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