BILL ANALYSIS Ó SB 959 Page 1 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 SB 959 Page 2 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 SB 959 Page 3 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. SB 959 Page 4 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 SB 959 Page 5 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 SB 959 Page 6 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 SB 959 Page 7 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 SB 959 Page 8 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 SB 959 Page 9 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