BILL ANALYSIS Ó
AB 1962
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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.
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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
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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
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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
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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
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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
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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
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Analysis Prepared by : Deborah Kelch / HEALTH / (916) 319-2097