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---



          SB 639 | Page 2




          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  




          SB 639 | Page 4




            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  




          SB 639 | Page 6




                 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  




          SB 639 | Page 8




          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  




          SB 639 | Page 10




              $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  




          SB 639 | Page 12




              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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          13


          

                              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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