BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 959
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          Date of Hearing:  June 17, 2014

                            ASSEMBLY COMMITTEE ON HEALTH
                                 Richard Pan, Chair
                  SB 959 (Ed Hernandez) - As Amended:  June 10, 2014

           SENATE VOTE :  24-7
           
          SUBJECT  :  Health care coverage.

           SUMMARY  :  Requires health plans and insurers to deliver notice  
          of rate changes at least 15 days in advance of the annual open  
          enrollment period and makes numerous additional changes to  
          current law related to health plans and insurers.  Specifically,  
           this bill  :  

          1)Limits the requirement to sell catastrophic coverage through  
            the California Health Benefit Exchange (Exchange, now known as  
            Covered California) to individual market plans and insurers  
            and requires small group plans and insurers in the Small  
            Business Health Options Program (SHOP) plans to offer bronze,  
            silver, gold, and platinum plans, but not catastrophic.

          2)Includes participation fees paid by health plans and insurers  
            that sell products through the Exchange in the calculation  
            (under current law) of the index rate upon which premium rates  
            are based.

          3)Updates the definition of "small employer," for purposes of  
            law governing products sold through the Exchange and for the  
            purposes of statutes governing essential health benefits in  
            the small group market, to the existing definition that  
            applies to nongrandfathered plans under the federal Patient  
            Protection and Affordable Care Act (ACA).  Beginning in 2016,  
            this expands the definition of small employer to include  
            employers with up to 100 employees, rather than 50.

          4)Deletes an obsolete requirement for health plans and insurers  
            that offer small group coverage at a rate that is higher than  
            the standard employee risk rate to provide a reason for the  
            decision to offer coverage at a higher rate.  Deletes a  
            similar obsolete requirement for health plans and insurers  
            that deny coverage for an individual.

          5)Updates requirements that require plans and insurers to notify  








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            individuals who are denied coverage about coverage options  
            through the Major Risk Medical Insurance Program, as  
            specified, to apply to only specific circumstances under which  
            an individual might be denied coverage: a grandfathered  
            individual health plan or insurer rejects the addition of a  
            dependent, or a Medicare supplement plan rejects an applicant  
            due to the applicant having end-stage renal disease.  Requires  
            plans and insurers, in these circumstances, to also inform the  
            applicant about new coverage options through Covered  
            California, as specified.
          
          6)Deletes a requirement for small group and individual health  
            plan contract and insurance policy rate filings to be  
            concurrent with notices to enrollees required to be delivered  
            60 days in advance.

          7)Updates rate filing and related requirements that currently  
            apply to rate increases to instead apply to rate changes, as  
            specified.

          8)Updates rate filing requirements to reflect the 19 rating  
            regions established in current law governing the individual  
            and small group market.
          
          9)Corrects and updates code section references and makes other  
            minor, technical, and clarifying changes.

           EXISTING LAW  :  

          1)Establishes the Exchange pursuant to the ACA, where qualified  
            health plans offer health plan contracts or health insurance  
            policies for individual purchasers and small businesses   
            categorized in the following levels of coverage: platinum,  
            gold, silver, bronze, and catastrophic.

          2)Requires health plans and insurers participating in the  
            Exchange to offer, market, and sell one product within each of  
            the five levels of coverage, and to offer, market, and sell  
            the same products outside of the Exchange.

          3)Prohibits health plans and insurers that are not participating  
            in the Exchange from offering, marketing, or selling  
            catastrophic coverage.

          4)Requires health plans and health insurers to consider as a  








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            single risk pool for rating purposes the claims experience of  
            all insureds and enrollees in all nongrandfathered health  
            benefit plans in this state, whether offered as a health plan  
            contract or health insurance policy, including those insureds  
            and enrollees who enroll in individual coverage through the  
            Exchange and enrollees and insureds outside of the Exchange.   
            This requirement applies separately for individual market  
            products and small group products.

          5)Requires health plans and health insurers to establish an  
            index rate based on the total combined claims costs for  
            providing essential health benefits, as defined, within the  
            single risk pool, as required.  Requires the index rate to be  
            determined at least each calendar year for both small group  
            and individual market, and not more frequently than each  
            calendar quarter for small group.  Requires the index rate to  
            be adjusted on a market-wide basis based on the total expected  
            market wide payments and charges under the risk adjustment and  
            reinsurance programs established for the state, as specified.

          6)Requires a health plan or insurer that declines to offer  
            coverage to or denies enrollment for a large group applying  
            for coverage or that offers 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 specific reasons for the decision in writing,  
            in clear, easily understandable language.

          7)Requires individual and small group health plan contract and  
            insurance policy rate information to be filed with Department  
            of Managed Health Care (DMHC) or Department of Insurance (CDI)  
            concurrent with required notices explaining reasons for  
            denials, increases in premium rates, the plan's average rate  
            increase by plan year, segment type, and product type.

          8)Requires plans for individual and small group health care  
            contracts and policies to file with regulators at least 60  
            days prior to implementing any rate change, including  
            disclosures such as average rate increase initially requested,  
            average rate increase, and effective date of rate increase.   
            Authorizes a plan or insurer to provide aggregated additional  
            data that demonstrates, or reasonably estimates, year-to-year  
            cost increases in specific benefit categories in major  
            geographic regions, defined by regulators, but not more than  
            nine regions.








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          9)Requires plan filings to include certification by an  
            independent actuary or actuarial firm that the rate increase  
            is reasonable or unreasonable and if unreasonable, that the  
            justification for the increase is based on accurate and sound  
            actuarial assumptions and methodologies.

          10)Requires rate increase information to be made public 60 days  
            prior to implementation, including justification for any  
            unreasonable rate increases including all information and  
            supporting documentation as to why the rate change is  
            justified.

          11)Requires the regulators to accept and post to their websites  
            any public comment on a rate increase submitted to each  
            department during the 60-day period prior to implementation,  
            as specified.

          12)Requires the regulators to post on their websites any changes  
            submitted by the plan or insurer to the proposed rate  
            increase, including any documentation submitted by the plan or  
            insurer supporting those changes.

          13)Requires DMHC or CDI, if they find that an unreasonable rate  
            increase is not justified or that a rate filing contains  
            inaccurate information, to post their findings on their  
            websites.

          14)Requires a health plan or insurer that declines to offer  
            coverage or denies enrollment for an individual or his or her  
            dependent for individual coverage or that offers individual  
            coverage at a higher rate than the standard rate, to, at the  
            time of the denial or offer of coverage, provide the applicant  
            with the reason in writing in clear and understandable  
            language.

          15)Prohibits a change in premium rate or coverage for an  
            individual plan from becoming effective unless a written  
            notice is delivered 60 days prior to the effective date of  
            change.  Requires the notice to be delivered at his or her  
            last address known to the plan at least 60 days prior to the  
            effective date of the change.

          16)Requires, if an applicant or dependent is denied or charged a  
            higher rate than the standard rate, the plan or insurer to  








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            inform the applicant about the Major Risk Medical Insurance  
            Program or the federal temporary high risk pool, as specified.

           FISCAL EFFECT  :  According the Senate Appropriations Committee,  
          no significant costs to DMHC, and one-time costs of about  
          $230,000 for CDI to adopt regulations.  

           COMMENTS  :

           1)PURPOSE OF THIS BILL  .  The author asserts this bill is  
            necessary to make sure there are not ambiguities or  
            uncertainty about California's health insurance laws.   
            California's health insurance market is in transition with the  
            passage of the ACA.  California has been a leader in passing  
            enabling legislation of the ACA in a way that takes into  
            account stronger consumer protections existing in California  
            prior to the ACA.  Clean up legislation is likely to continue  
            to be necessary as new information becomes available, such as  
            through the finalization of federal regulations and through  
            the implementation process.  This is a 2014 omnibus health  
            insurance clean-up bill.  

          One of the most substantive provisions ensures that individuals  
            purchasing in the individual market are notified of rate  
            changes 15 days prior to the start of open enrollment.  The  
            author argues it is important that an individual subject to a  
            rate increase is informed so that he or she can shop for other  
            coverage during open enrollment, if so desired.  

          In addition, this bill conforms state law to federal regulations  
            stating the index rate plans and insurers use to set their  
            premiums should be adjusted to include participation fees the  
            plans pay to offer products through the Exchange.  

           2)BACKGROUND  .  The ACA made major changes to the small group and  
            individual health insurance markets, such as mandating  
            guaranteed issuance of coverage, eliminating pre-existing  
            condition exclusions, limiting factors upon which premium  
            rates can be developed, and authorizing the creation of health  
            benefit exchanges either at the state or federal level.

             a)   Single risk pool and index rates.  Before the ACA,  
               health plans and insurers often maintained several separate  
               risk pools within their individual and small group market  
               business, often as a way to segment risk and further  








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               underwrite premiums.  Beginning in 2014, health plans and  
               insurers are no longer able to deny coverage based on  
               applicants' health status and are limited in the types of  
               rating factors they can apply in setting premiums in the  
               individual and small group markets.  Without a single risk  
               pool rule, these prohibitions against traditional  
               underwriting could incentivize health plans and insurers to  
               find ways to segment the market into separate risk pools  
               and charge differential premiums based on segmented risk, a  
               de facto mechanism for underwriting.  As a result, the ACA  
               requires a health plan or insurer to consider all of its  
               enrollees in all plans and policies (other than  
               grandfathered plans or policies) offered by the health plan  
               or issuer to be members of a single risk pool in the  
               individual market or small group market, respectively.   
               Health plans and insurers must use their estimated total  
               combined claims experience to establish an index rate for  
               the relevant market, which they then use to set the rates  
               for non-grandfathered plans.  Federal regulations require  
               the index rate to be adjusted on a market-wide basis for  
               various factors, including Exchange user fees.  However,  
               current state law does not allow for adjustment of the  
               index rate based on Exchange user fees.  This bill conforms  
               state law to federal regulations in this regard.

             b)   Rate change notification and open enrollment.  In  
               California's ACA-implementing legislation, a key goal was  
               to ensure that laws applicable to plans and insurers  
               participating in the Exchange were also applied to plans  
               and insurers not participating in the Exchange to keep a  
               level regulatory playing field.  For example, open and  
               special enrollment periods not only apply to Exchange plans  
               but also to health plans and insurers not participating in  
               the Exchange.  In the individual market, after 2015, an  
               annual open enrollment period of October 15 to December 7  
               applies to Exchange plans and health plans and insurers not  
               participating in the Exchange.  Under current rate review  
               laws, enrollees and insureds must receive a notice of a  
               rate increase 60 days in advance of the rate taking effect;  
               for most consumers, whose plan year begins January 1, this  
               notice would be sent November 1, in the middle of the open  
               enrollment period.  This bill, instead, requires notice to  
               be sent at least 15 days prior to open enrollment.

           3)SUPPORT  .  Health Access California, in support, writes that  








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            California has enacted numerous pieces of landmark legislation  
            to implement and improve on the federal ACA.  These laws have  
            eliminated denials of coverage based on pre-existing  
            conditions, provided public scrutiny of health insurance  
            rates, and otherwise imposed consumer protections on a market  
            that was once widely known as the wild, wild west of health  
            insurance.  This bill includes numerous conforming and  
            clarifying corrections and is clean-up to major legislation  
            that taken together constitutes the market changes that  
            implement and improve on the ACA.

           4)OPPOSE UNLESS AMENDED (PRIOR VERSION)  .  The California  
            Association of Health Plans and the Association of California  
            Life and Health Insurance Companies submitted letters with a   
            position of "oppose unless amended" for a prior version of  
            this bill.  Their letters request removal of a provision that  
            was removed in the June 10, 2014, version of this bill.   
            However, at the time this analysis was printed, they were  
            unable to formally confirm removal of their opposition.

           5)RELATED LEGISLATION  .  

             a)   SB 1034 (Monning) prohibits health plans and health  
               insurance policies in the group market from imposing a  
               waiting or affiliation period.  SB 1034 is pending in the  
               Assembly Appropriations Committee.

             b)   SB 1182 (Leno) requires rate review for large group  
               health plans and insurers for rate increases exceeding 5%  
               and establishes new data reporting requirements on health  
               plans and health insurers sold in the large group market.   
               SB 1182 is set to be heard in this Committee on June 24,  
               2014.

             c)   SB 2 X1 (Ed Hernandez), Chapter 2, Statutes of 2013-14  
               First Extraordinary Session, applies the individual  
               insurance market reforms of the ACA to health plans  
               regulated by DMHC and updates the small group market laws  
               for health plans to be consistent with final federal  
               regulations.

             d)   AB 2 X1 (Pan), Chapter 1, Statutes of 2013-14 First  
               Extraordinary Session, establishes health insurance market  
               reforms contained in the ACA specific to individual  
               purchasers, such as prohibiting insurers from denying  








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               coverage based on pre-existing conditions and makes  
               conforming changes to small employer health insurance laws  
               resulting from final federal regulations.

             e)   SB 639 (Hernandez), Chapter 316, Statutes of 2013,  
               codifies provisions of the 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.

           6)PREVIOUS LEGISLATION  .  

             a)   AB 1083 (Monning), Chapter 852, Statutes of 2012,  
               reforms California's small group health insurance laws to  
               enact the ACA.  Eliminates pre-existing condition  
               requirements and establishes premium rating factors based  
               only on age, family size, and geographic regions, except  
               for grandfathered plans.  New guaranteed issue provisions  
               and the rating provisions are tied to those provisions in  
               the ACA.  

             b)   SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB  
               1602 (John A. Pérez), Chapter 655, Statutes of 2010,  
               establish the Exchange.

             c)   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.  

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          American Federation of State, County and Municipal Employees
          California Optometric Association
          Health Access California
           
            Opposition 








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          Association of California Life and Health Insurance Companies  
          (unless amended, prior version)
          California Association of Health Plans (unless amended, prior  
          version)

           Analysis Prepared by  :    Ben Russell / HEALTH / (916) 319-2097