BILL ANALYSIS �
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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 Le�n, DeSaulnier, Monning, Wolk
NOES: Anderson, Nielsen
NO VOTE RECORDED: Pavley
SENATE APPROPRIATIONS COMMITTEE : 5-2, 5/23/13
AYES: De Le�n, Hill, Lara, Padilla, Steinberg
NOES: Walters, Gaines
SENATE FLOOR : 28-11, 5/29/13
AYES: Beall, Block, Calderon, Corbett, Correa, De Le�n,
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)
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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
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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:
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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
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