BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 746
AUTHOR: Leno
AMENDED: April 16, 2013
HEARING DATE: April 24, 2013
CONSULTANT: Valderrama
SUBJECT : Health care coverage: premium rates
SUMMARY : Requires health care service health plans (health
plans) to annually disclose specified data in aggregate for rate
filings in the large group market. Requires health plans that
exclusively contract with no more than two medical groups in the
state to: 1) annually disclose certain additional information to
the Department of Managed Health Care (DMHC), including the
plan's overall annual medical trend factor assumptions by major
service category; and 2) provide claims data, or other specified
patient-level data if claims data does not exist, to a large
group purchaser if the purchaser requests the information and
demonstrates that it is able to comply with relevant state and
federal privacy laws.
Existing federal law:
1.Requires, under the federal Patient Protection and Affordable
Care Act (ACA) (Public Law 111-148), the federal Secretary
(Secretary) of the Department of Health and Human Services
(DHHS), in conjunction with states, to establish a process for
the annual review of unreasonable increases in premiums for
health insurance coverage, beginning with the 2010 plan year.
2.Requires the rate review process to require health insurance
issuers to submit to the Secretary and the state a
justification for an unreasonable premium increase prior to
the implementation of the increase. Requires health plans and
insurers to prominently post such information on their
websites. Requires the Secretary to ensure the public
disclosure of information on such increases and justifications
for all health plans and insurers.
Existing state law:
1.Provides for the licensure and regulation of health plans by
DMHC under the Knox-Keene Health Care Service Plan Act of 1975
(Knox-Keene Act).
Continued---
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2. Prohibits any provision of the Knox-Keene Act to be
construed to permit the Director of DMHC to establish the
rates charged subscribers and enrollees for contractual health
care services, and prohibits the Director's enforcement of the
requirements of the state's small group health law from being
deemed to establish the rates charged subscribers and
enrollees for contractual health care services.
1.Requires health plans, for large group plan contracts, at
least 60 days in advance of a rate change, to file with the
DMHC all specified rate information for unreasonable rate
increases and to disclose specified aggregate data.
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This bill:
1.Requires health plans to annually disclose:
a. The percentage and number of rate filings reviewed by
plan year, segment type, product type, number of
subscribers and number of covered lives affected for all
rate filings in the large group market in aggregate.
b. The plan's average rate increase in aggregate by the
following categories: plan year, segment type, product type
and benefit category.
c. Any cost containment and quality improvement efforts
since the plan's last rate filing for the same category of
health benefit plan.
1.Requires health plans, to the extent possible, to describe any
significant new health care cost containment and quality
improvement efforts and provide an estimate of potential
savings together with an estimated cost or savings for the
projection period.
3. Requires a health plan that exclusively contracts with no
more than two medical groups in the state to annually
disclose, in aggregate:
a. The plan's annual medical trend factor assumptions for
large group rates by major service category, including the
following: hospital inpatient, outpatient visits,
outpatient surgical or other procedures, professional
medical, mental health, substance abuse, skilled nursing
facility, prescription drugs, other ancillary services,
laboratory, and radiology and imaging.
b. The amount of the projected aggregate trend in the large
group market attributable to the use of services, price
inflation, or fees and risk for annual plan contract trends
by each major service category.
c. The amount of projected trend attributable to the
following categories: use of services by service and
disease category, price changes in physician costs, price
changes in hospital contracts, prices changes in other
provider contracts, price changes in supplier contracts,
cost changes in administrative costs for the health plan,
cost changes in administrative costs for each contracting
medical group, capital investments for care locations,
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other capital investments, community benefit expenditures,
and all other budgetary expenditures.
d. The amount and proportion of costs attributed to the
medical groups that would not have been attributable as
medical losses if incurred by the health plan rather than
the medical group
4.Permits health plans to provide aggregated additional data
that demonstrates or reasonably estimates year-to-year cost
increases in each of the specific service categories for the
major geographic regions of the state.
5.Requires a health plan that exclusively contracts with no more
than two medical groups in the state to provide claims data at
no charge to a large group purchaser if the large group
purchaser requests it and demonstrates that it is able to
comply with relevant state and federal privacy laws.
6.Requires the plan, if claims data is not available, to
provide, at no charge:
a. Data sufficient for the large group purchaser to
calculate the cost of obtaining similar sevices from other
health plans and evaluate cost-effectiveness by service and
disease category.
b. Patient-level data on demographics, prescribing
encounter, inpatient services, outpatient services, and any
other data as may be required of the health plan to comply
with risk adjustment, reinsurance, or risk corridors as
required by ACA.
c. Patient-level utilization data used to experience rate
the large group, including diagnostic and procedure coding
and costs assigned to each service.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
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1.Author's Statement. The cost of health insurance continues to
climb even as California moves forward in implementing the ACA. I
authored SB 1163 (Leno) of 2010 to provide oversight of health
insurance rates because oversight and transparency should help to
control rates. This was a key piece of the ACA. Nationally,
oversight of health insurance rates for the individual market
alone has saved consumers over $2.1 billion, according to DHHS.
The proportion of rate increases over 10 percent in the individual
market has dropped form 75 percent of proposed rate increases in
2010 to 14 percent in 2013.
SB 1163 was intended to apply to individual, small employer and
large employer insurance markets. The provisions with respect
to large employers (over 50 employees) have not been
implemented. Also, the information provided by Kaiser
Permanente to justify its rate increases in the individual and
small group markets does not provide information comparable to
that provided by other health plans so that the DMHC and
purchasers can scrutinize the reasons for the proposed rate
increases and determine whether those rate increases are
reasonable or not. The fact that Kaiser is an integrated
system should not exempt it from rate review.
2.Escalating costs of health care. For many years, health care
expenditures have outpaced inflation. The United States spends
a larger share of its gross domestic product (GDP) on health
care than any other major industrialized country. According to
CMS, expenditures for health care represent 18 percent of the
nation's GDP in 2010. In 1960, health care expenditures
accounted for about five percent of the GDP. By 2019, CMS
projects that health care expenditures will account for 19
percent of GDP. As costs have risen, health care coverage has
become more unaffordable. The 2010 California Employer Health
Benefits Survey (CEHBS) found health insurance premiums
increased 8.1 percent in California in 2010. Other key
findings from CEHBS include:
a. Since 2002, premiums have increased 134.4 percent, more
than 5 times the 25.4 percent rise in California's overall
inflation rate;
b. Twenty-eight percent of California firms either reduced
benefits or increased cost sharing for employees as a
result of the economic downturn in 2010, up considerably
from the fifteen percent who did so in 2009; and
c. Cost sharing may continue to increase for California
workers. Just under half of large firms (200 or more
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workers) are "very" or "somewhat" likely to increase the
amount workers' pay for coinsurance or copayments in the
next year. Sixty-eight percent are "very" or "somewhat"
likely to raise the amount workers' pay toward premiums.
1.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 ACA includes a number transparency
provisions, including requiring the Secretary of the DHHS, in
conjunction with states, to establish a process for the annual
review, beginning with the 2010 plan year, of "unreasonable
increases in premiums" for health insurance coverage. This
process must require health plans and insurers to submit to the
Secretary and the relevant state a justification for an
unreasonable premium increase prior to the implementation of the
increase. Health plans and insurers must prominently post such
information on their Internet Websites.
The Secretary of DHHS is required to carry out a program to
award grants to states during the five-year period beginning
with fiscal year 2010 to assist states in carrying out the
annual review of unreasonable increases in premiums for health
insurance coverage. As a condition of receiving a grant, a
state, through its Commissioner of Insurance, must provide the
Secretary with information about trends in premium increases
in health insurance coverage in premium rating areas in the
state; and make recommendations, as appropriate, to the state
Exchange (Exchanges are entities required to be established by
federal health care reform) about whether particular health
insurance issuers should be excluded from participation in the
Exchange based on a pattern or practice of excessive or
unjustified premium increases.
2.Rate review in California. SB 1163 (Leno), Chapter 661,
Statutes of 2010, requires carriers to submit detailed data
and actuarial justification for small group and individual
market rate increases at least 60 days in advance of
increasing their customers' rates. The carriers also must
submit an analysis performed by an independent actuary who is
not employed by a plan or insurer.
For large group filings, SB 1163 requires health plans to
submit all information required by ACA and any additional
information adopted through regulation by DMHC necessary to
comply with the bill. The rate review provisions in ACA have
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not been applied to the large group market and DMHC/California
Department of Insurance (CDI) have not adopted regulations to
establish rate review for the large group market in
California. Though regulators do not have the authority to
modify or reject rate changes found to hurt consumers, rate
review has increased transparency on rate increases in the
individual and small group market.
3.Transparency. According to a February 2008 California
HealthCare Foundation fact sheet, consumers are paying more
attention to the cost of their health care because they have
greater responsibility for paying for it. People with
insurance are coping with higher deductibles and copayments
and some are being offered consumer-driven health savings
accounts as an alternative to traditional insurance. Those who
lack health insurance have an even more daunting task of
anticipating and managing their health care costs. Whether
insured or uninsured, consumers need to understand their
financial liability and find the best value. Additionally,
employers have an increased interest in price transparency in
order to improve health care outcomes for their employees and
to slow the growth rate of health care expenditures. Despite
this, consumers often do not have the tools to make informed
decisions based on cost and quality of care because some
providers have prevented price and quality information from
being disclosed. A recent report on state price transparency
laws completed by Catalyst for Payment Reform and the Health
Care Incentives Improvement Institute examined transparency
laws in all 50 states and assigned each state a grade. Based
on the criteria used in this report, California received a D.
4.Kaiser Permanente. According to Kaiser, it is different than
most American health care organizations as it is a nonprofit,
prepaid, integrated health care delivery system made up of
three distinct groups of entities: the Kaiser Foundation
Health Plan; Kaiser Foundation Hospitals; and the autonomous
regional Permanente Medical Groups. Because Kaiser is an
integrated delivery system they do not produce the same type
of claims data that other carriers typically make available to
large group employers and regulators. DMHC indicates that
while the data they receive from Kaiser through individual and
small group rate review filings is different, it is sufficient
data to complete an adequate review of their filings.
5.Prior legislation. SB 1163 (Leno), Chapter 661, Statutes of
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2010, requires carriers to file specified rate information for
individual and small group coverage at least 60 days prior to
implementing any rate change, as specified. Requires the
filings for large group contracts only in the case of
unreasonable rate increases, as defined by the ACA, prior to
implementing any such rate change. Increases, from 30 days to
60 days, the amount of time that a health plan or insurer
provides written notice to an enrollee or insured before a
change in premium rates or coverage becomes effective.
Requires carriers that decline to offer coverage to or deny
enrollment for a large group applying for coverage, or that
offer small group coverage at a rate that is higher than the
standard employee risk rate to, at the time of the denial or
offer of coverage, to provide the applicant with reason for
the decision, as specified.
SB 51 (Alquist), Chapter 644, Statutes of 2011 requires carriers to
meet federal annual and lifetime limits and MLR requirements
in specified provisions of the federal health care reform law,
as specified. Authorizes the Director and the Insurance
Commissioner to issue guidance, as specified, and promulgate
regulations to implement requirements relating to MLRs, as
specified.
SB 1196 (Hernandez), Chapter 869, States of 2012 prohibits any
health plan or health insurance contract between a carrier and
a provider, including a provider of supplies, from
prohibiting, conditioning, or in any way restricting the
disclosure of claims data related to health care services
provided to enrollees, insured, or beneficiaries of any
self-funded health coverage arrangement to an entity certified
by the Center for Medicare and Medicaid Services to generate
public reports on the performance of health care providers.
AB 2578 (Jones and Feuer) of 2010 would have required carriers
to file a complete rate application with regulators for a rate
increase that will become effective on or after January 1,
2012. Would have prohibited a health plan or insurer's
premium rate (defined to include premiums, co-payments,
coinsurance obligations, deductibles, and other charges) from
being approved or remaining in effect that is excessive,
inadequate, unfairly discriminatory, as specified. AB 2578
died on the Senate Floor.
AB 52 (Feuer) of 2011 Would have required health care service
plans (health plans) and health insurers to apply for prior
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approval of proposed rate increases, under specified
conditions, and would have imposed on the California
Department of Insurance and DMHC specific rate regulation
criteria, timelines, and hearing requirements. AB 52 died on
the Senate Floor.
6.Arguments in support. UNITE HERE, the sponsor of this bill,
writes that their union cannot sustain double digit rate
increases in health insurance without any opportunity to
manage care to reduce costs and that strike after strike,
labor dispute after labor dispute, is about how much they pay
for health benefits. UNITE HERE states that Kaiser refuses to
give them data that they know they must have, that they or
comparable organizations produce for other reasons or in other
states, and that would allow them to better manage care in
order to improve outcomes and reduce costs. The California
Teamsters Public Affairs Council (Teamsters) asserts that one
of their biggest problems as they negotiate healthcare costs
is getting the information necessary to make an accurate
assessment of what those costs should be and this problem is
at its worst with Kaiser Permanente. According to the
Teamsters, when they negotiate with other carriers or when
they manage their own funds, they get claims data and the
opportunity to tailor care to the needs of their members, but
not so with Kaiser. Health Access California (HAC) writes that
they have been disappointed that, contrary to het intent of SB
1163, DMHC has failed to implement rate review for large
employer coverage. HAC states that they have been further
disappointed that integrated health plans have not provided
the same level of detail about how rate increases were
determined as other health plans. The California Public
Interest Research Group states that increasing the oversight
and transparency of rate increases will discourage unnecessary
rate hikes and keep Californians more informed about companies
that raise rates beyond what is reasonable.
7.Arguments in opposition. The California Association of Health
Plans (CAHP) writes that the ACA requires states to establish
rate review programs for the small group and individual
markets, and in 2010, California quickly enacted a law
establishing this review for state health plans and insurers.
CAHP states that if the federal government chooses to require
states to extend rate review to the large group employer
market, California is well positioned since it has a statutory
process for large group rate review that would become
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immediately operative and therefore believe that this bill is
unnecessary. Kaiser Permanente writes that this bill contains
language mandating that Kaiser, and only Kaiser, provide to
any large group purchaser volumes of patient-specific medical
information at any time, upon request, and that would require
them to reveal to employers the patient-level data of hundreds
of thousands of employees that they serve without any
limitations on its use. Kaiser Permanente states that the
combination of information this bill would require them to
provide could easily allow these employers to determine who
their high-cost workers are and the health conditions they
have. Kaiser Permanente states that the employee would likely
be unaware that their sensitive medical information is being
transmitted to their employer at this granular level, and
while they are certain this is not he sponsor or author's
intent, forcing a health care provider to reveal such detailed
information to the employer could lead to serious unintended
consequences for the employees. The Association of California
Life and Health Insurance Companies states that it is critical
to put all of their resources toward implementing the ACA in a
meaningful way that creates a smooth and seamless transition
for all consumers rather than implementing cost sly,
unnecessary and time-consuming new requirements that have not
been identified by the federal government as essential to the
implementation of federal health care reform.
8.Technical and clarifying amendments.
a. On page 2, lines 15 and 16 strike "all rate filings" and
insert "products"
b. On page 2, line 17 after "(1)" insert "If a health care
service plan submits information pursuant to subdivision
(b),"
c. On page 3, line 7 after "(D)" insert "(E) Number of
covered lives affected"
d. On page 5, line 6 after "(2)" insert:
"Information provided to a purchaser under (e) shall not be
subject to public disclosure as provided in subdivision (a)
of Section 1385.07. (3)"
e. On p. 8, line 12 after "(B)" insert "De-identified"
SUPPORT AND OPPOSITION :
Support: Health Access of California (sponsor)
Unite here (sponsor)
California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
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California Public Interest Research Group
California Teachers Association
California Teamsters Public Affairs Council
Engineers and Scientists of California
International Longshore and Warehouse Union
Professional and Technical Engineers, Local 21
Union of Health Care Professionals
United Food and Commercial Workers Union, Western
States Council
United Nurses Association of California
Utility Workers Union of America, Local 132
Oppose: Aetna
America's Health Insurance Plans
Association of California Life and Health Insurance
Companies
California Association of Health Plans
California Chamber of Commerce
Health Net
Kaiser Permanente
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