BILL ANALYSIS                                                                                                                                                                                                    






                             SENATE COMMITTEE ON HEALTH
                          Senator Ed Hernandez, O.D., Chair

          BILL NO:       SB 639
          AUTHOR:        Hernandez
          AMENDED:       April 9, 2013
          HEARING DATE:  April 17, 2013
          CONSULTANT:    Trueworthy

           SUBJECT  :  Health care coverage.
           
          SUMMARY  :  Implements provisions of the federal Patient  
          Protection and Affordable Care Act (ACA) by requiring health  
          plans and carriers to provide for maximum out-of-pocket limits,  
          establishes small group deductibles, and defines the precious  
          metal tiers level of coverage required.  Prohibits any product  
          from being offered other than those with a standardized product  
          design in the individual market.  

          Existing federal law:
          1.Establishes the ACA, which imposes various requirements, some  
            of which take effect on January 1, 2014, on states, carriers,  
            employers, and individuals regarding health care coverage.

          2.Establishes annual limits on deductibles for  
            employer-sponsored plans and defines levels of coverage for  
            non-grandfathered individual and small group markets known as  
            bronze, silver, gold, and platinum.

          3.Defines "grandfathered plan" as any group or individual health  
            insurance product that was in effect on March 23, 2010.

          4.Establishes essential health benefits (EHB) to be provided in  
            the small group and individual market.

          5.Requires a health insurance issuer offering group or  
            individual coverage that provides emergency services to cover  
            emergency services without the need for prior authorization  
            and at the same cost sharing requirements as a participating  
            provider regardless of whether that provider is a  
            participating provider.
          
          Existing state law:
          1.Provides for regulation of health insurers by the California  
            Department of Insurance (CDI) under the Insurance Code and  
            provides for the regulation of health plans by the Department  
                                                         Continued---



          SB 639 | Page 2




            of Managed Health Care (DMHC) pursuant to the Knox-Keene  
            Health Care Service Plan Act of 1975 (Knox-Keene Act).   
            Collectively referred to as carriers.

          2.Establishes the California Health Benefits Exchange (Covered  
            California) to facilitate the purchase of qualified health  
            plans (QHPs) through Covered California by qualified  
            individuals and qualified small employers by January 1, 2014.

          3.Designates the Kaiser Small Group HMO as California's  
            benchmark plan to serve as the EHB standard, as required by  
            federal health care reform.

          This bill:
          1.Requires non-grandfathered products in the individual or small  
            group markets to provide a limit on annual out-of-pocket  
            expenses for all covered benefits that meet the definition of  
            EHBs and requires non-grandfathered products in the large  
            group market to provide a limit on annual out-of-pocket  
            expenses for all covered benefits, including out-of-network  
            emergency care.  Establishes an exception for the first plan  
            year commencing on January 1, 2014 for large group products.

          2.Requires the limit on annual out-of-pocket expenses to apply  
            to any copayment, coinsurance, deductible, incentive payment,  
            and any other form of cost sharing for all covered benefits,  
            including prescription drugs.

          3.Prohibits products in the small group market from having a  
            deductible that exceeds $2,000 for a single individual or  
            $4,000 all other cases.

          4.Allows plans in the small group market to offer products at  
            the bronze level of coverage, described in #5, with a higher  
            deductible than described in #3.

          5.Defines levels of coverage for the non-grandfathered  
            individual and small group markets to be the following 
             a.   Bronze level: Actuarially equivalent to 60 percent of  
               the full actuarial value of the benefits provided under the  
               plan contract. 
             b.   Silver level: Actuarially equivalent to 70 percent of  
               the full actuarial value of the benefits provided under the  
               plan contract. 
             c.   Gold level: Actuarially equivalent to 80 percent of the  
               full actuarial value of the benefits provided under the  




                                                              SB 639| Page  
          3


          

               plan contract. 
             d.   Platinum level: Actuarially equivalent to 90 percent of  
               the full actuarial value of the benefits provided under the  
               plan contract. 

          6.Prohibits a non-grandfathered product in the individual market  
            from being offered at any of the levels described above unless  
            it is a standardized product.

          7.Defines actuarial value to be determined based on EHBs and as  
            provided to a standard, non-elderly population, and does not  
            include those receiving coverage through Medi-Cal or Medicare  
            programs.  Prohibits the actuarial value from varying by more  
            than plus or minus two percent.

          8.Allows DMHC and CDI to use the actuarial value methodology  
            developed under the ACA.

          9.Requires DMHC, in consultation with CDI and Covered California  
            to consider developing and using a state actuarial value  
            calculator.
           
          10.Requires all products in the non-grandfathered individual  
            market to have any deductible on a service apply to the same  
            services for any product in the same level of coverage whether  
            regulated by DMHC or CDI.

          11.Authorizes a carrier to offer supplemental benefits for  
            services that are not included in EHBs such as adult dental,  
            adult vision, acupuncture, or chiropractic, if the carrier  
            demonstrates that those benefits will not affect the risk  
            adjustment scores or the reinsurance amounts for the product  
            or the plan. 

          1.Requires issuers offering group or individual coverage that  
            provides emergency services to cover thise services without  
            the need for prior authorization and at the same cost sharing  
            levels as a participating provider regardless of whether that  
            provider is a participating provider.

           FISCAL EFFECT  :  This bill has not been analyzed by a fiscal  
          committee.

           COMMENTS  : 
           1.Author's statement.  California has already implemented many  




          SB 639 | Page 4




            elements of the ACA, including establishing a health benefits  
            exchange, selecting EHBs, implementing the ban on annual and  
            lifetime limits, and shortly instituting individual market  
            reform.  However, there are a number of consumer friendly  
            provisions in the ACA that California regulators have no  
            ability to enforce because these provisions of the ACA have  
            yet to be codified into state law.  SB 639 will give state  
            regulators the ability to enforce the cost sharing provisions  
            and maximum out-of-pocket limits contained within the ACA.   
            This will relieve consumers of some of the financial burden  
            associated with purchasing coverage by placing hard caps on  
            how much money they will have to spend out of their own pocket  
            for health care services.  
          
            Additionally, Californians purchasing health care coverage in  
            the individual market face a vast array of products to choose  
            from with markedly different benefit design that makes price  
            comparison difficult.  As a result, products being offered  
            inside Covered California will be standardized so consumers  
            can make "apples to apples" comparisons when selecting a  
            product.  However, no such protection exists for individuals  
            purchasing products outside Covered California.  SB 639 would  
            require that individual market products sold outside Covered  
            California be standardized to mirror the product sold inside  
            Covered California.  Standardized products make comparison  
            shopping much simpler for consumers, force carriers to compete  
            on cost and quality rather that difficult to understand  
            benefit design, limits the ability for health plans to "cherry  
            pick" healthy lives, and ensures that all products offered to  
            consumers in the individual market have undergone a level of  
            public scrutiny before being marketed to them.       
          
          2.Federal health care reform.  On March 23, 2010, President  
            Obama signed the ACA (Public
            Law 111-148), as amended by the Health Care and Education  
            Reconciliation Act of 2010 (Public Law 111-152). Among 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  
            eight percent of household adjusted gross income), religion,  
            incarceration, and immigration status. Several insurance  
            market reforms are required such as prohibitions against  
            health insurers imposing lifetime benefit limits and  
            preexisting health condition exclusions. These reforms impose  




                                                              SB 639| Page  
          5


          

            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 ratings (age, family, geography and  
            tobacco use).  

          3.Essential Health Benefits.  Effective January 1, 2014,  
            federal law requires Medicaid
            benchmark and benchmark-equivalent plans, plans sold through  
            the Exchange and the Basic Health Program (if enacted), and  
            health plans and health insurers providing coverage to  
            individuals and small employers to ensure coverage of EHBs,  
            as defined by the Secretary of the Department of Health and  
            Human Services (HHS).  HHS is required to ensure that the  
            scope of EHBs is equal to the scope of benefits provided  
            under a typical employer plan, as determined by the  
            Secretary.  Under federal law, EHBs must include 10 general  
            categories and the items and services covered within the  
            following categories:
                           Ambulatory patient services.
                           Emergency services.
                           Hospitalization.
                           Maternity and newborn care.
                           Mental health and substance use disorder  
                    services, including behavioral health treatment.
                           Prescription drugs.
                           Rehabilitative and habilitative services and  
                    devices.
                           Laboratory services.
                           Preventive and wellness services and chronic  
                    disease management.
                           Pediatric services, including oral and vision  
                    care.

            On December 16, 2011, the HHS CCIIO released an EHB Bulletin  
            proposing that EHBs be defined using a benchmark approach.  SB  
            951 (Hernandez) Chapter 866, Statutes of 2012 and AB 1453  
            (Monning) Chapter 854, Statutes of 2012 designated the Kaiser  
            Small Group HMO as California's benchmark plan to serve as the  
            EHB standard.  





          SB 639 | Page 6




          1.ACA Rules for Benefits and Cost-Sharing.   The ACA requires  
            carriers to provide EHBs with standardized tiers of  
            cost-sharing. Under the ACA, out-of-pocket limits for health  
            plans are subject to the limit that currently applies to  
            health savings account-qualified health plans, which is $6,050  
            for single coverage in 2012 and approximately $13,000 for a  
            family. 
           
            The ACA requires carriers offering non-grandfathered health  
            plans inside and outside of the Exchange in the individual and  
            small group markets to assure that any offered product must  
            meet distinct levels of coverage called "metal tiers." Each  
            metal tier corresponds to an actuarial value, calculated based  
            on the cost-sharing features of the plan.  Actuarial value is  
            the percentage of health care costs that would be paid for by  
            a person's health plan coverage, versus out-of-pocket costs at  
            the point of service (e.g., co-payments, co-insurance or the  
            deductible).  For example, a health plan with an actuarial  
            value of 60 percent would pay for 60 percent of an average  
            individual's health care costs (using a standard population),  
            while the individual would be responsible for the remaining 40  
            percent.  Federal law, effective 2014, requires health plans  
            and health insurers to categorize products based on actuarial  
            value as follows:
             1.   Bronze    60 percent
             2.   Silver         70 percent
             3.   Gold           80 percent
             4.   Platinum       90 percent

          1.Related legislation.  ABX1 2 (Pan) and SBX1 2 (Hernandez)  
            reforms California's individual market in accordance with ACA.  
             ABX1 2 is pending before the Senate Appropriations Committee  
            and SBX1 2 is pending before the Assembly Appropriations  
            Committee.

          2.Prior legislation. SB 961 (Hernandez) of 2012 and AB 1461  
            (Monning) were identical bills that would have reformed  
            California's individual market similar to the provisions in  
            SBX1 2.  SB 961 and AB 1461 were vetoed by Governor Brown.

            AB 1083 (Monning) Chapter 854, Statutes of 2012 established  
            reforms in the small group health insurance market to  
            implement the ACA.

            SB 951 (Hernandez) Chapter 866, Statutes of 2012  and AB 1453  
            (Monning) Chapter 854, Statutes of 2012 designated the Kaiser  




                                                              SB 639| Page  
          7


          

            Small Group HMO as California's benchmark plan to serve as the  
            essential health benefit standard, as required by federal  
            health care reform.  

            SB 51 (Alquist), Chapter 644, Statutes of 2011, established  
            enforcement authority in California law to implement  
            provisions of the ACA related to medical loss ratio  
            requirements on health plans and health insurers and enacted  
            prohibitions on annual and lifetime benefits.  

            AB 2244 (Feuer), Chapter 656, Statutes of 2010, requires  
            guaranteed issue of health plan and health insurance products  
            for children beginning in January 1, 2011.

            SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB 1602  
            (Perez), Chapter 655, Statutes of 2010, established the  
            California Health Benefit Exchange.

            SB 890 (Alquist) of 2010 would have required carriers to  
            categorize all individual market products into tiers based on  
            actuarial level, as specified, and would have required  
            carriers to meet federal annual and lifetime limits and the  
            medical loss ratio requirements. SB 890 was vetoed by Governor  
            Schwarzenegger.

            AB X1 1 (Nunez) of 2008 would have enacted the Health Care  
            Security and Cost Reduction Act, a comprehensive health reform  
            proposal. AB X1 1 died in the Senate Health Committee.
          
          3.Support.  Health Access California (HAC) writes in support  
            that the ACA requires numerous changes with respect to cost  
            sharing in the individual and small group markets and SB 639  
            implements and improves these provisions of federal law.   
            SB639 will require carriers to only sell standardized products  
            in the individual and small group markets inside and outside  
            the Covered California. HAC argues that this step protects  
            consumers who purchase coverage outside the Covered California  
            by assuring that the products offered to them have undergone  
            the same intense public scrutiny as the products offered  
            inside the Covered California. It also protects the Covered  
            California from adverse selection; instead of insurers  
            designing products to select their customers based on risk  
            status, insurers will be forced to compete on price and  
            quality. HAC contends that SB639 does not eliminate innovation  
            in benefit design but instead requires public scrutiny and  




          SB 639 | Page 8




            debate by Covered California before benefit designs can be  
            imposed on consumers. California Partnership writes that in  
            order to reduce poverty and better the lives of low-income  
            communities, it is necessary to provide and assure affordable  
            health care insurance to low-income individuals and families.  
            SB 639 (Hernandez) implements and improves on the ACA.   
            Western Center on Law and Poverty writes that the bill will  
            ensure consumers know their out of pocket costs both inside  
            and outside of Covered California.

          4.Opposition.  The California Association of Health Plans  
            (CAHP), writes in opposition to SB 639 stating that while  
            health plans support the concept behind this measure, upon  
            further review however, the provisions of the bill differ from  
            the outofpocket requirements in federal law and restrict th5.e  
            use of incentives.  CAHP writes that existing law contains  
            provisions intended to protect the market from adverse  
            selection, including the requirement that QHPs offer coverage  
            through Covered California to offer exchange lookalike  
            products in the outside" market.  CAHP argues current law does  
            not eliminate consumer choice of other products as this bill  
            will do thereby making it harder for some individuals to  
            obtain coverage that best suits their needs.  America's Health  
            Insurance Plans (AHIP) writes in opposition that the  
            standardization of health products is not only unnecessary but  
            also impedes the ability of carriers to provide benefit  
            packages aimed at meeting the preferences and needs of  
            consumers.  AHIP argues benefit design flexibility is an  
            important element to assuring affordability and high-quality  
            care.

           SUPPORT AND OPPOSITION  :
          Support:  Health Access (sponsor)
                    American Federation of State, County and Municipal  
                    Employees, AFL-CIO
                    California Church IMPACT
                    California Partnership
                    California Public Interest Research Group
                    Children Now
                    Congress of California Seniors
                    ConsumersUnion
                    United Nurses Associations of California/Union of  
                              Health Care Professionals
                    United Ways of California
                    Western Center on Law and Poverty





                                                              SB 639| Page  
          9


          

          Oppose:   America's Health Insurance Plans
                    Association of California Life and Health Insurance  
                    Companies
                    California Association of Health Plans















                                      -- END --