Amended in Assembly June 26, 2014

Amended in Senate April 21, 2014

Senate Bill No. 1034

Introduced by Senator Monning

February 14, 2014

An act to amend Sections 1357.51, 1357.514, 1357.600, and 1357.614 of, and to repeal and add Sections 1357.506 and 1357.607 of, the Health and Safety Code, and to amend Sections 10198.7, 10753.05, 10755, and 10755.05 of, and to repeal and add Sections 10753.08 and 10755.08 of, the Insurance Code, relating to health care coverage.

LEGISLATIVE COUNSEL’S DIGEST

SB 1034, as amended, Monning. Health care coverage: waiting periods.

Existing law, the federal Patient Protection and Affordable Care Act (PPACA), enacts various health care coverage market reforms that take effect with respect to plan years on or after January 1, 2014. Among other things, PPACA prohibits a group health plan and a health insurance issuer offering group health insurance coverage from applying a waiting period that exceeds 90 days.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Existing law authorizes a group health care service plan contract and a group health insurance policy, as defined, to apply a waiting period of up to 60 days as a condition of employment if applied equally to all eligible employees and dependents.

This bill would prohibit those group contracts and policies from imposing any waiting or affiliation period, as defined, and would make related conforming changes. Because a willful violation of the bill’s requirements by a health care service plan would be a crime, the bill would impose a state-mandated local program.

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Existing law provides for the regulation of grandfathered small employer health care service plan contracts and health insurance policies, as defined. Existing law requires that those contracts and policies be fairly and affirmatively renewed and prohibits construing the provisions regulating those contracts and policies from limiting enrollment in a contract or policy to open enrollment periods, as specified. Existing law requires the employer offering the plan to send a written notice to an eligible employee or dependent who fails to enroll during an open enrollment period that he or she may be excluded from coverage for a specified period of time.

end insert begin insert

This bill would instead require the notice to inform the eligible employee or dependent that he or she may be excluded from eligibility for coverage until the next open enrollment period.

end insert

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

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This bill would incorporate additional changes to Section 10753.05 of the Insurance Code proposed by SB 959 that would become operative if this bill and SB 959 are both enacted and this bill is enacted last.

end insert

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature hereby finds and declares the
following:

(a) In enacting this legislation, it is the intent of the Legislature
to prohibit a health care service plan or health insurer offering
group coverage from imposing a separate waiting or affiliation
period in addition to any waiting period imposed by an employer
for a group health plan on an otherwise eligible employee or
dependent.

(b) The Legislature further intends, in enacting this legislation,
to permit a health care service plan or health insurer offering group
coverage to administer a waiting period imposed by a plan sponsor,
as defined in Section 1002 of Title 29 of the United States Code,
if consistent with Section 2708 of the federal Public Health Service
Act (42 U.S.C. Sec. 300gg-7).

SEC. 2.  

Section 1357.51 of the Health and Safety Code is
amended to read:

1357.51.  

(a) A health benefit plan for group coverage shall
not impose any preexisting condition provision or waivered
condition provision upon any enrollee.

(b) (1) A nongrandfathered health benefit plan for individual
coverage shall not impose any preexisting condition provision or
waivered condition provision upon any enrollee.

(2) A grandfathered health benefit plan for individual coverage
shall not exclude coverage on the basis of a waivered condition
provision or preexisting condition provision for a period greater
than 12 months following the enrollee’s effective date of coverage,
nor limit or exclude coverage for a specific enrollee by type of
illness, treatment, medical condition, or accident, except for
satisfaction of a preexisting condition provision or waivered
condition provision pursuant to this article. Waivered condition
provisions or preexisting condition provisions contained in
individual grandfathered health benefit plans may relate only to
conditions for which medical advice, diagnosis, care, or treatment,
including use of prescription drugs, was recommended or received
from a licensed health practitioner during the 12 months
immediately preceding the effective date of coverage.

(3) If Section 5000A of the Internal Revenue Code, as added
by Section 1501 of PPACA, is repealed or amended to no longer
apply to the individual market, as defined in Section 2791 of the
Public Health Service Act (42 U.S.C. Sec. 300gg-91), paragraph
(1) shall become inoperative 12 months after the date of that repeal
or amendment and thereafter paragraph (2) shall apply also to
nongrandfathered health benefit plans for individual coverage.

(4) In determining whether a preexisting condition provision or
a waivered condition provision applies to an individual under this
subdivision, a plan shall credit the time the individual was covered
under creditable coverage, provided that the individual becomes
eligible for coverage under the succeeding plan contract within 62
days of termination of prior coverage and applies for coverage
under the succeeding plan within the applicable enrollment period.

(c) A health benefit plan for group or individual coverage shall
not impose any waiting or affiliation period.

SEC. 3.  

Section 1357.506 of the Health and Safety Code is
repealed.

SEC. 4.  

Section 1357.506 is added to the Health and Safety
Code, to read:

1357.506.  

A small employer health care service plan contract
shall not impose a preexisting condition provision or a waiting or
affiliation period upon any individual.

SEC. 5.  

Section 1357.514 of the Health and Safety Code is
amended to read:

1357.514.  

In connection with the offering for sale of a small
employer health care service plan contract subject to this article,
each plan shall make a reasonable disclosure, as part of its
solicitation and sales materials, of the following:

(a) The provisions concerning the plan’s right to change
premium rates and the factors other than provision of services
experience that affect changes in premium rates. The plan shall
disclose that claims experience cannot be used.

(b) Provisions relating to the guaranteed issue and renewal of
contracts.

(c) A statement that no preexisting condition provisions shall
be allowed.

(d) Provisions relating to the small employer’s right to apply
for any small employer health care service plan contract written,
issued, or administered by the plan at the time of application for
a new health care service plan contract, or at the time of renewal
of a health care service plan contract, consistent with the
requirements of PPACA.

(e) The availability, upon request, of a listing of all the plan’s
contracts and benefit plan designs offered, both inside and outside
the Exchange, to small employers, including the rates for each
contract.

(f) At the time it offers a contract to a small employer, each plan
shall provide the small employer with a statement of all of its small
employer health care service plan contracts, including the rates
for each plan contract, in the service area in which the employer’s
employees and eligible dependents who are to be covered by the
plan contract work or reside. For purposes of this subdivision,
plans that are affiliated plans or that are eligible to file a
consolidated income tax return shall be treated as one health plan.

(g) Each plan shall do all of the following:

(1) Prepare a brochure that summarizes all of its plan contracts
offered to small employers and to make this summary available
to any small employer and to solicitors upon request. The summary
shall include for each contract information on benefits provided,
a generic description of the manner in which services are provided,
such as how access to providers is limited, benefit limitations,
required copayments and deductibles, and a begin delete phone end delete begin insert telephone end insert
number that can be called for more detailed benefit information.
Plans are required to keep the information contained in the brochure
accurate and up to date and, upon updating the brochure, send
copies to solicitors and solicitor firms with whom the plan contracts
to solicit enrollments or subscriptions.

(2) For each contract, prepare a more detailed evidence of
coverage and make it available to small employers, solicitors, and
solicitor firms upon request. The evidence of coverage shall contain
all information that a prudent buyer would need to be aware of in
making contract selections.

(3) Provide copies of the current summary brochure to all
solicitors and solicitor firms contracting with the plan to solicit
enrollments or subscriptions from small employers.

For purposes of this subdivision, plans that are affiliated plans
or that are eligible to file a consolidated income tax return shall
be treated as one health plan.

(h) Every solicitor or solicitor firm contracting with one or more
plans to solicit enrollments or subscriptions from small employers
shall do all of the following:

(1) When providing information on contracts to a small
employer but making no specific recommendations on particular
plan contracts:

(A) Advise the small employer of the plan’s obligation to sell
to any small employer any small employer health care service plan
contract, consistent with PPACA, and provide the small employer,
upon request, with the actual rates that would be charged to that
employer for a given contract.

(B) Notify the small employer that the solicitor or solicitor firm
will procure rate and benefit information for the small employer
on any plan contract offered by a plan whose contract the solicitor
sells.

(C) Notify the small employer that upon request the solicitor or
solicitor firm will provide the small employer with the summary
brochure required under paragraph (1) of subdivision (g) for any
plan contract offered by a plan with which the solicitor or solicitor
firm has contracted to solicit enrollments or subscriptions.

(D) Notify the small employer of the availability of coverage
and the availability of tax credits for certain employers consistent
with PPACA and state law, including any rules, regulations, or
guidance issued in connection therewith.

(2) When recommending a particular benefit plan design or
designs, advise the small employer that, upon request, the agent
will provide the small employer with the brochure required by
paragraph (1) of subdivision (g) containing the benefit plan design
or designs being recommended by the agent or broker.

(3) Prior to filing an application for a small employer for a
particular contract:

(A) For each of the plan contracts offered by the plan whose
contract the solicitor or solicitor firm is offering, provide the small
employer with the benefit summary required in paragraph (1) of
subdivision (g) and the premium for that particular employer.

(B) Notify the small employer that, upon request, the solicitor
or solicitor firm will provide the small employer with an evidence
of coverage brochure for each contract the plan offers.

(C) Obtain a signed statement from the small employer
acknowledging that the small employer has received the disclosures
required by this section.

SEC. 6.  

Section 1357.600 of the Health and Safety Code is
amended to read:

1357.600.  

As used in this article, the following definitions shall
apply:

(a) “Dependent” means the spouse or registered domestic
partner, or child, of an eligible employee, subject to applicable
terms of the health care service plan contract covering the
employee, and includes dependents of guaranteed association
members if the association elects to include dependents under its
health coverage at the same time it determines its membership
composition pursuant to subdivision (n).

(b) “Eligible employee” means either of the following:

(1) Any permanent employee who is actively engaged on a
full-time basis in the conduct of the business of the small employer
with a normal workweek of an average of 30 hours per week over
the course of a month, at the small employer’s regular places of
business, who has met any statutorily authorized applicable waiting
period requirements. The term includes sole proprietors or partners
of a partnership, if they are actively engaged on a full-time basis
in the small employer’s business and included as employees under
a health care service plan contract of a small employer, but does
not include employees who work on a part-time, temporary, or
substitute basis. It includes any eligible employee, as defined in
this paragraph, who obtains coverage through a guaranteed
association. Employees of employers purchasing through a
guaranteed association shall be deemed to be eligible employees
if they would otherwise meet the definition except for the number
of persons employed by the employer. Permanent employees who
work at least 20 hours but not more than 29 hours are deemed to
be eligible employees if all four of the following apply:

(A) They otherwise meet the definition of an eligible employee
except for the number of hours worked.

(B) The employer offers the employees health coverage under
a health benefit plan.

(C) All similarly situated individuals are offered coverage under
the health benefit plan.

(D) The employee must have worked at least 20 hours per
normal workweek for at least 50 percent of the weeks in the
previous calendar quarter. The health care service plan may request
any necessary information to document the hours and time period
in question, including, but not limited to, payroll records and
employee wage and tax filings.

(2) Any member of a guaranteed association as defined in
subdivision (n).

(c) “In force business” means an existing health benefit plan
contract issued by the plan to a small employer.

(d) “Late enrollee” means an eligible employee or dependent
who has declined enrollment in a health benefit plan offered by a
small employer at the time of the initial enrollment period provided
under the terms of the health benefit plan and who subsequently
requests enrollment in a health benefit plan of that small employer,
provided that the initial enrollment period shall be a period of at
least 30 days. It also means any member of an association that is
a guaranteed association as well as any other person eligible to
purchase through the guaranteed association when that person has
failed to purchase coverage during the initial enrollment period
provided under the terms of the guaranteed association’s plan
contract and who subsequently requests enrollment in the plan,
provided that the initial enrollment period shall be a period of at
least 30 days. However, an eligible employee, any other person
eligible for coverage through a guaranteed association pursuant to
subdivision (n), or an eligible dependent shall not be considered
a late enrollee if any of the following is applicable:

(1) The individual meets all of the following requirements:

(A) He or she was covered under another employer health
benefit plan, the Healthy Families Program, the Access for Infants
and Mothers (AIM) Program, the Medi-Cal program, or coverage
through the California Health Benefit Exchange at the time the
individual was eligible to enroll.

(B) He or she certified at the time of the initial enrollment that
coverage under another employer health benefit plan, the Healthy
Families Program, the AIM Program, the Medi-Cal program, or
coverage through the California Health Benefit Exchange was the
reason for declining enrollment, provided that, if the individual
was covered under another employer health benefit plan, including
a plan offered through the California Health Benefit Exchange,
the individual was given the opportunity to make the certification
required by this subdivision and was notified that failure to do so
could result in later treatment as a late enrollee.

(C) He or she has lost or will lose coverage under another
employer health benefit plan as a result of termination of
employment of the individual or of a person through whom the
individual was covered as a dependent, change in employment
status of the individual or of a person through whom the individual
was covered as a dependent, termination of the other plan’s
coverage, cessation of an employer’s contribution toward an
employee’s or dependent’s coverage, death of the person through
whom the individual was covered as a dependent, legal separation,
or divorce; or he or she has lost or will lose coverage under the
Healthy Families Program, the AIM Program, the Medi-Cal
program, or coverage through the California Health Benefit
Exchange.

(D) He or she requests enrollment within 30 days after
termination of coverage or employer contribution toward coverage
provided under another employer health benefit plan, or requests
enrollment within 60 days after termination of Medi-Cal program
coverage, AIM Program coverage, Healthy Families Program
coverage, or coverage through the California Health Benefit
Exchange.

(2) The employer offers multiple health benefit plans and the
employee elects a different plan during an open enrollment period.

(3) A court has ordered that coverage be provided for a spouse
or minor child under a covered employee’s health benefit plan.

(4) (A) In the case of an eligible employee, as defined in
paragraph (1) of subdivision (b), the plan cannot produce a written
statement from the employer stating that the individual or the
person through whom the individual was eligible to be covered as
a dependent, prior to declining coverage, was provided with, and
signed, acknowledgment of an explicit written notice in boldface
type specifying that failure to elect coverage during the initial
enrollment period permits the plan to impose, at the time of the
individual’s later decision to elect coverage, an exclusion from
begin delete coverage for no longer than 60 days end delete begin insert eligibility for coverage until
the next open enrollment period end insert , unless the individual meets the
criteria specified in paragraph (1), (2), or (3). This exclusion from
begin insert eligibility for end insert coverage shall not be considered a waiting period in
violation of Section 1357.51 or 1357.607.

(B) In the case of an association member who did not purchase
coverage through a guaranteed association, the plan cannot produce
a written statement from the association stating that the association
sent a written notice in boldface type to all potentially eligible
association members at their last known address prior to the initial
enrollment period informing members that failure to elect coverage
during the initial enrollment period permits the plan to impose, at
the time of the member’s later decision to elect coverage, an
exclusion from begin delete coverage for no longer than 60 days end delete begin insert eligibility for
coverage until the next open enrollment period end insert , unless the
individual meets the requirements of subparagraphs (A), (C), and
(D) of paragraph (1) or meets the requirements of paragraph (2)
or (3). This exclusion from begin insert eligibility for end insert coverage shall not be
considered a waiting period in violation of Section 1357.51 or
1357.607.

(C) In the case of an employer or person who is not a member
of an association, was eligible to purchase coverage through a
guaranteed association, and did not do so, and would not be eligible
to purchase guaranteed coverage unless purchased through a
guaranteed association, the employer or person can demonstrate
that he or she meets the requirements of subparagraphs (A), (C),
and (D) of paragraph (1), or meets the requirements of paragraph
(2) or (3), or that he or she recently had a change in status that
would make him or her eligible and that application for enrollment
was made within 30 days of the change.

(5) The individual is an employee or dependent who meets the
criteria described in paragraph (1) and was under a COBRA
continuation provision and the coverage under that provision has
been exhausted. For purposes of this section, the definition of
“COBRA” set forth in subdivision (e) of Section 1373.621 shall
apply.

(6) The individual is a dependent of an enrolled eligible
employee who has lost or will lose his or her coverage under the
Healthy Families Program, the AIM Program, the Medi-Cal
program, or a health benefit plan offered through the California
Health Benefit Exchange and requests enrollment within 60 days
after termination of that coverage.

(7) The individual is an eligible employee who previously
declined coverage under an employer health benefit plan, including
a plan offered through the California Health Benefit Exchange,
and who has subsequently acquired a dependent who would be
eligible for coverage as a dependent of the employee through
marriage, birth, adoption, or placement for adoption, and who
enrolls for coverage under that employer health benefit plan on
his or her behalf and on behalf of his or her dependent within 30
days following the date of marriage, birth, adoption, or placement
for adoption, in which case the effective date of coverage shall be
the first day of the month following the date the completed request
for enrollment is received in the case of marriage, or the date of
birth, or the date of adoption or placement for adoption, whichever
applies. Notice of the special enrollment rights contained in this
paragraph shall be provided by the employer to an employee at or
before the time the employee is offered an opportunity to enroll
in plan coverage.

(8) The individual is an eligible employee who has declined
coverage for himself or herself or his or her dependents during a
previous enrollment period because his or her dependents were
covered by another employer health benefit plan, including a plan
offered through the California Health Benefit Exchange, at the
time of the previous enrollment period. That individual may enroll
himself or herself or his or her dependents for plan coverage during
a special open enrollment opportunity if his or her dependents have
lost or will lose coverage under that other employer health benefit
plan. The special open enrollment opportunity shall be requested
by the employee not more than 30 days after the date that the other
health coverage is exhausted or terminated. Upon enrollment,
coverage shall be effective not later than the first day of the first
calendar month beginning after the date the request for enrollment
is received. Notice of the special enrollment rights contained in
this paragraph shall be provided by the employer to an employee
at or before the time the employee is offered an opportunity to
enroll in plan coverage.

(e) “Preexisting condition provision” means a contract provision
that excludes coverage for charges or expenses incurred during a
specified period following the enrollee’s effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage. No health
care service plan shall limit or exclude coverage for any individual
based on a preexisting condition whether or not any medical advice,
diagnosis, care, or treatment was recommended or received before
that date.

(f) “Creditable coverage” means:

(1) Any individual or group policy, contract, or program that is
written or administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or provides
medical, hospital, and surgical coverage not designed to supplement
other private or governmental plans. The term includes continuation
or conversion coverage but does not include accident only, credit,
coverage for onsite medical clinics, disability income, Medicare
supplement, long-term care, dental, vision, coverage issued as a
supplement to liability insurance, insurance arising out of a
workers’ compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.

(2) The Medicare Program pursuant to Title XVIII of the federal
Social Security Act (42 U.S.C. Sec. 1395 et seq.).

(3) The Medicaid Program pursuant to Title XIX of the federal
Social Security Act (42 U.S.C. Sec. 1396 et seq.).

(4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.

(5) 10 U.S.C. Chapter 55 (commencing with Section 1071)
(Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS)).

(6) A medical care program of the Indian Health Service or of
a tribal organization.

(7) A health plan offered under 5 U.S.C. Chapter 89
(commencing with Section 8901) (Federal Employees Health
Benefits Program (FEHBP)).

(8) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the Public Health Service
Act, as amended by Public Law 104-191, the Health Insurance
Portability and Accountability Act of 1996.

(9) A health benefit plan under Section 5(e) of the Peace Corps
Act (22 U.S.C. Sec. 2504(e)).

(10) Any other creditable coverage as defined by subsection (c)
of Section 2704 of Title XXVII of the federal Public Health Service
Act (42 U.S.C. Sec. 300gg-3(c)).

(g) “Rating period” means the period for which premium rates
established by a plan are in effect and shall be no less than 12
months from the date of issuance or renewal of the health care
service plan contract.

(h) “Risk adjusted employee risk rate” means the rate determined
for an eligible employee of a small employer in a particular risk
category after applying the risk adjustment factor.

(i) “Risk adjustment factor” means the percentage adjustment
to be applied equally to each standard employee risk rate for a
particular small employer, based upon any expected deviations
from standard cost of services. This factor may not be more than
110 percent or less than 90 percent.

(j) “Risk category” means the following characteristics of an
eligible employee: age, geographic region, and family composition
of the employee, plus the health benefit plan selected by the small
employer.

(1) No more than the following age categories may be used in
determining premium rates:

Under 30

30-39

40-49

50-54

55-59

60-64

65 and over

However, for the 65 and over age category, separate premium
rates may be specified depending upon whether coverage under
the plan contract will be primary or secondary to benefits provided
by the Medicare Program pursuant to Title XVIII of the federal
Social Security Act (42 U.S.C. Sec. 1395 et seq.).

(2) Small employer health care service plans shall base rates to
small employers using no more than the following family size
categories:

(A) Single.

(B) Married couple or registered domestic partners.

(C) One adult and child or children.

(D) Married couple or registered domestic partners and child
or children.

(3) (A) In determining rates for small employers, a plan that
operates statewide shall use no more than nine geographic regions
in the state, have no region smaller than an area in which the first
three digits of all its ZIP Codes are in common within a county,
and divide no county into more than two regions. Plans shall be
deemed to be operating statewide if their coverage area includes
90 percent or more of the state’s population. Geographic regions
established pursuant to this section shall, as a group, cover the
entire state, and the area encompassed in a geographic region shall
be separate and distinct from areas encompassed in other
geographic regions. Geographic regions may be noncontiguous.

(B) (i) In determining rates for small employers, a plan that
does not operate statewide shall use no more than the number of
geographic regions in the state that is determined by the following
formula: the population, as determined in the last federal census,
of all counties that are included in their entirety in a plan’s service
area divided by the total population of the state, as determined in
the last federal census, multiplied by nine. The resulting number
shall be rounded to the nearest whole integer. No region may be
smaller than an area in which the first three digits of all its ZIP
Codes are in common within a county and no county may be
divided into more than two regions. The area encompassed in a
geographic region shall be separate and distinct from areas
encompassed in other geographic regions. Geographic regions
may be noncontiguous. No plan shall have less than one geographic
area.

(ii) If the formula in clause (i) results in a plan that operates in
more than one county having only one geographic region, then the
formula in clause (i) shall not apply and the plan may have two
geographic regions, provided that no county is divided into more
than one region.

Nothing in this section shall be construed to require a plan to
establish a new service area or to offer health coverage on a
statewide basis, outside of the plan’s existing service area.

(k) (1) “Small employer” means any of the following:

(A) For plan years commencing on or after January 1, 2014,
and on or before December 31, 2015, any person, firm, proprietary
or nonprofit corporation, partnership, public agency, or association
that is actively engaged in business or service, that, on at least 50
percent of its working days during the preceding calendar quarter
or preceding calendar year, employed at least one, but no more
than 50, eligible employees, the majority of whom were employed
within this state, that was not formed primarily for purposes of
buying health care service plan contracts, and in which a bona fide
employer-employee relationship exists. For plan years commencing
on or after January 1, 2016, any person, firm, proprietary or
nonprofit corporation, partnership, public agency, or association
that is actively engaged in business or service, that, on at least 50
percent of its working days during the preceding calendar quarter
or preceding calendar year, employed at least one, but no more
than 100, eligible employees, the majority of whom were employed
within this state, that was not formed primarily for purposes of
buying health care service plan contracts, and in which a bona fide
employer-employee relationship exists. In determining whether
to apply the calendar quarter or calendar year test, a health care
service plan shall use the test that ensures eligibility if only one
test would establish eligibility. In determining the number of
eligible employees, companies that are affiliated companies and
that are eligible to file a combined tax return for purposes of state
taxation shall be considered one employer. Subsequent to the
issuance of a health care service plan contract to a small employer
pursuant to this article, and for the purpose of determining
eligibility, the size of a small employer shall be determined
annually. Except as otherwise specifically provided in this article,
provisions of this article that apply to a small employer shall
continue to apply until the plan contract anniversary following the
date the employer no longer meets the requirements of this
definition. It includes any small employer as defined in this
subparagraph who purchases coverage through a guaranteed
association, and any employer purchasing coverage for employees
through a guaranteed association. This subparagraph shall be
implemented to the extent consistent with PPACA, except that the
minimum requirement of one employee shall be implemented only
to the extent required by PPACA.

(B) Any guaranteed association, as defined in subdivision (m),
that purchases health coverage for members of the association.

(2) For plan years commencing on or after January 1, 2014, the
definition of an employer, for purposes of determining whether
an employer with one employee shall include sole proprietors,
certain owners of “S” corporations, or other individuals, shall be
consistent with Section 1304 of PPACA.

(l) “Standard employee risk rate” means the rate applicable to
an eligible employee in a particular risk category in a small
employer group.

(m) “Guaranteed association” means a nonprofit organization
comprised of a group of individuals or employers who associate
based solely on participation in a specified profession or industry,
accepting for membership any individual or employer meeting its
membership criteria, and that (1) includes one or more small
employers as defined in subparagraph (A) of paragraph (1) of
subdivision (k), (2) does not condition membership directly or
indirectly on the health or claims history of any person, (3) uses
membership dues solely for and in consideration of the membership
and membership benefits, except that the amount of the dues shall
not depend on whether the member applies for or purchases
insurance offered to the association, (4) is organized and
maintained in good faith for purposes unrelated to insurance, (5)
has been in active existence on January 1, 1992, and for at least
five years prior to that date, (6) has included health insurance as
a membership benefit for at least five years prior to January 1,
1992, (7) has a constitution and bylaws, or other analogous
governing documents that provide for election of the governing
board of the association by its members, (8) offers any plan contract
that is purchased to all individual members and employer members
in this state, (9) includes any member choosing to enroll in the
plan contracts offered to the association provided that the member
has agreed to make the required premium payments, and (10)
covers at least 1,000 persons with the health care service plan with
which it contracts. The requirement of 1,000 persons may be met
if component chapters of a statewide association contracting
separately with the same carrier cover at least 1,000 persons in the
aggregate.

This subdivision applies regardless of whether a contract issued
by a plan is with an association, or a trust formed for or sponsored
by an association, to administer benefits for association members.

For purposes of this subdivision, an association formed by a
merger of two or more associations after January 1, 1992, and
otherwise meeting the criteria of this subdivision shall be deemed
to have been in active existence on January 1, 1992, if its
predecessor organizations had been in active existence on January
1, 1992, and for at least five years prior to that date and otherwise
met the criteria of this subdivision.

(n) “Members of a guaranteed association” means any individual
or employer meeting the association’s membership criteria if that
person is a member of the association and chooses to purchase
health coverage through the association. At the association’s
discretion, it also may include employees of association members,
association staff, retired members, retired employees of members,
and surviving spouses and dependents of deceased members.
However, if an association chooses to include these persons as
members of the guaranteed association, the association shall make
that election in advance of purchasing a plan contract. Health care
service plans may require an association to adhere to the
membership composition it selects for up to 12 months.

(o) “Affiliation period” means a period that, under the terms of
the health care service plan contract, must expire before health
care services under the contract become effective.

(p) “Grandfathered small employer health care service plan
contract” means a small employer health care service plan contract
that constitutes a grandfathered health plan.

(q) “Grandfathered health plan” has the meaning set forth in
Section 1251 of PPACA.

(r) “Nongrandfathered small employer health care service plan
contract” means a small employer health care service plan contract
that is not a grandfathered health plan.

(s) “Plan year” has the meaning set forth in Section 144.103 of
Title 45 of the Code of Federal Regulations.

(t) “PPACA” means the federal Patient Protection and
Affordable Care Act (Public Law 111-148), as amended by the
federal Health Care and Education Reconciliation Act of 2010
(Public Law 111-152), and any rules, regulations, or guidance
issued thereunder.

(u) “Registered domestic partner” means a person who has
established a domestic partnership as described in Section 297 of
the Family Code.

(v) “Small employer health care service plan contract” means
a health care service plan contract issued to a small employer.

(w) “Waiting period” means a period that is required to pass
with respect to an employee before the employee is eligible to be
covered for benefits under the terms of the contract.

SEC. 7.  

Section 1357.607 of the Health and Safety Code is
repealed.

SEC. 8.  

Section 1357.607 is added to the Health and Safety
Code, to read:

1357.607.  

A small employer health care service plan contract
shall not impose a preexisting condition provision or a waiting or
affiliation period upon any individual.

SEC. 9.  

Section 1357.614 of the Health and Safety Code is
amended to read:

1357.614.  

In connection with the renewal of a grandfathered
small employer health care service plan contract, each plan shall
make a reasonable disclosure, as part of its solicitation and sales
materials, of the following:

(a) The extent to which premium rates for a specified small
employer are established or adjusted in part based upon the actual
or expected variation in service costs of the employees and
dependents of the small employer.

(b) The provisions concerning the plan’s right to change
premium rates and the factors other than provision of services
experience that affect changes in premium rates.

(c) Provisions relating to the guaranteed issue and renewal of
contracts.

(d) Provisions relating to the effect of any waiting or affiliation
provision.

(e) Provisions relating to the small employer’s right to apply
for any nongrandfathered small employer health care service plan
contract written, issued, or administered by the plan at the time of
application for a new health care service plan contract, or at the
time of renewal of a health care service plan contract, consistent
with the requirements of PPACA.

(f) The availability, upon request, of a listing of all the plan’s
nongrandfathered small employer health care service plan contracts
and benefit plan designs offered, both inside and outside the
California Health Benefit Exchange, including the rates for each
contract.

(g) At the time it renews a grandfathered small employer health
care service plan contract, each plan shall provide the small
employer with a statement of all of its nongrandfathered small
employer health care service plan contracts, including the rates
for each plan contract, in the service area in which the employer’s
employees and eligible dependents who are to be covered by the
plan contract work or reside. For purposes of this subdivision,
plans that are affiliated plans or that are eligible to file a
consolidated income tax return shall be treated as one health plan.

(h) Each plan shall do all of the following:

(1) Prepare a brochure that summarizes all of its small employer
health care service plan contracts and to make this summary
available to any small employer and to solicitors upon request.
The summary shall include for each contract information on
benefits provided, a generic description of the manner in which
services are provided, such as how access to providers is limited,
benefit limitations, required copayments and deductibles, standard
employee risk rates, and a begin delete phone end delete begin insert telephone end insert number that can be
called for more detailed benefit information. Plans are required to
keep the information contained in the brochure accurate and up to
date and, upon updating the brochure, send copies to solicitors and
solicitor firms with which the plan contracts to solicit enrollments
or subscriptions.

(2) For each contract, prepare a more detailed evidence of
coverage and make it available to small employers, solicitors, and
solicitor firms upon request. The evidence of coverage shall contain
all information that a prudent buyer would need to be aware of in
making contract selections.

(3) Provide to small employers and solicitors, upon request, for
any given small employer the sum of the standard employee risk
rates and the sum of the risk adjusted employee risk rates. When
requesting this information, small employers, solicitors, and
solicitor firms shall provide the plan with the information the plan
needs to determine the small employer’s risk adjusted employee
risk rate.

(4) Provide copies of the current summary brochure to all
solicitors and solicitor firms contracting with the plan to solicit
enrollments or subscriptions from small employers.

For purposes of this subdivision, plans that are affiliated plans
or that are eligible to file a consolidated income tax return shall
be treated as one health plan.

SEC. 10.  

Section 10198.7 of the Insurance Code is amended
to read:

10198.7.  

(a) A health benefit plan for group coverage shall
not impose any preexisting condition provision or waivered
condition provision upon any individual.

(b) (1) A nongrandfathered health benefit plan for individual
coverage shall not impose any preexisting condition provision or
waivered condition provision upon any individual.

(2)  A grandfathered health benefit plan for individual coverage
shall not exclude coverage on the basis of a waivered condition
provision or preexisting condition provision for a period greater
than 12 months following the individual’s effective date of
coverage, nor limit or exclude coverage for a specific insured by
type of illness, treatment, medical condition, or accident, except
for satisfaction of a preexisting condition provision or waivered
condition provision pursuant to this article. Waivered condition
provisions or preexisting condition provisions contained in
individual grandfathered health benefit plans may relate only to
conditions for which medical advice, diagnosis, care, or treatment,
including use of prescription drugs, was recommended or received
from a licensed health practitioner during the 12 months
immediately preceding the effective date of coverage.

(3) If Section 5000A of the Internal Revenue Code, as added
by Section 1501 of PPACA, is repealed or amended to no longer
apply to the individual market, as defined in Section 2791 of the
Public Health Service Act (42 U.S.C. Sec. 300gg-91), paragraph
(1) shall become inoperative 12 months after the date of that repeal
or amendment and thereafter paragraph (2) shall apply also to
nongrandfathered health benefit plans for individual coverage.

(4) In determining whether a preexisting condition provision or
a waivered condition provision applies to an individual under this
subdivision, a health benefit plan shall credit the time the individual
was covered under creditable coverage, provided that the individual
becomes eligible for coverage under the succeeding health benefit
plan within 62 days of termination of prior coverage and applies
for coverage under the succeeding plan within the applicable
enrollment period.

(c) A health benefit plan for group or individual coverage shall
not impose a waiting period.

SEC. 11.  

Section 10753.05 of the Insurance Code is amended
to read:

10753.05.  

(a) No group or individual policy or contract or
certificate of group insurance or statement of group coverage
providing benefits to employees of small employers as defined in
this chapter shall be issued or delivered by a carrier subject to the
jurisdiction of the commissioner regardless of the situs of the
contract or master policyholder or of the domicile of the carrier
nor, except as otherwise provided in Sections 10270.91 and
10270.92, shall a carrier provide coverage subject to this chapter
until a copy of the form of the policy, contract, certificate, or
statement of coverage is filed with and approved by the
commissioner in accordance with Sections 10290 and 10291, and
the carrier has complied with the requirements of Section 10753.17.

(b) (1) On and after October 1, 2013, each carrier shall fairly
and affirmatively offer, market, and sell all of the carrier’s health
benefit plans that are sold to, offered through, or sponsored by,
small employers or associations that include small employers for
plan years on or after January 1, 2014, to all small employers in
each geographic region in which the carrier makes coverage
available or provides benefits.

(2) A carrier that offers qualified health plans through the
Exchange shall be deemed to be in compliance with paragraph (1)
with respect to health benefit plans offered through the Exchange
in those geographic regions in which the carrier offers plans
through the Exchange.

(3) A carrier shall provide enrollment periods consistent with
PPACA and described in Section 155.725 of Title 45 of the Code
of Federal Regulations. Commencing January 1, 2014, a carrier
shall provide special enrollment periods consistent with the special
enrollment periods described in Section 10965.3, to the extent
permitted by PPACA, except for the triggering events identified
in paragraphs (d)(3) and (d)(6) of Section 155.420 of Title 45 of
the Code of Federal Regulations with respect to health benefit
plans offered through the Exchange.

(4) Nothing in this section shall be construed to require an
association, or a trust established and maintained by an association
to receive a master insurance policy issued by an admitted insurer
and to administer the benefits thereof solely for association
members, to offer, market begin insert , end insert or sell a benefit plan design to those
who are not members of the association. However, if the
association markets, offers begin insert , end insert or sells a benefit plan design to those
who are not members of the association it is subject to the
requirements of this section. This shall apply to an association that
otherwise meets the requirements of paragraph (8) formed by
merger of two or more associations after January 1, 1992, if the
predecessor organizations had been in active existence on January
1, 1992, and for at least five years prior to that date and met the
requirements of paragraph (5).

(5) A carrier which (A) effective January 1, 1992, and at least
20 years prior to that date, markets, offers, or sells benefit plan
designs only to all members of one association and (B) does not
market, offer begin insert , end insert or sell any other individual, selected group, or group
policy or contract providing medical, hospital begin insert , end insert and surgical benefits
shall not be required to market, offer, or sell to those who are not
members of the association. However, if the carrier markets, offers begin insert , end insert
or sells any benefit plan design or any other individual, selected
group, or group policy or contract providing medical, hospital begin insert , end insert and
surgical benefits to those who are not members of the association
it is subject to the requirements of this section.

(6) Each carrier that sells health benefit plans to members of
one association pursuant to paragraph (5) shall submit an annual
statement to the commissioner which states that the carrier is selling
health benefit plans pursuant to paragraph (5) and which, for the
one association, lists all the information required by paragraph (7).

(7) Each carrier that sells health benefit plans to members of
any association shall submit an annual statement to the
commissioner which lists each association to which the carrier
sells health benefit plans, the industry or profession which is served
by the association, the association’s membership criteria, a list of
officers, the state in which the association is organized, and the
site of its principal office.

(8) For purposes of paragraphs (4) and (6), an association is a
nonprofit organization comprised of a group of individuals or
employers who associate based solely on participation in a
specified profession or industry, accepting for membership any
individual or small employer meeting its membership criteria,
which do not condition membership directly or indirectly on the
health or claims history of any person, which uses membership
dues solely for and in consideration of the membership and
membership benefits, except that the amount of the dues shall not
depend on whether the member applies for or purchases insurance
offered by the association, which is organized and maintained in
good faith for purposes unrelated to insurance, which has been in
active existence on January 1, 1992, and at least five years prior
to that date, which has a constitution and bylaws, or other
analogous governing documents which provide for election of the
governing board of the association by its members, which has
contracted with one or more carriers to offer one or more health
benefit plans to all individual members and small employer
members in this state. Health coverage through an association that
is not related to employment shall be considered individual
coverage pursuant to Section 144.102(c) of Title 45 of the Code
of Federal Regulations.

(c) On and after October 1, 2013, each carrier shall make
available to each small employer all health benefit plans that the
carrier offers or sells to small employers or to associations that
include small employers for plan years on or after January 1, 2014.
Notwithstanding subdivision (c) of Section 10753, for purposes
of this subdivision, companies that are affiliated companies or that
are eligible to file a consolidated income tax return shall be treated
as one carrier.

(d) Each carrier shall do all of the following:

(1) Prepare a brochure that summarizes all of its health benefit
plans and make this summary available to small employers, agents,
and brokers upon request. The summary shall include for each
plan information on benefits provided, a generic description of the
manner in which services are provided, such as how access to
providers is limited, benefit limitations, required copayments and
deductibles, and a telephone number that can be called for more
detailed benefit information. Carriers are required to keep the
information contained in the brochure accurate and up to date, and,
upon updating the brochure, send copies to agents and brokers
representing the carrier. Any entity that provides administrative
services only with regard to a health benefit plan written or issued
by another carrier shall not be required to prepare a summary
brochure which includes that benefit plan.

(2) For each health benefit plan, prepare a more detailed
evidence of coverage and make it available to small employers,
agents begin insert , end insert and brokers upon request. The evidence of coverage shall
contain all information that a prudent buyer would need to be aware
of in making selections of benefit plan designs. An entity that
provides administrative services only with regard to a health benefit
plan written or issued by another carrier shall not be required to
prepare an evidence of coverage for that health benefit plan.

(3) Provide copies of the current summary brochure to all agents
or brokers who represent the carrier and, upon updating the
brochure, send copies of the updated brochure to agents and brokers
representing the carrier for the purpose of selling health benefit
plans.

(4) Notwithstanding subdivision (c) of Section 10753, for
purposes of this subdivision, companies that are affiliated
companies or that are eligible to file a consolidated income tax
return shall be treated as one carrier.

(e) Every agent or broker representing one or more carriers for
the purpose of selling health benefit plans to small employers shall
do all of the following:

(1) When providing information on a health benefit plan to a
small employer but making no specific recommendations on
particular benefit plan designs:

(A) Advise the small employer of the carrier’s obligation to sell
to any small employer any of the health benefit plans it offers to
small employers, consistent with PPACA, and provide them, upon
request, with the actual rates that would be charged to that
employer for a given health benefit plan.

(B) Notify the small employer that the agent or broker will
procure rate and benefit information for the small employer on
any health benefit plan offered by a carrier for whom the agent or
broker sells health benefit plans.

(C) Notify the small employer that, upon request, the agent or
broker will provide the small employer with the summary brochure
required in paragraph (1) of subdivision (d) for any benefit plan
design offered by a carrier whom the agent or broker represents.

(D) Notify the small employer of the availability of coverage
and the availability of tax credits for certain employers consistent
with PPACA and state law, including any rules, regulations, or
guidance issued in connection therewith.

(2) When recommending a particular benefit plan design or
designs, advise the small employer that, upon request, the agent
will provide the small employer with the brochure required by
paragraph (1) of subdivision (d) containing the benefit plan design
or designs being recommended by the agent or broker.

(3) Prior to filing an application for a small employer for a
particular health benefit plan:

(A) For each of the health benefit plans offered by the carrier
whose health benefit plan the agent or broker is presenting, provide
the small employer with the benefit summary required in paragraph
(1) of subdivision (d) and the premium for that particular employer.

(B) Notify the small employer that, upon request, the agent or
broker will provide the small employer with an evidence of
coverage brochure for each health benefit plan the carrier offers.

(C) Obtain a signed statement from the small employer
acknowledging that the small employer has received the disclosures
required by this paragraph and Section 10753.16.

(f) No carrier, agent, or broker shall induce or otherwise
encourage a small employer to separate or otherwise exclude an
eligible employee from a health benefit plan which, in the case of
an eligible employee meeting the definition in paragraph (1) of
subdivision (f) of Section 10753, is provided in connection with
the employee’s employment or which, in the case of an eligible
employee as defined in paragraph (2) of subdivision (f) of Section
10753, is provided in connection with a guaranteed association.

(g) No carrier shall reject an application from a small employer
for a health benefit plan provided:

(1) The small employer as defined by subparagraph (A) of
paragraph (1) of subdivision (q) of Section 10753 offers health
benefits to 100 percent of its eligible employees as defined in
paragraph (1) of subdivision (f) of Section 10753. Employees who
waive coverage on the grounds that they have other group coverage
shall not be counted as eligible employees.

(2) The small employer agrees to make the required premium
payments.

(h) No carrier or agent or broker shall, directly or indirectly,
engage in the following activities:

(1) Encourage or direct small employers to refrain from filing
an application for coverage with a carrier because of the health
status, claims experience, industry, occupation, or geographic
location within the carrier’s approved service area of the small
employer or the small employer’s employees.

(2) Encourage or direct small employers to seek coverage from
another carrier because of the health status, claims experience,
industry, occupation, or geographic location within the carrier’s
approved service area of the small employer or the small
employer’s employees.

(3) Employ marketing practices or benefit designs that will have
the effect of discouraging the enrollment of individuals with
significant health needs or discriminate based on the individual’s
race, color, national origin, present or predicted disability, age,
sex, gender identity, sexual orientation, expected length of life,
degree of medical dependency, quality of life, or other health
conditions.

This subdivision shall be enforced in the same manner as Section
790.03, including through Sections 790.035 and 790.05.

(i) No carrier shall, directly or indirectly, enter into any contract,
agreement, or arrangement with an agent or broker that provides
for or results in the compensation paid to an agent or broker for a
health benefit plan to be varied because of the health status, claims
experience, industry, occupation, or geographic location of the
small employer or the small employer’s employees. This
subdivision shall not apply with respect to a compensation
arrangement that provides compensation to an agent or broker on
the basis of percentage of premium, provided that the percentage
shall not vary because of the health status, claims experience,
industry, occupation, or geographic area of the small employer.

(j) (1) A health benefit plan offered to a small employer, as
defined in Section 1304(b) of PPACA and in Section 10753, shall
not establish rules for eligibility, including continued eligibility,
of an individual, or dependent of an individual, to enroll under the
terms of the plan based on any of the following health status-related
factors:

(A) Health status.

(B) Medical condition, including physical and mental illnesses.

(C) Claims experience.

(D) Receipt of health care.

(E) Medical history.

(F) Genetic information.

(G) Evidence of insurability, including conditions arising out
of acts of domestic violence.

(H) Disability.

(I) Any other health status-related factor as determined by any
federal regulations, rules, or guidance issued pursuant to Section
2705 of the federal Public Health Service Act.

(2) Notwithstanding Section 10291.5, a carrier shall not require
an eligible employee or dependent to fill out a health assessment
or medical questionnaire prior to enrollment under a health benefit
plan. A carrier shall not acquire or request information that relates
to a health status-related factor from the applicant or his or her
dependent or any other source prior to enrollment of the individual.

(k) (1) A carrier shall consider as a single risk pool for rating
purposes in the small employer market the claims experience of
all insureds in all nongrandfathered small employer health benefit
plans offered by the carrier in this state, whether offered as health
care service plan contracts or health insurance policies, including
those insureds and enrollees who enroll in coverage through the
Exchange and insureds and enrollees covered by the carrier outside
of the Exchange.

(2) At least each calendar year, and no more frequently than
each calendar quarter, a carrier shall establish an index rate for the
small employer market in the state based on the total combined
claims costs for providing essential health benefits, as defined
pursuant to Section 1302 of PPACA and Section 10112.27, within
the single risk pool required under paragraph (1). The index rate
shall be adjusted on a marketwide basis based on the total expected
marketwide payments and charges under the risk adjustment and
reinsurance programs established for the state pursuant to Sections
1343 and 1341 of PPACA. The premium rate for all of the carrier’s
nongrandfathered health benefit plans shall use the applicable
index rate, as adjusted for total expected marketwide payments
and charges under the risk adjustment and reinsurance programs
established for the state pursuant to Sections 1343 and 1341 of
PPACA, subject only to the adjustments permitted under paragraph
(3).

(3) A carrier may vary premium rates for a particular
nongrandfathered health benefit plan from its index rate based
only on the following actuarially justified plan-specific factors:

(A) The actuarial value and cost-sharing design of the health
benefit plan.

(B) The health benefit plan’s provider network, delivery system
characteristics, and utilization management practices.

(C) The benefits provided under the health benefit plan that are
in addition to the essential health benefits, as defined pursuant to
Section 1302 of PPACA. These additional benefits shall be pooled
with similar benefits within the single risk pool required under
paragraph (1) and the claims experience from those benefits shall
be utilized to determine rate variations for health benefit plans that
offer those benefits in addition to essential health benefits.

(D) Administrative costs, excluding any user fees required by
the Exchange.

(E) With respect to catastrophic plans, as described in subsection
(e) of Section 1302 of PPACA, the expected impact of the specific
eligibility categories for those plans.

(l) If a carrier enters into a contract, agreement, or other
arrangement with a third-party administrator or other entity to
provide administrative, marketing, or other services related to the
offering of health benefit plans to small employers in this state,
the third-party administrator shall be subject to this chapter.

(m) (1) Except as provided in paragraph (2), this section shall
become inoperative if Section 2702 of the federal Public Health
Service Act (42 U.S.C. Sec. 300gg-1), as added by Section 1201
of PPACA, is repealed, in which case, 12 months after the repeal,
carriers subject to this section shall instead be governed by Section
10705 to the extent permitted by federal law, and all references in
this chapter to this section shall instead refer to Section 10705,
except for purposes of paragraph (2).

(2) Paragraph (3) of subdivision (b) of this section shall remain
operative as it relates to health benefit plans offered through the
Exchange.

begin insert

begin insert SEC. 11.5. end insert   

end insert

begin insert Section 10753.05 of the end insert begin insert Insurance Code end insert begin insert is amended
to read: end insert

10753.05.  

(a) No group or individual policy or contract or
certificate of group insurance or statement of group coverage
providing benefits to employees of small employers as defined in
this chapter shall be issued or delivered by a carrier subject to the
jurisdiction of the commissioner regardless of the situs of the
contract or master policyholder or of the domicile of the carrier
nor, except as otherwise provided in Sections 10270.91 and
10270.92, shall a carrier provide coverage subject to this chapter
until a copy of the form of the policy, contract, certificate, or
statement of coverage is filed with and approved by the
commissioner in accordance with Sections 10290 and 10291, and
the carrier has complied with the requirements of Section 10753.17.

(b) (1) On and after October 1, 2013, each carrier shall fairly
and affirmatively offer, market, and sell all of the carrier’s health
benefit plans that are sold to, offered through, or sponsored by,
small employers or associations that include small employers for
plan years on or after January 1, 2014, to all small employers in
each geographic region in which the carrier makes coverage
available or provides benefits.

(2) A carrier that offers qualified health plans through the
Exchange shall be deemed to be in compliance with paragraph (1)
with respect to health benefit plans offered through the Exchange
in those geographic regions in which the carrier offers plans
through the Exchange.

(3) A carrier shall provide enrollment periods consistent with
PPACA and described in Section 155.725 of Title 45 of the Code
of Federal Regulations. Commencing January 1, 2014, a carrier
shall provide special enrollment periods consistent with the special
enrollment periods described in Section 10965.3, to the extent
permitted by PPACA, except for the triggering events identified
in paragraphs (d)(3) and (d)(6) of Section 155.420 of Title 45 of
the Code of Federal Regulations with respect to health benefit
plans offered through the Exchange.

(4) Nothing in this section shall be construed to require an
association, or a trust established and maintained by an association
to receive a master insurance policy issued by an admitted insurer
and to administer the benefits thereof solely for association
members, to offer, market begin insert , end insert or sell a benefit plan design to those
who are not members of the association. However, if the
association markets, offers begin insert , end insert or sells a benefit plan design to those
who are not members of the association it is subject to the
requirements of this section. This shall apply to an association that
otherwise meets the requirements of paragraph (8) formed by
merger of two or more associations after January 1, 1992, if the
predecessor organizations had been in active existence on January
1, 1992, and for at least five years prior to that date and met the
requirements of paragraph (5).

(5) A carrier which (A) effective January 1, 1992, and at least
20 years prior to that date, markets, offers, or sells benefit plan
designs only to all members of one association and (B) does not
market, offer begin insert , end insert or sell any other individual, selected group, or group
policy or contract providing medical, hospital begin insert , end insert and surgical benefits
shall not be required to market, offer, or sell to those who are not
members of the association. However, if the carrier markets, offers begin insert , end insert
or sells any benefit plan design or any other individual, selected
group, or group policy or contract providing medical, hospital begin insert , end insert and
surgical benefits to those who are not members of the association
it is subject to the requirements of this section.

(6) Each carrier that sells health benefit plans to members of
one association pursuant to paragraph (5) shall submit an annual
statement to the commissioner which states that the carrier is selling
health benefit plans pursuant to paragraph (5) and which, for the
one association, lists all the information required by paragraph (7).

(7) Each carrier that sells health benefit plans to members of
any association shall submit an annual statement to the
commissioner which lists each association to which the carrier
sells health benefit plans, the industry or profession which is served
by the association, the association’s membership criteria, a list of
officers, the state in which the association is organized, and the
site of its principal office.

(8) For purposes of paragraphs (4) and (6), an association is a
nonprofit organization comprised of a group of individuals or
employers who associate based solely on participation in a
specified profession or industry, accepting for membership any
individual or small employer meeting its membership criteria,
which do not condition membership directly or indirectly on the
health or claims history of any person, which uses membership
dues solely for and in consideration of the membership and
membership benefits, except that the amount of the dues shall not
depend on whether the member applies for or purchases insurance
offered by the association, which is organized and maintained in
good faith for purposes unrelated to insurance, which has been in
active existence on January 1, 1992, and at least five years prior
to that date, which has a constitution and bylaws, or other
analogous governing documents which provide for election of the
governing board of the association by its members, which has
contracted with one or more carriers to offer one or more health
benefit plans to all individual members and small employer
members in this state. Health coverage through an association that
is not related to employment shall be considered individual
coverage pursuant to Section 144.102(c) of Title 45 of the Code
of Federal Regulations.

(c) On and after October 1, 2013, each carrier shall make
available to each small employer all health benefit plans that the
carrier offers or sells to small employers or to associations that
include small employers for plan years on or after January 1, 2014.
Notwithstanding subdivision begin delete (d) end delete begin insert (c) end insert of Section 10753, for purposes
of this subdivision, companies that are affiliated companies or that
are eligible to file a consolidated income tax return shall be treated
as one carrier.

(d) Each carrier shall do all of the following:

(1) Prepare a brochure that summarizes all of its health benefit
plans and make this summary available to small employers, agents,
and brokers upon request. The summary shall include for each
plan information on benefits provided, a generic description of the
manner in which services are provided, such as how access to
providers is limited, benefit limitations, required copayments and
deductibles, begin delete an explanation of how creditable coverage is calculated
if a waiting period is imposed, end delete and a telephone number that can
be called for more detailed benefit information. Carriers are
required to keep the information contained in the brochure accurate
and up to date, and, upon updating the brochure, send copies to
agents and brokers representing the carrier. Any entity that provides
administrative services only with regard to a health benefit plan
written or issued by another carrier shall not be required to prepare
a summary brochure which includes that benefit plan.

(2) For each health benefit plan, prepare a more detailed
evidence of coverage and make it available to small employers,
agents begin insert , end insert and brokers upon request. The evidence of coverage shall
contain all information that a prudent buyer would need to be aware
of in making selections of benefit plan designs. An entity that
provides administrative services only with regard to a health benefit
plan written or issued by another carrier shall not be required to
prepare an evidence of coverage for that health benefit plan.

(3) Provide copies of the current summary brochure to all agents
or brokers who represent the carrier and, upon updating the
brochure, send copies of the updated brochure to agents and brokers
representing the carrier for the purpose of selling health benefit
plans.

(4) Notwithstanding subdivision (c) of Section 10753, for
purposes of this subdivision, companies that are affiliated
companies or that are eligible to file a consolidated income tax
return shall be treated as one carrier.

(e) Every agent or broker representing one or more carriers for
the purpose of selling health benefit plans to small employers shall
do all of the following:

(1) When providing information on a health benefit plan to a
small employer but making no specific recommendations on
particular benefit plan designs:

(A) Advise the small employer of the carrier’s obligation to sell
to any small employer any of the health benefit plans it offers to
small employers, consistent with PPACA, and provide them, upon
request, with the actual rates that would be charged to that
employer for a given health benefit plan.

(B) Notify the small employer that the agent or broker will
procure rate and benefit information for the small employer on
any health benefit plan offered by a carrier for whom the agent or
broker sells health benefit plans.

(C) Notify the small employer that, upon request, the agent or
broker will provide the small employer with the summary brochure
required in paragraph (1) of subdivision (d) for any benefit plan
design offered by a carrier whom the agent or broker represents.

(D) Notify the small employer of the availability of coverage
and the availability of tax credits for certain employers consistent
with PPACA and state law, including any rules, regulations, or
guidance issued in connection therewith.

(2) When recommending a particular benefit plan design or
designs, advise the small employer that, upon request, the agent
will provide the small employer with the brochure required by
paragraph (1) of subdivision (d) containing the benefit plan design
or designs being recommended by the agent or broker.

(3) Prior to filing an application for a small employer for a
particular health benefit plan:

(A) For each of the health benefit plans offered by the carrier
whose health benefit plan the agent or broker is presenting, provide
the small employer with the benefit summary required in paragraph
(1) of subdivision (d) and the premium for that particular employer.

(B) Notify the small employer that, upon request, the agent or
broker will provide the small employer with an evidence of
coverage brochure for each health benefit plan the carrier offers.

(C) Obtain a signed statement from the small employer
acknowledging that the small employer has received the disclosures
required by this paragraph and Section 10753.16.

(f) No carrier, agent, or broker shall induce or otherwise
encourage a small employer to separate or otherwise exclude an
eligible employee from a health benefit plan which, in the case of
an eligible employee meeting the definition in paragraph (1) of
subdivision (f) of Section 10753, is provided in connection with
the employee’s employment or which, in the case of an eligible
employee as defined in paragraph (2) of subdivision (f) of Section
10753, is provided in connection with a guaranteed association.

(g) No carrier shall reject an application from a small employer
for a health benefit plan provided:

(1) The small employer as defined by subparagraph (A) of
paragraph (1) of subdivision (q) of Section 10753 offers health
benefits to 100 percent of its eligible employees as defined in
paragraph (1) of subdivision (f) of Section 10753. Employees who
waive coverage on the grounds that they have other group coverage
shall not be counted as eligible employees.

(2) The small employer agrees to make the required premium
payments.

(h) No carrier or agent or broker shall, directly or indirectly,
engage in the following activities:

(1) Encourage or direct small employers to refrain from filing
an application for coverage with a carrier because of the health
status, claims experience, industry, occupation, or geographic
location within the carrier’s approved service area of the small
employer or the small employer’s employees.

(2) Encourage or direct small employers to seek coverage from
another carrier because of the health status, claims experience,
industry, occupation, or geographic location within the carrier’s
approved service area of the small employer or the small
employer’s employees.

(3) Employ marketing practices or benefit designs that will have
the effect of discouraging the enrollment of individuals with
significant health needs or discriminate based on the individual’s
race, color, national origin, present or predicted disability, age,
sex, gender identity, sexual orientation, expected length of life,
degree of medical dependency, quality of life, or other health
conditions.

This subdivision shall be enforced in the same manner as Section
790.03, including through Sections 790.035 and 790.05.

(i) No carrier shall, directly or indirectly, enter into any contract,
agreement, or arrangement with an agent or broker that provides
for or results in the compensation paid to an agent or broker for a
health benefit plan to be varied because of the health status, claims
experience, industry, occupation, or geographic location of the
small employer or the small employer’s employees. This
subdivision shall not apply with respect to a compensation
arrangement that provides compensation to an agent or broker on
the basis of percentage of premium, provided that the percentage
shall not vary because of the health status, claims experience,
industry, occupation, or geographic area of the small employer.

(j) (1) A health benefit plan offered to a small employer, as
defined in Section 1304(b) of PPACA and in Section 10753, shall
not establish rules for eligibility, including continued eligibility,
of an individual, or dependent of an individual, to enroll under the
terms of the plan based on any of the following health status-related
factors:

(A) Health status.

(B) Medical condition, including physical and mental illnesses.

(C) Claims experience.

(D) Receipt of health care.

(E) Medical history.

(F) Genetic information.

(G) Evidence of insurability, including conditions arising out
of acts of domestic violence.

(H) Disability.

(I) Any other health status-related factor as determined by any
federal regulations, rules, or guidance issued pursuant to Section
2705 of the federal Public Health Service Act.

(2) Notwithstanding Section 10291.5, a carrier shall not require
an eligible employee or dependent to fill out a health assessment
or medical questionnaire prior to enrollment under a health benefit
plan. A carrier shall not acquire or request information that relates
to a health status-related factor from the applicant or his or her
dependent or any other source prior to enrollment of the individual.

(k) (1) A carrier shall consider as a single risk pool for rating
purposes in the small employer market the claims experience of
all insureds in all nongrandfathered small employer health benefit
plans offered by the carrier in this state, whether offered as health
care service plan contracts or health insurance policies, including
those insureds and enrollees who enroll in coverage through the
Exchange and insureds and enrollees covered by the carrier outside
of the Exchange.

(2) At least each calendar year, and no more frequently than
each calendar quarter, a carrier shall establish an index rate for the
small employer market in the state based on the total combined
claims costs for providing essential health benefits, as defined
pursuant to Section 1302 of PPACA and Section 10112.27, within
the single risk pool required under paragraph (1). The index rate
shall be adjusted on a marketwide basis based on the total expected
marketwide payments and charges under the risk adjustment and
reinsurance programs established for the state pursuant to Sections
1343 and 1341 of PPACA begin insert and Exchange user fees, as described
in subdivision (d) of Section 156.80 of Title 45 of the Code of
Federal Regulations end insert . The premium rate for all of the begin delete carrier’s end delete
nongrandfathered health benefit plans begin delete shall use the applicable
index rate, as adjusted for total expected marketwide payments
and charges under the risk adjustment and reinsurance programs
established for the state pursuant to Sections 1343 and 1341 of
PPACA, end delete begin insert within the single risk pool required under paragraph (1)
shall use the applicable marketwide adjusted index rate, end insert subject
only to the adjustments permitted under paragraph (3).

(3) A carrier may vary premium rates for a particular
nongrandfathered health benefit plan from its index rate based
only on the following actuarially justified plan-specific factors:

(A) The actuarial value and cost-sharing design of the health
benefit plan.

(B) The health benefit plan’s provider network, delivery system
characteristics, and utilization management practices.

(C) The benefits provided under the health benefit plan that are
in addition to the essential health benefits, as defined pursuant to
Section 1302 of PPACA. These additional benefits shall be pooled
with similar benefits within the single risk pool required under
paragraph (1) and the claims experience from those benefits shall
be utilized to determine rate variations for health benefit plans that
offer those benefits in addition to essential health benefits.

(D) Administrative costs, excluding any user fees required by
the Exchange.

(E) With respect to catastrophic plans, as described in subsection
(e) of Section 1302 of PPACA, the expected impact of the specific
eligibility categories for those plans.

(l) If a carrier enters into a contract, agreement, or other
arrangement with a third-party administrator or other entity to
provide administrative, marketing, or other services related to the
offering of health benefit plans to small employers in this state,
the third-party administrator shall be subject to this chapter.

(m) (1) Except as provided in paragraph (2), this section shall
become inoperative if Section 2702 of the federal Public Health
Service Act (42 U.S.C. Sec. 300gg-1), as added by Section 1201
of PPACA, is repealed, in which case, 12 months after the repeal,
carriers subject to this section shall instead be governed by Section
10705 to the extent permitted by federal law, and all references in
this chapter to this section shall instead refer to Section 10705,
except for purposes of paragraph (2).

(2) Paragraph (3) of subdivision (b) of this section shall remain
operative as it relates to health benefit plans offered through the
Exchange.

SEC. 12.  

Section 10753.08 of the Insurance Code is repealed.

SEC. 13.  

Section 10753.08 is added to the Insurance Code, to
read:

10753.08.  

A health benefit plan shall not impose a preexisting
condition provision or a waiting or affiliation period upon any
individual.

SEC. 14.  

Section 10755 of the Insurance Code is amended to
read:

10755.  

As used in this chapter, the following definitions shall
apply:

(a) “Agent or broker” means a person or entity licensed under
Chapter 5 (commencing with Section 1621) of Part 2 of Division
1.

(b) “Benefit plan design” means a specific health coverage
product issued by a carrier to small employers, to trustees of
associations that include small employers, or to individuals if the
coverage is offered through employment or sponsored by an
employer. It includes services covered and the levels of copayment
and deductibles, and it may include the professional providers who
are to provide those services and the sites where those services are
to be provided. A benefit plan design may also be an integrated
system for the financing and delivery of quality health care services
which has significant incentives for the covered individuals to use
the system.

(c) “Carrier” means any disability insurance company or any
other entity that writes, issues, or administers health benefit plans
that cover the employees of small employers, regardless of the
situs of the contract or master policyholder.

(d) “Dependent” means the spouse or registered domestic
partner, or child, of an eligible employee, subject to applicable
terms of the health benefit plan covering the employee, and
includes dependents of guaranteed association members if the
association elects to include dependents under its health coverage
at the same time it determines its membership composition pursuant
to subdivision (t).

(e) “Eligible employee” means either of the following:

(1) Any permanent employee who is actively engaged on a
full-time basis in the conduct of the business of the small employer
with a normal workweek of an average of 30 hours per week over
the course of a month, in the small employer’s regular place of
business, who has met any statutorily authorized applicable waiting
period requirements. The term includes sole proprietors or partners
of a partnership, if they are actively engaged on a full-time basis
in the small employer’s business, and they are included as
employees under a health benefit plan of a small employer, but
does not include employees who work on a part-time, temporary,
or substitute basis. It includes any eligible employee, as defined
in this paragraph, who obtains coverage through a guaranteed
association. Employees of employers purchasing through a
guaranteed association shall be deemed to be eligible employees
if they would otherwise meet the definition except for the number
of persons employed by the employer. A permanent employee
who works at least 20 hours but not more than 29 hours is deemed
to be an eligible employee if all four of the following apply:

(A) The employee otherwise meets the definition of an eligible
employee except for the number of hours worked.

(B) The employer offers the employee health coverage under a
health benefit plan.

(C) All similarly situated individuals are offered coverage under
the health benefit plan.

(D) The employee must have worked at least 20 hours per
normal workweek for at least 50 percent of the weeks in the
previous calendar quarter. The insurer may request any necessary
information to document the hours and time period in question,
including, but not limited to, payroll records and employee wage
and tax filings.

(2) Any member of a guaranteed association as defined in
subdivision (t).

(f) “Enrollee” means an eligible employee or dependent who
receives health coverage through the program from a participating
carrier.

(g) “Financially impaired” means, for the purposes of this
chapter, a carrier that, on or after the effective date of this chapter,
is not insolvent and is either:

(1) Deemed by the commissioner to be potentially unable to
fulfill its contractual obligations.

(2) Placed under an order of rehabilitation or conservation by
a court of competent jurisdiction.

(h) “Health benefit plan” means a policy or contract written or
administered by a carrier that arranges or provides health care
benefits for the covered eligible employees of a small employer
and their dependents. The term does not include accident only,
credit, disability income, coverage of Medicare services pursuant
to contracts with the United States government, Medicare
supplement, long-term care insurance, dental, vision, coverage
issued as a supplement to liability insurance, automobile medical
payment insurance, or insurance under which benefits are payable
with or without regard to fault and that is statutorily required to
be contained in any liability insurance policy or equivalent
self-insurance.

(i) “In force business” means an existing health benefit plan
issued by the carrier to a small employer.

(j) “Late enrollee” means an eligible employee or dependent
who has declined health coverage under a health benefit plan
offered by a small employer at the time of the initial enrollment
period provided under the terms of the health benefit plan and who
subsequently requests enrollment in a health benefit plan of that
small employer, provided that the initial enrollment period shall
be a period of at least 30 days. It also means any member of an
association that is a guaranteed association as well as any other
person eligible to purchase through the guaranteed association
when that person has failed to purchase coverage during the initial
enrollment period provided under the terms of the guaranteed
association’s health benefit plan and who subsequently requests
enrollment in the plan, provided that the initial enrollment period
shall be a period of at least 30 days. However, an eligible
employee, another person eligible for coverage through a
guaranteed association pursuant to subdivision (t), or an eligible
dependent shall not be considered a late enrollee if any of the
following is applicable:

(1) The individual meets all of the following requirements:

(A) He or she was covered under another employer health
benefit plan, the Healthy Families Program, the Access for Infants
and Mothers (AIM) Program, the Medi-Cal program, or coverage
through the California Health Benefit Exchange at the time the
individual was eligible to enroll.

(B) He or she certified at the time of the initial enrollment that
coverage under another employer health benefit plan, the Healthy
Families Program, the AIM Program, the Medi-Cal program, or
the California Health Benefit Exchange was the reason for
declining enrollment provided that, if the individual was covered
under another employer health plan, the individual was given the
opportunity to make the certification required by this subdivision
and was notified that failure to do so could result in later treatment
as a late enrollee.

(C) He or she has lost or will lose coverage under another
employer health benefit plan as a result of termination of
employment of the individual or of a person through whom the
individual was covered as a dependent, change in employment
status of the individual, or of a person through whom the individual
was covered as a dependent, the termination of the other plan’s
coverage, cessation of an employer’s contribution toward an
employee or dependent’s coverage, death of the person through
whom the individual was covered as a dependent, legal separation,
or divorce; or he or she has lost or will lose coverage under the
Healthy Families Program, the AIM Program, the Medi-Cal
program, or the California Health Benefit Exchange.

(D) He or she requests enrollment within 30 days after
termination of coverage or employer contribution toward coverage
provided under another employer health benefit plan, or requests
enrollment within 60 days after termination of Medi-Cal program
coverage, AIM Program coverage, Healthy Families Program
coverage, or coverage offered through the California Health Benefit
Exchange.

(2) The individual is employed by an employer who offers
multiple health benefit plans and the individual elects a different
plan during an open enrollment period.

(3) A court has ordered that coverage be provided for a spouse
or minor child under a covered employee’s health benefit plan.

(4) (A) In the case of an eligible employee as defined in
paragraph (1) of subdivision (e), the carrier cannot produce a
written statement from the employer stating that the individual or
the person through whom an individual was eligible to be covered
as a dependent, prior to declining coverage, was provided with,
and signed acknowledgment of, an explicit written notice in
boldface type specifying that failure to elect coverage during the
initial enrollment period permits the carrier to impose, at the time
of the individual’s later decision to elect coverage, an exclusion
from begin delete coverage for a period of 12 months end delete begin insert eligibility for coverage
until the next open enrollment period, end insert unless the individual meets
the criteria specified in paragraph (1), (2), or (3). This exclusion
from begin insert eligibility for end insert coverage shall not be considered a waiting
period in violation of Section 10198.7 or 10755.08.

(B) In the case of an eligible employee who is a guaranteed
association member, the plan cannot produce a written statement
from the guaranteed association stating that the association sent a
written notice in boldface type to all potentially eligible association
members at their last known address prior to the initial enrollment
period informing members that failure to elect coverage during
the initial enrollment period permits the plan to impose, at the time
of the member’s later decision to elect coverage, an exclusion from
begin delete coverage for a period of 12 months end delete begin insert eligibility for coverage until
the next open enrollment period, end insert unless the member can
demonstrate that he or she meets the requirements of subparagraphs
(A), (C), and (D) of paragraph (1) or meets the requirements of
paragraph (2) or (3). This exclusion from begin insert eligibility for end insert coverage
shall not be considered a waiting period in violation of Section
10198.7 or 10755.08.

(C) In the case of an employer or person who is not a member
of an association, was eligible to purchase coverage through a
guaranteed association, and did not do so, and would not be eligible
to purchase guaranteed coverage unless purchased through a
guaranteed association, the employer or person can demonstrate
that he or she meets the requirements of subparagraphs (A), (C),
and (D) of paragraph (1), or meets the requirements of paragraph
(2) or (3), or that he or she recently had a change in status that
would make him or her eligible and that application for coverage
was made within 30 days of the change.

(5) The individual is an employee or dependent who meets the
criteria described in paragraph (1) and was under a COBRA
continuation provision and the coverage under that provision has
been exhausted. For purposes of this section, the definition of
“COBRA” set forth in subdivision (e) of Section 10116.5 shall
apply.

(6) The individual is a dependent of an enrolled eligible
employee who has lost or will lose his or her coverage under the
Healthy Families Program, the AIM Program, the Medi-Cal
program, or the California Health Benefit Exchange and requests
enrollment within 60 days after termination of that coverage.

(7) The individual is an eligible employee who previously
declined coverage under an employer health benefit plan, including
a plan offered through the California Health Benefit Exchange,
and who has subsequently acquired a dependent who would be
eligible for coverage as a dependent of the employee through
marriage, birth, adoption, or placement for adoption, and who
enrolls for coverage under that employer health benefit plan on
his or her behalf and on behalf of his or her dependent within 30
days following the date of marriage, birth, adoption, or placement
for adoption, in which case the effective date of coverage shall be
the first day of the month following the date the completed request
for enrollment is received in the case of marriage, or the date of
birth, or the date of adoption or placement for adoption, whichever
applies. Notice of the special enrollment rights contained in this
paragraph shall be provided by the employer to an employee at or
before the time the employee is offered an opportunity to enroll
in plan coverage.

(8) The individual is an eligible employee who has declined
coverage for himself or herself or his or her dependents during a
previous enrollment period because his or her dependents were
covered by another employer health benefit plan, including a plan
offered through the California Health Benefit Exchange, at the
time of the previous enrollment period. That individual may enroll
himself or herself or his or her dependents for plan coverage during
a special open enrollment opportunity if his or her dependents have
lost or will lose coverage under that other employer health benefit
plan. The special open enrollment opportunity shall be requested
by the employee not more than 30 days after the date that the other
health coverage is exhausted or terminated. Upon enrollment,
coverage shall be effective not later than the first day of the first
calendar month beginning after the date the request for enrollment
is received. Notice of the special enrollment rights contained in
this paragraph shall be provided by the employer to an employee
at or before the time the employee is offered an opportunity to
enroll in plan coverage.

(k) “Preexisting condition provision” means a policy provision
that excludes coverage for charges or expenses incurred during a
specified period following the insured’s effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.

(l) “Creditable coverage” means:

(1) Any individual or group policy, contract, or program, that
is written or administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or provides
medical, hospital, and surgical coverage not designed to supplement
other private or governmental plans. The term includes continuation
or conversion coverage but does not include accident only, credit,
coverage for onsite medical clinics, disability income, Medicare
supplement, long-term care, dental, vision, coverage issued as a
supplement to liability insurance, insurance arising out of a
workers’ compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.

(2) The federal Medicare Program pursuant to Title XVIII of
the federal Social Security Act (42 U.S.C. Sec. 1395 et seq.).

(3) The Medicaid Program pursuant to Title XIX of the federal
Social Security Act (42 U.S.C. Sec. 1396 et seq.).

(4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.

(5) 10 U.S.C. Chapter 55 (commencing with Section 1071)
(Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS)).

(6) A medical care program of the Indian Health Service or of
a tribal organization.

(7) A health plan offered under 5 U.S.C. Chapter 89
(commencing with Section 8901) (Federal Employees Health
Benefits Program (FEHBP)).

(8) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the federal Public Health
Service Act, as amended by Public Law 104-191, the federal Health
Insurance Portability and Accountability Act of 1996.

(9) A health benefit plan under Section 5(e) of the federal Peace
Corps Act (22 U.S.C. Sec. 2504(e)).

(10) Any other creditable coverage as defined by subdivision
(c) of Section 2704 of Title XXVII of the federal Public Health
Service Act (42 U.S.C. Sec. 300gg-3(c)).

(m) “Rating period” means the period for which premium rates
established by a carrier are in effect and shall be no less than 12
months from the date of issuance or renewal of the health benefit
plan.

(n) “Risk adjusted employee risk rate” means the rate determined
for an eligible employee of a small employer in a particular risk
category after applying the risk adjustment factor.

(o) “Risk adjustment factor” means the percent adjustment to
be applied equally to each standard employee risk rate for a
particular small employer, based upon any expected deviations
from standard claims. This factor may not be more than 110 percent
or less than 90 percent.

(p) “Risk category” means the following characteristics of an
eligible employee: age, geographic region, and family size of the
employee, plus the benefit plan design selected by the small
employer.

(1) No more than the following age categories may be used in
determining premium rates:

Under 30

30-39

40-49

50-54

55-59

60-64

65 and over

However, for the 65 and over age category, separate premium
rates may be specified depending upon whether coverage under
the health benefit plan will be primary or secondary to benefits
provided by the federal Medicare Program pursuant to Title XVIII
of the federal Social Security Act.

(2) Small employer carriers shall base rates to small employers
using no more than the following family size categories:

(A) Single.

(B) Married couple or registered domestic partners.

(C) One adult and child or children.

(D) Married couple or registered domestic partners and child
or children.

(3) (A) In determining rates for small employers, a carrier that
operates statewide shall use no more than nine geographic regions
in the state, have no region smaller than an area in which the first
three digits of all its ZIP Codes are in common within a county,
and shall divide no county into more than two regions. Carriers
shall be deemed to be operating statewide if their coverage area
includes 90 percent or more of the state’s population. Geographic
regions established pursuant to this section shall, as a group, cover
the entire state, and the area encompassed in a geographic region
shall be separate and distinct from areas encompassed in other
geographic regions. Geographic regions may be noncontiguous.

(B) In determining rates for small employers, a carrier that does
not operate statewide shall use no more than the number of
geographic regions in the state than is determined by the following
formula: the population, as determined in the last federal census,
of all counties which are included in their entirety in a carrier’s
service area divided by the total population of the state, as
determined in the last federal census, multiplied by nine. The
resulting number shall be rounded to the nearest whole integer.
No region may be smaller than an area in which the first three
digits of all its ZIP Codes are in common within a county and no
county may be divided into more than two regions. The area
encompassed in a geographic region shall be separate and distinct
from areas encompassed in other geographic regions. Geographic
regions may be noncontiguous. No carrier shall have less than one
geographic area.

(q) (1) “Small employer” means either of the following:

(A) For plan years commencing on or after January 1, 2014,
and on or before December 31, 2015, any person, firm, proprietary
or nonprofit corporation, partnership, public agency, or association
that is actively engaged in business or service, that, on at least 50
percent of its working days during the preceding calendar quarter
or preceding calendar year, employed at least one, but no more
than 50, eligible employees, the majority of whom were employed
within this state, that was not formed primarily for purposes of
buying health benefit plans, and in which a bona fide
employer-employee relationship exists. For plan years commencing
on or after January 1, 2016, any person, firm, proprietary or
nonprofit corporation, partnership, public agency, or association
that is actively engaged in business or service, that, on at least 50
percent of its working days during the preceding calendar quarter
or preceding calendar year, employed at least one, but no more
than 100, eligible employees, the majority of whom were employed
within this state, that was not formed primarily for purposes of
buying health benefit plans, and in which a bona fide
employer-employee relationship exists. In determining whether
to apply the calendar quarter or calendar year test, a carrier shall
use the test that ensures eligibility if only one test would establish
eligibility. In determining the number of eligible employees,
companies that are affiliated companies and that are eligible to file
a combined tax return for purposes of state taxation shall be
considered one employer. Subsequent to the issuance of a health
benefit plan to a small employer pursuant to this chapter, and for
the purpose of determining eligibility, the size of a small employer
shall be determined annually. Except as otherwise specifically
provided in this chapter, provisions of this chapter that apply to a
small employer shall continue to apply until the plan contract
anniversary following the date the employer no longer meets the
requirements of this definition. It includes any small employer as
defined in this subparagraph who purchases coverage through a
guaranteed association, and any employer purchasing coverage
for employees through a guaranteed association. This subparagraph
shall be implemented to the extent consistent with PPACA, except
that the minimum requirement of one employee shall be
implemented only to the extent required by PPACA.

(B) Any guaranteed association, as defined in subdivision (s),
that purchases health coverage for members of the association.

(2) For plan years commencing on or after January 1, 2014, the
definition of an employer, for purposes of determining whether
an employer with one employee shall include sole proprietors,
certain owners of “S” corporations, or other individuals, shall be
consistent with Section 1304 of PPACA.

(r) “Standard employee risk rate” means the rate applicable to
an eligible employee in a particular risk category in a small
employer group.

(s) “Guaranteed association” means a nonprofit organization
comprised of a group of individuals or employers who associate
based solely on participation in a specified profession or industry,
accepting for membership any individual or employer meeting its
membership criteria which (1) includes one or more small
employers as defined in subparagraph (A) of paragraph (1) of
subdivision (q), (2) does not condition membership directly or
indirectly on the health or claims history of any person, (3) uses
membership dues solely for and in consideration of the membership
and membership benefits, except that the amount of the dues shall
not depend on whether the member applies for or purchases
insurance offered by the association, (4) is organized and
maintained in good faith for purposes unrelated to insurance, (5)
has been in active existence on January 1, 1992, and for at least
five years prior to that date, (6) has been offering health insurance
to its members for at least five years prior to January 1, 1992, (7)
has a constitution and bylaws, or other analogous governing
documents that provide for election of the governing board of the
association by its members, (8) offers any benefit plan design that
is purchased to all individual members and employer members in
this state, (9) includes any member choosing to enroll in the benefit
plan design offered to the association provided that the member
has agreed to make the required premium payments, and (10)
covers at least 1,000 persons with the carrier with which it
contracts. The requirement of 1,000 persons may be met if
component chapters of a statewide association contracting
separately with the same carrier cover at least 1,000 persons in the
aggregate.

This subdivision applies regardless of whether a master policy
by an admitted insurer is delivered directly to the association or a
trust formed for or sponsored by an association to administer
benefits for association members.

For purposes of this subdivision, an association formed by a
merger of two or more associations after January 1, 1992, and
otherwise meeting the criteria of this subdivision shall be deemed
to have been in active existence on January 1, 1992, if its
predecessor organizations had been in active existence on January
1, 1992, and for at least five years prior to that date and otherwise
met the criteria of this subdivision.

(t) “Members of a guaranteed association” means any individual
or employer meeting the association’s membership criteria if that
person is a member of the association and chooses to purchase
health coverage through the association. At the association’s
discretion, it may also include employees of association members,
association staff, retired members, retired employees of members,
and surviving spouses and dependents of deceased members.
However, if an association chooses to include those persons as
members of the guaranteed association, the association must so
elect in advance of purchasing coverage from a plan. Health plans
may require an association to adhere to the membership
composition it selects for up to 12 months.

(u) “Grandfathered health benefit plan” means a health benefit
plan that constitutes a grandfathered health plan.

(v) “Grandfathered health plan” has the meaning set forth in
Section 1251 of PPACA.

(w) “Nongrandfathered health benefit plan” means a health
benefit plan that is not a grandfathered health plan.

(x) “Plan year” has the meaning set forth in Section 144.103 of
Title 45 of the Code of Federal Regulations.

(y) “PPACA” means the federal Patient Protection and
Affordable Care Act (Public Law 111-148), as amended by the
federal Health Care and Education Reconciliation Act of 2010
(Public Law 111-152), and any rules, regulations, or guidance
issued thereunder.

(z) “Waiting period” means a period that is required to pass
with respect to the employee before the employee is eligible to be
covered for benefits under the terms of the contract.

(aa) “Registered domestic partner” means a person who has
established a domestic partnership as described in Section 297 of
the Family Code.

SEC. 15.  

Section 10755.05 of the Insurance Code is amended
to read:

10755.05.  

(a) (1) Each carrier, except a self-funded employer,
shall fairly and affirmatively renew all of the carrier’s health benefit
plans that are sold to small employers or associations that include
small employers.

(2) Nothing in this section shall be construed to require an
association, or a trust established and maintained by an association
to receive a master insurance policy issued by an admitted insurer
and to administer the benefits thereof solely for association
members, to offer, market or sell a benefit plan design to those
who are not members of the association. However, if the
association markets, offers or sells a benefit plan design to those
who are not members of the association it is subject to the
requirements of this section. This shall apply to an association that
otherwise meets the requirements of paragraph (6) formed by
merger of two or more associations after January 1, 1992, if the
predecessor organizations had been in active existence on January
1, 1992, and for at least five years prior to that date and met the
requirements of paragraph (3).

(3) A carrier which (A) effective January 1, 1992, and at least
20 years prior to that date, markets, offers, or sells benefit plan
designs only to all members of one association and (B) does not
market, offer or sell any other individual, selected group, or group
policy or contract providing medical, hospital and surgical benefits
shall not be required to market, offer, or sell to those who are not
members of the association. However, if the carrier markets, offers
or sells any benefit plan design or any other individual, selected
group, or group policy or contract providing medical, hospital and
surgical benefits to those who are not members of the association
it is subject to the requirements of this section.

(4) Each carrier that sells health benefit plans to members of
one association pursuant to paragraph (3) shall submit an annual
statement to the commissioner which states that the carrier is selling
health benefit plans pursuant to paragraph (3) and which, for the
one association, lists all the information required by paragraph (5).

(5) Each carrier that sells health benefit plans to members of
any association shall submit an annual statement to the
commissioner which lists each association to which the carrier
sells health benefit plans, the industry or profession which is served
by the association, the association’s membership criteria, a list of
officers, the state in which the association is organized, and the
site of its principal office.

(6) For purposes of paragraphs (2) and (3), an association is a
nonprofit organization comprised of a group of individuals or
employers who associate based solely on participation in a
specified profession or industry, accepting for membership any
individual or small employer meeting its membership criteria,
which do not condition membership directly or indirectly on the
health or claims history of any person, which uses membership
dues solely for and in consideration of the membership and
membership benefits, except that the amount of the dues shall not
depend on whether the member applies for or purchases insurance
offered by the association, which is organized and maintained in
good faith for purposes unrelated to insurance, which has been in
active existence on January 1, 1992, and at least five years prior
to that date, which has a constitution and bylaws, or other
analogous governing documents which provide for election of the
governing board of the association by its members, which has
contracted with one or more carriers to offer one or more health
benefit plans to all individual members and small employer
members in this state.

(b) Each carrier shall make available to each small employer
all nongrandfathered health benefit plans that the carrier offers or
sells to small employers or to associations that include small
employers. Notwithstanding subdivision (c) of Section 10755, for
purposes of this subdivision, companies that are affiliated
companies or that are eligible to file a consolidated income tax
return shall be treated as one carrier.

(c) Each carrier shall do all of the following:

(1) Prepare a brochure that summarizes all of its health benefit
plans and make this summary available to small employers, agents,
and brokers upon request. The summary shall include for each
health benefit plan information on benefits provided, a generic
description of the manner in which services are provided, such as
how access to providers is limited, benefit limitations, required
copayments and deductibles, standard employee risk rates, and a
telephone number that can be called for more detailed benefit
information. Carriers are required to keep the information contained
in the brochure accurate and up to date, and, upon updating the
brochure, send copies to agents and brokers representing the carrier.
Any entity that provides administrative services only with regard
to a benefit plan design written or issued by another carrier shall
not be required to prepare a summary brochure which includes
that benefit plan design.

(2) For each health benefit plan, prepare a more detailed
evidence of coverage and make it available to small employers,
agents and brokers upon request. The evidence of coverage shall
contain all information that a prudent buyer would need to be aware
of in making selections of benefit plan designs. An entity that
provides administrative services only with regard to a benefit plan
design written or issued by another carrier shall not be required to
prepare an evidence of coverage for that benefit plan design.

(3) Provide to small employers and agents and brokers, upon
request, for any given small employer the sum of the standard
employee risk rates and the sum of the risk adjusted employee risk
rates. When requesting this information, small employers and
agents and brokers shall provide the plan with the information the
plan needs to determine the small employer’s risk adjusted
employee risk rate.

(4) Provide copies of the current summary brochure to all agents
or brokers who represent the carrier and, upon updating the
brochure, send copies of the updated brochure to agents and brokers
representing the carrier for the purpose of selling health benefit
plans.

(5) Notwithstanding subdivision (c) of Section 10755, for
purposes of this subdivision, companies that are affiliated
companies or that are eligible to file a consolidated income tax
return shall be treated as one carrier.

(d) No carrier, agent, or broker shall induce or otherwise
encourage a small employer to separate or otherwise exclude an
eligible employee from a health benefit plan which, in the case of
an eligible employee meeting the definition in paragraph (1) of
subdivision (e) of Section 10755, is provided in connection with
the employee’s employment or which, in the case of an eligible
employee as defined in paragraph (2) of subdivision (e) of Section
10755, is provided in connection with a guaranteed association.

(e) No carrier or agent or broker shall, directly or indirectly,
engage in the following activities:

(1) Encourage or direct small employers to refrain from filing
an application for coverage with a carrier because of the health
status, claims experience, industry, occupation, or geographic
location within the carrier’s approved service area of the small
employer or the small employer’s employees.

(2) Encourage or direct small employers to seek coverage from
another carrier or the California Health Benefit Exchange because
of the health status, claims experience, industry, occupation, or
geographic location within the carrier’s approved service area of
the small employer or the small employer’s employees.

(f) No carrier shall, directly or indirectly, enter into any contract,
agreement, or arrangement with an agent or broker that provides
for or results in the compensation paid to an agent or broker for a
health benefit plan to be varied because of the health status, claims
experience, industry, occupation, or geographic location of the
small employer or the small employer’s employees. This
subdivision shall not apply with respect to a compensation
arrangement that provides compensation to an agent or broker on
the basis of percentage of premium, provided that the percentage
shall not vary because of the health status, claims experience,
industry, occupation, or geographic area of the small employer.

(g) A policy or contract that covers a small employer, as defined
in Section 1304(b) of PPACA and in subdivision (q) of Section
10755 shall not establish rules for eligibility, including continued
eligibility, of an individual, or dependent of an individual, to enroll
under the terms of the plan based on any of the following health
status-related factors:

(1) Health status.

(2) Medical condition, including physical and mental illnesses.

(3) Claims experience.

(4) Receipt of health care.

(5) Medical history.

(6) Genetic information.

(7) Evidence of insurability, including conditions arising out of
acts of domestic violence.

(8) Disability.

(9) Any other health status-related factor as determined by any
federal regulations, rules, or guidance issued pursuant to Section
2705 of the federal Public Health Service Act.

(h) If a carrier enters into a contract, agreement, or other
arrangement with a third-party administrator or other entity to
provide administrative, marketing, or other services related to the
offering of health benefit plans to small employers in this state,
the third-party administrator shall be subject to this chapter.

SEC. 16.  

Section 10755.08 of the Insurance Code is repealed.

SEC. 17.  

Section 10755.08 is added to the Insurance Code, to
read:

10755.08.  

A health benefit plan shall not impose a preexisting
condition provision or a waiting or affiliation period upon any
individual.

begin insert

begin insert SEC. 18. end insert   

end insert begin insert

Section 11.5 of this bill incorporates amendments to
Section 10753.05 of the Insurance Code proposed by both this bill
and SB 959. It shall only become operative if (1) both bills are
enacted and become effective on or before January 1, 2015, (2)
each bill amends Section 10753.05 of the Insurance Code, and (3)
this bill is enacted after SB 959, in which case Section 11 of this
bill shall not become operative.

end insert

begin delete SEC. 18. end delete
begin insert SEC. 19. end insert   

No reimbursement is required by this act pursuant to
Section 6 of Article XIII   B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII   B of the California
Constitution.