BILL ANALYSIS Ó
SB 161
Page 1
SENATE THIRD READING
SB 161 (Ed Hernandez)
As Amended August 6, 2013
Majority vote
SENATE VOTE : 32-4
HEALTH 16-3 APPROPRIATIONS 14-3
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|Ayes:|Pan, Ammiano, Atkins, |Ayes:|Gatto, Bocanegra, |
| |Bonilla, Bonta, Chesbro, | |Bradford, |
| |Gomez, | |Ian Calderon, Campos, |
| |Roger Hernández, | |Eggman, Gomez, Hall, |
| |Lowenthal, Maienschein, | |Holden, Linder, Pan, |
| |Mitchell, Nazarian, | |Quirk, Wagner, Weber |
| |Nestande, V. Manuel | | |
| |Pérez, Wagner, Wieckowski | | |
| | | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Logue, Mansoor, Wilk |Nays:|Harkey, Bigelow, Donnelly |
| | | | |
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SUMMARY : Establishes regulatory requirements for stop-loss
insurance for small employers, including on or after January 1,
2016, setting an individual attachment point of $40,000 or
greater and an aggregate attachment point of the greater of
$5,000 times the total number of group members, 120% of expected
claims, or $40,000. Exempts small employer stop-loss insurance
issued prior to September 1, 2013, from these attachment point
requirements. Specifically, this bill :
1)Prohibits a stop-loss insurance policy issued, reissued, or
renewed on or after January 1, 2014, and prior to 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 $35,000 (after 2016, less than $40,000);
b) An aggregate attachment point for a policy year that is
less than the greater of the following: i) $5,000 times
the total number of group members; ii) 120% of expected
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claims; or, iii) $35,000 (after 2016, $40,000); and,
c) A provision for direct coverage of an employee or
dependent of an employee.
2)Exempts a stop-loss insurer providing insurance to a small
employer that had a self-insured health plan prior to
September 1, 2013. Allows a stop-loss insurance policy that
was in effect prior to September 1, 2013, to be renewed or
reissued, or a policy to be issued by another stop-loss
insurer at the same or higher attachment points that were
included in the policy held by a small employer prior to
September 1, 2013.
3)Establishes stop-loss insurer report requirements to the
California Department of Insurance (CDI) and employee and
employer protections, as specified.
4)Establishes several definitions including "attachment point"
which is 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.
EXISTING LAW defines a small employer as any person, firm
proprietary or nonprofit corporation, partnership public agency,
or association that is actively engaged in business or service,
that, on at least 50% of its working days during the preceding
calendar quarter or preceding calendar year, employed at least
two (one, commencing January 1, 2014), but no more than 50,
eligible employees, the majority of whom were employed within
this state. Commencing on January 1, 2016, extends the number
of employed to at least one, but no more than 100 eligible
employees.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, potential one-time costs not likely to exceed
$150,000 (Insurance Fund) to the CDI if regulations are
necessary. Ongoing costs to receive required reports should be
minor and absorbable.
COMMENTS : According to the author, this bill will ensure that
small employers who choose to offer their employees' health
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benefits through self-insurance are truly "self-insuring" and
bearing a significant portion of the risk, and not simply using
self-insurance as a subterfuge to avoid regulation by passing
almost all of the risk to stop-loss insurers. This bill would
prohibit stop-loss insurance from being sold to employers with
very low "attachment points," which is the level at which the
stop-loss insurer begins paying medical bills. By ensuring that
small employers who are self-insuring truly have the means to
pay for their employee's medical costs, while still allowing
stop-loss insurance for catastrophic risk, this bill will also
protect the integrity of the small group insurance market both
in and out of the Exchange by limiting the appeal of
self-insurance and thereby retaining a broad pool of small
employers in the small group insurance market. The author
indicates that with the passage of the Patient Protection and
Affordable Care Act (ACA), there are certain changes coming to
the small group market in 2014, that are likely to incentivize
more small employers to self-insure rather than purchase
traditional fully-insured health plans.
The ACA (Public Law (P.L.) 111-148) was signed into law on March
23, 2010. On March 30, 2010, the ACA was amended by P.L.
111-152, the Health Care and Education Reconciliation Act of
2010. The ACA makes several significant changes to the group
and individual insurance markets, such as prohibitions against
health insurers imposing lifetime benefit limits and 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, and determine premiums based on adjusted community rating
(age, family, geography, and tobacco use). The ACA establishes
Health Benefit Exchanges, and creates three programs to
eliminate incentives for health insurance plans to avoid
insuring people with pre-existing conditions or those who are in
poor health, and to reduce uncertainty that could increase
premiums in 2014. This risk will likely be greatest in the
first three years of the Exchange; however, risk should decrease
as the new market matures and issuers gain actual claims
experience with this new population. As a result of some of
these insurance requirements, some small employers (with lower
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risk/lower cost employees) may have an incentive to offer
self-insured plans to avoid having to pay higher premiums
associated with spreading risk across products and markets.
Given that stop-loss can currently be purchased at very low
attachment points to minimize risk, there is a very real concern
that small employers with healthy employees will increasingly
choose to self-insure to keep costs down, meaning that the small
group health insurance market both in and out of the Exchange
will slowly become disproportionately populated by those with a
history of higher medical claims, making the cost of insurance
more expensive for everyone. Exacerbating this situation is the
fact that there is no waiting period for purchasing insurance in
the Exchange, so small employers can choose to be self-insured
until one or more of their employees becomes too expensive, and
then purchase insurance in the Exchange at any time.
About 10 states have enacted some version of stop-loss reform
with attachment points ranging from $10,000 to $25,000, and
about 10 more states regulate employer stop-loss coverage in
some manner. Delaware, New York, and Oregon prohibit stop-loss
insurance. New York and North Carolina also prohibit insurers
from serving as third party administrators for self-funded small
employers. North Carolina also regulates stop-loss insurance as
if it were typical small group health insurance.
Proponents, including Blue Shield of California, believe this
bill puts in place modest requirements on the sale of stop-loss
insurance in California and in the absence of the protections
added by 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 Bay Area Council
argues that in order to preserve a functioning small risk group
insurance market, its risk pool must be robust and
well-balanced, and this bill seeks to limit creative incentives
for small employers to exit the small group market if they have
lower risk employees, which leads to an adverse selection death
spiral resulting in sky rocketing premiums and a destabilized
market. The Bay Area Council believes this bill maintains a
proper balance by continuing to allow small firms to self-insure
but placing limits on what types of stop-loss insurance can be
sold. Kaiser believes this bill provides critical consumer
protection guardrails around the sale of stop-loss insurance in
the state.
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The American Association of Preferred Provider Organizations,
the California Chapter of the American Fence Association, the
California Fence Contractors' Association, California Metals
Coalition, Coalition of Small and Disabled Veteran Businesses,
Engineering Contractors' Association, Flasher Barricade
Association, and others remain opposed and indicate that the
so-called compromise reduced the attachment point to a level
that remains far too costly for small businesses. The
California Asian Pacific Chamber of Commerce believes the
pricing of stop-loss coverage should be market-driven and not
mandated by regulation.
CIGNA Life and Health Insurance Company believes small employers
value self-funding because it provides them with greater
flexibility to design benefits and align those benefits across
state lines. CIGNA would not oppose a bill with a reasonable
aggregate attachment point by reducing the $5,000 to $4,000 and
defining group members based on the contract for coverage.
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097
FN: 0001705