BILL ANALYSIS �
SB 639
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Date of Hearing: August 30, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 639 (Hern�ndez) - As Amended: August 6, 2013
Policy Committee: Health Vote:13-5
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
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
(CDI).
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
compliance.
COMMENTS
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
consumers.
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