BILL ANALYSIS �
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 639
AUTHOR: Hernandez
AMENDED: September 6, 2013
HEARING DATE: September 12, 2013
CONSULTANT: Tim Valderrama
PURSUANT TO SENATE RULE 29.10.
SUBJECT : Health care coverage.
SUMMARY : Codifies provisions of the Patient Protection and
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 and permits carriers in the
small group market to establish an index rate no more frequently
than each calendar quarter.
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 essential health benefits (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.
Continued---
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Existing state law:
1.Provides for regulation of health insurers by the California
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 (Knox-Keene Act).
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 DMHC Director 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:
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
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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
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
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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
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.
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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 percent of the full actuarial value of
the benefits provided under the plan contract;
b. Silver level - coverage that is actuarially
equivalent to 70 percent of the full actuarial value of
the benefits provided under the plan contract;
c. Gold level - coverage that is actuarially equivalent
to 80 percent of the full actuarial value of the benefits
provided under the plan contract; and,
d. Platinum level - coverage that is actuarially
equivalent to 90 percent 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 percent;
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
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methodology developed consistent with the ACA;
d. Requires, for pediatric dental benefits whether
offered by a full service plan or insurance policy or a
specialized plan or policy, the actuarial value to be
consistent with federal law and guidance;
e. Requires DMHC/CDI, in consultation with each other
and the California Health Benefit Exchange (Exchange), to
consider whether to exercise state-level flexibility with
respect to the actuarial value calculator in order to
take into account the unique characteristics of the
California health care coverage market, including the
prevalence of health care service plans, total cost of
care paid for by the carrier, price of care, patterns of
service utilization, and relevant demographic factors;
and,
f. For small group, requires employer contributions
toward health reimbursement accounts and health savings
accounts (HSAs) to count toward the actuarial value of
the product in the manner specified in federal rules and
guidance.
16.Defines a catastrophic plan as a health care service plan
contract or health insurance policy that provides no benefits
for any plan year until the enrollee has incurred cost-sharing
expenses in an amount equal to the annual limit on
out-of-pocket costs as specified in 3) above, except requires
the plan provide coverage for at least three primary care
visits.
17.Prohibits a carrier that is not participating in the Exchange
from offering, marketing, or selling a catastrophic plan in
the individual market.
18.Authorizes catastrophic plans or policies to be offered only
if either of the following apply:
a. The individual purchasing the plan has not yet
attained 30 years of age; or,
b. The individual has a certificate of exemption from
the federal individual mandate because the individual is
not offered affordable coverage or because the individual
faces hardship.
19.Requires a group or individual health insurance policy
issued, amended, or renewed on or after January 1, 2014, that
provides or covers any benefits with respect to service in an
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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; and,
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.
FISCAL EFFECT : 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
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
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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.
COMMENTS :
1. Author's statement. 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. SB 639 will give
state regulators the ability to enforce the cost sharing
provisions and maximum out-of-pocket limits contained within
the ACA. This will relieve 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
2. Federal health care reform. On March 23, 2010, President
Obama signed the ACA (Public Law 111-148), as amended by the
Health Care and Education Reconciliation Act of 2010 (Public
Law 111-152). Among other provisions, the new law makes
statutory changes affecting the regulation of and payment
for certain types of private health insurance. Beginning in
2014, individuals will be required to maintain health
insurance or pay a penalty, with exceptions for financial
hardship (if health insurance premiums exceed eight percent
of household adjusted gross income), religion,
incarceration, and immigration status. Several insurance
market reforms are required such as prohibitions against
health insurers imposing lifetime benefit limits and
preexisting health condition exclusions. These reforms
impose new requirements on states related to the allocation
of insurance risk, prohibit insurers from basing eligibility
for coverage on health status-related factors, allow the
offering of premium discounts or rewards based on enrollee
participation in wellness programs, impose
non-discrimination requirements, require insurers to offer
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coverage on a guaranteed issue and renewal basis, determine
premiums based on adjusted community ratings (age, family,
geography and tobacco use).
3. Essential Health Benefits. Effective January 1, 2014,
federal law requires Medicaid benchmark and
benchmark-equivalent plans, plans sold through the
Exchange and the Basic Health Program (if enacted), and
health plans and health insurers providing coverage to
individuals and small employers to ensure coverage of
EHBs, as defined by the Secretary of the Department of
Health and Human Services (HHS). HHS is required to
ensure that the scope of EHBs is equal to the scope of
benefits provided under a typical employer plan, as
determined by the Secretary. Under federal law, EHBs must
include 10 general categories and the items and services
covered within the following categories:
1. Ambulatory patient services;
2. Emergency services;
3. Hospitalization;
4. Maternity and newborn care;
5. Mental health and substance use disorder
services, including behavioral health treatment;
6. Prescription drugs;
7. Rehabilitative and habilitative services and
devices;
8. Laboratory services;
9. Preventive and wellness services and chronic
disease management; and,
10. Pediatric services, including oral and vision
care.
On December 16, 2011, the HHS CCIIO released an EHB Bulletin
proposing that EHBs be defined using a benchmark approach.
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.
1. 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-qualified health plans, which is
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$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 percentage 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 percent would
pay for 60 percent of an average individual's health care
costs (using a standard population), while the individual
would be responsible for the remaining 40 percent. Federal
law, effective 2014, requires health plans and health
insurers to categorize products based on actuarial value as
follows:
1. Bronze 60 percent
2. Silver 70 percent
3. Gold 80 percent
4. Platinum 90 percent
5. Index rate. The September 6, 2013 amendments revise
provisions from AB X1 2 (Pan), Chapter 1, Statutes of
2013-14 First Extraordinary Session and SB X1 2 (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.
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
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with the understanding that small group rates may be
adjusted quarterly, will be increased.
6. 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
SBX1 2. 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 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 the
California Health Benefit Exchange.
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 X1 1 (Nunez) of 2008 would have enacted the Health Care
Security and Cost Reduction Act, a comprehensive health
reform proposal. AB X1 1 died in the Senate Health
Committee.
7. Support. Health Access, the sponsor of this bill, states
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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.
8.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.
SUPPORT AND OPPOSITION :
Support: Health Access(sponsor)
Blue Shield of California
Medical Oncology Association of Southern California,
Inc.
Support (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
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California/Union of Health Care
Professionals
United Ways of California
Western Center on Law and Poverty
Oppose:
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)
1 individual (previous version)
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