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). AB 2088 | Page 3 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 AB 2088 | Page 4 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 AB 2088 | Page 5 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 AB 2088 | Page 6 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. AB 2088 | Page 7 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 AB 2088 | Page 8 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 AB 2088 | Page 9 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) -- END --