BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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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 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 HEALTH COMMITTEE  :  6-2, 9/12/13
          (Pursuant to Senate Rule 29.10)
          AYES:  Hernandez, Beall, DeSaulnier, Monning, Pavley, Wolk
          NOES:  Anderson, Nielsen
          NO VOTE RECORDED:  De León

           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


                                                                CONTINUED





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           SUBJECT  :    Health care coverage

           SOURCE  :     Health Access California


           DIGEST  :    Codifies provisions of the Affordable Care Act (ACA)  
          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.








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          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  
             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  







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             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:

          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  







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             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  
             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  







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             $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 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;







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             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 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  







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                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 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  







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                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  
             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  







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          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.  

          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.








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          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  
          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  







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          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 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








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           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  
          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  ****