BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SBX1 2
AUTHOR: Hernandez
INTRODUCED: January 28, 2013
HEARING DATE: February 20, 2013
CONSULTANT: Trueworthy
SUBJECT : Health care coverage.
SUMMARY : Reforms California's individual market in accordance
with the federal Patient Protection and Affordable Care Act
(ACA) and applies its provisions to health plans and disability
insurers in the individual market; requires guaranteed issue of
individual market health plans and health insurance policies;
prohibits the use of preexisting condition exclusions;
establishes open and special enrollment periods consistent with
the California Health Benefit Exchange (Covered California);
prohibits conditioning the issuance or offering based on
specified rating factors; prohibits specified marketing and
solicitation practices consistent with small group requirements;
requires guaranteed renewability of plans; and permits rating
factors based on age, geographic region and family size only. It
is necessary to place these ACA reforms in state law in order to
give state regulators the required enforcement authority. Makes
changes to California's small group law enacted in AB 1083
Monning (Chapter 852, Statutes of 2012) to be consistent with
draft federal rules (described below) released in November 2012.
Existing federal law:
1.Establishes the ACA, which imposes various requirements on
states, issuers, employers, and individuals regarding health
care coverage.
2.Requires each health insurance issuer that offers coverage in
the individual or group market to accept every employer and
individual that applies for that coverage and to renew that
coverage at the option of the employer or the individual.
This is known as guarantee issue and guarantee renewability.
3.Prohibits a group health plan and a health insurance issuer
offering group or individual health insurance coverage from
imposing any preexisting condition exclusion with respect to
that plan or coverage.
Continued---
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4.Allows the premium rate charged by a health insurance issuer
offering small group or individual coverage to vary only as
specified, and prohibits discrimination against individuals
based on health status.
5.Defines "grandfathered plan" as any group or individual health
insurance product that was in effect on March 23, 2010.
Existing state law:
1.Provides for regulation of health insurers by the California
Department of Insurance (CDI) under the Insurance Code and
provides for the regulation of health plans by the Department
of Managed Health Care (DMHC) pursuant to the Knox-Keene
Health Care Service Plan Act of 1975 (Knox-Keene Act),
collectively referred to as carriers.
2.Establishes the California Health Benefits Exchange, known
today as Covered California, to facilitate the purchase of
qualified health plans through the Exchange by qualified
individuals and qualified small employers by January 1, 2014.
3.Requires, as a condition of participation in the Exchange,
carriers that sell any products outside the Exchange to fairly
and affirmatively offer, market, and sell all products made
available in the Exchange to individuals and small employers
purchasing coverage outside of the Exchange.
4.Requires health plans to fairly and affirmatively offer,
market, and sell health coverage to small employers, known as
"guaranteed issue."
5.Defines a preexisting condition provision as a contract
provision that excludes coverage for charges or expenses
incurred during a specified period following the employee's
effective date of coverage, as a condition for which medical
advice, diagnosis, care, or treatment was recommended or
received during a specified period immediately preceding the
effective date of coverage.
6.Prohibits a plan contract for group coverage from imposing any
preexisting condition provision upon any child under 19 years
of age.
7.Prohibits a plan contract for individual coverage that is not
a grandfathered health plan, as defined by the ACA, from
imposing any preexisting condition provision upon any children
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under 19 years of age.
8.Prohibits, with respect to the individual market coverage for
children, except to the extent permitted by federal law,
carriers from conditioning the issuance or offering of
individual coverage on any of the following factors:
a. Health status;
b. Medical condition, including physical and mental
illness;
c. Claims experience;
d. Receipt of health care;
e. Medical history;
f. Genetic information;
g. Evidence of insurability, including conditions arising
out of acts of domestic violence;
h. Disability; and
i. Any other health status-related factor as determined by
the regulators.
9.Defines a "rating period" as the period for which premium
rates established by a plan are in effect, and requires the
rating period to be in effect no less than six months.
10.Establishes the following risk categories for rating purposes
in the small group market: age, geographic region, and family
composition, plus the health benefit plan selected by the
small employer. Specifies age categories, family size
categories, and up to nine geographic regions, as determined
by the carriers.
11.Prohibits a plan in the small group market from, directly or
indirectly, entering into any contract, agreement, or
arrangement with a solicitor that provides for or results in
the compensation paid to a solicitor for the sale of a health
plan contract to be varied because of the health status,
claims experience, industry, occupation, or geographic
location of the small employer.
12.Prohibits a policy or contract that covers two or more
employees from establishing rules for eligibility, including
continued eligibility, of an individual, or dependent of an
individual, to enroll under the terms of the plan based on any
of the following health status-related factors:
a. Health status;
b. Medical condition, including physical and mental
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illnesses;
c. Claims experience;
d. Receipt of health care;
e. Medical history;
f. Genetic information;
g. Evidence of insurability, including conditions arising
out of acts of domestic violence; and
h. Disability.
This bill:
While the ACA establishes new health insurance requirements,
changes in state law are needed to conform to those requirements
and to give enforcement powers to the state regulators. The ACA
also gives flexibility to states on various issues. Outlined
below are the conforming provisions contained in the bill and
the provisions that a policy choice needed to be made or state
law needed to be updated to reflect the ACA changes.
Conforming provisions:
1.Prohibits a carrier (except grandfathered plans, as specified)
from imposing any preexisting condition provision upon any
individual.
2.Requires guaranteed issue of individual market health plans
and health insurance policies.
3.Requires carriers to fairly and affirmatively offer, market,
and sell all of the plan's and insurer's health benefit plans
that are sold in the individual market to all individuals in
each service area in which the plan or insurer provides or
arranges for the provision of health care services.
4.Requires a plan or insurer to provide an initial open
enrollment period from October 1, 2013, to March 31, 2014,
inclusive and after January 1, 2015, annual enrollment periods
from October 15 to December 7 inclusive of the preceding
calendar year.
5.Requires carriers to only set premium rates based on the
following:
a) Age, using age bands established by the Secretary of
Health and Human Services and the age rating curve
established by the Centers for Medicare & Medicaid Services
(CMS);
b) Geographic region as described below; and
c) Whether the contract covers an individual or family, as
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defined in the ACA.
6.Requires a carrier to allow an individual to enroll in or
change individual health benefit plans, as a result of the
following triggering events:
a. He or she loses minimum essential coverage (MEC), as
defined in the Internal Revenue Code, as specified. Loss of
MEC does not include loss of that coverage due to the
individual's failure to pay premiums on a timely basis, or
situations allowing for a rescission;
b. He or she gains a dependent or becomes a dependent
through marriage, birth, adoption, or placement for
adoption;
c. He or she becomes a resident of California;
d. He or she is released from incarceration;
e. His or her health benefit plan substantially violated a
material provision of the contract;
f. He or she gains access to a new health benefit plan as a
result of a move; or
g. With respect to individual health benefit plans offered
through the Exchange, the individual meets any of the
requirements listed in federal regulations, as specified.
7.Establishes, for special enrollment effective dates, coverage
to be effective no later than the first day of the first
calendar month beginning after the date the plan receives the
request, except in the case of birth, adoption, or placement
for adoption, which is the effective date of the birth,
adoption, or placement for adoption.
8.Requires a carrier, with respect to individual health plans
offered outside the Exchange, after an individual submits a
completed application form for a plan, to notify the
individual of the individual's actual premium charges for that
plan within 30 days. Requires the individual to have 30 days
in which to exercise the right to buy coverage at the quoted
premium charges.
9.Prohibits a carrier from conditioning the issuance or offering
of an individual health benefit plan on any of the following
factors:
a. Health status;
b. Medical condition, including physical and mental
illness;
c. Claims experience;
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d. Receipt of health care;
e. Medical history;
f. Genetic information;
g. Evidence of insurability, including conditions arising
out of acts of domestic violence;
h. Disability; and
i. Any other health status-related factor as determined by
federal regulations, rules, or guidance.
10.Requires a carrier to consider the claims experience of all
enrollees or insureds of its nongrandfathered individual
health benefit plans to be part of a single-risk pool.
11.Requires a carrier to consider the claims experience of all
enrollees in nongrandfathered small employer health benefit
plans to be part of a single-risk pool.
12.Requires all individual health plans to conform to specified
requirements, and to be renewable at the option of the
enrollee except as permitted to be canceled, rescinded, or not
renewed, as specified. Requires any plan that ceases to offer
for sale new individual health benefit plans, as specified, to
continue to be governed by specified law with respect to
business conducted under the specified law.
13.Permits a carrier to vary premium rates for a particular plan
from its index rate based only on the following actuarially
justified plan-specific factors:
a. The actuarial value and cost-sharing design of the
health benefit plan;
b. The health benefit plan's provider network, delivery
system characteristics, and utilization management
practices;
c. The benefits provided by the carrier that are in
addition to the essential health benefits. These
additional benefits are required to be pooled with similar
benefits within a single risk pool and the claims
experience from those benefits to be utilized to determine
rate variations for plans that offer those benefits in
addition to essential health benefits; and,
d. With respect to catastrophic plans, the expected impact
of the specific eligibility categories for those plans.
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1.Modifies the exceptions from the guarantee issue requirement
in existing small group law and the manner in which a carrier
determines premium rates for a small employer health benefit
plan, as specified.
Non-conforming and other provisions:
1.Repeals existing law that would have required the rate for any
child to be identical to the standard-risk rate.
2.Sunsets existing law, on December 31, 2013, related to rating
categories for child coverage.
3.Exempts grandfathered plans from the ACA requirements as
allowed under federal law.
4.Modifies the small employer special enrollment periods and
coverage effective dates for purposes of consistency with the
draft federal rules.
5.Adds the following triggering events that will require a plan
or insurer to allow an individual to enroll in or change
individual health benefit plans, as a result of the following:
a. He or she was receiving services from a contracting
provider and that provider is no longer participating in
the health benefit plan; or
b. He or she demonstrates that they did not enroll during
the available enrollment period because they were
misinformed about MEC;
6.Requires an individual, with respect to plans offered inside
or outside the Exchange, to have 63 days from the date of a
triggering event identified above to apply for coverage. This
is to be consistent with the current practice for the Health
Insurance Portability and Accountability Act (HIPPA) coverage.
7.Prohibits a carrier, solicitor, agent or broker from directly
or indirectly, engaging in the following activities:
a. Encouraging or directing an individual to refrain from
filing an application for individual coverage with a plan
because of the health status, claims experience, industry,
occupation, or geographic location, provided that the
location is within the plan's approved service area; and
b. Encouraging or directing an individual to seek
individual coverage from another plan or health insurer or
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the Exchange because of the health status, claims
experience, industry, occupation, or geographic location,
provided that the location is within the plan's approved
services area.
8.Prohibits a carrier, from directly or indirectly, entering
into contracts, agreement, or arrangement with a solicitor,
agent or broker that provides for or results in the
compensation paid to a solicitor for the sale of an individual
health benefit plan to be varied because of health status,
claims experience, industry, occupation, or geographic
location of the individual. Prohibits this provision from
applying to a compensation arrangement that provides
compensation to a solicitor, agent or broker on the basis of
percentage of premium, provided that the percentage cannot
vary because of the health status, claims experience,
industry, occupation, or geographic area.
9.Prohibits tobacco use from being a rating factor.
10.Establishes the following rating regions for 2014:
a. Region 1: Counties of Alpine, Amador, Butte, Calaveras,
Colusa, Del Norte, El Dorado, Glenn, Humboldt, Inyo,
Kings, Lake, Lassen, Mendocino, Modoc, Mono, Monterey,
Nevada, Placer, Plumas, San Benito, Shasta, Sierra,
Siskiyou, Sutter, Tehama, Trinity, Tulare, Tuolumne, Yolo,
and Yuba.
b. Region 2: Counties of Fresno, Imperial, Kern, Madera,
Mariposa, Merced, Napa, Sacramento, San Joaquin, San Luis
Obispo, Santa Cruz, Solano, Sonoma, and Stanislaus.
c. Region 3: Counties of Alameda, Contra Costa, Marin, San
Francisco, San Mateo, and Santa Clara.
d. Region 4: Counties of Orange, Santa Barbara, and
Ventura.
e. Region 5: County of Los Angeles
f. Region 6: Counties of Riverside, San Bernardino, and
San Diego.
11.Establishes the following rating regions for the 2015 plan
year and plan years thereafter, subject to federal approval:
a. Region 1: Counties of Alpine, Amador, Butte, Calaveras,
Colusa, Del Norte, Glenn, Humboldt, Lake, Lassen,
Mendocino, Modoc, Nevada, Plumas, Shasta, Sierra, Siskiyou,
Sutter, Tehama, Trinity, Tuolumne, and Yuba.
b. Region 2: Counties of Marin, Napa, Solano, and Sonoma.
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c. Region 3: Counties of El Dorado, Placer, Sacramento, and
Yolo.
d. Region 4: Counties of Alameda, Contra Costa, San
Francisco, San Mateo, and Santa Clara.
e. Region 5: Counties of Monterey, San Benito, and Santa
Cruz.
f. Region 6: Counties of Fresno, Kings, Madera, Mariposa,
Merced, San Joaquin, Stanislaus, and Tulare.
g. Region 7: Counties of San Luis Obispo, Santa Barbara,
and Ventura.
h. Region 8: Counties of Imperial, Inyo, Kern, and Mono.
i. Region 9: ZIP Codes in Los Angeles County starting with
906 to 912, inclusive, 915, 917, 918, and 935.
j. Region 10: ZIP Codes in Los Angeles County other than
those identified above.
aa. Region 11: Counties of Riverside and San Bernardino.
bb. Region 12: County of Orange.
cc. Region 13: County of San Diego.
12.Requires, by June 1, 2017, DMHC, Covered California and CDI,
to review the geographic rating regions and the impacts of
those regions on the health care coverage market in
California, and submit a report to the appropriate policy
committees of the Legislature.
13.Requires carriers to provide specified information regarding
the Exchange to applicants for products offered outside the
Exchange.
14.Prohibits carriers from advertising or marketing an
individual grandfathered health plan for the purpose of
enrolling a dependent of the subscriber or policyholder in the
plan.
15.Requires carriers to annually issue a specified notice to
those enrolled in a grandfathered plan about the availability
of other health insurance options.
16.Prohibits a carrier from requiring an individual applicant or
his or her dependent to fill out a health assessment or
medical questionnaire prior to enrollment. Prohibits a carrier
from acquiring or requesting information that relates to a
health status-related factor from the applicant or his or her
dependent or any other source prior to enrollment.
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17.Deletes the provisions making the guarantee issue and
community rating provisions inoperative if the guarantee issue
and community rating provisions of the ACA are repealed, in
the small group market law.
18.Requires any data submitted by carriers to the United States
Health and Human Services Secretary for purposes of the risk
adjustment program required under the ACA to also be submitted
to DMHC or CDI.
19.Authorizes DMHC to waive or modify existing requirements
related to uniform health plan benefits and coverage matrix
for purposes of compliance with the ACA through issuance of
all-plan letters.
20.Prohibits the premium for HIPAA policies and contracts from
exceeding the premium for the second-lowest cost silver plan
offered in the individual market through Covered California in
the rating area in which the individual resides.
21.Requires every participating health, dental and vision plan
offering coverage to Healthy Families Program enrollees, on or
after January 1, 2012, including those transitioned to the
Medi-Cal program, to offer 18 months of coverage, until a
specified date, to individuals who were or are disenrolled
from the program due to ineligibility because of age and are
not eligible for full scope coverage under Medi-Cal. Would
require beneficiaries electing this coverage to pay no more
than 110 percent of the average per subscriber payment made to
all participating health, dental, or vision plans for program
coverage, as specified.
22.Requires every carrier, in addition to complying with the
Knox-Keene Act and specified provisions of the Insurance Code
and rules adopted thereunder, to comply with this bill.
23.Requires the provisions of this bill to only be implemented
to the extent that it meets or exceeds the requirements set
forth in the ACA.
24.Authorizes the Insurance Commissioner (IC) to adopt
regulations to implement the changes made by the Insurance
Code by this act pursuant to the Administrative Procedures
Act, as specified. Requires the IC to consult with the
Director of DMHC prior to adopting any regulations for the
purposes of ensuring consistency of regulations.
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FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
1.Author's statement. This bill is necessary to implement
provisions of the ACA in
California's individual health insurance market and make
conforming technical changes in the small group market.
California has a history of strong consumer protections in its
insurance market for small group purchasers but California's
individual market has been referred to as the "wild west of
health insurance," with little or no restrictions on health
insurers in terms of their ability to deny coverage based on
preexisting conditions and from charging higher rates based on
health status, employment, or any other factor. The ACA limits
what factors plans can use to determine premium rates,
eliminates the use of preexisting condition exclusions and
requires plans to issue and renew policies for willing
purchasers. The rules established in this bill will affect
plans operating through the Exchange and in the outside
commercial insurance market for individual purchasers. The
reforms in this bill will help expand health insurance coverage
in the private commercial market and help millions of
Californians access health care in more cost effective manner.
The author notes he was greatly disappointed by the Governor's
veto of SB 961 (Hernandez) last year and is concerned about the
impact that veto will have on Covered California. Covered
California is on a path to be fully running by January 1, 2014,
and the author contends it is critical the reforms contained in
this bill be acted upon immediately.
2.Individual market. California's individual and small group
health insurance markets
together currently serve just fewer than 15 percent of the
state's population, with approximately 2 million people being
covered through individually purchased health insurance. In
California, 3 carriers serve over 75 percent of the market:
Anthem Blue Cross PPO, Blue Shield PPO, and Kaiser HMO.
California's two regulators allow variation in product design.
Plans under DMHC must provide a defined set of basic health
care services, while plans under CDI have more flexibility and
may offer slimmer benefits. CDI-regulated products are far more
prevalent in the individual market.
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According to a 2011 report published by the California
HealthCare Foundation (CHCF), approximately 2 million
Californians are covered through individually purchased health
insurance. About 40 percent of current individual market
purchasers would likely qualify for subsidies and another 18
percent would be eligible for Medicaid (Medi-Cal in California)
if the ACA rules were in effect today. There are between five
and seven million uninsured in the state and 39 percent (2.7
million) may be eligible for Medi-Cal, half (3.5 million) may
be eligible for subsidies to purchase individual insurance, and
11percent (800,000) would not likely qualify for subsidies.
More than one million of the uninsured are undocumented
immigrants, who would not qualify for subsidies and would be
excluded from the Exchange.
At the time, CHCF found that individual premiums varied by age
as much as five-fold, meaning a 60 year old would pay five
times what a 25 year old might pay. However, there is evidence
that California individual market premiums are already closer
to the 2014 allowable 3:1 ratio. For example, 2013 premium rate
filings for the Anthem Blue Cross three most popular
non-grandfathered product families all have age ratios below
3.9. In addition, 2013 premiums in the state high-risk pool,
the Major Risk Medical Insurance Program, which bases rates on
carrier filings of premiums for open market individual
coverage, have an age ratio for 64 year olds that ranges from
2.3 - 2.9, depending on the health plan. In the CHCF report,
premiums ranged from $113 to $777 a month.
Individual market insurance provides less comprehensive
coverage, with CHCF reporting that individual coverage paid an
average of 55 percent of medical expenses, compared to 80-90
percent of expenses for group coverage. Purchasers in the
individual market pay 100 percent of their coverage; the market
is very price sensitive and purchasers are medically screened
by insurers concerned about high risk consumers buying and
keeping coverage.
3.Small group market. AB 1672 (Margolin and Hansen), Chapter
1128, Statutes of 1992, enacted a number of reforms to the
small group market, making health insurance more accessible to
small employers through guaranteed issue and renewability
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provisions, regulating pre-existing conditions limitations,
underwriting protections, and disclosure requirements. Before
AB 1672, a carrier would examine an employer's health history
and could either increase the premiums significantly or decline
the entire group.
California's small group market has been shaped by guaranteed
issue and other protections established in small group reform
in 1992. In this market, carriers may impose participation
requirements and contribution requirements. As a result,
enrollees in small group coverage typically pay a fraction of
their premium. A 2011 CHCH report indicates that 3.4 million,
or 9 percent, of Californians have health coverage through
small group insurance products. Roughly 67 percent of small
group products are regulated by DMHC, compared to 33 percent
regulated by CDI.
The ACA eliminates the pricing of premiums based on health
status, limits the range of premiums based on age, adds the
self-employed to those eligible for guaranteed issue of
coverage, and expands the rules to small group employers with
one to 100 employees. AB 1083 (Monning) established these
reforms in California's small group health insurance market.
SBX1 2 updates these reforms to be consistent with draft
federal rules released in November 2012.
4.Federal health care reform. On March 23, 2010, President Obama
signed the ACA (Public Law 111-148), as amended by the Health
Care and Education Reconciliation Act of 2010 (Public Law
111-152). Among other provisions, the new law makes statutory
changes affecting the regulation of and payment for certain
types of private health insurance. Beginning in 2014,
individuals will be required to maintain health insurance or
pay a penalty, with exceptions for financial hardship (if
health insurance premiums exceed eight percent of household
adjusted gross income), religion, incarceration, and
immigration status. Several insurance market reforms are
required such as the prohibitions against health insurers
imposing lifetime benefit limits and preexisting health
condition exclusions. These reforms impose new requirements on
states related to the allocation of insurance risk, prohibit
insurers from basing eligibility for coverage on health
status-related factors, allow the offering of premium discounts
or rewards based on enrollee participation in wellness
programs, impose nondiscrimination requirements, require
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insurers to offer coverage on a guaranteed issue and renewal
basis, determine premiums based on adjusted community rating
(age, family, geography and tobacco use). While the ACA
establishes these new health insurance requirements, state law
is needed to allow our state regulators to enforce them.
5.Health Benefit Exchanges. The ACA requires each state, by
January 1, 2014, to establish an American Health Benefit
Exchange that makes qualified health plans (QHPs) available to
qualified individuals and qualified employers or a state may
defer to the federal government. Federal law establishes
requirements for the Exchange, for health plans participating
in the Exchange, and defines who is eligible to receive
coverage in the Exchange. Beginning January 1, 2014,
individual taxpayers whose household income equals or exceeds
100 percent, but does not exceed 400 percent of the federal
poverty level, will receive a refundable tax credit for a
percentage of the cost of premiums for coverage under a
qualified health plan. The ACA also allows "qualified small
employers" to elect a tax credit worth up to 35 percent of a
small business' health insurance premium costs and establishes
requirements for a qualifying employer. The ACA also requires
reductions in the maximum limits for out-of-pocket expenses for
individuals enrolled in QHPs whose incomes are between 100
percent and 400 percent of the federal poverty level.
In 2010, California was the first state to create a state-based
exchange, today known as Covered California. State exchanges
are required to certify QHPs, operate a toll-free hotline and
website, rate QHPs, present plan options in a standard format,
inform individuals of the eligibility requirements for Medicaid
(Medi-Cal in California) and the Children's Health Insurance
Program (Healthy Families in California), provide an electronic
calculator to calculate plan costs, and grant certifications of
exemption from the individual requirement to have health
insurance.
According to Covered California's January 2013 annual report,
Covered California is currently in the process of choosing
health plan offerings and will begin testing the online
enrollment portal. Over the next few months, grants will be
awarded to community organizations for public awareness
efforts, and assisters will be trained to understand Covered
California enrollment offerings. In November 2012, Covered
California released its QHP solicitation and proposed
regulations. Final bids were submitted on March 1, 2013, and
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Covered California anticipates it will conduct its selection
and certification process for QHPs in early to mid-2013 for
pre-enrolment on October 1, 2013.
6. U.S. Supreme Court. In March of 2012, the U.S. Supreme court
held three days of testimony on the constitutionality of two
major provisions, the individual mandate and the Medicaid
expansion, of the ACA arising out of two cases in the 11th
Circuit Court of Appeals, National Federation of Independent
Business v. Sebelius and Florida v. Department of Health and
Human Services. With regard to the individual mandate, the ACA
requires most people to maintain minimum essential coverage for
themselves and their dependents. The mandate can be satisfied
by obtaining coverage through employer-sponsored insurance,
individual insurance plans, including those offered through the
Exchange, a grandfathered health plan, or government-sponsored
coverage.
On a 5-4 vote the Supreme Court upheld the ACA, saying its
requirement that most Americans obtain insurance or pay a
penalty was authorized by Congress's power to levy taxes.
According to a July 2012 Kaiser Family Foundation brief, the
fact that the Court upheld the mandate under Congress' taxing
power rather than the commerce or necessary and proper powers
changes nothing about the language of the ACA or how the
individual mandate will function. The report states that
mandate will go into effect in 2014 as Congress intended
according to the terms of the ACA.
7.Rates. According to a February 6, 2013, Kaiser Family
Foundation article, "Why Premiums Will Change for People Who
Now Have Nongroup Insurance," overall, it is expected that the
average, unsubsidized premiums in the individual market will be
somewhat higher under the ACA as compared to today. This is
because many people will be getting better insurance with
essential health benefits like maternity care and mental
health. (Note: California already mandates maternity and mental
health parity for severe mental illness). Also, patient cost
sharing for out-of-pocket costs will be capped and guaranteed
access to coverage for people with preexisting conditions may
increase average premiums as well as people with higher costs
coming into the system. However, this should be balanced by
more, healthy young uninsured participating because of the
availability of subsidies and the individual mandate
requirement.
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The ACA provides for $20 billion in transitional reinsurance to
offset adverse selection in the first three years of the
program. The Kaiser Family Foundation article details how each
of the insurance market changes in the ACA may raise or lower
premiums overall or redistribute them among different groups of
people.
In the big picture, the ACA addresses many of the shortcomings
of the current individual market. The more competitive
marketplace created under the ACA, greatly enhanced by the
structure of premium tax credits, will push in the other
direction forcing health plans to become more efficient and
better managers of the premiums they receive.
8.Proposed federal rules: On November 20, 2012, CMS issued
proposed rules pertaining to the ACA, which generally take
effect beginning on or after January 1, 2014. In the proposed
rule, CMS specifically seeks comments on a number of topics,
including strategies that CMS or states might use to avoid or
minimize disruption of rates in the current market and
encourage timely enrollment in coverage in 2014. CMS also seeks
information from both issuers and states relative to the
magnitude of the costs and benefits associated with
implementing these new requirements. DMHC, CDI and Covered
California submitted joint comments on the proposed rules.
Below is a summary of the proposed rules.
Guaranteed Availability / Guaranteed Issue. Propose to
require issuers to offer all products that are approved for
sale in the applicable market. There are exceptions to the
guaranteed availability / guaranteed issue rule that allow
enrollment to be limited to:
a. Open or special enrollment periods;
b. Individuals or eligible employees who live, work or
reside in the network plan's service area;
c. Small employers who satisfy the same contribution and
participation requirements at issuance that the issuer is
permitted to consider at renewal; and
d. Network and/or financial capacity, in certain
circumstances.
Guaranteed Renewability. For non-grandfathered health
plans, carriers will be required to renew all coverage in
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the individual and group markets. There are exceptions to
the guaranteed renewability rule that allows coverage to be
non-renewed in the following circumstances:
a. Non-payment of premium;
b. Fraud or intentional misrepresentation of material fact;
c. In the case of group health coverage, failure to comply
with a material plan provision relating to contribution or
participation requirements;
d. Movement outside the network service area;
e. Issuer ceases to offer coverage of this type; and
f. Issuer exits the market.
Open Enrollment Periods. For the group market, create a
year-round open enrollment period. For the individual
market, the proposal would require open enrollment periods
consistent with those required by Exchanges for individual
market qualified health plans (QHPs).
New Marketing Standards. Prohibits marketing practices
and benefit designs that have the effect of discouraging
enrollment of individuals with significant health needs.
New Special Enrollment Period. Create a new special
enrollment period in both the individual and group markets
in connection with the events that would trigger
eligibility for COBRA coverage.
a. For employees, this would include a loss of coverage due
to voluntary or involuntary termination of employment for
reasons other than gross misconduct and reduction in the
number of hours of employed.
b. For spouses of covered employees, this would include a
loss of coverage due to reasons that would make the
employee eligible for COBRA, the employee becoming entitled
to Medicare, divorce or legal separation of the covered
employee, and the death of the covered employee.
c. For children of covered employees, this would include a
loss of coverage due to reasons that would make the
employee eligible for COBRA, the employee becoming entitled
to Medicare, divorce or legal separation of the covered
SB X1 2 | Page 18
employee, the death of the covered employee, and loss of
dependent child status.
Adjusted Community Rating. Will only allow health
insurance coverage in the individual and small group market
to vary by:
a. Whether the plan covers an individual or family;
b. Geographic rating region;
c. 3:1 age rating band (the ratio limits the amount an
older individual will pay to no more than three times what
a younger individual pays in premium dollars); and
d. Tobacco use.
Individual or family coverage and per-member rating.
Issuers must utilize a per-member rating process whereby
the issuer adds up the rate of each family member to arrive
at a family premium. Rates for only the three oldest family
members under age 21 would be taken in account.
Geographic rating region. Allow States to establish
rating areas by selecting from the following options:
a. One single rating area for the state;
b. No more than seven rating areas based on county,
three-digit zip code, or metropolitan statistical areas
(MSAs) and non-MSA geographic divisions;
c. Other existing geographic divisions; or
d. A number of rating regions greater than seven, if granted
approval from CMS.
Age rating. Rates based on age may not vary by more than
3:1 for individuals ages 21 and older, and rate variation
must be actuarially justified for individuals under age 21.
States are permitted to use a narrower age ratio. For
applying the appropriate age adjustments, the enrollee's
age as of the date of the policy issuance or renewal would
be used. The proposed rule also requires uniform age bands:
a single band for ages 0 to 20; one-year bands for ages 21
to 63; and a single band for ages 64 and older. It also
requires states to establish uniform age rating curves, and
provides for a default CMS rating curve if a state does not
establish such a curve.
Tobacco use. Rates based on tobacco use may not vary by
more than 1.5:1. An issuer may use a lower tobacco use
factor (e.g., 1.3:1) for a younger enrollee as long as the
factor does not exceed 1.5:1 for any age group. State laws
SB X1 2 | Page
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that allow for a narrower ratio or prohibit varying rates
for tobacco use would not be preempted under the ACA. SB X1
2 does not allow tobacco use to be used as a rating factor.
Small group market. The premium charged to small
employers will be based on the per-member rating, where the
total premium charged is the sum of the premiums of covered
participants and beneficiaries. Nothing prohibits a "state
from requiring issuers to offer, or an issuer from
voluntarily offering, group premiums that are based on
average enrollee amounts, provided that the total group
premium is the same total amount derived" under the
per-member rating methodology under this rule.
Single Risk Pool. The ACA requires issuers to consider
all enrollees in the individual market in a single risk
pool and all enrollees in small group health plans in
single risk pool (excluding grandfathered health plans).
CMS interprets this provision as being effective for plan
years or policy years starting on or after January 1, 2014.
Issuers must consider the claims experience of all
enrollees in each of these risk pools when determining the
index rate for a state market. The index rate must be
adjusted on a market-wide basis based on the total expected
market-wide payments and charges under the risk adjustment
and reinsurance programs in the state.
Catastrophic Health Plans. Provide further guidance
with respect to the definition and criteria for
catastrophic health plan coverage, including the
requirement the prohibition against catastrophic plans
imposing cost-sharing on preventive services.
Enforcement. The enforcement process allows states to
exercise primary enforcement over health insurance
regarding the federal individual and group market reforms.
CMS has enforcement authority if the state notifies CMS
that it has not enacted legislation to enforce the federal
requirements, or is not otherwise enforcing, or if CMS
determines that the state is not substantially enforcing a
federal market reform.
1.Related legislation ABX1 2 (Pan) is identical to SBX1 2.
2. Prior legislation. SB 961 (Hernandez) of 2012 and AB 1461
SB X1 2 | Page 20
(Monning) were identical bills that would have reformed
California's individual market similar to the provisions in
SBX1 2. SB 961 and AB 1461 were vetoed by Governor Brown.
AB 1083 (Monning) Chapter 854, Statutes of 2012 establishes
reforms in the small group health insurance market to implement
the ACA.
SB 951 (Hernandez) Chapter 866, Statutes of 2012 and AB 1453
(Monning) Chapter 854, Statutes of 2012 designates the Kaiser
Small Group HMO as California's benchmark plan to serve as the
essential health benefit standard, as required by federal
health care reform.
SB 51 (Alquist), Chapter 644, Statutes of 2011, establishes
enforcement authority in California law to implement provisions
of the ACA related to medical loss ratio requirements on health
plans and health insurers and enacted prohibitions on annual
and lifetime benefits.
AB 2244 (Feuer), Chapter 656, Statutes of 2010, requires
guaranteed issue of health plan and health insurance products
for children beginning in January 1, 2011.
SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB 1602
(Perez), Chapter 655, Statutes of 2010, establishes the
California Health Benefit Exchange.
AB 1X 1 (Nunez) of 2008 would have enacted the Health Care
Security and Cost Reduction Act, a comprehensive health reform
proposal. AB 1X 1 died in the Senate Health Committee.
3.Support. Health Access California (HAC), a statewide health
care consumer advocacy coalition, writes in support of SBX1 2
(Hernandez) stating the bill will reform California's individual
insurance market to provide guaranteed issue and modified
community rating. HAC writes that the repeal or modification of
the protections of the ACA are highly unlikely and, if in the
future, the ACA provisions on the individual market are repealed
or altered, the first choice should not be to revert to the
status quo ante in which consumers may be denied health
insurance for any reason or no reason. The first choice should
be to figure out a policy response that protects consumers and
gives them the opportunity to obtain affordable coverage. Other
states have done this, and HAC argues California should protect
its own consumers and do the same.
SB X1 2 | Page
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On the issue of rating regions, HAC writes that the 19 rating
region proposal rested on at least one faulty premise: that the
lowest cost silver plan in a geographic region did not take into
account the service areas of the health plans offering coverage.
Why does this matter? The Bay Area region in the 19 region
proposal was split along county lines because of this faulty
premise. The Alameda Alliance, the local initiative in Alameda
County, is not the lowest cost silver plan available to someone
who lives in San Francisco or San Mateo because its service area
does not include those counties. Given the recent federal
guidance limiting geographic regions in a state to no more than
seven regions, HAC supports the provisions that provide fewer
than 19 regions. HAC also supports the provision of the bill
that limits rate increases to once annually arguing consumers
should be able to budget and plan. HAC is concerned about the
limits imposed on guaranteed issue writing that people will not
be able to get coverage at any time but only during limited open
enrollment periods. While these restrictions will limit the
availability of coverage for Californians during much of the
year, HAC reluctantly accepts this given the federal rule on
Exchanges which impose the same rules.
The 100% campaign writes in support of SBX1 2 stating they are
committed to creating an equitable market for consumers and
ensuring standardized and consistent premium risk rating rules
for children with all types of health insurance coverage. The
100% campaign also supports and appreciates the interim coverage
opportunities created for children and youth in advance of 2014.
California Public Interest Research Group writes in support of
the bill and the importance of ending denials for pre-existing
conditions and limiting the ability of insurers to charge
consumers different rates. The Transgender Law Center writes
that the bill contains multiple provisions that will optimize
coverage for all Californians. The Greenlining Institute states
that bill is of critical importance to communities of color who
suffer disproportionally from preventable chronic illnesses but
who are less likely to have health insurance. The Greenlining
Institute argues the bill will improve access to and
affordability of health insurance for communities of color.
AFSCME writes in support that the bill will help expand health
insurance coverage in the commercial market.
4.Oppose Unless Amended. CDI writes that the selection of the
SB X1 2 | Page 22
geographic rating regions is one of the most significant choices
the state has to make that will impact the affordability of
health insurance for consumers. CDI is greatly concerned that
geographic rating regions contained in AB 1083 (Monning) Chapter
854, Statutes of 2012 and in SBX1 2 will result in premium
increases and should not be adopted. CDI is proposing an
alternative 18 geographic ratings region proposal. See attached
document for comparison of the regions.
The California Association of Health Plans (CAHP) and the
Association of California Life and Health Insurance Companies
(ACLHIC) jointly write in opposition to the bill highlighting
the following 4 areas of concern:
a. Linkage to the ACA. CAHP and ACLHIC write that if the
underwriting reforms of the ACA - including guarantee issue
and community rating -are placed into state law they must
be linked to their equivalent federal reforms.
b. More Flexibility. CAHP and ACLHIC are concerned that the
bills adopt proposed rules into state law and would like to
see flexibility in order to allow the state to adapt to
final federal rules or to take advantage of any additional
flexibility provided by federal guidance.
c. Geographic Rating Regions. CAHP and ACLHIC write that
in 2012 the Legislature passed, and the Governor signed
into law, a nineteen rating regions in the small group
market and they support extending that nineteen rating
region configuration to the individual health care
marketplace. CAHP and ACLHIC argue that the six geographic
rating regions created in SBX1 2 will cause significant
rate increases for millions of Californians who currently
purchase health insurance. CAHP and ACLHIC note that the
proposed federal rules require states to seek a federal
waiver to establish more than seven rating regions and
contend that the federal rules should be amended to allow
states to determine what is best for their residents.
d. Obsolete Provisions of Existing Law. ACLHIC and CAHP
would like to
modify existing laws related to continuation of coverage
laws, high risk pools, and other underwriting and reporting
requirements that they argue make little sense in an
environment of guaranteed issue.
1.Policy Issues
Geographic rating areas. The ACA requires that each state
establish geographic rating areas that must be applied
consistently inside and outside the Exchange. The proposed
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rules allow States to establish rating areas by selecting from
the following options: (1) one single rating area for the state,
(2) no more than seven rating areas based on county, three-digit
zip code, or metropolitan statistical areas (MSAs) and non-MSA
geographic divisions, or (3) other existing geographic divisions
or a number of rating areas greater than seven, if granted
approval from CMS.
AB 1083 (Monning) Chapter 854, Statutes of 2012 established a 19
rating region proposal for the small group market, different
than the region proposal in SBX1 2. To be consistent with the
draft rules, the bill establishes, for both the small group
market and the individual market, the geographic rating regions
for the first year to be the existing Pre-Existing Condition
Insurance Plan (PCIP) six rating regions. The bill then
establishes 13 rating regions for future years if federal
approval is granted, again consistent with the proposed rules.
CDI has raised concerns with the six, 13 and 19 rating region
proposals stating they are disruptive and should not be adopted.
CDI has developed its own 18 rating region proposal that CDI
believes will minimize risk shock associated with rating areas.
See attached document for comparison of the regions.
Tie back to the ACA. In the Governor's veto message of SB 961
(Hernandez) and AB 1461 (Monning), he wrote "Unfortunately, the
measure failed to adequately link our state reforms to the
federal law. The Affordable Care Act requires insurers to
provide health coverage to all individuals regardless of their
health status. This mandate on insurers is balanced by the
mandate on individuals to obtain health coverage, with federal
subsidies available to help lower-income people purchase it.
Without the strong foundation that federal law provides, a
state-level mandate on insurers alone could encourage healthy
people to wait until they got sick or injured before purchasing
coverage."
SB 961 and AB 1461 contained a tie back to the ACA for the state
guarantee issue provision and the state community rating
provision. The Administration states they want a broader
tie-back to the ACA to be included in SBX1 2. Proponents of
including a tie-back to the ACA argue it is important to include
the framework of the federal law in the event that the reform
provisions of the ACA are repealed, delayed or amended.
SB X1 2 | Page 24
Opponents of including a tie-back contend that the ACA is the
law of the land today and it is critical for California to move
ahead in implementing these reforms. Opponents further state
that should the ACA be modified in the future, California at
that time should evaluate the state reforms enacted to date and
respond accordingly.
Is it still appropriate to include a tie-back to the ACA? If
yes, what is the appropriate tie-back?
Summary of Benefits. Under the ACA, health insurers and group
health plans will be required to provide clear, consistent and
comparable information about their health plan benefits and
coverage. Consumers will have access information that will help
them understand and evaluate their health insurance choices. The
forms include an easy-to-understand summary of benefits and
coverage and a uniform glossary of terms commonly used in health
insurance coverage such as "deductible" and "co-payment."
Under the Knox-Keene Act carriers offering a contract to an
individual or small group are required to provide a uniform
health plan benefits and coverage matrix containing the plan's
major provisions in order to facilitate comparisons between plan
contracts. Many of the ACA requirements are already included in
the current process and there is concern that carriers will be
providing duplicative information which could result in
confusion. DMHC has proposed language (below) to alleviate this
concern.
A health care service plan that issues the uniform summary of
benefits referenced in paragraph (3) of subdivision (b) shall:
1. Meet the requirements of section 1367.04 and Section
1300.67.04 of Title 28 of the California Code of
Regulations, and
2. Issue a one-page document at the same time the uniform
summary of benefits is issued, but which may not be affixed
to this document, that advises applicants and enrollees of
the following:
a. If the plan allows the use of preferred
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providers: "You may use health care providers that are
not included in the health plan's network for
non-emergency services, but you may pay more." If the
plan uses a network, but does not cover out-of-network
services except for emergency services: "This plan
uses a network of preferred providers. Except for
emergency services, this plan does not cover services
outside the network."
b. "Balance billing is when a provider bills you
for the difference between the provider's charge and
the amount allowed by the health plan (allowed
amount). An in-network provider may not balance bill
you. An out-of-network provider may not balance bill
you for emergency services."
HIPPA. HIPAA allows people to buy individual health insurance
when they lose their group health insurance, even if they have a
pre-existing health condition. All health plans that sell
individual plans must offer a HIPAA product and a person cannot
be denied insurance because of their medical history. SB 265
(Speier) Chapter 810, Statutes of 2000 established the following
related to premiums for a HIPAA product:
i. For health plans and insurers offering contracts
through a preferred provider arrangement (PPO), the premium
for a HIPAA eligible who is younger than age 60, is
prohibited from exceeding the average premium paid by a
Major Risk Medical Insurance Program (MRMIP) subscriber who
is of the same age and resides in the same geographic area
as the HIPAA eligible;
ii. For HIPAA eligible individuals between the ages of 60
and 64 who purchase PPO products, the premium is prohibited
from exceeding the average premium paid by a MRMIP
subscriber who is 59 years of age and resides in the same
geographic area as the federally defined individual; and,
iii. For health plans and insurers that do not offer
a PPO product, the HIPAA eligible premium is capped at 170%
of the standard premium charged to an individual who is of
the same age and resides in the same geographic area as the
HIPAA eligible individual. However, for HIPAA eligible
between the ages of 60 and 64, the premium is prohibited
from exceeding 170% of the standard premium charged to an
individual who is 59 years of age and resides in the same
SB X1 2 | Page 26
geographic area as the HIPAA eligible individuals.
In 2014 MRMIP, the state-sponsored health insurance risk pool
that subsidizes coverage for individuals who have been unable to
secure it on the open market due to health problems or high
costs, will no longer be a needed program due to the reforms
enacted in the ACA, such as guarantee issue. There is also
question if HIPAA products will be needed after 2014. Because
the HIPAA premiums for PPO contracts are tied to MRMIP rates, a
decision on the premiums or the continuation of the program all
together, must be decided.
Risk Adjustment. The ACA calls for a risk adjustment program to
help eliminate incentives for health insurance plans to avoid
people with pre-existing conditions or those who are in poor
health. The goal of risk adjustment is to ensure carriers have
additional money to provide services to the people who need them
most by providing more funds to plans that provide care to
people that are likely to have high health costs. The
anticipated result is that carriers can then compete on the
basis of quality and service, and not on the basis of whether
they can attract healthy people. The state is currently
deferring to the federal government's risk adjustment program.
The bill would require carriers to submit any data submitted to
the federal government to also be submitted to the state
regulators. Should the bill be clarified to define what the
role of the regulator would be in collecting this data?
SUPPORT AND OPPOSITION :
Support:
American Federation of State, County and Municipal
Employees, AFL-CIO
California Academy of Family Physicians
California Public Interest Research Group
Children Now
Greenlining
Health Access
National Association of Social Workers - California
Chapter
Transgender Law Center
100% Campaign
Oppose unless amended:
Association of California Life and Health Insurance
Companies
California Association of Health Plans
SB X1 2 | Page
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California Department of Insurance
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