BILL ANALYSIS Ó
SB 2 X1
Page 1
SENATE THIRD READING
SB 2 X1 (Ed Hernandez)
As Amended April 1, 2013
Majority vote
SENATE VOTE :26-10
HEALTH 13-6 APPROPRIATIONS 12-5
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|Ayes:|Pan, Ammiano, Atkins, |Ayes:|Gatto, Bocanegra, |
| |Bonilla, Bonta, Chesbro, | |Bradford, |
| |Gomez, | |Ian Calderon, Campos, |
| |Roger Hernández, Rendon, | |Eggman, Gomez, Hall, |
| |Mitchell, Nazarian, V. | |Holden, Pan, Quirk, |
| |Manuel Pérez, Wieckowski | |Ammiano |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Logue, Maienschein, |Nays:|Harkey, Bigelow, |
| |Mansoor, Nestande, | |Donnelly, Linder, Wagner |
| |Wagner, Wilk | | |
| | | | |
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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)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.
2)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 information that relates to
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a health status-related factor from the applicant or his or
her dependent or any other source prior to enrollment.
3)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 6) below.
4)Prohibits in the individual market a health plan from imposing
any preexisting condition provision upon any individual.
5) 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 specified
factors including health status and genetic information.
6)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
through the Exchange (Covered California) 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 United States military or
California National Guard; and, j) For Covered California any
events listed under federal regulations.
7)Permits in the individual market only the following
characteristics of an individual, and any dependent thereof,
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for purposes of establishing the rate of the health benefit
plan:
a) Age, pursuant to age bands established by the Secretary
of the federal Department of Health and Human Services
(HHS) and the age rating curve established by Centers for
Medicare & Medicaid Services. 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 the California Department of Insurance (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.)
8)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.)
9)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.)
10)Requires a grandfathered health benefit plan to issue the
following notice annually and in any renewal material:
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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 Covered California, 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.
11)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,
c) Prohibition on eligibility rules based on health status
and other factors.
12)Makes operative prior California small group law related to
guarantee issue and rating requirements if federal guarantee
issue and federal community rating are repealed.
13)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,
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d) Prohibitions on eligibility rules based on health status
and other factors.
14)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.
15)Makes this bill's provisions contingent upon the enactment of
AB 2 X1 (Pan).
FISCAL EFFECT : According to the Assembly Appropriations
Committee, special fund costs to DMHC Managed Care Fund to
adopt/modify regulations, review plan filings and respond to
consumers. For fiscal year 2013-14, costs are estimated at
$370,000.
COMMENTS : 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 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.
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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 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 essential health benefits
(EHBs). Final rules on the ACA health insurance market rules
were issued on Friday, February 22, 2013.
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 state guarantee issue provision and the state
community rating provision, meaning that if the federal
guarantee issue and community rating requirements were to be
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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 broader tie-back
provisions.
According to a February 6, 2013, Kaiser Family Foundation (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
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some evidence that plans are working to 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.
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
will especially help 50 to 64 year olds who are working for
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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.
The California Department of Insurance (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.
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097
FN: 0000236