BILL ANALYSIS                                                                                                                                                                                                    Ó






                             SENATE COMMITTEE ON HEALTH
                          Senator Ed Hernandez, O.D., Chair

          BILL NO:       AB 2088
          AUTHOR:        Hernández
          AMENDED:       April 21, 2014
          HEARING DATE:  June 25, 2014
          CONSULTANT:    Boughton

           SUBJECT  :  Health insurance: minimum value: large group market  
          policies.
           
          SUMMARY  :  Requires a health plan or insurer that offers, amends,  
          or renews a group plan contract or policy that does not provide  
          a minimum value of at least 60 percent to a large group to  
          require that the persons to be covered by the plan contract or  
          policy are covered by an individual or group plan contract or  
          policy that arranges or provides medical, hospital, and surgical  
          coverage not designed to supplement other private or  
          governmental plans.

          Existing law:
          1.Provides for regulation of health plans by the Department of  
            Managed Health Care (DMHC) under the Knox-Keene Act and  
            regulation of health insurers by the California Department of  
            Insurance (CDI) under the Insurance Code.
          
          2.Defines a 'health benefit plan" as any group or individual  
            policy of health insurance, as defined.  The term does not  
            including coverage of Medicare services or coverage that  
            provides excepted benefits, as described in the federal Public  
            Health Services Act.  
          
          3.Excludes from the definition of "health benefit plan" policies  
            or certificates of specified disease or hospital confinement  
            indemnity provided that the carrier offering those policies or  
            certificates complies with the following: on or before March 1  
            of each year, a certification with the Insurance Commissioner  
            (IC) that contains the following statement and information:

                     a.          A statement from the carrier certifying  
                      that policies or certificates, as described   are  
                      being offered and marketed as supplemental health  
                      insurance and not as a substitute for coverage that  
                      provides essential health benefits and the uniform  
                      summary benefits contains the following statement  
                                                         Continued---



          AB 2088 | Page 2




                      prominently on the first page:

                           "This is a supplement to health insurance. It  
                           is not a substitute for essential health  
                           benefits or minimum essential coverage as  
                           defined in federal law."

                     b.          A summary description of each policy or  
                      certificate, as described, including the average  
                      annual premium rates, or range of premium rates in  
                      cases where premiums vary by age, gender, or other  
                      factors, charged for the policies and certificates  
                      issued or delivered in this state.

          4.Requires in the case of a policy or certificate, as described  
            that is offered in this state on or after January 1, 2014, the  
            carrier to file with the IC the information and statement  
            above at least 30 days prior to the date such a policy or  
            certificate is issued or delivered in this state.

          5.Requires the carrier issuing a policy or certificate of  
            specified disease or a policy or certificate of hospital  
            confinement indemnity to require that the person to be insured  
            is covered by an individual or group policy or contract that  
            arranges or provides medical; hospital; and, surgical coverage  
            not designed to supplement other private or governmental  
            plans.

          6.Defines "policies or certificates of specified disease" and  
            "policies or certificates of hospital confinement indemnity"  
            as policies or certificates of insurance sold to an insured to  
            supplement other health insurance coverage as specified in  
            this section.

          7.Enacts, in federal law, the Affordable Care Act (ACA) to,  
            among other things, a penalty on employers, with at least 50  
            full-time employees, that do not offer qualifying coverage or  
            minimum value (which means the plan's share of the total  
            allowed costs of benefits provided under the plan is less than  
            60 percent of such costs), and if at least one full-time  
            employee qualifies for premium tax credits to purchase  
            insurance in an exchange.  The penalty is $2,000 for each of  
            their full-time employees (with the first 30 employees  
            exempted from the calculation). 

          




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          8.Requires for employers with 50 or more employees who do offer  
            coverage but still have at least one employee who qualifies  
            for a premium tax credit (due to inadequacy or unaffordability  
            of the employer's benefit), to pay the lesser of $3,000 for  
            each employee receiving the credit or $2,000 for each of all  
            of their full-time employees (with, again, the first 30  
            employees exempted). 
          
          9.Applies the employer responsibility provisions to firms with  
            100 or more full-time employees starting in 2015 and employers  
            with 50 or more full-time employees starting in 2016.
          
          10.Requires effective January 1, 2014, that all individuals with  
            access to affordable coverage purchase minimum essential  
            coverage or pay a penalty for 2014: $95 or 1 percent of income  
            (whichever is greater), 2015: $325 or 2 percent of income,  
            2016: $695 or 2.5 percent of income (up to a cap of the  
            premium for a Bronze plan), and after 2016: caps adjusted by  
            increases in cost of living.
          
          11.Establishes exceptions for individuals not lawfully present  
            in the U.S., religious objectors, incarcerated individuals,   
            taxpayers with income below the filing threshold, members of  
            Indian tribes, those granted a hardship waiver and individuals  
            who were not covered for less than three months of the year.  
          
          12.Establishes as minimum essential coverage, health insurance  
            coverage provided by an employer, health insurance purchased  
            through an Exchange, coverage provided under a  
            government-sponsored program (including Medicare, Medicaid,  
            and health care programs for veterans), health insurance  
            purchased directly from an insurance company, and other health  
            insurance coverage that is recognized by the Department of  
            Health & Human Services (HHS) as minimum essential coverage.
          
          13.Requires employers with over 50 employees to report to HHS  
            whether it offers minimum essential coverage to its employees  
            and their dependents.

          14.Establishes the Exchange (Covered California) as an  
            independent entity in state government not affiliated with any  
            state agency or department, governed by a five member board.   
            Requires the board to establish and use a competitive process  





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            to select participating carriers and other contractors.  
          
          15.Requires carriers participating in the Exchange to fairly and  
            affirmatively offer, market, and sell in the Exchange at least  
            one product within each of five coverage categories of the ACA  
            (Bronze, Silver, Gold, Platinum, Catastrophic).  
               
          This bill:
          1.Requires a health plan or health insurer that offers, amends,  
            or renews a group plan contract or health insurance policy  
            that does not provide a minimum value of at least 60 percent  
            to a large group to require that the persons to be covered by  
            the plan contract or policy are covered by an individual or  
            group plan contract or policy that arranges or provides  
            medical, hospital, and surgical coverage not designed to  
            supplement other private or governmental plans.

          2.Authorizes a health plan or health insurer to offer, market,  
            or sell a health plan contract in the large group market that  
            provides a minimum of less than 60 percent if the health plan  
            or insurer, in addition to complying with 1) above, files on  
            or before March 1 of each year, a certification with the  
            director of DMHC or IC of CDI that contains the statement and  
            information described below:

                 a.      A statement from the health plan or insurer  
                  certifying that group plan contract or policy, as  
                  specified, are being offered and marketed as  
                  supplemental health insurance and not as a substitute  
                  for coverage that provides minimum essential coverage as  
                  defined; and,
                 b.      The following statement in the uniform benefits  
                  summary form, as specified, prominently on the first  
                  page:

                     "This is a supplement to health insurance. It is not  
                     a substitute for essential health benefits or minimum  
                     essential coverage as defined in federal law."

                 c.      A summary description of each group plan  
                  contract, as described,  including the average annual  
                  premium rates, or range of premium rates in cases where  
                  premiums vary by age, gender, or other factors, charged  
                  for the group plan contracts.

          3.Requires, in the case of a group plan contract or health  




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            insurance policy that is offered for the first time in this  
            state with respect to plan years on or after January 1, 2015,  
            the health plan or insurer to file with the DMHC director or  
            the IC the information and statement required in 2) above at  
            least 30 days prior to the date that the plan contract or  
            policy is issued or delivered.

          4.Establishes that a plan or policy provides a minimum value of  
            at least 60 percent if it complies with federal law, as  
            specified, and any adopted regulations or guidance.

          5.Defines "Large group health plan contract" as a group health  
            plan contract other than a contract issued to a small  
            employer, as defined, and "Large group" as a group that is not  
            a small employer, as defined.

          6.Defines "Plan year" as having the same meaning set forth in  
            federal regulations.
                
            FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee:

          1.Likely minor one-time and ongoing costs to CDI to ensure  
            compliance.

          2.Costs to DMHC as follows (Managed Care Fund):

             a.   One-time cost for workload related to issuance of  
               regulations estimated at $60,000; and,

             b.   Plan licensing and enforcement workload estimated at  
               $135,000 for the first year of implementation, $65,000  
               ongoing.

           PRIOR VOTES  :  
          Assembly Health:    13- 6
          Assembly Appropriations:12- 5
          Assembly Floor:     50- 25
           
          COMMENTS  :  
           
          1.Author's statement.  According to the author, under the ACA,  
            large employers with mostly low-wage workers have a financial  





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            incentive to offer limited benefit health plans as one option  
            for their employees. This bill closes this federal loophole by  
            ensuring that a limited benefit health plan can only be sold  
            as supplemental to comprehensive insurance coverage. This bill  
            protects workers from being offered on-the-job coverage below  
            the federal standards. It uses the same approach that has  
            worked for over twenty years for small employers.

          2.Federal Health Reform.  On March 23, 2010, the federal  
            government enacted the ACA (Public Law 111-148), which was  
            further amended by the Health Care Education Reconciliation  
            Act (H.R. 4872).  The ACA, as modified by the U.S. Supreme  
            Court ruling, gives states the option to expand eligibility in  
            the Medicaid program to include adults without children, and  
            it contains other required program simplifications.  Regarding  
            the private health insurance market, the ACA primarily  
            restructures the individual and small group markets, setting  
            minimum standards for health coverage, providing financial  
            assistance to individuals with income below 400 percent of the  
            federal poverty level (FPL), tax credits for small employers,  
            and the establishment of health benefit exchanges and  
            essential health benefits that are required to be offered by  
            qualified health plans (QHPs), which are plans participating  
            the small group and individual market through Exchanges.  QHPs  
            are required to offer coverage at one of four levels:  bronze,  
            silver, gold, or platinum and a catastrophic plan which can  
            only be offered by plans participating in the Exchange.   
            Levels are based on a specified share of full actuarial value  
            of the essential health benefits (see below). Catastrophic  
            plans are also permitted only in the individual market for  
            young adults (under age 30) and for those persons exempt from  
            the individual mandate. Some individuals with income under 400  
            percent FPL will receive advanceable, refundable tax credits  
            toward the purchase of an Exchange plan.  The payment will go  
            directly to the insurer and will reduce the premium liability  
            for that individual.  

          3.Actuarial Value Categories.  The ACA establishes four benefit  
            categories-bronze, silver, gold, and platinum-all of which  
            will have the essential health benefits package.  Policies  
            cannot be sold in the small-group and individual market or  
            exchanges that do not meet the actuarial standards for the  
            benefit categories established by law.  All carriers selling  
            in the individual and small-group markets are at least  
            required to offer silver and gold plans under the federal law.  





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               a.     The bronze package represents minimum creditable  
                 coverage with an actuarial value of 60 percent (i.e.,  
                 covering 60 percent of enrollees' medical costs) with  
                 out-of-pocket spending limited to that which is defined  
                 for health savings accounts (HSAs), or $6,350 for  
                 individual policies and $12,350 for family policies in  
                 2014; 
               b.     The silver benefit package has an actuarial value of  
                 70 percent and the same out-of-pocket limits; 
               c.     The gold package has an actuarial value of 80  
                 percent and the same out-of-pocket limits, and,
               d.     The platinum package covers 90 percent of costs with  
                 the same out-of-pocket limits. 
               e.     A catastrophic benefit package can be made available  
                 for adults younger than age 30, similar to HSA-eligible,  
                 high-deductible plans, with the essential benefits  
                 package, preventive services excluded from the deductible  
                 as under current HSA law, three primary care visits, and  
                 cost-sharing to HSA out-of-pocket limits. People who are  
                 unable to find a plan with a premium that is 8 percent or  
                 less of their income will be able to purchase the young  
                 adult plan as well, regardless of age. 

          4.Related legislation. AB 1792 (Gomez), would require the  
            Department of Finance (Finance) to annually transmit to the  
            Legislature and post on Finance's Internet Web a report that  
            identifies each employer that employs 25 or more beneficiaries  
            enrolled in a public assistance program (Medi-Cal, CalFresh  
            and CalWORKS). Requires Finance to determine the cost to  
            determine the total cost to the state of the aggregated  
            benefits provided to an identified employer's employees who  
            are beneficiaries under each public assistance program, and  
            the total cost to the state of the aggregated benefits  
            provided to each identified employer's employees who are  
            beneficiaries.  AB 1792 is set for hearing on June 25, 2014 in  
            this Committee.

            AB 880 (Gomez), would have required a large employer, as  
            defined, to pay to EDD an employer responsibility penalty for  
            each covered employee, as defined, enrolled in Medi-Cal based  
            on the average cost of employee-only coverage provided by  
            large employers to their employees, including both the  





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            employer's and employee's share of the premiums, as specified.  
            AB 880 failed passage on the Assembly Floor in 2013.

            SB 1034 (Monning) would prohibit a health benefit plan for  
            group coverage from imposing a waiting or affiliation period.  
            SB 1034 is pending on the Assembly Floor.

          5.Prior legislation. SB X1 2 (Hernandez), Chapter 2, Statutes of  
            2013, applies the individual insurance market reforms of the ACA  
            to health plans regulated by DMHC and updates the small group  
            market laws for health plans to be consistent with final federal  
            regulations.
          
            AB X1 2 (Pan), Chapter 1, Statutes of 2013, establishes health  
            insurance market reforms contained in the ACA specific to  
            individual purchasers, such as prohibiting insurers from denying  
            coverage based on pre-existing conditions and makes conforming  
            changes to small employer health insurance laws resulting from  
            final federal regulations.
            
            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  
            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 guaranteed issue and  
            rating law pre-ACA would become operative.
            
            SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB 1602  
            (Perez), Chapter 655, Statutes of 2010, establishes the California  
            Health Benefit Exchange.
            
          6.Support.  The California Labor Federation writes that allowing  
            insurers to sell sub-standard coverage not only allows  
            employers to evade their responsibilities under the ACA, it  
            puts workers' health and well-being at risk.  This bill  
            addresses this problem by prohibiting health plans and  
            insurers from plans that do not meet the minimum value of 60  
            percent unless they are supplemental to a full coverage plan.   
            Employers could still chose to offer these types of plans as  
            long as it was in conjunction with another plan that provides  
            adequate coverage for workers.  Health Access California  
            writes that this bill closes a loophole in federal law which  
            allows insurers to sell large employers skinny benefit plans  




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            with minimum actuarial value of less than 60 percent.
          
          7.Opposition.  The California Association of Health  
            Underwriters, the Independent Insurance Agents and Brokers of  
            California, and the National Association of Insurance and  
            Financial Advisors of California oppose this bill because it  
            reduces options and increases costs for employers by removing  
            choice in coverage options.  This bill stops insurers from  
            selling and employers with 50 or more employees from  
            purchasing limited benefit health plan unless it is  
            supplemental to primary coverage that meets the Bronze level  
            plans that have at least 60 percent actuarial value.  The  
            opposition believes this is an unreasonable attempt to further  
            control what types of plans carriers may sell.

          8.Opposition unless amended.  Guardian Life Insurance Company of  
            America (Guardian), writes that it is neither the role nor the  
            responsibility of a health plan to require an employer offer  
            its employees a particular type of coverage.  This foisting  
            such a "policing" requirement onto insurers and in essence  
            making them a regulator would be burdensome to health plans  
            and a disservice to regulators. Second, specialized health  
            plans offering optional, supplemental coverage such as dental,  
            vision or disability income insurance, cannot be expected to  
            have specific knowledge of underlying medical coverage they  
            had no role in selling, including the actuarial value of such  
            coverage.  Guardian believes specialized plans should be  
            exempt from these requirements and that instead a disclaimer  
            form could be developed.  The Association of California Life  
            and Health Insurance Companies would like this bill amended to  
            narrow the definition of health insurance and exempt  
            specialized plans.
          
          9.Suggested amendment.  This bill should be clarified to ensure  
            that an entity which must comply with existing law disclosure  
            requirements in Insurance Code 10198.61 does not also have to  
            include the disclosures required under this bill.


           SUPPORT AND OPPOSITION  :
          Support:  Health Access California (sponsor)
                    American Federation of State, County and Municipal  
                    Employees, AFL-CIO





          AB 2088 | Page 10




                    California Conference Board of the Amalgamated Transit  
                    Union
                    California Conference of Machinists
                    California Labor Federation
                    California Nurses Association
                    California School Employees Association
                    California Teachers Association
                    California Teamsters Public Affairs Council
                    Engineers and Scientists of California, IFPTE Local  
                              20, AFL-CIO
                    International Longshore and Warehouse Union
                    Professional and Technical Engineers, IFPTE Local 20  
                              AFL-CIO
                    UNITE-HERE, AFL-CIO
                    Utility Workers Union of America, Local 132, AFL-CIO

          Oppose:   Association of California Life and Health Insurance  
                    Companies (unless amended)
                    California Association of Health Underwriters
                    Delta Dental (unless amended)               
                    Independent Insurance Agents and Brokers of California
                    National Association of Insurance and Financial  
                    Advisors of California
                    The Guardian Life Insurance Company of America (unless  
                    amended)



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