BILL ANALYSIS Ó
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THIRD READING
Bill No: SB 2X1
Author: Hernandez (D), et al.
Amended: As introduced
Vote: 21
SENATE HEALTH COMMITTEE : 7-2, 2/20/13
AYES: Hernandez, DeSaulnier, Monning, Beall, Pavley, Wolk,
Rubio
NOES: Anderson, Nielsen
SENATE APPROPRIATIONS COMMITTEE : 5-2, 2/21/13
AYES: De León, Hill, Lara, Padilla, Steinberg
NOES: Walters, Gaines
SUBJECT : Health care coverage
SOURCE : Author
DIGEST : This bill reforms Californias 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
CONTINUED
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permits rating factors based on age, geographic region and
family size only.
ANALYSIS :
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.
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 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 Benefit Exchange, known
today as Covered California (CC), to facilitate the purchase
of qualified health plans (QHPs) by qualified individuals and
qualified small employers by January 1, 2014.
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3. Requires, as a condition of participation in the CC, carriers
that sell any products outside the CC to fairly and
affirmatively offer, market, and sell all products made
available in the CC to individuals and small employers
purchasing coverage outside of the CC.
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.
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 this 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.
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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 and Medicaid
Services;
B. Geographic region as described below; and
C. Whether the contract covers an individual or family, as
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/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/she gains a dependent or becomes a dependent through
marriage, birth, adoption, or placement for adoption;
C. He/she becomes a resident of California;
D. He/she is released from incarceration;
E. His/her health benefit plan substantially violated a
material provision of the contract;
F. He/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 CC, the individual meets any of the
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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 CC, 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;
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
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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.
14.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
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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/she was receiving services from a contracting
provider and that provider is no longer participating in
the health benefit plan; or
B. He/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 CC, 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 (HIPAA)
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
the CC because of the health status, claims experience,
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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
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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.
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.
K. Region 11: Counties of Riverside and San Bernardino.
L. Region 12: County of Orange.
M. Region 13: County of San Diego.
12.Requires, by June 1, 2017, DMHC, CC 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
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Legislature.
13.Requires carriers to provide specified information regarding
the CC to applicants for products offered outside the CC.
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/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/her dependent
or any other source prior to enrollment.
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 CC 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
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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.
Requires beneficiaries electing this coverage to pay no more
than 110% 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.
Comments
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 8% 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
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requirements, require 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.
Health Benefit Exchanges . The ACA requires each state, by
January 1, 2014, to establish an American Health Benefit
Exchange (Exchange) that makes QHPs available to qualified
individuals and qualified employers or a state may defer to the
federal government. Federal law establishes requirements for an
Exchange, for health plans participating in an Exchange, and
defines who is eligible to receive coverage in an Exchange.
Beginning January 1, 2014, individual taxpayers whose household
income equals or exceeds 100%, but does not exceed 400% 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% 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% and
400% 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
Web site, 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 CC's January 2013 annual report, CC 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
CC enrollment offerings. In November 2012, CC released its QHP
solicitation and proposed regulations. Final bids were
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submitted on March 1, 2013, and CC anticipates it will conduct
its selection and certification process for QHPs in early to
mid-2013 for pre-enrolment on October 1, 2013.
Individual market . California's individual and small group
health insurance markets together currently serve just fewer
than 15% of the state's population, with approximately two
million people being covered through individually purchased
health insurance. In California, three carriers serve over 75%
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.
According to a 2011 report published by the California
HealthCare Foundation, approximately two million Californians
are covered through individually purchased health insurance.
About 40% of current individual market purchasers would likely
qualify for subsidies and another 18% 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% (2.7 million) may be eligible for
Medi-Cal, half (3.5 million) may be eligible for subsidies to
purchase individual insurance, and 11% (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 CC.
Prior Legislation .
SB 961 (Hernandez, 2012) and AB 1461 (Monning, 2012) were
identical bills that would have reformed California's individual
market similar to the provisions in this bill. SB 961 and AB
1461 were vetoed by Governor Brown.
AB 1083 (Monning), Chapter 854, Statutes of 2012, established
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, designated the Kaiser
Small Group HMO as California's benchmark plan to serve as the
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essential health benefit standard, as required by federal health
care reform.
SB 51 (Alquist), Chapter 644, Statutes of 2011, established
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, required
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, established the CC.
AB 1X 1 (Nunez, 2008) would have enacted the Health Care
Security and Cost Reduction Act, a comprehensive health reform
proposal. The bill died in the Senate Health Committee.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
One-time costs of about $370,000 to the DMHC to adopt
regulations, review health plan filings, and respond to
consumer questions (Managed Care Fund).
One-time costs of about $600,000 to the CDI to adopt
regulations and review health plan filings (Insurance Fund).
The higher projected cost to the CDI reflects the fact that
the changes in this bill will change the business practices
of health insurers more than health plans. Therefore, there
will be greater workload to adopt regulations and review
changes to insurance policies.
SUPPORT : (Verified 2/21/13)
100% Campaign
AFSCME, AFL-CIO
California Academy of Family Physicians
California Public Interest Research Group
Children Now
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Greenlining
Health Access
National Association of Social Workers - California Chapter
Transgender Law Center
OPPOSITION : (Verified 2/21/13)
Association of California Life and Health Insurance Companies
California Association of Health Plans
Department of Insurance
ARGUMENTS IN SUPPORT : Health Access California (HAC), a
statewide health care consumer advocacy coalition, states this
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.
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 this 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
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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.
ARGUMENTS IN OPPOSITION : The California Association of Health
Plans (CAHP) and the Association of California Life and Health
Insurance Companies (ACLHIC) jointly write in opposition to this
bill highlighting the following four 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 this
bill adopts 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 19 rating regions in the small group market and they
support extending that 19 rating region configuration to the
individual health care marketplace. CAHP and ACLHIC argue
that the six geographic rating regions created in this bill
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.
JJA:k 2/21/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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