. 4)Requires health plans and insurers to provide any rebate owing by August 1 of the calendar year following the year for which the ratio is calculated. 5)Requires the MLR and rebate requirements in state law to be implemented only to the extent they are required in federal law and to comply with and not exceed the implementing federal rules and requirements. 6)Establishes in federal law the Patient Protection and Affordable Care Act (ACA) which enacts comprehensive reforms of health insurance markets, including, among other things, the requirement that issuers of health insurance comply with the medical loss ratio standards in 1) above and pay rebates to enrollees as required. FISCAL EFFECT : This bill has not been analyzed by a fiscal committee. COMMENTS : 1)PURPOSE OF THIS BILL . According to the author, this bill would apply to dental health plans the current MLR AB 1962 Page 3 requirements that are in place for health care coverage, providing critical consumer protections for patients with dental insurance. The author argues that this bill will allow for greater transparency in dental plan premiums, increase the overall value of the benefit, and potentially result in a reduction in premiums for dental insurance. The author points to the MLR for health coverage and the billions of dollars in benefits for consumers in the form of rebates and reduced premiums. The author states that dental plan consumers should be able to expect the same level of efficiency and value in dental coverage as they now expect in health insurance. 2)BACKGROUND . a) MLR under the ACA. The federal ACA includes numerous provisions that change the way commercial health insurance is offered and regulated in an effort to provide better value to consumers and increase transparency, including the MLR standards. MLR limits the portion of premium that health insurers may spend on administration, marketing and profits. Under the ACA, health insurers must publicly report the MLR in each state where they offer coverage and if they fail to meet the minimum MLR standards must pay rebates to consumers. The MLR is a basic financial indicator, traditionally referring to the percentage of insurance premium revenues health insurers spent on enrollee medical claims. The MLR definition in the ACA differs from the traditional MLR definition, most notably because it allows insurers to include in their expenses spending on activities to improve health care quality and to deduct from their revenues certain tax payments and fees. b) Government Accountability Office (GAO). According to a 2010 analysis of data from the National Association of Insurance Commissioners, GAO found that the majority of health insurers with credible claims experience would have met or exceeded the ACA MLR standard in 2010 if it had been in effect. However, the GAO also found that MLR compliance varied by market, with less than half of insurers in the individual market meeting the ACA MLR standard, compared to 70% in the small group market and 77% in the large group market. MLR under the ACA applies to all of an insurer's commercial health insurance business, including coverage sold to associations and members of associations, and AB 1962 Page 4 coverage that is grandfathered under the ACA. Self-funded plans are not considered insurers and the MLR does not apply to self-funded plans or insurers that administer such coverage for the employer or plan sponsor. c) MLR in California. California adopted the ACA MLR requirement in state law and implemented the federal rules for standardizing the reporting and calculation of MLR. In 2012, California health plans and insurers paid a total of $74 million in MLR rebates to California consumers. According to the Center for Medicare and Medicaid Services (CMS), in 2013, health plans and insurers paid rebates of $65.5 million to 1.4 million California consumers with an average rebate of $74 per family; average rebates were $67 in the individual market, $105 in small employer coverage and $23 for large group. d) Dental Loss Ratios (DLRs) in California dental plans. According to DMHC, dental health plans under their jurisdiction reported average loss ratios of just over 60% in 2012. However, the range varies substantially by health plan from a low of 31% to a high of 81% and is not broken down by market, individual, small or large group. DMHC points out that the reported DLRs are not based on standardized measurement or calculation as is required for MLR and that a relatively low DLR does not necessarily mean that the dental plan is in strong financial condition or that the plan is earning huge profits. 3)SUPPORT . The California Dental Association (CDA) is the sponsor of this bill and argues that a minimum DLR will ensure dental consumers are afforded value for dental premiums in the same way that the MLR for health coverage protects consumers and has returned millions in rebates for consumers from health plans that exceed the limit. CDA states that the DLR requirement will encourage administrative efficiency, allow for greater transparency, increase the overall value of the benefit and possibly reduce premium costs. Blue Sky Consulting, an independent consulting firm, developed a report for CDA entitled, "Dental Loss Ratios: Factors to Consider in Establishing a Minimum Loss Ratio for Dental Insurance." Blue Sky found that a minimum loss ratio can deliver important consumer protections and benefits as well as administrative efficiencies to the market which has occurred for medical insurance since the institution of the ACA MLR. Blue Sky also AB 1962 Page 5 pointed out that while clear differences exist between dental plans and health plans, none of these differences preclude the development of a DLR requirement. Health Access California writes in support of this bill and an MLR for dental plans, but recommends that the bill be amended to impose a DLR that more properly reflects benefits offered by dental plans rather than medical plans. Health Access acknowledges that dental coverage is different than medical coverage, is not generally required to cover medical necessary dental care and can include benefit designs that have set dollar limits ($1,000 or $2,000 per year). The difference in the benefit designs will affect loss ratios and will need to considered in the formula and method for establishing a loss ratio for dental coverage. 4)OPPOSITION . Health and dental plans write in opposition that this bill will dramatically increase dental premiums for Californians because a DLR requirement would not change the costs to administer the dental benefits. To comply, dental plans would either have to increase premiums or reduce administrative costs, which include customer service, grievances and appeals, prevention, clinical review, timely claims processing, fraud prevention, consumer education, regulatory compliance, and other core functions of the dental plans. Opponents point out that the ACA did not impose a DLR and federal law recognizes dental coverage as different from medical in terms of the way benefits are offered and premium levels set. Opponents state that dental plans face disproportionately higher administrative costs (typically 4-6%) and typically lower margins. Since dental coverage is a voluntary purchase dental plans incur additional marketing and outreach costs because purchasers are generally not buying coverage for hundreds or thousands and so the market must be reached group by group, individual by individual. Plans state that the voluntary nature of the market also forces dental plans to be efficient in order to keep premiums affordable and competitive. The California Chamber of Commerce states that since dental premiums are already low relative to the higher costs of medical premiums dental plans have significantly less to spend for administration. According to the Chamber, it is one thing to ask a health plan to reduce administrative costs from $80 to $100 per enrollee but it is entirely different to require AB 1962 Page 6 that dental plan administrative costs be reduced to $3 instead of $5. The Chamber points out that if dental plans are challenged to reduce costs further the only way to comply with a DLR would be to increase dental provider rates, increasing the costs of coverage. Anthem suggests that true transparency in dental care would include dentists having to display and provide copies of fee schedules as well as the requirement that dentists who provide cash discounts for some patients provide the same discounts for all patients regardless of payer. Opponents argue that the potential effect of this bill will be to actually reduce access to dental care if premiums increase and families and employers can no longer secure affordable dental coverage. Liberty Dental writes that while they believe a DLR can work, and as a participating health plan manages DLRs in Medi-Cal and Healthy Families from 70-75%, an 85% loss ratio is too high. Liberty states that any DLR should only be imposed after a detailed analysis of the market, including geography, accessibility, choice, and competitive factors. 5)PREVIOUS LEGISLATION . AB 18 (Pan) of 2013 initially focused on pediatric oral care offered in the California Health Benefit Exchange and was amended to impose a DLR, rate filing and review requirements and other specific standards on dental plans offering that coverage. AB 18 stalled in the Assembly Appropriations Committee. 6)AUTHOR'S AMENDMENTS . The author plans to offer amendments to this bill to exempt from the DLR requirement dental insurance that does not reimburse claims or pay providers but pays benefits on a fixed benefit, cash payment-only basis. 7)POLICY COMMENTS . a) Dental and medical plan differences. Both supporters and opponents of this bill have acknowledged there are differences between medical and dental plans in the benefits, cost structures and premium levels. The Blue Sky report prepared for the sponsors states that establishing the proper value for a DLR should proceed deliberately, recognizing the potential for market disruption and impacts on consumer costs and choices. The author may wish to consider a lower DLR level than the MLR for health plans, taking into account the fixed expenses for dental plan AB 1962 Page 7 management, including costs associated with customer service, patient protections, and regulatory compliance, and the relative proportion of dental premiums available for administrative costs compared to health insurance premiums. b) Regulatory Guidance. This bill specifically requires CDI and DMHC to develop DLR regulations that are "parallel to" the MLR regulations which apply to health plans. The author may wish to consider amendments that direct CDI and DMHC to collaborate on regulations appropriate for dental plans specifically, rather than requiring them to mirror the MLR requirements. REGISTERED SUPPORT / OPPOSITION : Support California Dental Association (sponsor) California Society of Pediatric Dentistry California State Association of Electrical Workers California State Pipe Trades Council California Teachers Association Children Now PDI Surgery Center Opposition Aetna America's Health Insurance Plans Ameritas Life Insurance Corp Anthem Blue Cross Association of California Life and Health Insurance Companies California Association of Dental Plans California Association of Health Plans California Brokers and Consultants for Affordable Health Care California Chamber of Commerce Delta Dental Guardian Life Insurance Company of America Liberty Dental Plan Metropolitan Life Insurance Company National Association of Dental Plans Premier Access Dental and Vision Principal Financial Group AB 1962 Page 8 Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097