Amended in Senate May 28, 2013

Amended in Senate April 25, 2013

Senate Bill No. 161

Introduced by Senator Hernandez

February 1, 2013

An act to add Article 5 (commencing with Section 10752) to Chapter 8 of Part 2 of Division 2 of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

SB 161, as amended, Hernandez. Stop-loss insurance coverage.

Existing law prohibits a person from transacting any class of insurance business, including health insurance, in this state without first being an admitted insurer. Under existing law, admission is secured by procuring a certificate of authority from the Insurance Commissioner. Existing law prohibits a health insurance policy from being issued or delivered to any person in this state unless specified requirements have been met, including that a copy of the form and premium rates are filed with the commissioner. Under existing law, if the commissioner notifies the health insurer that the filed form does not comply with specified requirements, it is unlawful for that health insurer to issue any health insurance policy in that form.

Existing law, with respect to small employer health insurance, requires an insurer providing aggregate or specific stop-loss coverage or any other assumption of risk with reference to a health benefit plan, as defined, to provide that the plan meets specified requirements concerning preexisting condition provisions, waiting or affiliation periods, and late enrollees.

Existing law, the federal Patient Protection and Affordable Care Act (PPACA), commencing January 1, 2014, 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 the plan or coverage.

This bill would prohibit a stop-loss insurer, as defined, from excluding any employee or dependent on the basis of actual or expected health status-related factors, as specified. Except as specified, the bill would require a stop-loss insurer to renew, at the option of the small employer, all stop-loss insurance policies. The bill would prohibit a stop-loss insurance policy issued on or after January 1, 2014, to a small employer from containing certain individual or aggregate attachment points for a policy year or providing direct coverage, as defined, of an employee or his or her dependent. The bill would make a stop-loss insurer in violation of these provisions subject to administrative penalties and would prohibit the act from affecting the ongoing operations of multiple employer welfare arrangements that provide health care benefits to their members on a self-funded or partially self-funded basis and that comply with small group health reforms.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Article 5 (commencing with Section 10752) is
added to Chapter 8 of Part 2 of Division 2 of the Insurance Code,
to read:

 

Article 5.  Stop-Loss Insurance

 

10752.  

As used in this article, the following definitions shall
apply:

(a) “Attachment point” means the amount of health claims
incurred by a small employer in a policy year for its employees
and their dependents, and covered by a stop-loss insurance policy,
above which the stop-loss insurer incurs a liability for payment.

(1) “Individual attachment point” means the amount of health
claims incurred by a small employer in a policy year for an
individual employee or dependent of an employee, and covered
by a stop-loss insurance policy, above which the stop-loss insurer
incurs a liability for payment, under individual stop-loss coverage.
For purposes of this article, “specific attachment point” has the
same meaning as “individual attachment point.”

(2) “Aggregate attachment point” means the total amount of
health claims incurred by a small employer in a policy year for all
covered employees and their dependents, and covered by a
stop-loss insurance policy, above which the stop-loss insurer incurs
a liability for payment under aggregate stop-loss coverage.

(b) “Dependent” means the spouse, registered domestic partner
as described in Section 297 of the Family Code, or child of an
employee.

(c) “Direct coverage” means that an insurance company assumes
a direct obligation to an employee under an insurance policy to
pay or indemnify the employee for health claims incurred by the
employee or the employee’s dependents.

(d) “Expected claims” means, for the purposes of aggregate
stop-loss coverage, the total amount of health claims that is
projected to be incurred by a small employer for its employees
and their dependents in a policy year.

(e) “Policy year” means the 12-month period that is designated
as the policy year or policy period for the stop-loss insurance
policy. If the stop-loss insurance policy does not designate a policy
year, the policy year is the year in which the total amount of health
claims incurred by a small employer for an individual employee
or dependent of an employee, or the aggregate amount for all
covered employees and their dependents, are added together for
the purposes of determining whether the claims have exceeded the
attachment point.

(f) “Small employer” has the same meaning as defined in
subdivision begin delete (w) of Section 10700 end delete begin insert (q) of Section 10753 end insert .

(g) “Stop-loss insurer” means an insurance company providing
individual or aggregate stop-loss insurance coverage, or both, or
any other assumption of risk, to a small employer for the health
claims it incurs for its employees and their dependents.

(h) “Stop-loss insurance policy” means a policy, contract,
certificate, or statement of coverage between a stop-loss insurer
and small employer providing individual or aggregate stop-loss
insurance coverage, or both, or any other assumption of risk, to a
small employer for the liability the small employer incurs related
to the covered health claims of its employees and their dependents.

10752.1.  

A stop-loss insurer shall not exclude any employee
or dependent on the basis of an actual or expected health
status-related factor. Health status-related factors include, but are
not limited to, any of the following: health status; medical
condition, including both physical and mental illnesses; claims
experience; medical history; receipt of health care; genetic
information; disability; evidence of insurability, including
conditions arising out of acts of domestic violence of the employee
or dependent; or any other health status-related factor as determined
by the department.

10752.2.  

A stop-loss insurer shall renew, at the option of the
small employer, all stop-loss insurance policies written, issued,
administered, or renewed on or after January 1, 2014, and all small
employer stop-loss insurance policies in force on or after January
1, 2014, except as follows:

(a) (1) For nonpayment of the required premiums by the small
employer, if the small employer has been duly notified and billed
for the charge and at least a 30-day grace period has elapsed since
the date of notification.

(2) A stop-loss insurer shall continue to provide coverage as
required by the small employer’s policy during the grace period
described in paragraph (1). Nothing in this section shall be
construed to affect or impair the small employer’s or the stop-loss
insurer’s other rights and responsibilities pursuant to the policy.

(b) Where the stop-loss insurer demonstrates fraud or an
intentional misrepresentation of material fact by the small employer
under the terms of the stop-loss insurance policy.

(c) Where the stop-loss insurer has been determined by the
commissioner to be financially impaired.

(d) Where the stop-loss insurer ceases to write, issue, or
administer new stop-loss insurance policies in this state; provided,
however, that the following conditions are satisfied:

(1) Notice of the decision to cease writing, issuing, or
administering new or existing stop-loss insurance policies in this
state is provided to the commissioner, and to the small employer,
at least 180 days prior to the discontinuation of the coverage.

(2) Stop-loss insurance policies subject to this article shall not
be canceled until 180 days after the date of the notice required
under paragraph (1). During that time, the stop-loss insurer shall
continue to comply with this article.

10752.3.  

begin delete No end delete begin insert A end insert stop-loss insurance policy issued on or after
January 1, 2014, begin insert and prior to January 1, 2016 end insert begin insert , end insert to a small employer
shall begin insert not end insert contain any of the following provisions:

(a) An individual attachment point for a policy year that is less
than begin delete sixty-five thousand dollars ($65,000) end delete begin insert thirty-five thousand
dollars ($35,000) end insert .

(b) An aggregate attachment point for a policy year that is less
than the greater of one of the following:

(1)  begin delete Thirteen thousand dollars ($13,000) end delete begin insert Five thousand dollars
($5,000) end insert times the total number of covered employees and
dependents.

(2) One hundred twenty percent of expected claims.

(3)  begin delete Sixty-five thousand dollars ($65,000) end delete begin insert end insert begin insert Thirty-five thousand
dollars ($35,000) end insert .

(c) A provision for direct coverage of an employee or dependent
of an employee.

begin insert

begin insert 10752.4. end insert   

A stop-loss insurance policy issued on or after
January 1, 2016, to a small employer shall not contain any of the
following provisions:

(a) An individual attachment point for a policy year that is less
than forty thousand dollars ($40,000).

(b) An aggregate attachment point for a policy year that is less
than the greater of one of the following:

(1) Five thousand dollars ($5,000) times the total number of
covered employees and dependents.

(2) One hundred twenty percent of expected claims.

(3) Forty thousand dollars ($40,000).

(c) A provision for direct coverage of an employee or dependent
of an employee.

end insert

begin delete 10752.4. end delete
begin insert 10752.5. end insert   

The commissioner may adopt regulations as may be
necessary to carry out the purposes of this article. In adopting
regulations, the commissioner shall comply with Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title
2 of the Government Code.

begin delete 10752.5. end delete
begin insert 10752.6. end insert   

A stop-loss insurer that violates the provisions of this
article is subject to the remedies and administrative penalties
applicable to insurers in Sections 10718 and 10718.5.

begin delete 10752.6. end delete
begin insert 10752.7. end insert   

Nothing in this article shall affect the ongoing
operations of multiple employer welfare arrangements regulated
pursuant to Article 4.7 (commencing with Section 742.20) of
Chapter 1 of Part 2 of Division 1 that provide health care benefits
to their members on a self-funded or partially self-funded basis
and that comply with small group health reforms.

begin delete 10752.7. end delete
begin insert 10752.8. end insert   

The provisions of this article are severable. If any
provision of this article or its application is held invalid, that
invalidity shall not affect other provisions or applications that can
be given effect without the invalid provision or application.