BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 639
                                                                  Page 1

          Date of Hearing:  September 10, 2013

                            ASSEMBLY COMMITTEE ON HEALTH
                                 Richard Pan, Chair
                SB 639 (Ed Hernandez) - As Amended:  September 6, 2013

           SENATE VOTE  :  28-11
           
          SUBJECT  :  Health care coverage.

           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 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).  Allows carriers in the small  
          group market to establish an index rate no more frequently than  
          each calendar quarter.  Specifically,  this bill  :  

          1)Allows a carrier at least each calendar year, and no more  
            frequently than each calendar quarter to establish an index  
            rate for the small employer market based on the total combined  
            claims costs for providing EHBs within the single risk pool  
            required under the ACA.
           
          Out-of-pocket limits 2015

           2)Requires nongrandfathered individual and group health care  
            service plan contracts and health insurance policies that  
            provide coverage for EHBs, and that are issued, amended, or  
            renewed on or after January 1, 2015, to provide for a limit on  
            annual out-of-pocket expenses for all covered benefits that  
            meet the definition of EHBs, including out-of-network  
            emergency care consistent with existing law.  Exempts  
            specialized health plans and insurance policies.

          3)Requires nongrandfathered large group health care service plan  
            contracts and health insurance policies that are issued,  
            amended, or renewed on or after January 1, 2015 to provide for  
            a limit on annual out-of-pocket expenses for covered benefits,  
            including out -of-network emergency care.  Requires this limit  
            to apply only to EHBs that are covered under the plan, to the  








                                                                  SB 639
                                                                  Page 2

            extent this does not conflict with federal law.  Exempts  
            specialized health plans and insurance policies.

          4)Requires the limits in 2) and 3) above not to exceed the limit  
            described in the ACA and to result in a total maximum  
            out-of-pocket limit for all EHBs equal to the dollar amounts  
            in effect under the Internal Revenue Code with dollar amounts  
            adjusted, as specified in the ACA.

          5)Requires for an EHB offered or provided by a specialized  
            health care service plan or insurer the total annual  
            out-of-pocket maximum for all covered EHBs from exceeding the  
            limit in 2) and 3) above.  Exempts a specialized health care  
            service plan or insurer that does not offer an EHB.

          6)Requires the maximum out-of-pocket limit to apply to any  
            copayment, coinsurance, deductible, and any other form of cost  
            sharing for all covered benefits that meet the definition of  
            EHBs.

           Out-of-pocket limits 2014  

          7)Requires, for 2014, for nongrandfathered health care service  
            plan contracts or health insurance policies, except  
            specialized health plan contracts and health insurance  
            policies, in the individual and small group market and to the  
            extent allowed by federal law, regulations and guidance, to  
            provide for a limit on annual out-of-pocket expenses for all  
            covered benefits that meet the definition of EHBs, including  
            out-of-network emergency care, as specified.  Limits the total  
            out-of-pocket maximum to $6,350 for individual coverage and  
            $12,700 for family coverage.  Prohibits a separate  
            out-of-pocket maximum from being applied to mental health or  
            substance use disorders benefits.  For small group health plan  
            contracts and health insurance policies, the total  
            out-of-pocket may be split between prescription drug services  
            and all other EHBs. 

          8)Limits, when a nongrandfathered health care service plan or a  
            health insurer in the individual or small group market  
            provides a pediatric oral care benefit meeting the definition  
            as specified in the ACA, the out-of-pocket maximum for the  
            pediatric oral care benefits to $1,000 for one child and  
            $2,000 for more than one child.  









                                                                  SB 639
                                                                  Page 3

          9)Requires a health care service plan contract or a health  
            insurance policy for nongrandfathered products in the large  
            group market for 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.  Exempts specialized  
            health plans and insurance policies.  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.   


          10)Limits a health care service plan contract or a health  
            insurance policy for nongrandfathered products in the large  
            group market the total out-of-pocket maximums from exceeding  
            $6,350 for individual coverage or $12,700 for family coverage,  
            with respect to basic health care services and services,  
            except prescription drugs, required under mental health parity  
            and autism requirements of existing law.  

          11)Prohibits an enrollee or insured in a large group plan  
            contract or policy from being subject to more than two limits  
            on annual out-of-pocket expenses for covered benefits that  
            meet the definition of EHB.  Prohibits a separate  
            out-of-pocket maximum from being applied to mental health or  
            substance use disorders benefits.

          12)Prohibits, for a small employer health care service plan  
            contract or health insurance policy offered, sold, or renewed  
            on or after January 1, 2014, the deductible under the plan or  
            policy from exceeding $2,000 for a single individual and  
            $4,000 in the case of any other plan contract or policy.   
            Requires the dollar amounts to be indexed consistent with the  
            ACA and any federal rules or guidance.  Requires this  
            limitation to be applied in a manner that does not affect the  
            actuarial value of any small employer health care service plan  
            contract.  Exempts multiple employer welfare arrangements that  
            provide health care benefits to their members and that comply  
            with small group health reforms unless otherwise required by  
            federal law or guidance from these provisions.

          13)Allows the Department of Managed Health Care (DMHC) or the  








                                                                  SB 639
                                                                  Page 4

            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.

          14)Establishes the following levels of coverage for the  
            nongrandfathered individual and small group market:
             a)   Bronze level - coverage that is actuarially equivalent  
               to 60% of the full actuarial value of the benefits provided  
               under the plan contract;
             b)   Silver level - coverage that is actuarially equivalent  
               to 70% of the full actuarial value of the benefits provided  
               under the plan contract;
             c)   Gold level - coverage that is actuarially equivalent to  
               80% of the full actuarial value of the benefits provided  
               under the plan contract; and,
             d)   Platinum level - coverage that is actuarially equivalent  
               to 90% of the full actuarial value of the benefits provided  
               under the plan contract.   

          15)Requires the actuarial value for nongrandfathered individual  
            and small group health care service plan contracts or health  
            insurance policies to be determined in accordance with the  
            following:
             a)   Cannot vary by more than plus or minus 2%;
             b)   Must be determined on the basis of EHBs and as provided  
               to a standard, nonelderly population (not individuals on  
               Medi-Cal or Medicare);
             c)   Allows DMHC/CDI to use the actuarial value methodology  
               developed consistent with the ACA;
             d)   Requires, for pediatric dental benefits whether offered  
               by a full service plan or insurance policy or a specialized  
               plan or policy, the actuarial value to be consistent with  
               federal law and guidance;
             e)   Requires DMHC/CDI, in consultation with each other and  
               the California Health Benefit Exchange (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  








                                                                  SB 639
                                                                  Page 5

               health care service plans, total cost of care paid for by  
               the carrier, price of care, patterns of service  
               utilization, and relevant demographic factors; and,
             f)   For small group, requires employer contributions toward  
               health reimbursement accounts and health savings accounts  
               (HSAs) to count toward the actuarial value of the product  
               in the manner specified in federal rules and guidance.

          16)Defines a catastrophic plan as a health care service plan  
            contract or health insurance policy that provides no benefits  
            for any plan year until the enrollee has incurred cost-sharing  
            expenses in an amount equal to the annual limit on  
            out-of-pocket costs as specified in 3) above, except requires  
            the plan provide coverage for at least three primary care  
            visits. 

          17)Prohibits a carrier that is not participating in the Exchange  
            from offering, marketing, or selling a catastrophic plan in  
            the individual market.

          18)Authorizes catastrophic plans or policies to be offered only  
            if either of the following apply:
             a)   The individual purchasing the plan has not yet attained  
               30 years of age; or,
             b)   The individual has a certificate of exemption from the  
               federal individual mandate because the individual is not  
               offered affordable coverage or because the individual faces  
               hardship.

          19)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  
               determination;

             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  








                                                                  SB 639
                                                                  Page 6

               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  
               requirement that would apply if the services were provided  
               in-network.

           EXISTING LAW  :

          1)Provides for regulation of health plans by the DMHC under the  
            Knox-Keene Health Care Services Plan Act of 1975 (Knox-Keene  
            Act) and regulation of health insurers by the CDI under the  
            Insurance Code.

          2)Defines basic health care services under the Knox-Keene Act  
            as:
             a)   Physician services, including consultation and referral;
             b)   Hospital inpatient service and ambulatory care services;
             c)   Diagnostic laboratory and diagnostic and therapeutic  
               radiologic services;
             d)   Home health services;
             e)   Preventive health services;
             f)   Emergency health care services, including ambulance and  
               ambulance transport services, and out-of-area coverage;  
               and,
             g)   Hospice care, as specified.

          3)States that nothing in existing law, as specified, prohibits a  
            health plan from charging subscribers or enrollees a copayment  
            or a deductible for a basic health care service or from  
            setting forth, by contract, limitations on maximum coverage of  
            basic health care services, provided that the copayments,  
            deductibles, or limitations are reported to, and held  
            unobjectionable by, the DMHC Director and set forth to the  
            subscriber or enrollee pursuant to specified disclosures.
          4)Requires a health care service plan that covers hospital,  
            medical, or surgical expenses, or its contracting medical  
            providers, to provide 24-hour access for enrollees and  
            providers including, but not limited to, noncontracting  
            hospitals, to obtain timely authorization for medically  








                                                                  SB 639
                                                                  Page 7

            necessary care, for circumstances where the enrollee has  
            received emergency services and care is stabilized, but the  
            treating provider believes that the enrollee may not be  
            discharged safely.

          5)Requires every health care service plan that provides  
            prescription drug benefits to maintain an expeditious process  
            by which prescribing providers may obtain authorization for a  
            medically necessary nonformulary prescription drug.  Requires  
            nonformulary prescription drugs to include any drug for which  
            an enrollee's copayment or out-of-pocket costs are different  
            than the copayment for a formulary prescription drug, except  
            as otherwise provided by law or regulation or in cases in  
            which the drug has been excluded in the plan contract pursuant  
            to existing law.

          6)Enacts, in federal law, the ACA to, among other things, make  
            statutory changes affecting the regulation of, and payment  
            for, certain types of private health insurance.  Includes the  
            definition of a EHBs package that all qualified health plans  
            (QHPs) must cover, at a minimum, with some exceptions, and  
            requires bronze, silver, gold, or platinum levels of coverage.  
             Prohibits out-of-pocket limits greater than HSAs in all  
            markets.  Under federal guidance, only for the first plan year  
            beginning on or after January 1, 2014, allows for group  
            coverage the annual limitation on out-of-pocket maximums to be  
            satisfied if both of the following conditions are satisfied:
             a)   The plan complies with the requirements with respect to  
               its major medical coverage (excluding, for example,  
               prescription drug coverage and pediatric dental coverage);  
               and,
             b)   To the extent the plan or any health insurance coverage  
               includes an out-of-pocket maximum on coverage that does not  
               consist solely of major medical coverage (for example, if a  
               separate out-of-pocket maximum applies with respect to  
               prescription drug coverage), such out-of-pocket maximum  
               does not exceed HSA limits.

          7)Prohibits all health insurance issuers from setting lifetime  
            limits.  Prohibits "restricted annual limits" on coverage  
            through 2013, subject to oversight by the Secretary of the  
            federal Department of Health and Human Services with no annual  
            limits allowed starting in 2014 to new plans in the individual  
            market, and all new and existing group plans but excludes  
            self-insured plans.








                                                                  SB 639
                                                                  Page 8


          8)Requires, under the ACA, if an insurance issuer covers  
            emergency services, the issuer to cover emergency services  
            without prior authorization, whether or not the provider is a  
            participating provider without imposing any limitation on  
            coverage where the provider does not have a contractual  
            relationship with the plan that is more restrictive than the  
            requirements or limitations that apply to providers who do  
            have a contractual relationship with the issuer.  If such  
            services are provided out-of-network, the cost-sharing  
            requirement (expressed as a copayment amount or coinsurance  
            rate) is the same requirement that would apply if such  
            services were provided in-network.

          9)Establishes the Exchange (now called Covered California) as an  
            independent entity in state government not affiliated with any  
            state agency or department, governed by a five member board.   
            Requires the board to establish and use a competitive process  
            to select participating carriers and other contractors.   
            Requires the board to determine the minimum requirements a  
            carrier must meet to be considered for participation, and the  
            standards and criteria for selecting QHPs to be offered  
            through the Exchange that are in the best interests of  
            qualified individuals and qualified small employers.  

          10)   Requires carriers participating  in the Exchange  to fairly  
            and affirmatively offer, market, and sell in the Exchange at  
            least one product within each of five coverage categories of  
            the ACA (Bronze, Silver, Gold, Platinum, Catastrophic).   
            Authorizes the board to require carriers to sell additional  
            products within each of those levels of coverage.  Requires  
            carriers participating in the Exchange that sell any products  
            outside the Exchange to fairly, affirmatively offer, market  
            and sell all individual and small group market products sold  
            inside the Exchange to individuals and small employers  
            purchasing outside the Exchange.  Requires carriers that  do  
            not participate in the Exchange  to offer at least one  
            standardized product that has been designated by the Exchange  
            in each of the four levels of coverage (Bronze, Silver, Gold,  
            and Platinum), only if the Exchange exercises its authority to  
            standardize products.

          11)   Establishes as California's EHBs the Kaiser Small Group  
            HMO plan along with the following 10 ACA mandated benefits:
             a)   Ambulatory patient services;








                                                                  SB 639
                                                                  Page 9

             b)   Emergency services;
             c)   Hospitalization;
             d)   Maternity and newborn care;
             e)   Mental health and substance use disorder services,  
               including behavioral health treatment;
             f)   Prescription drugs;
             g)   Rehabilitative and habilitative services and devices;
             h)   Laboratory services;
             i)   Preventive and wellness services and chronic disease  
               management; and,
             j)   Pediatric services, including oral and vision care.

          12)Requires a carrier each calendar year to establish an index  
            rate for the small employer market in the state based on the  
            total combined claims costs for providing EHBs, within the  
            single risk pool required for rating purposes.  Requires the  
            index rate to be adjusted on a market wide basis based on the  
            total expected market wide payments and charges under the risk  
            adjustment and reinsurance programs established under the ACA.  

           
          FISCAL EFFECT  :  According the Assembly Appropriations Committee:

          1)One-time costs in the range of hundreds of thousands of  
            dollars each to CDI (Insurance Fund) and 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 the bill.  Both CDI  
            and DMHC report activities related to the federal requirements  
            codified in this bill are already being undertaken, so  
            codifying these requirements should not result in additional  
            costs.

          2)Unknown potential costs related to state employee benefit  
            plans (General Fund/federal funds/special funds).  Federal law  
            and this bill impose maximum out-of-pocket costs on covered  
            EHBs in the large-group market.  Beginning in 2015, this bill  
            applies to health, dental, and vision plans administered by  
            the state, to the extent they offered one or more EHBs.  This  
            bill essentially protects individuals from paying more than  
            approximately $6,350 combined for all covered EHBs, including  
            health coverage as well as pediatric vision and dental  
            coverage.  The establishment of an out-of-pocket maximum that  
            combines health, dental, and vision coverage, for benefits  
            offered in the large-group market, goes further than federal  








                                                                  SB 639
                                                                  Page 10

            law requires.  It also imposes requirements for administrative  
            coordination between health, dental, and vision plans.

          It is unclear whether this bill would apply to state employee  
            plans because it is unclear whether such plans offer EHBs as  
            defined by this bill.  This could be elucidated through  
            regulation.

          If the out-of-pocket maximums established by this bill do apply  
            to state employee plans, total costs could range from  
            negligible to benefit costs in the millions of dollars  
            annually (General Fund /federal funds/special funds),  
            depending how the state decides to design its benefit plans to  
            respond to the new requirements.  Currently, the State's  
            out-of-pocket maximum for health coverage is far below the  
            combined out-of-pocket maximum established by this bill, but  
                there is no out-of-pocket maximum for state employee pediatric  
            dental or vision coverage.

           COMMENTS  :

           1)PURPOSE OF THIS BILL  .  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 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  








                                                                  SB 639
                                                                  Page 11

            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 calculator.

            The September 6, 2013 amendments revise provisions from AB 2  
            X1 (Pan), Chapter 1, Statutes of 2013-14 First Extraordinary  
            Session and SB 2 X1 (Ed Hernandez), Chapter 2, Statutes of  
            2013-14 First Extraordinary Session, which require health  
            insurance carriers to establish "an index rate" (singular) for  
            its small group business "each calendar year" rather than more  
            frequently.  The index rate is based on the total combined  
            claims costs for providing EHBs within the single risk pool  
            required by the ACA.  Existing law requires the index rate to  
            be adjusted on a market wide basis based on the total expected  
            market wide payments and charges under the risk adjustment and  
            reinsurance programs established for the state under the ACA.   


            Without this bill, under existing law in AB 2 X1 and SB 2 X1  
            the index rate will be updated once for the entire 12 month  
            period.  According to the DMHC, a change to quarterly indexing  
            is necessary because otherwise carriers will apply the same  
            base rate for all small employers.  When a carrier has to  
            project too far in advance, uncertainty is created, causing  
            carriers to price products higher.  According to DMHC, DMHC  
            and CDI actuaries estimate that the current law (if not  
            changed) will result in January 1 premium rates that are about  
            3-5% higher than if quarterly updates are permitted.

            DMHC indicates that proposed federal rule 45 CFR 156.80(d) (3)  
            and subsequent pronouncements allow for quarterly updates, as  
            well as instructions contained in Covered California's Small  
            Group Option Program (SHOP).  The solicitation instructed  
            issuers to bid under the assumption that rates could be  
            updated quarterly.  Rates that have been advertised by Covered  
            California's SHOP assume quarterly indexing.  Failure to amend  
            the current law could result in increases to the small group  
            rates negotiated with SHOP participants and already published  
            by Covered California.

           2)FEDERAL HEALTH REFORM  .  On March 23, 2010, the federal  
            government enacted the ACA (Public Law 111-148), which was  
            further amended by the Health Care Education Reconciliation  
            Act (H.R. 4872).  The ACA, as modified by the U.S. Supreme  








                                                                  SB 639
                                                                  Page 12

            Court ruling, gives states the option to expand eligibility in  
            the Medicaid program to include adults without children, and  
            it contains other required program simplifications.  Regarding  
            the private health insurance market, the ACA primarily  
            restructures the individual and small group markets, setting  
            minimum standards for health coverage, providing financial  
            assistance to individuals with income below 400% of the  
            federal poverty level (FPL), tax credits for small employers,  
            and the establishment of American Health Benefit Exchanges and  
            EHBs that are required to be offered by QHPs, which are plans  
            participating in the small group and individual market through  
            Exchanges and in the market outside Exchanges.  Beginning in  
            2014, QHPs will be required to offer coverage at one of four  
            levels:  bronze, silver, gold, or platinum and a catastrophic  
            plan which can only be offered by plans participating in the  
            Exchange.  Levels will be based on a specified share of full  
            actuarial value of the EHBs.  These plans will be prohibited  
            from imposing an annual cost-sharing limit that exceeds the  
            thresholds applicable to HSA-qualified High Deductible Health  
            Plans (HDHPs).  In 2014, the annual out-of-pocket maximum for  
            an individual is $6,350 and $12,700 for family coverage.   
            Catastrophic plans are also permitted only in the individual  
            market for young adults (under age 30) and for those persons  
            exempt from the individual mandate, but catastrophic plans  
            must cover EHBs and have deductibles equal to the amounts  
            specified as out-of-pocket limits for HSA-qualified HDHPs.   
            Small group health plans providing QHPs will be prohibited  
            from imposing a deductible greater than $2,000 for individual  
            coverage and $4,000 for any other coverage in 2014, adjusted  
            annually after.

            Some individuals with income under 400% FPL will receive  
            advanceable, refundable tax credits toward the purchase of an  
            Exchange plan.  The payment will go directly to the insurer  
            and will reduce the premium liability for that individual.   
            Those who qualify for premium credits and are enrolled in an  
            Exchange plan at the silver tier beginning in 2014 will also  
            be eligible for assistance in paying any required cost-sharing  
            for their health services.  Limitations on Exchange plans  
            related to out-of-pocket costs will be based upon HDHPs that  
            qualify individuals for HSAs.  Cost sharing subsidies will  
            further reduce those out-of-pocket maximums by two-thirds for  
            qualifying individuals between 100% and 200% FPL, by one-half  
            for qualifying individuals between 201% and 300% FPL, and by  
            one-third for qualifying individuals between 301% and 400%  








                                                                  SB 639
                                                                  Page 13

            FPL.

           3)PEDIATRIC DENTAL EHB  .  The ACA and subsequent regulations and  
            federal guidance establish separate requirements for pediatric  
            dental EHBs provided by specialized dental plans (sometimes  
            referred to as stand-alone plans).  Under federal regulations,  
            rather than meeting the specific dollar limits that apply to  
            cost sharing for comprehensive medical QHPs, stand-alone  
            dental plans certified to be offered in an Exchange will be  
            required to demonstrate that they have a reasonable annual  
            limitation on cost-sharing.  The final federal rule clarified  
            that an exchange is responsible for determining the level of  
            "reasonable" annual limits.  For the federal Exchange, the  
            federal Centers on Medicare and Medicaid Services interprets  
            reasonable to mean any annual limit on cost sharing that is at  
            or below $700 for a plan with one child or $1,400 for a plan  
            with two or more children.  Covered California has adopted  
            standard benefit plans for the pediatric dental EHB that  
            include a $1000 annual out-of-pocket maximum and determined it  
            to be reasonable.

           4)SUPPORT  .  Proponents describe this bill as implementing and  
            improving upon the federal ACA.  Today some health insurance  
            provides no limit on out-of-pocket costs and consumers end up  
            owing tens of thousands of dollars for necessary health care  
            even when they have insurance.  Health Access California  
            indicates that this bill says that if a specialized plan  
            offers any of the EHBs, then it is subject to the consumer  
            protections provided under this bill. This is because, for  
            many years, it has been routine in California to exempt  
            specialized health plans from consumer protections on the  
            grounds that the benefits offered were incidental or  
            supplemental or just not that important but in 2014, pediatric  
            dental and pediatric vision will be part of the EHBs required  
            under state and federal law. 

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








                                                                  SB 639
                                                                  Page 14

            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.

           5)REMOVAL OF OPPOSITION  .  The California Association of Health  
            Plans (CAHP) has removed its opposition based on substantial  
            amendments taken to this bill and because of the amendment  
            that allows quarterly adjustments according to the latest  
            available actuarial data. According to CAHP, these adjustments  
            impact renewals and new market entrants and in no way weaken  
            the annual premium guarantee employers enjoy under state and  
            federal law. Without this fix, small employers could initially  
            pay higher than necessary premiums. This is an important  
            provision of this bill supported by the health plans and will  
            help make the launch of the Small Employer Health Options  
            Program in the Exchange a success.  Furthermore, CAHP  
            indicates that some provisions of this bill conflict in  
            specific ways with recent federal guidance allowing a one-year  
            safe harbor for employer sponsored coverage. Non-conformity  
            distracts health plans from the work of implementing reform.
                
            6)OPPOSITION  .  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 incentives.  
           
          7)TECHNICAL ISSUES  .  
              a)   Page 11, line 18 "1317.4" should be "1371.4"   
              b)   Page 12, line 31 "covered" should be added before  
               "essential health benefits"  
              c)   Page 13, line 3 subdivision "(b)" should be "(c)"  
              d)   Page 29, line 27 subdivision "(b)" should be "(c)"  
              e)   Page 29, line 29 "10112.28" should be "10112.27"  
              f)   Page 29, line 33 "10112.28" should be "10112.27"
              
          8)RELATED LEGISLATION  .  AB 18 (Pan) would have required a  
            specialized health plan contract or insurance policy providing  
            pediatric oral care benefits to waive the applicable dental  
            out-of-pocket maximum upon notification from a QHP on behalf  








                                                                  SB 639
                                                                  Page 15

            of an enrollee that the applicable out-of-pocket maximum under  
            the QHP has been satisfied, and beginning January 1, 2015,  
            would have prohibited the combined out-of-pocket maximums for  
            dental and a QHP from exceeding those limits established under  
            the ACA.  Would have required the plans to develop a method  
            for coordinating and tracking cost sharing that limits the  
            burden on the subscriber.  AB 18 was amended to delete those  
            provisions and instead establish medical loss ratio and rate  
            review requirements on specialized plans offering pediatric  
            oral care benefits.  AB 18 is pending in the Assembly  
            Appropriations Committee. 

           9)PREVIOUS LEGISLATION  .  

             a)   AB 2 X1 and SB 2 X1 reform California's individual  
               market in accordance with the ACA and applies its  
               provisions to insurers regulated by the CDI and health  
               plans regulated by DMHC in the individual market; require  
               guaranteed issue of individual market health insurance  
               policies and health plan contracts; prohibit the use of  
               preexisting condition exclusions; establish open and  
               special enrollment periods; prohibit conditioning issuance  
               or offering based on specified rating factors; prohibit  
               marketing and solicitation practices consistent with small  
               group requirements; require guaranteed renewability of  
               plans; and, permit rating factors based on age, geographic  
               region and family size only.  Makes conforming changes and  
               clean-up to California's small group law enacted in AB 1083  
               (Monning), Chapter 852, Statutes of 2012.

             b)   AB 1083 (Monning) makes conforming and other changes to  
               state law governing the sale of small group health  
               insurance products to implement provisions in the ACA.  

             c)   AB 1800 (Ma) would have implemented provisions of the  
               ACA related to prohibitions on health plans and health  
               insurers from imposing out-of-pocket maximum caps which  
               exceed specified levels.  AB 1800 was held in the Senate  
               Appropriations Committee.
               
             d)   AB 310 (Ma) of 2011 would have prohibited health plan  
               contracts and health insurance policies that cover  
               outpatient prescription drugs from requiring coinsurance,  
               as defined, as a basis for cost sharing for outpatient  
               prescription drug benefits and imposes specified  








                                                                  SB 639
                                                                  Page 16

               limitations on copayments, as defined, and out-of-pocket  
               expenses for outpatient prescription drugs.  AB 2011 was  
               held in Assembly Appropriations Committee.

             e)   AB 1453 (Monning), Chapter 854, Statutes of 2012, and SB  
               951 (Ed Hernandez), Chapter 866, Statutes of 2012,  
               establish California's EHBs.

             f)   AB 1602 (John A. Pérez), Chapter 655, Statutes of 2010,  
               establishes the Exchange as an independent public entity to  
               purchase health insurance on behalf of Californians,  
               including those with incomes of between 100% and 400% of  
               the FPL and small businesses.  Clarifies the powers and  
               duties of the board governing the Exchange relative to the  
               administration of the Exchange, determining eligibility and  
               enrollment in the Exchange, and arranging for coverage  
               under qualified insurers. 

             g)   SB 900 (Alquist), Chapter 659, Statues of 2010,  
               establishes the Exchange and requires the Exchange to be  
               governed by a five-member board, as specified.

          REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          Health Access California (sponsor)
          American Cancer Society Cancer Action Network
          American Federation of State, County and Municipal Employees,  
          AFL-CIO
          Blue Shield of California
          California Optometric Association
          California Pan-Ethnic Health Network
          California Teachers Association
          National Multiple Sclerosis Society
          United Nurses Associations of California/Union of Health Care  
          Professionals
          Western Center on Law and Poverty
           
           Opposition 
           
          America's Health Insurance Plans (prior version)
          Association of California Life and Health Insurance Companies  
          (prior version)
          California Association of Dental Plans (prior version)








                                                                  SB 639
                                                                  Page 17

          California Association of Health Underwriters (prior version)
          California Chamber of Commerce (prior version)
          Independent Insurance Agents and Brokers of California (prior  
          version)
          National Association of Insurance and Financial Advisors of  
          California (prior version)

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