BILL ANALYSIS                                                                                                                                                                                                    ”

                                                                  SB 639
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          Date of Hearing:   August 30, 2013

                                  Mike Gatto, Chair

                  SB 639 (HernŠndez) - As Amended:  August 6, 2013 

          Policy Committee:                             Health Vote:13-5

          Urgency:     No                   State Mandated Local Program:  
          Yes    Reimbursable:              No


          This bill provides for federal conformity related to health plan  
          and health insurance products, and establishes a new review  
          process for "non-standardized" plans and products offered in the  
          individual market. Specifically, this bill: 

          1)Codifies provisions of the federal Patient Protection and  
            Affordable Care Act (ACA) related to cost-sharing limits for  
            plans and products in the individual, small-group, and  
            large-group markets.  

          2)Codifies provisions of the federal ACA related to levels of  
            coverage in "metal tiers," by reference to their actuarial  
            value, for plans and products in the individual and  
            small-group markets.    

          3)Codifies provisions of the federal ACA related to catastrophic  
            plans and eligibility for individuals purchasing them.

          4)Requires, for all new products in the individual and  
            small-group market, commencing January 1, 2015, any deductible  
            to apply to the same services for any product in the same  
            level of coverage whether regulated by the Department of  
            Managed Health Care (DMHC) or the Department of Insurance  

          5)Establishes an annual out-of-pocket limit for covered benefits  
            in the large-group market.

          6)Creates a review process for all products in the individual  
            market that have non-standardized benefit designs, as defined.  


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           FISCAL EFFECT  

          1)One-time costs of $650,000 to CDI (Insurance Fund), and  
            one-time costs of $800,000 to DMHC(Managed Care Fund), to  
            develop and implement a review process for non-standardized  
            benefit designs, and to issue related regulations.  

          2)Ongoing costs potentially exceeding $1 million to CDI  
            (Insurance Fund) and DMHC (Managed Care Fund) combined, to  
            review non-standardized plans, review equivalence of  
            deductibles, review the policy requirement regarding  
            out-of-pocket limits, and to enforce new rules.  Actual costs  
            would depend largely on how many non-standardized plans are  
            submitted to each department for review, as well as plan  

           1)Rationale  . This bill implements consumer protections contained  
            in the ACA by codifying them in state law, thereby allowing  
            state regulators to enforce them.  Additionally, this bill  
            requires all insurance products in the individual market that  
            do not meet certain standardized criteria to undergo a  
            rigorous review and approval process by CDI or DMHC.  These  
            provisions are intended to protect consumers by encouraging  
            standardization, and by requiring non-standardized plans to be  
            reviewed to ensure they actually improve market conditions for  

           2)Cost-sharing  . Out-of-pocket (OOP) costs are the portion of  
            healthcare expenses paid by an insured consumer in the form of  
            deductibles, co-payments, or co-insurance payments paid to  
            health care providers.  Under ACA, all plans are required to  
            cap patient OOP costs at a specified level. ACA further  
            defines maximum deductibles in the small-group market of  
            $2,000 per individual and $4,000 per family.    

          3)Metal Tiers and Actuarial Value  . The actuarial value of a plan  
            is the percentage of covered heath care costs expected to be  
            paid by the plan for a broad population. Under the ACA, plans  
            in the individual and small group markets must have an  
            actuarial value of 60% (bronze plans), 70% (silver plans), 80%  
            (gold plans), or 90%, (platinum plans). For example, a silver  
            plan, on average, would pay for 70% of the costs for covered  


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            benefits and enrollees on average would pay the remaining 30%  
            through cost-sharing such as deductibles, copayments and  
            coinsurance.  According to the Kaiser Family Foundation, the  
            estimated actuarial value of typical employer-sponsored  
            coverage is over 80%, with coverage offered by small employers  
            generally less comprehensive.

           4)Standardized Benefit Design  .  ACA requires all plans and  
            products offered in the individual and small-group market to  
            include certain essential health benefits (EHBs), meaning  
            plans and products must offer a standardized set of benefits  
            (such as inpatient, outpatient, and prescription drugs).  ACA  
            does not require standardized benefit design (such as  
            copayments and deductibles).  However, the California Health  
            Benefits Exchange (Exchange) used authority provided in state  
            law to allow only plans with standardized benefit design to be  
            sold in Covered California, the state's health care  
            marketplace.  For example, every silver-level plan offered in  
            the exchange must include a deductible of $2,000 for medical  
            services, a $6,400 OOP limit, a $45 co-pay for primary care  
            visits, and either a $250 copay or 20% coinsurance on MRI  
            scans, among other requirements.       

            Standardized benefit design improves a consumer's ability to  
            make apples-to-apples comparisons and reduces adverse  
            selection, where people of certain risk levels gravitate  
            toward certain benefit design types.  For example, a plan with  
            very high cost-sharing for prescription drugs may attract  
            better-than-average risk by deterring individuals with chronic  
            conditions like diabetes and high blood pressure.   

            This bill would require every plan or product sold in the  
            individual market to either be a standardized benefit design  
            as defined by the Exchange, or to go through a rigorous review  
            and approval process at CDI or DMHC.  The Exchange has defined  
            essentially eight standard benefit designs (two for each metal  
            tier level, a copay version and a co-insurance version), plus  
            adjusted standard designs for individuals with income below  
            250% of the federal poverty level, a catastrophic plan design,  
            and a standard design for plans to be used with a health  
            savings account. Under this bill, any design that strayed from  
            the standard designs defined by the Exchange would be subject  
            to the review and approval process.

           5)Related Legislation  . AB 1083 (Monning) Chapter 854, Statutes  


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

            SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB 1602  
            (Perez), Chapter 655, Statutes of 2010, established the  
            California Health Benefit Exchange.
          6)Opposition  . Health plans and insurers oppose provisions that  
            require review of non-standardized benefit designs.  They  
            state the review would severely impede their ability to offer  
            unique benefit options to consumers, as it creates a far more  
            arduous regulatory approval process for non-standardized plans  
            in the individual market.  They believe AB 1602 struck an  
            appropriate balance by allowing insurers to market  
            non-standardized plans, while also requiring them to offer  
            standardized products, regardless of whether they are  
            participating in the Exchange.  

           Analysis Prepared by  :    Lisa Murawski / APPR. / (916) 319-2081