BILL ANALYSIS Ó
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THIRD READING
Bill No: SB 161
Author: Hernandez (D)
Amended: 4/25/13
Vote: 21
SENATE HEALTH COMMITTEE : 7-2, 5/1/13
AYES: Hernandez, Beall, De León, DeSaulnier, Monning, Pavley,
Wolk
NOES: Anderson, Nielsen
SENATE APPROPRIATIONS COMMITTEE : 4-1, 5/13/13
AYES: De León, Lara, Padilla, Steinberg
NOES: Hill
NO VOTE RECORDED: Walters, Gaines
SUBJECT : Stop-loss insurance coverage
SOURCE : Author
DIGEST : This bill prohibits a stop-loss insurer from
excluding any employee or dependent on the basis of a health
status-related factor. Requires a stop-loss insurer to renew
all stop-loss insurance policies written, issued, administered,
or renewed on or after January, 1, 2014, with exceptions.
Prohibits specified provisions on any stop-loss policy issued on
or after January 1, 2014.
ANALYSIS :
Existing law:
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1. Provides for the regulation of health insurers (insurers) by
the California Department of Insurance (CDI) under the
Insurance Code.
2. Prohibits a person from transacting any class of insurance
business, including health insurance, in this state without
first being an admitted insurer.
3. Prohibits a group health plan and a health insurance issuer
offering group or individual health insurance coverage from
imposing any pre-existing condition exclusion with respect to
the plan or coverage commencing January 1, 2014.
4. Establishes the federal Patient Protection and Affordable
Care Act (ACA), which imposes various requirements on states,
carriers, employers, and individuals regarding health care
coverage.
5. Establishes and specifies the duties and authority of the
California Health Benefit Exchange (Exchange, now known as
Covered California).
6. Requires carriers that sell any products outside Covered
California, as a condition of participation in Covered
California, to fairly and affirmatively offer, market, and
sell all products made available in Covered California to
individuals and small employers purchasing coverage outside
of Covered California.
This bill:
1. Defines various terms for purposes of this bill.
2. Prohibits a stop-loss insurance policy issued on or after
January 1, 2014, to a small employer from containing any of
the following provisions:
A. An individual attachment point for a policy year that
is less than sixty-five thousand dollars ($65,000).
B. An aggregate attachment point for a policy year that is
less than the greater of one of the following:
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(1) Thirteen thousand dollars ($13,000) times the
total number of covered employees and dependents.
(2) 120% of expected claims.
(3) Sixty-five thousand dollars ($65,000).
C. A provision for direct coverage of an employee or
dependent of an employee.
3. Prohibits a stop-loss insurer from excluding any employee or
dependent on the basis of an actual or expected health
status-related factor.
4. Requires a stop-loss-carrier to 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, with exceptions, as defined.
5. Permits the Insurance Commissioner to adopt regulations to
carry out the purposes of this bill.
6. Specifies that a stop-loss insurer that violates the
provisions of this bill is subject to specified existing
remedies and administrative penalties that apply to insurers.
7. Exempts from the provisions of this bill the ongoing
operations of multiple employer welfare arrangements, as
defined, 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.
Comments
Self-insurance . Self-insurance is an arrangement where the
employer assumes direct financial responsibility for the cost of
providing health or disability benefits to employees with its
own funds. Employers sponsoring self-funded plans typically
contract with a third-party administrator or insurer to provide
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administrative services for the self-funded plan. Such plans'
rights and obligations are governed under the Employee
Retirement Income Security Act of 1974 (ERISA). Under ERISA,
self-funded plans are exempt from state insurance laws. ERISA
plans are also exempt from the ACA requirements on establishing
essential health benefits. In some cases, the employer may buy
stop-loss coverage from an insurer to protect the employer
against very large claims.
According to the Kaiser Family Foundation's 2012 Employer Health
Benefits Annual Survey (KFF Survey), 60% of all workers with
covered health benefits are in a self-funded plan.
Stop-loss insurance . Stop-loss insurance is sold to employers
that self-insure their employee's health care coverage to limit
the employer's financial exposure. Stop-loss insurance is
available in two forms:
Specific stop loss where coverage is initiated when a claim
for an individual employee or dependent reaches the threshold
selected by the employer. After the threshold is reached,
the stop-loss policy would pay claims up to the lifetime
limit per employee.
Aggregate stop loss where coverage is initiated when the
employer's self-insurance total group health claims reach a
stipulated threshold selected by the employer.
According to the California HealthCare Foundation 2011
California Employer Health Benefits Survey, one-third of
Californians were enrolled in a partly or completely
self-insured plan in 2011, which is nearly half of the national
average. Almost 30% of California employers with a self-insured
plan purchased stop-loss insurance in 2011 to protect them
against large claims. Large firms were significantly more
likely than small firms to do so (84% compared to 23%). This
bill is limited to small employers defined in California law as
having between 2 and 50 employees.
National Association of Insurance Commissioners (NAIC) model .
The NAIC adopted the Stop Loss Insurance Model Act in 1995,
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revised in 1999, which states that an insurer shall not issue a
stop-loss insurance policy that:
Contains an individual attachment point of $20,000 and
Contains an aggregate attachment point for a policy year,
for groups of 50 or fewer, that is lower than the greater of
one of the following:
o $4,000 times the number of group members;
o 120% of expected claims; or
o $20,000.
Stop-loss regulations in other states . At least nineteen states
have laws, regulations, or guidance on the books pertaining to
stop-loss insurance. Fifteen states regulate minimum attachment
points in stop-loss policies in some fashion, with six of those
states adopting a law or regulation that is similar to the NAIC
Stop Loss Insurance Model Act.
ACA . According to a February 2012 article in Health Affairs by
Mark A. Hall, "Regulating Stop-Loss Coverage May Be Needed to
Deter Self-Insuring Small Employers from Undermining Market
Reforms," the ACA will fundamentally reshape individual and
small group markets, prompting many changes in how employers
participate in these markets. The author writes that
self-insuring enables small employers to avoid the ACA's
requirement that insurers cover essential health benefits.
There is also concern that self-insuring can result in healthy
individuals being removed from the community rating group.
The ACA requires insurance sold in the small group be community
rated rather than allowing insurers to base premiums on the
documented health risks of each group.
Prior legislation .
SB 1431 (De Leon) was substantially similar to this bill. As
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introduced, SB 1431 had an individual attachment point of
$95,000, which was eventually reduced to $45,000 when the bill
was approved by the Assembly Appropriations Committee. SB 1431
was not taken up for a vote on the Assembly Floor.
SB 961 (Hernandez, 2012) was substantially similar to this
year's SB 2X1 and
AB 2X1 to implement reforms in California's individual market in
accordance with federal health reform. SB 961 was vetoed by
Governor Brown.
SB 900 (Alquist, Chapter 659, Statutes of 2010), and AB 1602
(John A. Pérez, Chapter 655, Statutes of 2010) established
Covered California.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
One-time costs of about $90,000 per year for two years for
CDI to adopt regulations.
Minor ongoing enforcement costs to CDI.
Unknown impact on Medi-Cal costs (General Fund and federal
funds). It is possible that some small businesses that
self-insure will elect to drop coverage for their employees
under this bill. To the extent that happens and those
employees are eligible for Medi-Cal, there could be an
increase in state costs.
SUPPORT : (Verified 5/14/13)
Blue Shield of California
California Association of Physician Groups
California Department of Insurance
Consumers Union
Health Access California
Kaiser Permanente
Small Business Majority
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OPPOSITION : (Verified 5/14/13)
American Association of Preferred Provider Organizations
Association General Contractors of California, Inc.
Association of California Life and Health Insurance Companies
Brea Chamber of Commerce
California Asian Pacific Chamber of Commerce
California Association of Health Underwriters
California Business Properties Association
California Chamber of Commerce
California Hotel and Lodging Association
California Lodging Industry Association
California Manufacturers and Technology Association
Camarillo Chamber of Commerce
Chambers of Commerce Alliance of Ventura and Santa Barbara
Counties
CIGNA Life and Health Insurance Company
Delta Health Systems
Fullerton Chamber of Commerce
Greater Conejo Valley Chamber of Commerce
Greater Fresno Area Chamber of Commerce
HCC Life Insurance Company
HealthCare Administrators Association
Independent Insurance Agents and Brokers of California
Irvine Chamber of Commerce
National Association of Insurance and Financial Advisors
National Federation of Independent Business
Palm Desert Area Chamber of Commerce
Redondo Beach Chamber of Commerce
San Gabriel Valley Regional Chamber of Commerce
Santa Clara Chamber of Commerce
Self-Insurance Institute of America, Inc.
Simi Valley Chamber of Commerce
South Bay Association of Chambers of Commerce
Southwest California Legislative Council
The Independent Insurance Agents and Brokers of California
Transamerica
UnitedAg
Valley Industry & Commerce Association
ARGUMENTS IN SUPPORT : Kaiser Permanente states in support
that stop-loss insurance is a product that is generally offered
to large employers who have the financial wherewithal to
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self-insure and pay all of its employees' claims, instead of
buying insurance. However, Kaiser states that new stop-loss
products are being more aggressively marketed to smaller and
smaller employers, and this could severely harm California's
small group market and undermine the important market reforms of
the ACA. Blue Shield states in support that in the absence of
the protections in this bill, insurance companies will
increasingly exploit self insurance as a loophole to lure away
good risk and evade the consumer protections of the ACA.
The California Insurance Commissioner (Commissioner) states in
support that the ACA goes into full effect, there will be
incentives for some small employers to self-insure and to
purchase stop-loss coverage with low attachment points. The
Commissioner states that this could lead to a significant exodus
of small employers from the small group insurance market,
specifically those employers with young and healthy employees.
If this happens, the Commissioner states that adverse selection
could leave a majority of the state's small businesses in a
smaller group insurance pool increasingly subject to
skyrocketing premiums.
Health Access states in support that today, nothing prevents an
insurer from selling a stop-loss product with an attachment
point of $10,000 or $1,000 and evading all of the requirements
of guaranteed issue, guaranteed renewability and modified
community rating that have existed in California law for more
than 15 years. Health Access states that this bill corrects
this by regulating stop-loss products, providing guaranteed
issue, guaranteed renewability, requiring coverage of all
employees, and setting an attachment point at a high enough
level that most small employers will face significant exposure
if they attempt to self-insure, using stop-loss as a back-up as
it was intended and not as primary coverage.
ARGUMENTS IN OPPOSITION : The California Association of Health
Underwriters (CAHU), the Independent Insurance Agents and
Brokers of California (IIABCal) and the National Association of
Insurance and Financial Advisers of California (NAIFA
California) write in opposition that this bill severely
restricts the ability of small employers in California to
self-insure for health care coverage by unreasonably changing
the limits and requirements of stop-loss insurance policies.
CAHU, IIABCal and NAIFA assert that self insurance combined with
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stop-loss coverage for excessive, unexpected claims frequently
offers the best option for small employers seeking to find any
way to provide affordable health coverage for their employees.
The California Chamber of Commerce (Cal Chamber) states in
opposition that employers who are self-insured have the ability
to develop meaningful disease management and wellness programs
that address the specific needs of their employees. Cal Chamber
states that this bill would essentially eliminate self-insurance
as an option or small employers.
The American Association of Preferred Provider Organizations
(AAPPO) states in opposition that small businesses that opt for
self-insurance do so because other types of health care coverage
are either too expensive or lack the flexibility to provide the
appropriate coverage for their workers and dependents. AAPPO
states that the level of attachment points in this bill are
simply unaffordable for small businesses who already take on the
calculated risk in administering a complex stop-loss
self-insurance program.
The Association of California Life and Health Insurance
Companies (ACLHIC), Transamerica, and HCC Life Insurance Company
are all opposed unless amended. ACLHIC, citing an analysis by
Heartland Actuarial Consulting, suggests that an appropriate
individual attachment point would be $35,000 (rather than the
$65,000 that is currently in the bill) and that dollar
limitations on the aggregate attachment point should be removed
so that the aggregate attachment point is based only on 120
percent of expected claims.
Transamerica states that the issue of most concern is the high
attachment points, and that it would like to work on reaching
agreement on an attachment point that would address the intent
of the bill while still preserving the option of self-insuring
for small employers. Transamerica also states that are also a
few other workability issues in the bill, including an issue
related to how existing self-insured plans are "grandfathered
in."
HCC Life Insurance Company also opposes this bill unless
amended, with similar concerns, and also proposes an individual
attachment point of $35,000, additional grandfathering language,
and removal of the specific dollar limitations on the aggregate
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attachment points.
JL:d 5/15/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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