BILL ANALYSIS �
SB 2 X1
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Date of Hearing: April 9, 2013
ASSEMBLY COMMITTEE ON HEALTH X1
Richard Pan, Chair
SB 2 X1 (Ed Hernandez) - As Amended: April 1, 2013
SENATE VOTE : 26-10
SUBJECT : Health care coverage.
SUMMARY : Applies the individual insurance market reforms of the
Affordable Care Act (ACA) to health care service plans (health
plans) regulated by the Department of Managed Health Care (DMHC)
and updates the small group market laws for health plans to be
consistent with final federal regulations. Specifically, this
bill :
1)Requires any data submitted by a health plan to the US
Secretary of Health and Human Services (HHS), or his or her
designee, for purposes of the risk adjustment program, as
specified, to be concurrently submitted to the DMHC in the
same format. Requires the DMHC to use the information to
monitor federal implementation of risk adjustment in the state
and to ensure that health plans are in compliance with federal
requirements related to risk adjustment.
2)Prohibits, in existing small group law, a plan or solicitor
from directly or indirectly employing marketing practices or
benefit designs that will have the effect of discouraging the
enrollment of individuals with significant health care needs,
or discriminate based on an individual's race, color, national
origin, present or predicted disability, age, sex, gender
identity, sexual orientation, expected length of life, degree
of medical dependency, quality of life, or other health
conditions.
3)Clarifies that health coverage through an association that is
not related to employment to be considered individual coverage
pursuant to federal regulation.
4)Requires a health plan to consider as a single risk pool for
rating purposes in the small group market the claims
experience of all enrollees in all non-grandfathered small
group health benefit plans offered by the health plan in this
state, whether offered as health plan contracts or health
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insurance policies, including enrollees who enroll in coverage
through the California Health Benefit Exchange (Exchange) and
outside the Exchange.
5)Requires each calendar year, a health plan to establish an
index rate for the small employer market in the state based on
the total combined claims costs for providing essential health
benefits (EHBs), as defined, within the single risk pool.
6)Requires the index rate to be adjusted on a market-wide basis
based on the total expected market-wide payments and charges
under the risk adjustment and reinsurance programs established
for the state pursuant to the ACA.
7)Requires the premium rate to use the applicable index rate, as
adjusted for total expected market-wide payments and charges
under the risk adjustment and reinsurance programs.
Authorizes a health plan or carrier to vary premium rates for
a particular nongrandfathered small employer health benefit
plan contract from its index rate based only on the following
actuarially justified plan-specific factors:
a) The actuarial value and cost-sharing design of the plan
contract or health benefit plan;
b) The plan contract's or health benefit plan's provider
network, delivery system characteristics, and utilization
management practices;
c) The benefits provided under the plan contract that are
in addition to the EHBs. Requires these additional
benefits to be pooled with similar benefits within the
single risk pool and the claims experience from those
benefits to be utilized to determine rate variations for
plan contracts that offer those benefits in addition to
EHBs;
d) With respect to catastrophic plans, the expected impact
of the specific eligibility categories for those plans;
and,
e) Administrative costs, excluding any user fees required
by the Exchange.
8) Makes effective dates consistent with those required
under federal regulations.
9)With regard to special enrollment effective dates, makes
coverage effective no later than the first day of the first
calendar month beginning after the date the plan receives the
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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.
10)Revises the provisions dealing with situations under which a
health plan may not be required to contract with a small
employer, such as lacking financial reserves, consistent with
federal law.
11)Clarifies that health plans lacking sufficient health care
delivery resources may not offer a contract to new employer
groups within specified circumstances.
12)Revises premium rating factors as follows: includes
references to the age rating curve established by the Centers
for Medicare and Medicaid Services (CMS), using the
individual's age as of the effective date of the contract and
specifies the three to one limitation is based upon like
individuals of different age who are 21 years of age or older,
as described in federal regulations; and, 19 geographic rating
regions. Requires no later than June 1, 2017, DMHC in
collaboration with the California Department of Insurance
(CDI) to review the geographic rating regions and submit a
report to the appropriate policy committees of the
Legislature. Makes the report regarding geographic rating
regions inoperative June 1, 2021. Requires the total premium
charged to be determined by summing the premiums of covered
employees and dependents in accordance with federal
regulations.
13)Requires all health plan contracts subject to specified
federal law to satisfy the requirements of existing state law
with regard to uniform benefit matrix by providing the uniform
summary of benefits and coverage required under federal law
and any rules or regulations issued thereunder. Requires a
health plan that issues the uniform summary of benefits to
ensure that all applicable benefit disclosure requirements
specified in existing law and regulations are met in other
health plan documents provided to enrollees, and consistent
with applicable law, advise applicants and enrollees, in a
prominent place in such plan documents, that enrollees are not
financially responsible for payment for emergency care
services, for any amount that the health plan is obligated to
pay, beyond the enrollee's copayments, coinsurance, and
deductibles as provided in the enrollee's plan contract.
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14)Provides that nothing in 12) above prevents a plan from using
appropriate footnotes or disclaimers to reasonably and fairly
describe coverage arrangements in order to clarify any part of
the matrix that may be unclear.
15)Makes underwriting disclosure provisions inoperative except
for grandfathered plans.
16)Sunsets existing law in 2014 that allows individuals to
transfer once a year to a contract without underwriting.
17)Sunsets in 2014 existing law related to transferring to a new
coverage when a contract or policy is rescinded. Reinstates
this provision in 2014.
18)Deletes an obsolete provision related to establishing a
risk-sharing mechanism for financing high risk individuals.
19)Requires health plans to provide a notice to all applicants
for coverage related to guarantee issue for children about
other options for enrollment including new open enrollment
options. Requires DMHC to develop a model notice requirement,
in consultation with the CDI. Exempts this model notice
authority from the Administrative Procedures Act. Sunsets the
article on children's health coverage on January 1, 2014.
20)Establishes definitions for individual market provisions,
similar to the definitions established for the small group in
existing law. Defines health benefit plan as any individual
or group health plan contract, and specifies what it does not
include, such as Medi-Cal. Removes conversion contracts and
Health Insurance Portability and Accountability Act (HIPAA)
contracts from the exclusion. Defines a dependent as the
spouse or registered domestic partner or child of an
individual, subject to applicable terms of the health benefit
plan. Defines a family as a subscriber and their dependent or
dependents. Defines policy year as the period from January 1
to December 31, inclusive. Defines rating period as the
calendar year for which premium rates are in effect.
21)Prohibits a health plan from requiring an individual
applicant or his or her dependent to fill out a health
assessment or medical questionnaire prior to enrollment.
Prohibits a health plan from acquiring or requesting
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information that relates to a health status-related factor
from the applicant or his or her dependent or any other source
prior to enrollment.
22)Prohibits in the individual market a health plan or solicitor
from, directly or indirectly, engaging in the following
activities:
a) Encouraging or directing an individual to refrain from
filing an application for, or seeking, individual coverage
from another plan or health insurer or the Exchange because
of the health status, claims experience, industry,
occupation, or geographic location, provided that the
location is within the plan's approved service area of the
individual; or,
b) Employing marketing practices or benefit designs that
will have the effect of discouraging the enrollment of
individuals with significant health needs or discriminate
based on an individual's race, color, national origin,
present or predicted disability, age, sex, gender identity,
sexual orientation, expected length of life, degree of
medical dependency, quality of life, or other health
conditions.
23) Prohibits in the individual market commencing October 1,
2013 a health plan 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, agent, or broker for the sale of an
individual health plan to be varied because of the factors
described in 22) a) above.
24) Establishes requirements for a single risk pool similar
to those described in the small group market. Excludes
student health insurance coverage, as defined in federal
regulations, from a health plan's single risk pool for
individual coverage.
25) Permits, in the individual market, a health plan to vary
premium rates for a particular health benefit 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
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practices;
c) The benefits provided under the health benefit plan that
are in addition to the EHBs. These additional benefits
shall be pooled with similar benefits within a single risk
pool and the claims experience from those benefits are to
be utilized to determine rate variations for plans that
offer those benefits in addition to EHBs;
d) With respect to catastrophic plans the expected impact
of the specific eligibility categories for those plans;
and,
e) Administrative costs, excluding user fees required by
the Exchange.
26)Requires on or after October 1, 2013 a health plan or insurer
to fairly and affirmatively offer, market, and sell all of the
plan's health benefit plans that are sold in the individual
market for policy years on or after January 1, 2014 to all
individuals and dependents in each service area in which the
plan provides or arranges for health care services. Limits
enrollment to open enrollment and special enrollment periods,
as specified in 30) below.
27)Prohibits in the individual market a health plan from
imposing any preexisting condition provision upon any
individual.
28) Prohibits in the individual market a health plan from
establishing rules for eligibility, including continued
eligibility, of any individual to enroll under the terms of
an individual health benefit plan based 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 issued pursuant to
federal law.
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29)Specifies a health plan is not required to offer an
individual health benefit plan or accept applications for the
plan under the following circumstances:
a) To an individual who does not live or reside within the
plan's approved service areas;
b) Within a specific service area if it demonstrates to the
Director of DMHC that it will not have sufficient health
care delivery resources to ensure that health care services
will be available and accessible to the individual because
of its obligations to existing enrollees; and it must apply
this provision uniformly to all individuals without regard
to the claims experience of those individuals or any health
status-related factor relating to those individuals. Bars
a health benefit plan from offering a health plan in that
area until the later of the 181st day after the date
coverage is denied; or, the date the plan notifies the
Director of DMHC that it has the ability to deliver
services to individuals, and certifies to the Director of
DMHC that from the date of the notice it will enroll all
individuals requesting coverage in that area from the plan.
This does not limit the plan's ability to renew coverage
already in force or relieve the plan of the responsibility
to renew that coverage;
c) It does not have the financial reserves necessary to
underwrite additional coverage, and it applies this
uniformly to all individuals without regard to the claims
experience of those individuals or any health
status-related factor. Applies the same timeframe and
requirements above; and,
d) Provides that nothing in this bill shall be construed to
limit the DMHC Director's authority to develop and
implement a plan of rehabilitation for a health plan whose
financial viability or organizational and administrative
capacity has become impaired to the extent permitted by
ACA.
30) Establishes a limited open enrollment period beginning
on the date that is 30 calendar days prior to the date the
policy year ends in 2014 for individuals enrolled in
non-calendar year individual health plan contracts.
31)Establishes in the individual market as an initial open
enrollment period from October 1, 2013 to March 31, 2014, and
annually after that from October 15 to December 7. This is
the period when individuals can purchase health insurance
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through Covered California (Exchange) and in the commercial
market. In addition, gives individuals 60 days, to the extent
permitted under the ACA, to enroll under one of the following
special enrollment triggering events:
a) Loss of minimum essential coverage, as specified under
federal requirements;
b) Gained a dependent or became a dependent;
c) Mandated dependent coverage due to court order;
d) Released from incarceration;
e) Health benefit plan substantially violated a material
provision of the contract;
f) Gained access to a new health benefit plan as a result
of a permanent move;
g) Provider no longer participating in a plan and
individual has a specified condition;
h) Misinformed about minimum essential coverage;
i) Returned from active duty as a member of the reserve
forces of the US military or California National Guard;
and,
j) For Covered California any events listed under federal
regulations.
32)Permits in the individual market only the following
characteristics of an individual, and any dependent thereof,
for purposes of establishing the rate of the health benefit
plan:
a) Age, pursuant to age bands established by the Secretary
of HHS and the age rating curve established by CMS. Rates
based on age shall be determined using the individual's age
as of the date of the plan issuance or renewal, as
applicable, and shall not vary by more than three to one
for like individuals of different age who are age 21 or
older as described in federal regulations;
b) Geographic regions based on 19 regions. Requires no
later than June 1, 2017, DMHC in collaboration with the
Exchange and CDI to review the geographic rating regions
and the impacts of those regions on the health care
coverage market in California and make a report to the
appropriate policy committee of the Legislature; and,
c) Whether the plan covers an individual or family, as
described in the ACA. (The rating variation permitted
shall be applied to each family member. However the total
premium shall be determined by the sum of the premiums for
each family member but for no more than the three oldest
members under age 21.)
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33)Requires a health plan outside the Exchange to inform an
applicant for coverage that he or she may be eligible for
lower cost coverage through the Exchange and the Exchange
enrollment period. (Does not apply to grandfathered plans.)
34)Requires a health plan outside the Exchange to issue a notice
to a subscriber that he or she may be eligible for lower cost
coverage through the Exchange and shall inform the subscriber
of the applicable open enrollment period provided through the
Exchange. (Does not apply to grandfathered plans.)
35)Requires a grandfathered health benefit plan to issue the
following notice annually and in any renewal material:
New improved health insurance options are available in
California. You currently have health insurance that
is not required to follow many of the new laws. For
example, your plan may not provide preventive health
services without any cost sharing (co-pays or
coinsurance). Also, your current policy may be
allowed to increase your rates based on your health
status while new policies cannot. You have the option
to remain in your current plan or switch to a new
plan. Under the new rules, a health plan cannot deny
your application based on any health conditions you
may have. For more information about your options,
please contact the California Health Benefit Exchange,
the Office of Patient Advocate, your plan
representative, or an insurance agent, or any entity
paid by Covered California to assist with health
coverage enrollment, such as a navigator or assistant.
36)Prohibits a health plan from advertising or marketing an
individual health benefit plan that is grandfathered for the
purpose of enrolling a dependent for policy years on or after
January 1, 2014. Nothing prevents a grandfathered plan from
adding a dependent.
37)Makes inoperative 12 months after the repeal of federal
guarantee issue and federal community rating provisions the
following California small group provisions:
a) Guarantee Issue;
b) Community rating; and,
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c) Prohibition on eligibility rules based on health status
and other factors.
38)Makes operative prior California small group law related to
guarantee issue and rating requirements if federal guarantee
issue and federal community rating are repealed.
39)Makes inoperative 12 months after the repeal of the federal
individual mandate the following California individual market
provisions:
a) Guarantee issue;
b) Community rating;
c) Prohibitions on preexisting condition provisions; and,
d) Prohibitions on eligibility rules based on health status
and other factors.
40)Makes operative 12 months after the repeal of the federal
individual mandate the following California individual market
provisions:
a) Written policies on underwriting;
b) Rescission requirements; and,
c) Guarantee issue for children.
41)Gives the DMHC limited emergency regulatory authority to
implement the provisions of this bill. Requires DMHC to
consult with the Insurance Commissioner prior to adopting any
regulations pursuant to this provision for the specific
purpose of ensuring, to the extent practical, that there is
consistency of regulations applicable to entities regulated by
DMHC and those regulated by CDI.
42)Makes this bill's provisions contingent upon the enactment of
AB 2 X1 (Pan).
EXISTING LAW :
1)Establishes DMHC to regulate health plans under the Knox-Keene
Health Care Services Plan Act of 1975 (Knox-Keene Act) in the
Health and Safety Code; CDI to regulate health insurers under
the Insurance Code; and, the Exchange to compare and make
available through selective contracting health insurance for
individual and small business purchasers as authorized under
the ACA.
2)Defines a grandfathered health plan as having the same meaning
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as that term is defined in the ACA. Federal law defines a
grandfathered health plan as any group health plan or health
insurance coverage to which Section 1251 applies (in general
coverage that existed as of March 23, 2010 which can only
enroll new individuals as dependents of existing covered
individuals).
3)Prohibits a nongrandfathered health benefit plan for group or
individual coverage from imposing any preexisting condition
provision or waivered condition upon any enrollee, and
requires on or after October 1, 2013 a plan to fairly and
affirmatively offer, market, and sell all small employer
health plan contracts for plan years on or after January 1,
2014 to all small employers in each service area, as specified
(pursuant to AB 1083 (Monning), Chapter 852, Statutes of
2012).
4)Establishes that premium rates for small employer health
benefit plan contracts can vary only by age, pursuant to age
bands, established by the Secretary of HHS, and based on the
individual's birthday and shall vary by no more than three to
one for adults; includes 19 geographic regions, as specified,
with a report no later than June 1, 2017 reviewing the impact
of the regions on the coverage market in California; and,
whether the contract covers an individual or family, as
described in the ACA (pursuant to AB 1083).
5)Establishes as California's EHBs the Kaiser Small Group Health
Maintenance Organization (HMO) plan along with the following
10 ACA mandated benefits:
a) Ambulatory patient services;
b) Emergency services;
c) Hospitalization;
d) Maternity and newborn care;
e) Mental health and substance use disorder services,
including behavioral health treatment;
f) Prescription drugs;
g) Rehabilitative and habilitative services and devices;
h) Laboratory services;
i) Preventive and wellness services and chronic disease
management; and,
j) Pediatric services, including oral and vision care.
6)Requires under the Health and Safety Code each plan to
disclose in a uniform benefits and coverage matrix specified
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information to facilitate comparisons between plan contracts.
Requires under federal law, pursuant to the ACA, specified
uniform benefit disclosures.
7)Requires health plans with contracts in the individual market
to allow without medical underwriting an individual to
transfer once a year to a contract that has equal or lesser
benefits.
8)Requires health plans with contracts in the individual market
to offer an individual in a contract or policy that was
rescinded without medical underwriting a new individual
contract or policy with equal benefits.
9)Establishes notification and rate requirements for individuals
eligible for coverage under HIPAA.
10)Establishes conditions for guaranteed issue of coverage for
children.
FISCAL EFFECT : 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. (Note: this bill has been amended to no longer apply
to CDI regulated entities.)
COMMENTS :
1)PURPOSE OF THIS BILL . This bill is necessary to implement
provisions of the ACA in California's individual health
insurance 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
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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. For consistency and to ensure a balanced mix of
health risk inside the Exchange, the author is attempting to
keep the rules for the commercial market outside the Exchange
the same, as much as possible, as inside the Exchange. 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 a more cost effective
manner.
2)BACKGROUND . On March 23, 2010, the federal ACA (Public Law
111-148), as amended by the Health Care and Education
Reconciliation Act of 2010 (Public Law 111-152) became law.
Among many 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 prohibitions against health insurers imposing 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 insurers to offer coverage on a guaranteed issue and
renewal basis, determine premiums based on adjusted community
rating (age, family, geography, and tobacco use).
Additionally, by 2014 either a state will establish separate
exchanges to offer individual and small-group coverage or the
federal government will establish one. Exchanges will not be
insurers but will provide eligible individuals and small
businesses with access to private plans in a comparable way.
In 2014 some individuals with income below 400% of the federal
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poverty level (FPL) will qualify for credits toward their
premium costs and subsidies toward their cost-sharing for
insurance purchased through an exchange. California has
established Covered California, as a state-based exchange that
is operating as an independent government entity with a
five-member Board of Directors.
The HHS, Department of Treasury and Department of Labor have
issued proposed rules pertaining to the ACA on health
insurance market rules, exchanges, and EHBs. Final rules on
the ACA health insurance market rules were issued on Friday,
February 22, 2013.
3)US SUPREME COURT . On June 28, 2012, the US Supreme Court
(SCOTUS) issued a decision on the constitutionality of two
major provisions 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 (2011) 11th Cir. Nos. 11-11021 &
11-11067. The two provisions reviewed were the individual
mandate and the Medicaid expansion. 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 and individual
insurance plans, including those offered through the Exchange,
a grandfathered health plan, or government sponsored coverage.
According to a January 2012 Kaiser Family Foundation (KFF)
brief, the authors of the ACA believed that without the
individual mandate, the exchanges and private insurance market
reforms would not work effectively due to the adverse
selection effect of healthy people choosing to forego
insurance.
In a 5-4 decision the SCOTUS upheld the individual mandate
provisions of the ACA, but ruled unconstitutional the
mandatory nature of the Medicaid expansion provisions. With
regard to the individual mandate, the SCOTUS determined that
it must be construed as imposing a tax on those who do not
have health insurance and as such may be upheld as within
Congress's power under the Taxing Clause. The SCOTUS also
determined the Medicaid expansion violates the Constitution by
threatening states with the loss of their existing Medicaid
funding if they decline to comply with the expansion.
However, because of the Severability Clause in Medicaid, the
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constitutional violation is fully remedied by precluding the
federal Secretary of HHS from applying the provision to
withdraw existing Medicaid funds for failure to comply with
the expansion requirements, but instead allowing the expansion
as a state option.
4)INDIVIDUAL MARKET . 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% 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. 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 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 products 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 insurer
filings of premiums for open market individual coverage, have
an age ratio for 64 year olds that range from 2.3 to 2.9,
depending on the health plan. In the CHCF report, premiums
ranged from $113 to $777 per month. Individual market
insurance typically provides comprehensive coverage. The CHCF
report indicates that individual coverage paid an average of
55% of medical expenses, compared to 80-90% of expenses for
group coverage. Purchasers in the individual market pay 100%
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. Three
insurers serve over 75% of the market: Anthem Blue Cross
Preferred Provider Organization (PPO), Blue Shield PPO, and
Kaiser HMO.
Historically, California's two regulators allow variation in
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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.
With the implementation of the ACA, including requirements on
both DMHC and CDI licensed companies to offer products that
meet EHBs, less variation in product design is anticipated.
5)RATE SHOCK . According to a February 6, 2013, KFF article,
"Why Premiums Will Change for People Who Now Have Nongroup
Insurance," overall, it is expected that average, unsubsidized
premiums in the nongroup (individual) market will be somewhat
higher under the ACA as compared to today. This is because
many people will be getting better insurance with EHBs 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. Guaranteed access to coverage for people with
preexisting conditions may increase average premiums as many
people with higher costs come into the system. However, this
should be balanced by more, healthy, young uninsured
participating because of subsidies and the individual mandate.
Restricting access to coverage during annual and special
enrollment periods will reduce the likelihood that people will
wait until they develop health problems before seeking
coverage.
The ACA provides for $20 billion in transitional reinsurance to
offset adverse selection in the first three years of the
program. The ACA also redistributes the premium burden among
different enrollees by eliminating premium differences for
gender and limiting variation in premiums due to age to a
maximum of three to one. This has led to concerns about "rate
shock" but premium increases for young people are mitigated by
premium subsidies and that people under 30 can purchase
catastrophic coverage. The KFF 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.
There is already some evidence that plans are working to
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create less costly, more efficient networks to offer with
plans sold in exchanges.
A March 28, 2013 report conducted by Milliman for Covered
California points out that expanded enrollment of a sicker
population is estimated to cause rates to increase on average
26% for individuals. However, this is offset by other factors
such as an estimated 9% premium reduction due to the ACA's
temporary reinsurance program that reimburses carriers 80% of
claims exceeding $60,000 (capped at $250,000) and a projected
reduction of costs of 6% due to better competition and more
effective contracting. Rates in California were expected to
rise by 9% in 2014 even in the absence of the ACA due to
underlying medical cost and utilization. For those who have
insurance today, their premium may increase by an average
16.9% due to a corresponding increase in improved coverage
provided under the ACA, but most of this increase does not
apply to people who prefer a lower level of coverage. Also,
this cost increase is offset by reduced costs at the time
consumers receive care. Covered California points out that
the 85% of Californians who receive their health insurance
from their employer were not included in this study. For
those who are the subject of the study, rates will be
dependent upon an individual's circumstances. Currently
570,000 people with individual health insurance will be
eligible for subsidies, which will result in an on average 85%
drop in what they currently pay in the individual market.
Another 1.6 million people who are currently uninsured could
have 100% of their premiums covered through the ACA.
6)TOBACCO RATING. Provisions of the ACA are intended to address
affordability of health care coverage. Subsidies for
purchasing health insurance will be available in the Exchange
for some individuals whose coverage costs exceed a certain
percentage of their income, and other individuals will be
exempt from the individual mandate if costs exceed a specified
percentage of their income (8%). Surcharges associated with
tobacco use and standards-based wellness incentive programs
could make coverage unaffordable for some populations and take
them out of the health insurance market altogether.
Alternatively, such programs could drive unhealthy individuals
into the Exchange where subsidies may be available. Taking
tobacco rating as an example, a non-smoker with family income
of $17,700 would be charged $5,200 annual premium for a
tax-credit benchmark plan in the Exchange. With federal
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subsidies available through the Exchange, this individual
would pay a $708 premium per year. A similarly situated
smoker would have to pay a tobacco surcharge (50% of premium
or $2,600) in addition to the $708 for a total premium (minus
the subsidies) of $3,308 which represents 18.7% of his or her
income. In this example, the smoker could opt out of the
mandate to purchase health insurance because the product is no
longer affordable. While the ACA allows for tobacco rating,
this bill does not include tobacco rating as a factor for
determining premium rates.
7)GEOGRAPHIC RATING REGIONS . The ACA requires that each state
establish geographic rating areas that must be applied
consistently inside and outside the Exchange. The final
federal rules allow states to establish one or more rating
areas based on the following geographic boundaries: counties,
three-digit zip code, or metropolitan statistical areas (MSAs)
and non-MSA geographic divisions, and will be presumed
adequate if: a) the state established by law, rule,
regulation, bulletin, or other executive action uniform rating
areas for the entire state as of January 1, 2013, or, b) the
state establishes by law, rule, regulation, bulletin, or other
executive action after January 1, 2013 uniform rating areas
for the entire state that are no greater in number than the
number of MSAs in the state plus one (there are 26 MSAs in
California). The federal regulations also authorize a state
to propose to CMS for approval a number of rating areas that
is greater than the number of MSAs plus one, provided such
rating areas are based on the geographic boundaries as
described.
This bill has been amended to incorporate the 19 rating region
proposal consistent with those same regions adopted in AB
1083. Covered California has requested Qualified Health Plan
bids due in March 2013 assuming that the 19 rating regions
included in AB 1083 enacted prior to the issuance of federal
regulations would be adopted by the Legislature and approved
by the Governor for the individual market as well. California
was notified on April 1, 2013 that these 19 geographic rating
regions have been approved by the federal government.
8)TIE BACK STATE LAW TO THE ACA . Last year, Governor Brown
vetoed AB 1461 (Monning) and SB 961 (Ed Hernandez) because the
tie back provision was not sufficient to meet the Governor's
concerns. AB 1461 and SB 961 contained a tie back for the
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state guarantee issue provision and the state community rating
provision, meaning that if the federal guarantee issue and
community rating requirements were to be repealed, the state
guarantee issue and community rating provisions would
automatically become inoperative at the state level. The
Brown Administration has requested a broader tie-back to the
ACA that would also make inoperative state provisions
prohibiting preexisting condition exclusions and prohibiting
eligibility rules based on health status factors. This bill
has been amended to include the following tie back provisions:
a) Makes inoperative 12 months after the repeal of federal
guarantee issue and federal community rating provisions the
following California small group provisions:
i) Guarantee Issue;
ii) Community rating; and,
iii) Prohibition on eligibility rules based on health
status and other factors.
b) Makes operative prior California small group law (pre
ACA) related to guarantee issue and rating requirements if
federal guarantee issue and federal community rating are
repealed.
c) Makes inoperative 12 months after the repeal of the
federal individual mandate the following California
individual market provisions:
i) Guarantee issue;
ii) Community rating;
iii) Prohibitions on preexisting condition provisions;
and,
iv) Prohibitions on eligibility rules based on health
status and other factors.
d) Makes operative 12 months after the repeal of the
federal individual mandate the following California
individual market provisions:
i) Written policies on underwriting;
ii) Rescission requirements; and,
iii) Guarantee issue for children.
9)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 to forms that will
help them understand and evaluate their health insurance
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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, health plans 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. There is a similar requirement in the
Insurance Code. Many of the ACA requirements are already
included in the state requirements and there is concern that
insurers will be providing duplicative information which could
result in confusion. Recent amendments include consensus
language agreed to by stakeholders.
10)HIPAA . Under existing federal HIPAA law, people losing
access to group coverage can buy individual health insurance,
even if they have a preexisting 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. There is a question about whether or not
HIPAA products will be needed after 2014. At a minimum
because the HIPAA premiums for PPO contracts are tied to Major
Risk Medical Insurance Program rates, a decision on HIPAA PPO
rates must be made prior to 2014. Because consensus was not
reached on this issue, the provisions have been removed from
this bill, and instead will be amended into subsequent
clean-up legislation.
11)RISK ADJUSTMENT . The ACA calls for a risk adjustment program
to help eliminate incentives for health plans and insurers to
avoid people with preexisting conditions or those who are in
poor health. Risk adjustment is the idea of compensating
health plans or insurers who enroll patients with higher risk
and higher expected health expenditures such as those with
cancer, chronic heart or lung disease, dementia, and
psychiatric illness. Under risk adjustment, health plans and
insurers that have an overall less healthy pool based on risk
factors or health expenditures receive supplemental payments
that come from payments made by health plans and insurers who
end up with lower overall risks and costs. The anticipated
result is that insurers 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. This bill
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would require insurers to also submit to state regulators any
data submitted to the federal government. This bill has been
amended to specify that DMHC will use the data to monitor
compliance with federal implementation of risk adjustment in
the state and to ensure that health plans are in compliance
with federal requirements related to risk adjustment.
12)FEDERAL CONFORMITY VS. STATE SPECIFIC PROVISIONS . In some
ways California law is ahead of the ACA making some aspects of
strict conformity a step backwards. In crafting ACA reforms
in state law it is important to recognize unique California
specific policies that should be preserved even with the ACA
and especially under any scenario in which the hallmark market
reforms of the ACA are repealed. For example, underwriting
disclosures and ability to change plans in situations of
rescissions are California specific provisions which should be
made operative if the state guarantee issue requirement is
repealed at some future date. The uniform benefit summary
matrix is another example.
This bill includes other California specific provisions such as
allowing additional special enrollment options in cases where
the treating provider of an enrollee in treatment for a
specified condition no longer participates in the enrollee's
health plan. This bill contains marketing and anti-steering
provisions, disclosure notices, and restrictions on
pre-enrollment health assessments. This bill also gives
state regulators access to risk adjustment data for monitoring
compliance with federal risk adjustment requirements.
13)SUPPORT . This bill is supported by the AARP, California
Alliance for Retired Americans, Health Access California,
Consumers Union, the Latino Coalition for a Healthy
California, and the 100% Campaign. Proponents support this
bill because it addresses pre-existing condition exclusions,
premium rating based on health status, intrusive health
questionnaires, provides protections against mid-year rate
increases, no tobacco rating, and limits on age rating.
Health Access indicates the ACA is here to stay, but if for
some reason in the future, aspects are repealed, the
Legislature and the Governor should take the time to develop a
policy response that protects consumers. Health Access
accepts 19 rating regions in this bill as established in AB
1083. Health Access reluctantly accepts limits on guarantee
issue given federal rules. AARP supports this bill because it
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will especially help 50 to 64 year olds who are working for
employers that do not provide health care coverage. These
individuals are usually priced out due to preexisting
conditions. Consumers Union supports this bill's 19 rating
regions and the provision to revisit geographic rating regions
in future years. Consumers Union supports provisions limiting
rating factors, uniform disclosure of benefits and costs,
notice of affordable care options and the effort to implement
a single risk pool to ensure that each issuer's total
individual market book of business is included in one risk
pool and total small group book of business is in a single
risk pool. Consumers Union also supports the 12 month tie
back provision which gives the Legislature and the Governor
time to respond to federal changes. The 100% Campaign believe
the notices that consumers receive about their family's health
insurance options are crucial to consumers making informed
coverage choices within the new health care landscape.
14)OPPOSITION UNLESS AMENDED . The CDI opposes this bill unless
it is amended to incorporate geographic rating regions
established by CDI. According to CDI, the design of the
geographic rating regions will play an important role in
determining what level of premium disruption consumers'
experience. CDI believes the 19 rating region proposals will
result in a maximum increase of 25% for consumers, and that
the most significant increases would be felt in Greater
Sacramento, Northern Central Valley, and West Los Angeles.
With the CDI proposal, according to CDI, Northern California
and parts of the Central Valley would see the most significant
premium increases. The CDI indicates that policyholders will
also see an increase in premiums once the age bands, and age
factors are determined, and some will see an increase because
of the essential health benefits requirement.
15)RELATED LEGISLATION .
a) AB 2 X1contains substantially similar provisions related
to health insurance regulated under the Insurance Code.
Ties both bills together so that they both have to be
enacted.
b) AB 1 X1 (John A. P�rez) implements various provisions of
the ACA regarding Medi-Cal eligibility and program
simplification including the use of the Modified Adjusted
Gross Income (MAGI) and expansion of eligibility in the
Medi-Cal program.
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c) SB 1 X1 (Ed Hernandez and Steinberg) implements various
provisions of the ACA regarding Medi-Cal eligibility and
program simplification including the use of the MAGI and
expansion of eligibility in the Medi-Cal program. It is a
companion bill to AB 1 X1.
d) SB 3 X1 (Ed Hernandez) establishes a bridge option to
allow low-cost health coverage to be provided to
individuals within the Exchange.
e) AB 1180 (Pan) is clean-up legislation to deal with HIPAA
issues.
f) AB 18 (Pan) is intended to address policy issues
associated with standalone dental plans participating in
the Exchange.
g) SB 18 (Ed Hernandez) establishes legislative intent to
enact legislation to reform the individual health care
coverage market consistent with the ACA.
h) SB 28 (Ed Hernandez and Steinberg) implements various
provisions of the ACA regarding Medi-Cal eligibility and
program simplification including the use of the MAGI and
expansion of eligibility in the Medi-Cal program.
16)PREVIOUS LEGISLATION .
a) AB 1083 reforms California's small group health
insurance laws to enact the ACA. Eliminates preexisting
condition requirements and establishes premium rating
factors based only on age, family size, and 19 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 small group guaranteed issue and rating law
pre-ACA would become operative.
b) AB 1461 and SB 961 would have reformed the individual
market consistent with the ACA but both bills were vetoed.
The Governor's veto message states:
"I realize how important it is to align our
individual health insurance market rules with the
federal Patient Protection and Affordable Care
Act. This bill got almost all the way there.
Unfortunately, the measure failed to adequately
link our state reforms to the federal law. The
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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.
This would lead to skyrocketing premiums, making
coverage more unaffordable.
I look forward to working with the Legislature to
correct this problem and adopt the remaining
essential provisions of this bill."
c) AB 1453 (Monning), Chapter 854, Statutes of 2012 and SB
951 (Hernandez), Chapter 866, Statutes of 2012 establish
California's EHBs.
d) AB 1602 (John A. P�rez), Chapter 655, Statutes of 2010,
establishes the Exchange as an independent public entity to
purchase health insurance on behalf of Californians,
including those with incomes of between 100% and 400% of
the FPL and small businesses. Clarifies the powers and
duties of the board governing the Exchange relative to the
administration of the Exchange, determining eligibility and
enrollment in the Exchange, and arranging for coverage
under qualified insurers.
e) SB 900 (Alquist), Chapter 659, Statues of 2010,
establishes the Exchange and requires the Exchange to be
governed by a five-member board, as specified.
f) AB 1 X1 (Nu�ez) of 2007 would have enacted the Health
Care Security and Cost Reduction Act, a comprehensive
health reform proposal including provisions to require
Health Action Incentive Rewards programs in group health
coverage and the Medi-Cal program. AB 1 X1 failed passage
in the Senate Health Committee.
REGISTERED SUPPORT / OPPOSITION :
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Support
100% Campaign
AARP
American Cancer Society Cancer Action Network
American Federation of State, County and Municipal Employees,
AFL-CIO
American Heart Association
California Academy of Family Physicians
California Alliance for Retired Americans
California Optometric Association
California Primary Care Association
Children Now
Children's Defense Fund-California
Children's Partnership
Congress of California Seniors
Consumers Union
Greenlining Institute
Health Access
Latino Coalition for a Healthy California
National Multiple Sclerosis Society
PICO California
Transgender Law Center
United Nurses Associations of California/Union of Health Care
Professionals
Opposition Unless Amended
California Department of Insurance
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097