BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 161|
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THIRD READING
Bill No: SB 161
Author: Hernandez (D)
Amended: 5/28/13
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 an 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.
Senate Floor Amendments of 5/28/2013 (1) clarify that the
definition of "small employer" is consistent with an existing
law definition of "small employer" that will increase from the
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current limit of up to 50 employees to up to 100 employees
beginning January 1, 2016; (2) reduce the minimum individual
attachment point for stop-loss policies issued on or after
January 1, 2014, from $65,000 to $35,000; (3) reduce the minimum
aggregate attachment point for stop-loss policies issued on or
after January 1, 2014, from the greater of $13,000 times the
total number of covered employees and dependents, 120% of
expected claims, or $65,000, to instead be the greater of $5,000
time the total number of covered employees and dependents, 120%
of expected claims, or $35,000; and (4) establish a new set of
attachment points that apply to stop-loss policies issued on or
after January 1, 2016, that require a minimum individual
attachment point of $40,000, and an aggregate attachment point
of the greater of the following: $5,000 times the total number
of covered employees and dependents, 120% of expected claims, or
$40,000.
ANALYSIS :
Existing law:
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
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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, including
the following:
A. "Small employer" is defined as being consistent with
an existing law definition of "small employer" that will
increase from the current limit of up to 50 employees,
up to 100 employees beginning on January1, 2013.
B. "Stop-loss insurer" is defined as 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.
C. "Stop-loss insurance policy" is defined as 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 claims of its employees and their
dependents.
D. "Individual attachment point," also known as
"specific attachment point," is defined as the number 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 policy, above which
the stop-loss insurer incurs a liability for payment,
under individual stop-loss coverage.
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:
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A. An individual attachment point for a policy year that
is less than $35,000;
B. An aggregate attachment point for a policy year that
is less than the greater of one of the following: $5,000
times the total number of covered employees and
dependents; 120 % of expected claims; or, $35,000; or,
C. A provision for direct coverage of an employee or
dependent of an employee.
3. Prohibits a stop-loss insurance policy issued on or after
January 1, 2016, to a small employer from containing any of
the following provisions:
A. An individual attachment point for a policy year that
is less than $40,000.
B. An aggregate attachment point for a policy year that
is less than the greater of one of the following:
(i) $5,000 times the total number of covered
employees and dependents.
(ii) 120 % of expected claims.
(iii) $40,000.
C. A provision for direct coverage of an employee or
dependent of an employee.
4. Prohibits a stop-loss insurer from excluding any employee or
dependent on the basis of an actual or expected health
status-related factor. Specifies that health status-related
factors include, but are not limited to, any of the
following: health status; medical condition; claims
experience; medical history; receipt of health care; genetic
information; disability; evidence of insurability; or any
other health status-related factors as determined by CDI.
5. Requires a stop-loss-carrier to renew, at the option of the
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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. For non-payment of required premiums, and at least a
30-day grace period has elapsed since the date of
notification of nonpayment of premiums;
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 Insurance Commissioner to be financially impaired;
or,
D. Where the stop-loss insurer ceases to write, issue,
or administer new stop-loss insurance policies in this
state, provided that notice of this decision has been
provided to the Insurance Commissioner and small
employer at least 180 days prior to discontinuation of
coverage.
6. Permits the Insurance Commissioner to adopt regulations to
carry out the purposes of this bill.
7. 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,
which include administrative penalties of up to $2,500 for a
first violation and up to $5,000 for subsequent violations.
For insurers that violate laws with a frequency indicating a
general business practice, or knowing violations, the penalty
can be up to $100,000 for each violation.
8. 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
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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
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
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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,
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
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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
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 5/29/13)
Blue Shield of California
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California Association of Physician Groups
Consumers Union
HCC Life Insurance Company
Health Access California
Kaiser Permanente
Small Business Majority
OPPOSITION : (Verified 5/29/13)
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 Hotel and Lodging Association
California Lodging Industry 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
HealthCare Administrators Association
Irvine Chamber of Commerce
National Federation of Independent Business
Redondo Beach Chamber of Commerce
San Gabriel Valley Regional 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
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
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
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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.
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) writes 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 asserts that self-insurance combined with 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 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.
JL:d 5/29/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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