BILL ANALYSIS Ó 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 --