BILL ANALYSIS �
SB 746
Page 1
Date of Hearing: July 2, 2013
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
SB 746 (Leno) - As Amended: June 25, 2013
SENATE VOTE : 24-15
SUBJECT : Health care coverage: premium rates.
SUMMARY : Establishes new data reporting requirements on all
health plans applicable to products sold in the large group
market and establishes new specific data reporting requirements
related to annual medical trend factors by service category, as
well as claims data or deidentified patient-level data, as
specified, for a health care service plan (health plan) that
exclusively contracts with no more than two medical groups in
the state to provide or arrange for professional medical
services for the enrollees of the plan (referring to Kaiser
Permanente). Specifically, this bill :
1)Requires annual disclosures of certain data elements already
required of large group health plans subject to review for
unreasonable rate increases and adds the following two new
elements: the plan's average rate increase by benefit
category and number of covered lives affected.
2)Requires a health plan to disclose annually the following
aggregate data for all products sold in the large group
market:
a) Plan year;
b) Segment type;
c) Number of subscribers;
d) Number of covered lives affected; and,
e) The plan's average rate increase by the following
categories:
i) Plan year;
ii) Segment type;
iii) Product type;
iv) Benefit category, including, but not limited to,
hospital, medical, ancillary, and other benefit
categories reported publicly for individual and small
employer rate filings; and,
f) Trend attributable to cost and trend attributable to
utilization by benefit category.
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3)Requires a health plan that exclusively contracts with not
more than two medical groups in the state to provide or
arrange for professional medical services for the enrollees of
the plan to disclose annually all of the following aggregate
data for its large group health plan contracts:
a) The plan's overall annual medical trend factor
assumptions in the aggregate for large group rates by major
service category, including all of the categories described
below. Requires the plan to distinguish between trend
ascribed to the volume of services provided and the trend
ascribed to the cost of services provided:
i) Hospital inpatient;
ii) Outpatient visits;
iii) Outpatient surgical or other procedures;
iv) Professional medical;
v) Mental health;
vi) Substance abuse;
vii) Skilled nursing facility, if covered;
viii) Prescription drugs;
ix) Other ancillary services;
x) Laboratory; and,
xi) Radiology or imaging.
b) Permits a plan to provide aggregated additional data
that demonstrate or reasonably estimate year-to-year cost
increases in each of the specific service categories
specified in 3)a) above, for each of the major geographic
regions of the state.
c) The amount of projected trend attributable to the
following categories:
i) Use of services by service and disease category;
ii) Capital investment;
iii) Other capital investments; and,
iv) Community benefit expenditures, excluding bad debt
and valued at cost; and,
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)Requires a health plan described in 3) above to provide claims
data at no charge to a large group purchaser annually if the
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large group purchaser requests the information. Requires the
health plan to provide claims data that a qualified
statistician has determined is deidentified so that the
deidentified health information neither identifies nor
provides a reasonable basis to identify an individual.
Provides that this information is not to be subject to the
public disclosure requirements, as specified.
5)Requires, if claims data are not available pursuant to 4)
above, the health plan to provide, at no charge, all of the
following:
a) Deidentified data sufficient for the large group
purchaser to calculate the cost of obtaining similar
services from other health plans and evaluate
cost-effectiveness by services and disease category;
b) Deidentified patient-level data on demographics,
prescribing, encounters, 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 the Patient Protection and
Affordable Care Act (ACA); and,
c) Deidentified patient-level data used to experience rate
the large group, including diagnostic and procedure coding
and costs assigned to each service.
6)Requires the health plan to obtain a formal determination of a
qualified statistician that the data in 5) above has been
deidentified so that the deidentified health information
neither identifies nor provides a reasonable basis to identify
an individual. Requires the statistician to certify the
formal determination in writing and to upon request, provide
the protocol used for deidentification to the Department of
Managed Health Care (DMHC).
7)Requires data provided pursuant to 4) above to only be
provided to a large group purchaser that is both of the
following:
a) Able to demonstrate its ability to comply with state and
federal privacy laws; and,
b) A large group purchaser that is either an
employer-sponsored plan with enrollment of more than 1,000
covered lives or a multi-employer trust.
EXISTING LAW :
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1)Regulates health plans through the DMHC and health insurance
through the California Department of Insurance (CDI).
2)Allows, under the ACA and effective January 1, 2014, eligible
individual taxpayers, whose household income is between 100%
and 400% of the federal poverty level inclusive, an advance
payment of premium tax credits based on the individual's
income for coverage under a qualified health plan offered in
the California Health Benefit Exchange (Exchange). The ACA
also requires a reduction in cost-sharing for individuals with
incomes below 250% of the FPL, and a lower maximum limit on
out-of-pocket expenses for individuals whose incomes are
between 100% and 400% of the FPL.
3)Requires, under the ACA, health plans offering coverage in the
individual or group market to accept every employer and
individual that applies for coverage. Permits a health plan
to restrict enrollment to open or special enrollment periods.
Permits health plans to deny coverage to individuals if the
health plan has demonstrated, if required, to the applicable
state authority that it will not have the capacity to deliver
services adequately to any additional individuals because of
its obligations to existing group contract holders and
enrollees, and it is applying this provision to all
individuals without regard to the claims experience of those
individuals, employers, and their employees (and their
dependents) or any health-status related factor.
4)Establishes, in California law, a file and review process for
premium rates for health plans and health insurers in the
individual and small group markets, and specifies over 25
disclosure requirements including a requirement for overall
annual medical trend of all benefits and use of services and
by aggregate benefit category, including hospital inpatient,
hospital outpatient, physician services, prescription drugs,
and other services.
5)Establishes the following provisions related to disclosure
requirements referenced in 4) above for a health plan that
exclusively contracts with no more than two medical groups in
the state to provide or arrange for professional medical
services for the enrollees of the plan:
a) With regard to the plan's overall annual medical trend
factor to disclose the amount of its actual trend
experience for the prior contract year by aggregate benefit
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category, using benefit categories that are, to the maximum
extent possible, the same or similar to those used by other
plans; and,
b) With regard to the amount of the projected trend
attributable to the use of services, price inflation, or
fees and risk for annual plan contract trends by aggregate
benefit category, such as hospital inpatient, hospital
outpatient, physician services, etc., to instead disclose
the amount of its actual trend experience for the prior
contract year by aggregate benefit category, using benefit
categories that are, to the maximum extent possible, the
same or similar to those used by other plans.
6)For the large group market, requires health plans and health
insurers to file with the DMHC and CDI, at least 60 days prior
to implementing any rate change, all required rate information
for unreasonable rate increases. Requires all information
that is required by the ACA, and any other information
required pursuant to state regulations to be submitted.
Requires disclosure of the following aggregate data for all
rate filings submitted:
a) Number and percentage of rate filings reviewed by the
following:
i) Plan year;
ii) Segment type;
iii) Product type;
iv) Number of subscribers; and,
v) Number of covered lives affected.
b) The plan's average rate increase by the following
categories:
i) Plan year;
ii) Segment type; and,
iii) Product type.
7)Requires, as of March 1, 2013, and annually thereafter, a
health plan to provide the DMHC with the number of enrollees,
by product type as of December 31 of the prior year, who
receive health care coverage under a health plan contract that
covers individuals, small groups, large groups, or
administrative services only business lines.
8)Establishes under federal law, the Health Insurance
Portability and Accountability Act of 1996 (HIPAA), which
among various provisions, mandates industry-wide standards for
health care information on electronic billing and other
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processes; and, requires the protection and confidential
handling of protected health information.
9)Establishes under state law, the Confidentiality of Medical
Information Act which governs the disclosure of medical
information by health care providers, Knox-Keene regulated
plans, health care clearinghouses and employers.
FISCAL EFFECT : According to the Senate Appropriations
Committee, minor ongoing costs to review rate filings by DMHC
(Managed Care Fund).
COMMENTS :
1)PURPOSE OF THIS BILL . The author asserts that it is well
known that cost trends for health coverage are putting a
severe strain on California. What is less commonly known is
that these trends are especially severe in the large group
market. According to a study by the Commonwealth Fund, in
2003, California ranked 28th in the nation for
employer-sponsored health care premiums (large firms). In
2011, California had risen to seventh place. These firms saw
a 76% increase in costs over an eight year period. At the
current pace, the Commonwealth Fund study estimated, family
premiums for employer sponsored care would exceed $26,000 per
year by 2020. The cost of health insurance has headed
straight up for the last decade while wages have climbed more
slowly. Employers who offer benefits to their employees face
higher and higher costs for health benefits while working
families find that their share of premium keeps climbing and
so does what they spend on copays, deductibles, and other
out-of-pocket costs.
According to the author, the so-called "integrated health
plans" are a major and valued part of California's health care
system. These are organizations that incorporate hospitals,
physicians, and other health services under one umbrella. The
best-known of these is Kaiser Permanente (Kaiser), which makes
up 42% of the group health insurance market in California and
provides services to almost six million California residents.
Despite being such an important part of our state's health
care system, integrated plans are not disclosing the same
kinds of information required of other health insurers.
Without this critical data, many large employers and union
trust funds find that they have very little bargaining power
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when facing integrated health plans such as Kaiser, the
largest integrated health plan in California. Kaiser has more
than six million enrollees. An employer or a trust fund with
several hundred or several thousand members faces an unlevel
playing field in which the health insurer has the bargaining
leverage.
2)BACKGROUND . On March 23, 2010, President Obama signed the ACA
into law. The ACA will greatly expand access to public and
private health insurance coverage in California. The ACA
makes several fundamental changes to the private health
insurance market, including requiring the federal Department
of Health and Human Services (HHS) Secretary, in conjunction
with states, to establish a process for the annual review of
"unreasonable increases in premiums" for health insurance
coverage. Under the ACA, starting September 1, 2011,
insurance companies seeking to increase premium rates by 10%
or more in the individual or small group markets are required
to justify and submit for review by experts, the need for the
rate increase by providing information on the factors
contributing to the proposed increase. Forty-four states have
programs to review the proposed increases. The ACA
established the Rate Review Grants Program, a $250 million
program providing states with funds to strengthen and improve
their rate review processes, monitor premium increases, and
make health insurance rates understandable for all consumers.
On August 16, 2010, the DMHC and the CDI were jointly awarded
$1 million to establish and enhance their premium rate review
process in California.
SB 1163 (Leno), Chapter 661, Statutes of 2010, was enacted in
response to the ACA, and requires health plans and health
insurers to file with the DMHC and CDI specified rate
information for individual and small group plans and policies
at least 60 days prior to implementing any rate changes. SB
1163 requires rate filings to be actuarially sound and to
include a certification by an independent actuary that any
increase is reasonable or unreasonable. SB 1163 also requires
filings for large group plan contracts and policies for
unreasonable rate increases, as defined by the ACA, prior to
implementing any such rate change. SB 1163 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, and requires health plans and insurers that decline
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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, provide the
applicant with the reason for the decision, as specified.
According to HHS, the total savings in the individual and
small group markets from modified, rejected, or withdrawn rate
increase requests of 10% or above in California exceed $34
million and affect almost 170,000 enrollees. The provisions
of SB 1163 specific to the large group market have not been
implemented because HHS has not defined "unreasonable rate
increase" for the large group market. Also of note, AB 1163
contains special provisions for Kaiser because of their
integrated nature with regard to medical trend reporting and
projected trend attributable to use of services, etc. For a
summary of these Kaiser specific provisions see the
description 5) above in the summary of existing law.
3)CALIFORNIA HEALTH INSURANCE TRENDS . According to the
California HealthCare Foundation's (CHCF) supplement to CHCF's
Health Plans and Insurers, 2013 edition, based on 2011 data,
Kaiser enjoys 40% of the enrollment in the health insurance
commercial market followed by Anthem/Blue Cross (20%), Blue
Shield (15%), Health Net (8%), Aetna (5%), United (5%), Cigna
(4%), and others (5%). With regard to share of health
insurance revenue Kaiser's share of revenue is 34%, followed
by Anthem (15%), Health Net (10%), Blue Shield (9%), United
(8%), Aetna (3%), and all others (22%). Based on data
reported to DMHC and CDI pursuant to AB 1083 (Monning),
Chapter 852, Statutes of 2012, in the large group market,
Kaiser has almost 4.5 million enrollees out of a total of 10.5
million or 42% of the enrollment in the large group market.
According to CHCF's April 2013 Health Care Almanac report
titled "California Employer Health Benefits Survey: Fewer
Covered, More Cost," since 2002 premiums in California rose by
169.7%, more than five times the 31.5% increase in the state's
overall inflation. Overall insurance coverage rates have been
fairly stable since 2004 with regard to the firms offering
health benefits. California workers have been consistently
more likely to enroll in health maintenance organizations
(HMOs) than covered workers nationally. Preferred provider
organizations (PPOs) continue to be less popular in California
than in the U.S.
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4)KAISER DELIVERY SYSTEM AND RATES. Kaiser is a unique delivery
system in California, and is very popular as indicated above
through enrollment data. A December 2000 UC Berkeley study
conducted by Helen Halpin Schauffler highlights some of the
popular features of Kaiser in comparison to other models
including why consumers generally give Kaiser high marks.
According to the study, of the three types of managed care
surveyed, the staff/group model, in which the doctors
exclusively see patients from one HMO, received the fewest
consumer complaints. Kaiser is the largest such plan in
California. Other staff/group HMOs include the Group Health
Cooperative of Puget Sound in Washington and the former
Harvard Community Health Plan in Massachusetts. Student
health centers at universities often operate on a similar
model. People belonging to staff/group HMOs reported fewer
problems with billing and claims, better coverage of important
benefits, and fewer misunderstandings of coverage as compared
to the other two types of managed care organizations. The
results are consistent with the one-stop-shopping structure of
the staff/group HMO structure.
In contrast, two other types of managed care organizations fared
worse than the Kaiser model. The PPO, an association of
doctors who have contracted with an insurance company to
provide services at a discounted fee, ranked second in overall
consumer problems, the UC Berkeley study found. However, the
problems were more often administrative in nature rather than
about having access to care. While PPOs allow patients to
choose their own physicians and do not require referrals to
specialists, the plans can be more expensive and cover fewer
services. The UC Berkeley study found that patients reported
fewer delays in getting needed care, fewer difficulties
getting the most appropriate care and fewer cases of being
forced to change doctors in PPOs. However, PPO patients
reported greater numbers of problems in billing and in
understanding their benefits. In third place was the
independent provider association (IPA) or network HMO. The
IPA/network HMOs usually require a primary care physician to
act as a gatekeeper of medical care. Unlike the staff/group
HMO, physicians in IPA/network HMOs usually contract with many
different plans. Most people in the United States who are in
HMOs are in an IPA/network model. The most common complaints
were difficulties in getting referrals for specialists and
difficulty in selecting a doctor or hospital. IPA/network HMO
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members also reported a higher rate of being forced to switch
doctors. Overall, 34% of patients reported problems with the
Kaiser-type HMO, versus 43% for the PPO, and 46% for the
IPA/Network HMO. The three plans were similar in the rates at
which consumers reported being denied care or treatment, being
forced to change medications, or experiencing language and
communication barriers.
In small group market rate filings submitted to DMHC, Kaiser
indicates it sets its rate differently than most health plans.
According to Kaiser, the most important differentiator is
their integrated system, which has implications for how they
deliver care, the quality and value they provide, and the way
they manage their finances. The document describes
decision-making at the regional and local level by three
separate coordinating entities: Kaiser Foundation Health
Plan, Kaiser Foundation Hospitals, and the Northern and
Southern California Permanente Medical Groups. According to
Kaiser the integrated system supports high quality patient
centered care provided by physician-led delivery systems,
supported by cutting edge technology and extensive case
management, which requires larger capital investment than
non-integrated network systems. According to Kaiser, after
patient care, operations, and contributions to community
benefits, remaining funds go back into the integrated system,
as Kaiser is a not-for-profit 501(c)(3). In 2010, Kaiser
provided approximately $1.8 billion to support its community
benefit programs and services, which is greater than 3.8% of
combined health plan and hospital operating revenues. Kaiser
indicates that it is different because funding needed to build
infrastructure is invisible to premium setting in a
fee-for-service model, and Kaiser buys care by the package,
not the piece, meaning they do not pay physicians and other
providers based on fees for specific services. Instead,
Kaiser pays salaries and wages.
5)SUPPORT . The sponsors of this bill, UNITE HERE and United
Food and Commercial Workers Union, Western States Council,
indicate that this bill would give their trust funds the
information they need to bargain with Kaiser and to better
manage the care of their members. When their health care
strategists tried to design programs that manage the care of
their of highest cost patients, taking into account the
realities of working in the hospitality industry, they were
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unable to do so. UNITE HERE recognizes that Kaiser doesn't
have claims data but believes Kaiser has other comparable
data. UNITE HERE believes the programs offered by Kaiser are
mostly designed for white collar employees who spend all day
sitting at a desk. AARP supports this bill because it will
improve price transparency in the large group market. The
Campaign for a Healthy California believes this bill will
clarify what information is required of integrated health
plans which do not report cost drivers the same way as other
health plans. Health Access California indicates they have
been disappointed that, contrary to the intent of SB 1163,
DMHC has failed to implement rate review for large employer
coverage, and that integrated health plans have not provided
the same level of detail about how rate increases were
determined as other health plans.
6)OPPOSITION . Opponents, generally health insurance companies
and associations and business organizations, argue that this
bill sets a disturbing precedent as it would interfere and
essentially control private contracts between customers and
business. These reports will have little value other than to
the sponsors of this bill who would like to use them as a
comparison. The Service Employees International Union -
United Healthcare Workers West (SEIU-UHW) is concerned that
this bill unwittingly will place Kaiser at a market
disadvantage when compared to its competitors. SEIU-UHW also
raises questions about why the disclosures in this bill are
superior to those already required by DMHC for the small group
market. Kaiser writes in opposition that this bill is over
reaching and is an attack on the integrated model of care
delivery. Kaiser asserts that this bill attempts to insert
legislative process into a private, voluntary contract
discussion between Kaiser and one of their large group
purchasers. Kaiser indicates that this bill would reveal
patient level data and even deidentified data can be misused.
Kaiser believes this bill is divisive and will erect
unnecessary administrative barriers.
7)RELATED LEGISLATION .
a) AB 710 (Pan) adds multiemployer plans to the entities
permitted to facilitate purchase of qualified health plans
in the Exchange, now called Covered California, no later
than July 1, 2014, to the extent permitted by federal law.
AB 710 has been held on the Assembly Appropriations
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Suspense File.
b) AB 1083 establishes small group health insurance market
reforms in response to the ACA.
8)PREVIOUS LEGISLATION . SB 1163 requires health plans and
health insurers to file with DMHC and CDI specified rate
information for individual and small group coverage at least
60 days prior to implementing any rate change. Requires rate
filings to be actuarially sound and to include a certification
by an independent actuary that any increase is reasonable or
unreasonable. Requires the filings in the case of large group
contracts only for unreasonable rate increases 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 health plans and insurers 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, provide the applicant with
reason for the decision, as specified.
9)AMENDMENTS .
a) The author has agreed to the following amendments to
address some of the concerns raised by Kaiser. Kaiser has
requested all of subdivision (e) be struck from this bill.
Page 3, lines 32-40
e) A health care service plan that does not provide
information on rate increases by benefit categories such as
hospital, outpatient medical and mental health or that does
not provide information on trend attributable to cost and
trend attributable to utilization by benefit category
pursuant to (d) exclusively contracts with no more than two
medical groups in the state to provide or arrange for
professional medical services for the enrollees of the plan
shall disclose annually all of the following aggregate data
for its large group health care service plan contracts:
(1) The plan's overall aggregate data demonstrating or
reasonably estimating year to year cost increases annual
medical trend factor assumptions in the aggregate for large
group rates by major service category. The plan shall
distinguish between the increase trend ascribed to the
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volume of services provided and the increase trend ascribed
to the cost of services?
REGISTERED SUPPORT / OPPOSITION :
Support
UNITE HERE (sponsor)
United Food and Commercial Workers Union, Western States Council
(sponsor)
AARP
American Federation of State, County and Municipal Employees,
AFL-CIO
California Chiropractic Association
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Nurses Association
California Pan-Ethnic Health Network
California School Employees Association
California Teachers Association
California Teamsters Public Affairs Council
Campaign for a Healthy California
City and County of San Francisco
Engineers and Scientists of California
Health Access California
International Association of Heat and Frost Insulators Local 5
International Longshore & Warehouse Union
Professional & Technical Engineers, Local 21
Safeway, Inc.
Service Employees International Union Local 1021
United Nurses Associations of California/Union of Health Care
Professional
Utility Workers Union of America, Local 132
Opposition
America's Health Insurance Plans
Association of California Life and Health Insurance Companies
Bay Area Council
California Association of Dental Plans
California Association of Health Plans
California Association of Health Underwriters
California Chamber of Commerce
Kaiser Permanente
Long Beach Area Chamber of Commerce
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Los Angeles Area Chamber of Commerce
Sacramento Metropolitan Chamber of Commerce
San Gabriel Valley Economic Partnership
Service Employees International Union - United Healthcare
Workers West
Valley Industry and Commerce Association
Analysis Prepared by : Teri Boughton / HEALTH / (916) 319-2097