BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 639| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- UNFINISHED BUSINESS Bill No: SB 639 Author: Hernandez (D) Amended: 9/6/13 Vote: 21 SENATE HEALTH COMMITTEE : 6-2, 4/17/13 AYES: Hernandez, Beall, De León, DeSaulnier, Monning, Wolk NOES: Anderson, Nielsen NO VOTE RECORDED: Pavley SENATE APPROPRIATIONS COMMITTEE : 5-2, 5/23/13 AYES: De León, Hill, Lara, Padilla, Steinberg NOES: Walters, Gaines SENATE FLOOR : 28-11, 5/29/13 AYES: Beall, Block, Calderon, Corbett, Correa, De León, DeSaulnier, Evans, Galgiani, Hancock, Hernandez, Hill, Hueso, Jackson, Lara, Leno, Lieu, Liu, Monning, Padilla, Pavley, Price, Roth, Steinberg, Torres, Wolk, Wright, Yee NOES: Anderson, Berryhill, Cannella, Emmerson, Fuller, Gaines, Huff, Knight, Nielsen, Walters, Wyland NO VOTE RECORDED: Vacancy ASSEMBLY FLOOR : Not available SUBJECT : Health care coverage SOURCE : Health Access California DIGEST : Codifies provisions of the Affordable Care Act (ACA) CONTINUED SB 639 Page 2 relating to out-of-pocket maximums on cost-sharing, health plan and insurer actuarial value coverage levels and catastrophic coverage requirements, and requirements on health insurers for coverage of out-of-network emergency services. Applies out-of-pocket limits to specialized products that offer essential health benefits (EHBs) and permits carriers in the small group market to establish an index rate no more frequently than each calendar quarter. Assembly Amendments (1) delete other requirements in this bill applicable to large group out-of-pocket limits such as requirements that the product complies with federal and state mental health parity laws and that the out-of-pocket limit applies to incentive payments; (2) reorganize provisions of this bill related to out-of-pocket limits applicable to nongrandfathered individual and group health care service plan contacts and health insurance policies for the 2012 plan/policy year; and (3) exempt multiple employer welfare arrangements, as specified, from a section of this bill dealing with deductible requirements; make other technical and clarifying changes. ANALYSIS : Existing federal law: 1. Establishes the ACA, which imposes various requirements, some of which take effect on January 1, 2014, on states, carriers, employers, and individuals regarding health care coverage. 2. Establishes annual limits on deductibles for employer-sponsored plans and defines levels of coverage for non-grandfathered individuals and small group markets known as bronze, silver, gold, and platinum. 3. Defines "grandfathered plan" as any group or individual health insurance product that was in effect on March 23, 2010. 4. Establishes EHBs to be provided in the small group and individual market. 5. Requires a health insurance issuer offering group or individual coverage that provides emergency services to cover emergency services without the need for prior authorization CONTINUED SB 639 Page 3 and at the same cost sharing requirements as a participating provider regardless of whether that provider is a participating provider. Existing state law: 1. Provides for regulation of health insurers by the Department of Insurance (CDI) under the Insurance Code and provides for the regulation of health plans by the Department of Managed Health Care (DMHC) pursuant to the Knox-Keene Health Care Service Plan Act of 1975. Collectively referred to as carriers. 2. Establishes the California Health Benefits Exchange (Covered California) to facilitate the purchase of qualified health plans (QHPs) through Covered California by qualified individuals and qualified small employers by January 1, 2014. 3. Designates the Kaiser Small Group HMO as California's benchmark plan to serve as the EHB standard, as required by federal health care reform. 4. States that nothing in existing law, 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 Director of DMHC and set forth to the subscriber or enrollee pursuant to specified disclosures. 5. Prohibits all health insurance issuers from setting lifetime limits. Prohibits "restricted annual limits" on coverage through 2013 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. 6. 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. This bill: CONTINUED SB 639 Page 4 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 non-grandfathered 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 non-grandfathered 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 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. 7. Requires, for 2014, for non-grandfathered health care service plan contracts or health insurance policies, except specialized health plan contracts and health insurance CONTINUED SB 639 Page 5 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 non-grandfathered 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. 9. Requires a health care service plan contract or a health insurance policy for non-grandfathered 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 non-grandfathered 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 non-grandfathered 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 CONTINUED SB 639 Page 6 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 DMHC or the 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 non-grandfathered 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 CONTINUED SB 639 Page 7 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 non-grandfathered 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 2%; B. Must be determined on the basis of EHBs and as provided to a standard, non-elderly 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 Covered California, 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; and F. For small group, requires employer contributions toward health reimbursement accounts and health savings accounts 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 CONTINUED SB 639 Page 8 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 Covered California 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 non-participating 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. 20.If the services are provided to an insured out-of-network, the cost-sharing requirement, expressed as a copayment amount CONTINUED SB 639 Page 9 or coinsurance rate, is the same requirement that would apply if the services were provided in-network. Background ACA Rules for Benefits and Cost-Sharing . The ACA requires carriers to provide EHBs with standardized tiers of cost-sharing. Under the ACA, out-of-pocket limits for health plans are subject to the limit that currently applies to health savings account-QHPs, which is $6,050 for single coverage in 2012 and approximately $13,000 for a family. The ACA requires carriers offering non-grandfathered health plans inside and outside of the Exchange in the individual and small group markets to assure that any offered product must meet distinct levels of coverage called "metal tiers." Each metal tier corresponds to an actuarial value, calculated based on the cost-sharing features of the plan. Actuarial value is the %age of health care costs that would be paid for by a person's health plan coverage, versus out-of-pocket costs at the point of service (e.g., co-payments, co-insurance or the deductible). For example, a health plan with an actuarial value of 60 % would pay for 60 % of an average individual's health care costs (using a standard population), while the individual would be responsible for the remaining 40 %. Federal law, effective 2014, requires health plans and health insurers to categorize products based on actuarial value as follows: A. Bronze 60% B. Silver 70% C. Gold80% D. Platinum90% Index rate . 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 (Hernandez, Chapter 2, Statutes of 2013-14 First Extraordinary Session) which require health insurance carriers to establish "an index rate" 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. According to DMHC and CDI, carriers in the small group market are currently allowed to adjust their rates on a quarterly basis to reflect changes in health care costs experienced in that market. CONTINUED SB 639 Page 10 DMHC argues that if quarterly rating is not allowed to continue small employers who purchase or renew health insurance in the first quarter of 2014 will pay higher premium rates for 2014 than they otherwise would have. As part of this effect, Covered California has indicated that the small group health insurance premium rates negotiated and published by Covered California, which were negotiated with the understanding that small group rates may be adjusted quarterly, will be increased. Comments According to the author's office, California has already implemented many elements of the ACA, including establishing a health benefits exchange, selecting EHBs, implementing the ban on annual and lifetime limits, and instituting individual market reform. However, there are a number of consumer friendly provisions in the ACA that California regulators have no ability to enforce because these provisions of the ACA have yet to be codified into state law. This bill will give state regulators the ability to enforce the cost sharing provisions and maximum out-of-pocket limits contained within the ACA. This bill relieves consumers of some of the financial burden associated with purchasing coverage by placing hard caps on how much money they will have to spend out of their own pocket for health care services. For families with health insurance this effectively ends medical bankruptcies. It also means that someone with a chronic condition like multiple sclerosis or a serious condition like cancer can budget for the costs of care, knowing that they will never owe more than $6250 in a given year Prior Legislation SB 961 (Hernandez of 2012) and AB 1461 (Monning) were identical bills that would have reformed California's individual market similar to the provisions in SB 2 X1. SB 961 and AB 1461 were vetoed by Governor Brown. AB 1083 (Monning, Chapter 854, Statutes 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 CONTINUED SB 639 Page 11 Small Group HMO as California's benchmark plan to serve as the EHB standard, as required by federal health care reform. SB 51 (Alquist, Chapter 644, Statutes of 2011) established enforcement authority in California law to implement provisions of the ACA related to medical loss ratio requirements on health plans and health insurers and enacted prohibitions on annual and lifetime benefits. AB 2244 (Feuer, Chapter 656, Statutes of 2010) requires guaranteed issue of health plan and health insurance products for children beginning in January 1, 2011. SB 900 (Alquist, Chapter 659, Statutes of 2010), and AB 1602 (Perez, Chapter 655, Statutes of 2010) established Covered California. SB 890 (Alquist of 2010) would have required carriers to categorize all individual market products into tiers based on actuarial level, as specified, and would have required carriers to meet federal annual and lifetime limits and the medical loss ratio requirements. SB 890 was vetoed by Governor Schwarzenegger. AB 1 X1 (Nunez of 2008) would have enacted the Health Care Security and Cost Reduction Act, a comprehensive health reform proposal. AB 1 X1 died in the Senate Health Committee. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes According to Assembly Appropriations Committee, 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. 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 CONTINUED SB 639 Page 12 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 law requires. It also imposes requirements for administrative coordination between health, dental, and vision plans. SUPPORT : (Verified 9/12/13) Health Access (source) Blue Shield of California Medical Oncology Association of Southern California, Inc. Prior Version : American Federation of State, County and Municipal Employees, AFL-CIO California Church IMPACT Consumers Union California Alliance for Retired Americans California Federation of Teachers California Pan Ethnic Health Network California Partnership California Public Interest Research Group California Optometric Association California Teachers Association Children Now Congress of California Seniors National Multiple Sclerosis Society Southern California Americans for Democratic Action United Nurses Associations of California/Union of Health Care Professionals United Ways of California Western Center on Law and Poverty OPPOSITION : (Verified 9/12/13) California Association of Health Plans (previous version) California Association of Health Underwriters (previous version) California Chamber of Commerce (previous version) National Assoc. of Insurance and Financial Advisors of CONTINUED SB 639 Page 13 California (previous version) Independent Insurance Agents & Brokers of California (previous version) ARGUMENTS IN SUPPORT : Health Access, the sponsor of this bill, states that this bill implements and improves upon provisions of the ACA dealing with cost sharing and will end medical bankruptcies. The Medical Oncology Association of Southern California maintains that cost sharing limits enable any health care consumer to anticipate and plan for out-of-pocket health care spending. Blue Shield of California argues that this bill makes the needed changes to allow plans to set rates on the most recent data available and therefore reduce uncertainty and keep premiums low. ARGUMENTS IN OPPOSITION : The California Association of Health Underwriters believes that the out-of-pocket limits should not be placed into statute and should be left flexible to permit easy updating as federal guidelines change or to ensure deductibles meet actuarial standards. JL:d 9/12/13 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED