BILL ANALYSIS �
SB 2 XI
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Date of Hearing: April 17, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 2 X1 (Ed Hernandez) - As Amended: April 1, 2013
Policy Committee: HealthVote:13-6
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill implements individual health insurance market
provisions of the federal health reform law to health care
service plans (health plans) regulated by the Department of
Managed Health Care (DMHC), and updates the small group health
insurance market reforms to conform to final federal
regulations. Specifically, this bill:
1)Imposes requirements on health plans in the individual market
to guarantee issue of coverage, prohibit the use of
pre-existing condition provisions, and require the use of
specified criteria relating to age, geography and family size
when setting rates.
2)Makes conforming changes to legislation enacted last year
reforming small group health insurance market laws, based on
new draft federal regulations.
3)Becomes operative only if AB2 X1 (Pan) is enacted. AB2 X1 is
substantially similar except that its provisions apply to
health insurers regulated by the California Department of
Insurance (CDI), whereas this bill's provisions apply to
health plans regulated by DMHC
FISCAL EFFECT
Special fund costs to DMHC Managed Care Fund to adopt/modify
regulations, review plan filings and respond to consumers. For
FY 2013-14, costs are estimated at $370,000.
COMMENTS
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1)Rationale . This bill and its companion measure, AB2 X1 (Pan),
bring California's health insurance laws into compliance with
the federal Patient Protection and Affordable Care Act (ACA).
These changes are needed, and are being considered in a
special session, so that health insurers and regulators will
have sufficient time to prepare for the January 1, 2014
federal implementation date. When the ACA is fully
implemented, all individuals will be required to have health
insurance (individual mandate), with many different ways to
access that coverage, including employer sponsored benefits,
individual market coverage, and various public programs.
2)Previous Legislation . Similar bills from last year, SB 961
(Hern�ndez) and AB 1461 (Monning) were vetoed. The governor
stated that the ACA's requirement on insurers to sell to all
individuals regardless of health status was balanced by the
ACA's individual mandate and that the state legislation did
not "adequately link our state reforms to the federal law."
The "tie-back" to federal law was also been raised by insurers
and relates to the extent to which the bill's provisions
should be retained if federal law changes. The backdrop for
these discussions was originally the uncertainty raised by
lawsuits challenging the ACA's constitutionality shortly after
its 2010 enactment. In June 2012, the U.S. Supreme Court
upheld the ACA, except for a provision related to the Medicaid
program.
Given that federal law is always subject to change, the
governor's concerns were addressed by amendments to make
inoperative various ACA-related provisions applicable to the
small group and individual markets should there be a federal
repeal, and at the same time restoring prior state law in
these areas.
AB 1083 (Monning), Chapter 854, Statutues of 2012, reformed
California's small group health insurance laws to conform to
the ACA.
3)Related Legislation . This bill is substantially similar to AB
2 X1 (Pan), which passed out of the Senate Health Committee on
April 9, 2013. The major difference between these bills is
recent amendments deleted the Insurance Code provisions from
this bill and the Health and Safety Code provisions from AB2
X1. This bill now implements ACA provisions to managed care
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plans regulated by DMHC; AB 2 X1 applies to health insurance
regulated by CDI. Each bill takes effect only if both are
enacted
4)Geographic Regions . This bill limits the ability of insurers
to vary rates for different individuals by creating rules,
based on ACA requirements and similar to the rules governing
California's small group health insurance market for the last
20 years. The rules allow rates to vary based on age, family
size, and geographic region. Generally, a small number of
total regions would be expected to result in less rate
variation throughout the state. A large number of regions
increases the likelihood of redlining, where one person's rate
might be significantly higher or lower than the rate of a
neighbor living just a block away. There are no restrictions
in the current market to limit geographic rating.
This bill has been amended to incorporate 19 rating regions
consistent with those same regions adopted in AB 1083 for the
small group market. Covered California 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.
CDI conducted its own actuarial analysis and proposed
different rating regions to prevent what the department
believes could lead to substantial rate increases for some
individuals. CDI's 18 proposed regions do not correlate to
the 19 regions in this bill.
5)HIPAA Provisions Removed . Under the existing federal Health
Insurance Portability and Accountability Act (HIPAA), 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 coverage must offer a
HIPAA product and a person cannot be denied insurance because
of medical history. There is a question about whether HIPAA
products will be needed after 2014. Because HIPAA premiums
are tied to rates in the state's high risk pool, the Major
Risk Medical Insurance Program, a decision on HIPAA rates must
be made prior to 2014. Consensus was not reached on this
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issue, and the HIPAA provisions were removed. The HIPAA issue
is expected to be addressed in subsequent clean-up
legislation.
6)Risk Adjustment . This bill requires any risk adjustment data
submitted to the federal government pursuant to the ACA to
also be submitted to state regulators. Risk adjustment, which
is part of the ACA, is intended to make sure insurers compete
on price and quality and not on whether they are good at
avoiding high-risk individuals. The state is currently
deferring to the federal government on risk adjustment and
recent amendments specify DMHC will use the data to ensure
compliance with federal law.
Analysis Prepared by : Debra Roth / APPR. / (916) 319-2081