BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 1962
AUTHOR: Skinner
AMENDED: May 23, 2014
HEARING DATE: June 11, 2014
CONSULTANT: Boughton
SUBJECT : Dental plans: medical loss ratios: reports.
SUMMARY : Requires a health plan or health insurer that issues,
sells, renews, or offers a specialized health plan contract or
specialized health insurance policy covering dental services to
file a medical loss ratio (MLR) annual report with its regulator
that is organized by group and product type that contains the
same information required in the federal MLR Annual Reporting
Form required of other health plans and insurers. States
legislative intent that the data reported pursuant to this bill
be considered by the Legislature in adopting an MLR standard for
health plans or health insurers that cover dental services that
would take effect no later than January 1, 2018.
Existing law:
1.Establishes the Department of Managed Health Care (DMHC) to
regulate health care service plans (health plans), including
specialized health plan contracts and the California
Department of Insurance (CDI) to regulate health insurers,
including specialized health insurance policies. (Specialized
plan contracts and insurance policies are generally for vision
or dental services only.)
2.Requires every health plan and health insurer that issues,
sells, renews, or offers health plan contracts or insurance
policies for health care coverage, including a grandfathered
health plan or insurer, but not including specialized health
plan contracts or insurance policies, to provide an annual
rebate to each enrollee under such coverage if the ratio of
the amount of premium revenue expended by the health plan or
insurer on the costs for reimbursement of clinical services
provided to enrollees or insureds, as specified, to the total
amount of premium revenue less certain taxes and fees is less
than the following:
a. Eighty-five percent for a health plan or
health insurer in the large group market; or,
Continued---
AB 1962 | Page 2
b. Eighty percent for a health plan or health
insurer in the small group or individual market.
3.Requires, under federal law and regulation, health plans and
insurers, subject to 2) above, to file an annual MLR Annual
Reporting Form (MLR Form).
4.Requires DMHC to conduct an examination of the fiscal and
administrative affairs of any health plan, and each person
with whom the plan has made arrangements for administrative,
management, or financial services, as often as deemed
necessary to protect the interest of subscribers and
enrollees, but not less frequently than once every five years.
5.Requires the Insurance Commissioner (IC) of CDI, whenever he
or she deems necessary or whenever he or she is requested by
verified petition, signed by 25 persons interested as
shareholders, policyholders, or creditors of any admitted
insurer showing that the insurer is insolvent, or upon
information that any insurer has violated specified provisions
of law, to examine the business and affairs of the insurer,
and requires the IC to examine every domestic insurer before
issuing to it a certificate of authority other than a renewal.
This bill:
1.Requires a health plan or health insurer that issues, sells,
renews, or offers a specialized health plan contract or
specialized health insurance policy covering dental services
to, no later than July 31, 2015, and each year thereafter,
file an MLR form, with its regulator that is organized by
group and product type and contains the same information
required in the federal MLR Form.
2.Requires the MLR reporting year to be for the calendar year
during which dental coverage is provided by the plan or
insurer. Requires all terms used in the MLR form to have the
same meaning as used in the federal Public Health Service Act
(PHSA), and existing California law, as specified.
3.Requires, if the director of DMHC or IC decides to conduct a
financial examination, as described, because the director of
DMHC or the IC finds it necessary to verify the health plan's
or health insurer's representations in the MLR form, DMHC or
CDI to provide the health plan or insurer with a notification
30 days before the commencement of the financial examination.
AB 1962 | Page
3
4.Requires the health plan or health insurer to have 30 days
from the date of notification to electronically submit to its
regulator all requested records, books, and papers, as
specified.
5.Authorizes the director of DMHC or IC to extend the time for a
health plan or health insurer to comply with this bill upon a
finding of good cause.
6.Requires the regulators to make available to the public all of
the data provided to them pursuant to this bill.
7.Requires each regulator to submit a report to the Legislature
by November 1, 2015, and by November 1 of each year thereafter
that includes an analysis of the filings, and submitted
electronically to the Legislature, as specified.
8.Excludes from the requirements of this bill a health plan
contract or insurance policy issued, sold, renewed, or offered
for health care services or coverage provided in the Medi-Cal
program; Healthy Families Program; Access for Infants and
Mothers Program; the California Major Risk Medical Insurance
Program; or, the Federal Temporary High Risk Insurance Pool,
to the extent consistent with the federal Patient Protection
and Affordable Care Act (ACA).
9.States legislative intent that the data reported pursuant to
this bill be considered by the Legislature in adopting a MLR
standard for health plans or health insurers that cover dental
services that would take effect no later than January 1, 2018.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1. One-time costs, likely under $200,000 to DMHC (Managed
Care Fund) and under $100,000 to CDI to modify information
technology systems and develop reporting requirements.
2. Ongoing minor costs, under $50,000 annually to DMHC and
CDI (Managed Care Fund/ Insurance Fund) to examine reports,
review compliance, and report to the Legislature.
PRIOR VOTES :
Assembly Health: 15- 3
Assembly Appropriations:13- 2
AB 1962 | Page 4
Assembly Floor: 76- 0
COMMENTS :
1.Author's statement. According to the author, this bill
requires dental plans to report annually about the patient
value of the dental plans to DMHC and CDI, and states that it
is the intent of the Legislature to adopt an MLR for dental
plan products by January 1, 2018. All medical plans must
already adhere to an MLR, but dental plans have no such
standard, leaving dental patients without the same assurance
that their premium dollars will give them access to
comprehensive and timely dental care. Without a minimum loss
ratio standard for dental plans, some dental plans currently
have MLRs as low as 38 percent - meaning more than 60 percent
of each premium dollar stays with the dental plan overhead,
administration and profit, while less than 40 percent goes
toward the care patients are seeking. By requiring detailed
annual reporting, AB 1962 would provide patients and dental
plan purchasers the information needed to evaluate dental plan
products in California. This legislation would allow for
greater transparency in consumers' dental plan purchases, and
would lead to an increase in the overall value of the benefit,
which may result in reduced premium costs to patients.
2.ACA MLR Requirement. Section 2718 of the PHSA, amended by the
ACA, establishes MLR requirements and the provision of rebates
to enrollees. Health plans and insurers are required to submit
data in the MLR Form, which will be used to calculate a health
plan or insurers MLR and rebates, if any. MLR Form Filing
Instructions are developed annually. An MLR Form must be
prepared and submitted for each State in which the issuer has
written direct health insurance coverage or has direct amounts
paid, incurred, or unpaid for the provision of health care
services. In addition, the health plan or insurer must submit
a Grand Total (GT) template containing the grand total of its
business in all States. The term "health insurance coverage"
means benefits consisting of medical care (provided directly,
through insurance or reimbursement, or otherwise and including
items and services paid for as medical care) under any
hospital or medical service policy or certificate, hospital or
medical service plan contract, or health maintenance
organization contract offered by a health insurance issuer.
The definition includes any insurance product, such as drug,
chiropractic, or mental health coverage, whether sold as a
stand-alone product or in conjunction with any other health
insurance coverage, unless specifically identified as
AB 1962 | Page
5
"excepted benefits" by the PHSA. According to the U.S.
Department of Labor, excepted benefits are not subject to
certain requirements under federal Employee Retirement Income
Security Act (ERISA). Excepted benefits are not considered
health coverage, such as: Accident Only, Disability Income
Insurance, and Workers' Compensation; benefits offered
separately or that are not an integral part of the employer
benefit plan, including, Limited-Scope Dental or Vision and
Long-Term Care Benefits; benefits offered separately and not
coordinated with benefits under another group health plan,
including: Coverage for a Specific Disease or Hospital
Indemnity or Other Fixed Indemnity; and, benefits offered as a
separate insurance policy and supplemental to Medicare, Armed
Forces health care coverage, or (in very limited
circumstances) group health plan coverage.
3.Federal Senate Committee on Commerce, Science, and
Transportation Oversight Hearing. On May 21, 2014, the
committee held a hearing to review the success of MLR
implementation. The staff report indicates that the
industry's dire predictions have not materialized and two
years of data show that the law has worked as intended.
Health insurance companies, especially in the individual
market, have increased the value of their products by offering
plans that pay more for health services. Since the ACA,
minimum MLRs have risen across all markets segments. Millions
of Americans and businesses have received $1.6 billion in
rebate checks in 2011 and 2012. Insurers have reduced
overhead by $1.75 billion to avoid paying rebates. By having
a national minimum MLR, health insurers are less likely to
cross subsidize profits restricted by states with MLRs.
Finally, the report indicates more data is now available to
help academics, policy experts, financial experts and others
understand and improve the market.
4.Blue Sky Report. A January 16, 2014 report commissioned by
the California Dental Association (CDA) identifies several
factors to consider in establishing a MLR for dental
insurance, including that there are important differences
between health and dental plans. High fixed costs and low
premiums suggest lower loss ratios may be appropriate, but
claims frequency, complexity, and utilization for dental plans
may be lower relative to health plans, which could result in
lower administration expenses as a percent of premiums and
higher loss ratios. Dental plans do not necessarily function
AB 1962 | Page 6
like "low cost health plans." Furthermore, with the
implementation of the ACA, and Covered California, dental
insurance is undergoing a period of transition with the
addition of potentially millions of customers. Finally,
California's Medicaid program requires a MLR of 70 percent for
prepaid dental contracts; the Healthy Families Program
required a MLR of about 80 percent, and Colorado requires a
MLR of about 90 percent for its Children's Health Insurance
Program. The report concludes establishing the proper value
will require careful analysis of the current dental insurance
market, and development of policy should proceed deliberately,
recognizing the potential for market disruption and
corresponding impact on consumer cost and choices. Some
insurers appear already to have loss ratios that would place
them in compliance with ACA thresholds. Consumers could well
experience substantial benefits in the form of reduced
premiums (or rebates) or increased value from their dental
insurance expenditures.
5.Prior legislation. AB 18 (Pan) of 2013 would have required,
beginning January 1, 2015, every specialized health plan
contract and insurance policy providing pediatric oral care
benefits in the small group market through the Covered
California SHOP and outside the SHOP whether or not it is
bundled with a QHP or standing alone, to maintain a minimum
MLR of 75 percent. The bill also would have required rebates
to be provided to each enrollee if the MLR is less than 75
percent. AB 18 (Pan) was held in the Assembly Appropriations
Committee at the request of the author.
AB 51 (Alquist), Chapter 644, Statutes of 2011, conforms
California law to provisions of the ACA related to MLR
requirements on health plan and health insurers and
prohibitions on annual and lifetime benefits.
6. Support. CDA writes that this legislation would allow for
greater transparency for consumers' dental plan purchasers,
and would lead to an increase in the overall value of the
benefit, which may result in reduced premium costs to
patients. Under the current law, dental plans have no MLR
standard, leaving dental patients without the same assurance
that their premium dollars will give them access to
comprehensive and timely dental care. Without a minimum loss
ratio standard some dental plans have MLRs as low as 38
percent - meaning more than 60 percent of each premium dollar
stays with the dental plan overhead, administration and
AB 1962 | Page
7
profit, while less than 40 percent goes toward the care
patients are seeking. Health Access California points out
that dental plans pay only $1,000 or $2,000 worth of care, no
matter how much care the consumer needs. Such skinny benefit
plans have different loss ratios than full-service plans
because administrative overhead is a higher proportion.
Health Access California believes this bill is the first step
toward sorting out an appropriate MLR for dental plans by
requiring dental plans to report on what is their current MLR.
7. Support if Amended. Liberty Dental Plan joins other health
plans in requesting an amendment that would push off the
initial collection date to 2016, for plan year 2015 so that
plans have the appropriate amount of time to prepare for these
changes. Liberty requests an amendment to require DMHC and
CDI to review the form and make adjustments or develop a new
form. Additionally, Liberty would like the intent language
revised to say: It is the intent of the Legislature that the
data reported pursuant to this section be considered by the
Legislature in determining if there is a need for a medical
loss ratio standard for health care service plans that cover
dental services.
8. Neutral. Aetna, Health Net and Premier Access are now
neutral on this bill. Previously they were opposed because
the bill established an MLR for dental plans and policies.
9. Opposition. The California Association of Health
Underwriters writes that proponents continue to ignore the
fact that the federal ACA explicitly exempts dental from MLR
because Congress recognizes that dental benefits operate under
a different cost structure. CAHU believes this mandate to use
the data to set a loss ration requirement in 2018 will mean
that consumers end up with fewer affordable options. CAHU
believes the policy goal should be to find ways to encourage
dental plans to keep offering this important coverage at a
reasonable price rather than make this coverage less
affordable down the line.
10. Oppose unless Amended. The California Chamber of Commerce
writes while California employers are very concerned about the
rising cost of health care and the role administrative waste
plays in that cost, their members have not raised significant
concerns about the cost of dental plans or potential
AB 1962 | Page 8
administrative waste for those plans. As such, they do not
believe it is appropriate for the legislation to presume that
a state-imposed dental loss ratio is necessary. Loss ratios do
not cap administrative spending - they mandate a specific
relationship between administrative spending and spending on
patient care. This means that a plan can avoid reducing its
administrative costs by raising their premiums, which
negatively impacts employers as purchasers. It may be that the
reporting required by AB 1962 will reveal administrative waste
in the dental insurance system, and employers would benefit
from reducing any waste that does exist, but they would also
like to see legislative intent reworded to allow regulators
and legislators more flexibility to determine how best to
address it. Anthem Blue Cross requests an amendment that
would push off the initial collection date to 2016, for the
plan year 2015 so that plans have the appropriate amount of
time to prepare for these changes. Also, Anthem requests an
amendment to require the DMHC and CDI to review the form and
make adjustments or develop a new form for the use of dental
plans. Anthem requests the intent language be stricken from
the bill. Anthem believes that for full transparency, dental
providers should have to display and provide copies of their
fees charged for each procedure.
11. Amendments. Staff suggests amendments to allow DMHC and CDI
to work together to revise or develop a new form for carriers
of specialized contracts and polices covering dental services
to report medical loss information. However, for consistency
and comparability, the same format must be used by all
carriers regardless of their regulator. Staff suggests a
technical amendment on page 3, line 7 to change "group" to
"market." The intent provisions should be amended to clarify
the intent is to develop an MLR standard for specialized
health plan contracts and insurance policies covering dental
services.
SUPPORT AND OPPOSITION :
Support: California Dental Association (sponsor)
Health Access California
Oppose: Anthem Blue Cross (unless amended)
California Association of Health Underwriters
California Chamber of Commerce (unless amended)
AB 1962 | Page
9
-- END --