BILL ANALYSIS                                                                                                                                                                                                    Ó

                                                                  SB 639
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           REPLACE  :  09/05/2013 Changes per consultant.

          SB 639 (Ed Hernandez)
          As Amended September 3, 2013
          Majority vote

           SENATE VOTE  :28-11  
           HEALTH              13-5        APPROPRIATIONS      12-5        
          |Ayes:|Pan, Ammiano, Atkins,     |Ayes:|Gatto, Bocanegra,         |
          |     |Bonilla, Bonta, Chesbro,  |     |Bradford,                 |
          |     |Gomez,                    |     |Ian Calderon, Campos,     |
          |     |Roger Hernández,          |     |Eggman, Gomez, Hall,      |
          |     |Lowenthal, Mitchell,      |     |Holden, Pan, Quirk, Weber |
          |     |Nazarian, V. Manuel       |     |                          |
          |     |Pérez, Wieckowski         |     |                          |
          |     |                          |     |                          |
          |Nays:|Maienschein, Mansoor,     |Nays:|Harkey, Bigelow,          |
          |     |Nestande, Wagner, Wilk    |     |Donnelly, Linder, Wagner  |
          |     |                          |     |                          |
           SUMMARY  :  Places in California law provisions of the Patient  
          Protection and Affordable Care Act (ACA) relating to  
          out-of-pocket limits on health plan enrollee and health insured  
          cost-sharing, health plan and insurer actuarial value coverage  
          levels and catastrophic coverage requirements, and requirements  
          on health insurers with regard to coverage for out-of-network  
          emergency services.  Applies health plan enrollee and insured  
          out-of-pocket limits to specialized products that offer  
          essential health benefits (EHBs).  Specifically,  this bill  :  

          1)Requires a health care service plan contract or a health  
            insurance policy for nongrandfathered products in the  
            individual and small group market that is issued, amended or  
            renewed on or after January 1, 2014, to provide for a limit on  
            annual out-of-pocket expenses for all covered benefits that  
            meet the definition of EHBs, as specified. This does not apply  
            to specialized health plans and insurance policies.

          2)Requires, for 2014, for products in the individual and small  


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            group market when a health care service plan or a health  
            insurer uses a separate service provider to administer  
            pediatric oral care benefits, a separate limit on annual  
            out-of-pocket expenses that does not exceed the out-of-pocket  
            maximum established for stand-alone dental plans the by the  
            California Health Benefit Exchange (Exchange).  Prohibits the  
            application of a separate out-of-pocket maximum to mental  
            health or substance use disorder benefits.  

          3)Requires, for plan years beginning on or after January 1,  
            2015, if an EHB is offered by a specialized health insurance  
            policy the total annual out-of-pocket maximum for all EHBs not  
            exceed the limit in 1) above.  

          4)Requires a health care service plan contract or a health  
            insurance policy for nongrandfathered products in the large  
            group market on or after January 1, 2014, to provide for a  
            limit on annual out-of-pocket expenses for covered benefits,  
            including out-of-network emergency care consistent with  
            existing law.  Limits this provision to EHBs covered under the  
            policy to the extent that this bill does not conflict with  
            federal law or guidance on out-of-pocket maximums for  
            nongrandfathered products in the large group market. This does  
            not apply to specialized health plans and insurance policies.

          5)Includes in the out-of-pocket limit any copayment,  
            coinsurance, deductible, incentive payment, and any other form  
            of cost sharing for all covered benefits, including  
            prescription drugs, as specified.  Limits out-of-pocket  
            maximums from exceeding the ACA limit and any subsequent  
            rules, regulations or guidance.

          6)Allows the Department of Managed Health Care (DMHC) or the  
            California Department of Insurance (CDI) for small group  
            products at the bronze level of coverage to offer a higher  
            deductible in order to meet the actuarial value requirement of  
            the bronze level.  Requires DMHC/CDI to consider affordability  
            of cost sharing for enrollees and whether enrollees may be  
            deterred from seeking appropriate care because of higher cost  
            sharing.  States that nothing in this provision allows a plan  
            contract to have a deductible that applies to preventive  
            services, as specified.

          7)Establishes in state law the ACA levels of coverage for the  


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            nongrandfathered individual and small group market (Bronze,  
            Silver, Gold, and Platinum).  Defines catastrophic coverage.

          8)Establishes in state law the ACA requirements on actuarial  
            value for nongrandfathered individual and small group health  
            care service plan contracts or health insurance policies.  

          9)Allows DMHC/CDI to use the actuarial value methodology  
            developed consistent with the ACA.

          10)Requires DMHC/CDI, in consultation with each other and the  
            Exchange, to consider whether to exercise state-level  
            flexibility with respect to the actuarial value calculator in  
            order to take into account the unique characteristics of the  
            California health care coverage market, including the  
            prevalence of health care service plans, total cost of care  
            paid for by the carrier, price of care, patterns of service  
            utilization, and relevant demographic factors.

          11)Requires a group or individual health insurance policy  
            issued, amended, or renewed on or after January 1, 2014, that  
            provides or covers any benefits with respect to service in an  
            emergency department of a hospital to cover emergency services  
            as follows:

             a)   Without the need for any prior authorization  

             b)   Regardless of whether the health care provider  
               furnishing the services is a participating provider with  
               respect to those services; 

             c)   In a manner so that, if the services are provided to an  
               insured by a nonparticipating healthcare provider, with or  
               without prior authorization; the services will be provided  
               without imposing any requirement under the policy for prior  
               authorization of services or any limitation on coverage  
               that is more restrictive than the requirements or  
               limitations that apply to providers who do have a  
               contractual relationship with the insurer; and, 

             d)   If the services are provided to an insured  
               out-of-network, the cost-sharing requirement, expressed as  
               a copayment amount or coinsurance rate, is the same  


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               requirement that would apply if the services were provided  

           FISCAL EFFECT  :  According the Assembly Appropriations Committee,  
          one-time costs in the range of hundreds of thousands of dollars  
          each to the CDI (Insurance Fund) and the DMHC (Managed Care  
          Fund).  Costs will be incurred for rulemaking, as well as review  
          and enforcement related to adoption of the definition of  
          out-of-pocket maximum established in this bill.  Both  
          departments report activities related to the federal  
          requirements codified in this bill are already being undertaken,  
          so codifying these requirements should not result in additional  
           COMMENTS  :  According to the author, the DMHC and the CDI are  
          currently reviewing and approving Exchange products with no  
          statutory authority to enforce the requirements of the ACA with  
          respect to cost sharing.  As such, this bill codifies several  
          provisions of the ACA related to cost sharing, coverage tiers,  
          and emergency services.  The author states that the ACA limits  
          maximum out-of-pocket costs for all health insurance to $6500  
          for an individual and about $13,000 for a family: these limits  
          are consistent with those for Health Savings Accounts (HSAs).   
          This bill specifies that the maximum out-of-pocket limits apply  
          to EHBs as defined in state and federal law.  All cost sharing,  
          including not only the deductible but any copays, coinsurance,  
          or other cost sharing applies toward the maximum out-of-pocket  
          limit.  In addition, consistent with federal law, this bill  
          codifies the requirement that deductibles for small employer  
          products are limited to $2,000 for an individual and $4,000 for  
          a family, consistent with the ACA provisions. This bill codifies  
          the precious metal tiers of the ACA.  The ACA categorizes  
          coverage in the individual and small employer markets into five  
          tiers (Bronze, Silver, Gold, Platinum, Catastrophic) based on  
          actuarial value, that is, the percent of health costs covered  
          across a population.  According to the author, states have the  
          opportunity to adopt a state-specific actuarial value calculator  
          because utilization is different in California (such as shorter  
          hospital stays), a California-specific calculator is important.  
          This bill permits DMHC and CDI to adopt a California-specific  

          The National Multiple Sclerosis Society supports this bill  
          because it will establish cost sharing limits on health  


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          insurance and will help people living with chronic diseases like  
          MS who are frequent users of the health care system and rely on  
          expensive medicines.  Four of the disease modifying therapies  
          used to treat MS are routinely placed on specialty tiers and  
          require patients to pay coinsurance, which can force patients  
          with chronic conditions to make desperate choices between vital  
          medical care and mortgage and groceries.  The Western Center on  
          Law and Poverty says that California has already implemented  
          many elements of the ACA, but the state must still codify  
          cost-sharing.  The California HealthCare Foundation found in  
          2011 that 70% of California's uninsured are low to moderate  
          income.  This bill helps provide peace of mind to consumers for  
          what they are purchasing and how much they will pay for it,  
          regardless of if they get coverage in or out of the Exchange.

          Opponents argue that this bill contains provisions that conflict  
          with or go beyond requirements of the ACA and federal guidance.   
          They believe that certain other provisions differ from the  
          out-of-pocket requirements in federal law or restrict the use of  

           Analysis Prepared by  :    Teri Boughton / HEALTH / (916) 319-2097  

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