BILL ANALYSIS                                                                                                                                                                                                    Ó


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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,  

          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.

           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  

          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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          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  
          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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