BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 639|
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THIRD READING
Bill No: SB 639
Author: Hernandez (D)
Amended: 5/28/13
Vote: 21
SENATE HEALTH COMMITTEE : 6-2, 4/17/13
AYES: Hernandez, Beall, De León, DeSaulnier, Monning, Wolk
NOES: Anderson, Nielsen
NO VOTE RECORDED: Pavley
SENATE APPROPRIATIONS COMMITTEE : 5-2, 5/23/13
AYES: De León, Hill, Lara, Padilla, Steinberg
NOES: Walters, Gaines
SUBJECT : Health care coverage
SOURCE : Health Access California
DIGEST : This bill 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.
ANALYSIS : Existing federal law:
1. Establishes the ACA, which imposes various requirements, some
of which take effect on January 1, 2014, on states, carriers,
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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 Department
of Insurance (CDI) under the Insurance Code and provides for
the regulation of health plans by the Department 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
the ACA.
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
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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% of the
full actuarial value of the benefits provided under the
plan contract.
B. Silver level: Actuarially equivalent to 70% of the
full actuarial value of the benefits provided under the
plan contract.
C. Gold level: Actuarially equivalent to 80% of the
full actuarial value of the benefits provided under the
plan contract.
D. Platinum level: Actuarially equivalent to 90% 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
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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 2%.
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.
12.Requires issuers offering group or individual coverage that
provides emergency services to cover this 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.
Comments
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-QHPs, 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
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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% will pay for 60% of an average individual's health care
costs (using a standard population), while the individual would
be responsible for the remaining 40%.
Prior Legislation
SB 961 (Hernandez, 2012) and AB 1461 (Monning, 2012) were
identical bills that would have reformed California's individual
market similar to the provisions in SB 2X1 (Hernandez, 2013).
SB 961 and AB 1461 were vetoed by Governor Brown.
AB 1083 (Monning, Chapter 854, Statutes of 2012) establishes
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) designates the Kaiser
Small Group HMO as California's benchmark plan to serve as the
EHB standard, as required by the ACA.
SB 51 (Alquist, Chapter 644, Statutes of 2011) establishes
enforcement authority in California law to implement provisions
of the ACA related to medical loss ratio requirements on health
plans and health insurers and enacts 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, establishes the Covered
California.
SB 890 (Alquist, 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
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Schwarzenegger.
AB 1X1 (Nunez, 2008) would have enacted the Health Care Security
and Cost Reduction Act, a comprehensive health reform proposal.
AB 1X1 died in the Senate Health Committee.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
One-time costs of $400,000 to review plan filings and
ongoing costs of $60,000 for enforcement of the bill's
provisions by DMHC (Managed Care Fund).
Potential ongoing costs in the tens of thousands to low
hundreds of thousands for enforcement of this bill's
provisions by CDI. (Insurance Fund).
SUPPORT : (Verified 5/29/13)
Health Access California (source)
AFSCME, AFL-CIO
American Cancer Society Cancer Action Network
California Black Health Network
California Church IMPACT
California Federation of Teachers
California Partnership
California Public Interest Research Group
Children Now
Congress of California Seniors
Consumers Union
United Nurses Associations of California/Union of Health Care
Professionals
United Ways of California
Western Center on Law and Poverty
OPPOSITION : (Verified 5/29/13)
America's Health Insurance Plans
Association of California Life and Health Insurance Companies
California Association of Health Plans
California Association of Health Underwriters
California Chamber of Commerce
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ARGUMENTS IN SUPPORT : Health Access California (HAC) writes
that the ACA requires numerous changes with respect to cost
sharing in the individual and small group markets and this bill
implements and improves these provisions of federal law. This
bill 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 this
bill does not eliminate innovation in benefit design but instead
requires public scrutiny and 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 this bill "will ensure consumers know their out of pocket
costs both inside and outside of Covered California."
According to the author's office, 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.
ARGUMENTS IN OPPOSITION : The California Association of Health
Plans (CAHP) writes 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 the 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
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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 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."
JL:dk 5/29/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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