BILL ANALYSIS �
SB 639
Page 1
SENATE THIRD READING
SB 639 (Ed Hernandez)
As Amended September 6, 2013
Majority vote
SENATE VOTE :28-11
HEALTH 12-3
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|Ayes:|Pan, Ammiano, Atkins, |
| |Bonilla, Bonta, Gomez, |
| |Roger Hern�ndez, |
| |Lowenthal, Mitchell, |
| |Nazarian, |
| |V. Manuel P�rez, |
| |Wieckowski |
| | |
|-----+--------------------------|
|Nays:|Maienschein, Mansoor, |
| |Wilk |
| | |
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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.
2)Requires nongrandfathered individual, small and large group
health care service plan contracts and health insurance
policies that provide coverage for EHBs, and that are issued,
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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 the limits in 2) 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.
4)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.
5)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, small, and large 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.
6)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.
7)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
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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.
8)Establishes levels of coverage for the nongrandfathered
individual and small group market consistent with the ACA.
9)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.
10)Prohibits a carrier that is not participating in the
California Health Benefit Exchange (Exchange) from offering,
marketing, or selling a catastrophic plan in the individual
market.
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
consistent with the ACA.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, one-time costs in the range of hundreds of thousands
of dollars each to the California Department of Insurance (CDI)
(Insurance Fund) and the Department of Managed Health Care
(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. 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
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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 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 : 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. 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
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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 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 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.
Proponents, including Blue Shield of California, 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
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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 (MS) 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 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.
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.
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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.
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097
FN: 0002757