BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1034| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 1034 Author: Monning (D) Amended: 4/21/14 Vote: 21 SENATE HEALTH COMMITTEE : 8-0, 4/9/14 AYES: Hernandez, Anderson, Beall, DeSaulnier, Evans, Monning, Nielsen, Wolk NO VOTE RECORDED: De León SENATE APPROPRIATIONS COMMITTEE : 5-0, 4/28/14 AYES: De León, Gaines, Hill, Lara, Steinberg NO VOTE RECORDED: Walters, Padilla SUBJECT : Health care coverage: waiting periods SOURCE : Author DIGEST : This bill prohibits waiting or affiliation periods in the group health insurance market (through health benefit plans). ANALYSIS : Existing law: 1. Regulates health plans through the Department of Managed Health Care (DMHC) and health insurance policies through the Department of Insurance (CDI). Health plans include Health Maintenance Organizations (HMOs) and some Preferred Provider CONTINUED SB 1034 Page 2 Organizations (PPOs). Health insurance policies include PPOs but not HMOs. 2. Prohibits a health benefit plan for individual coverage from imposing any waiting or affiliation period. 3. Defines a health benefit plan as any individual or group health plan contract that provides medical, hospital, and surgical benefits, or any individual or group policy of health insurance, as defined. The term does not include a specialized health plan contract/insurance policy, a health plan contract/insurance policy provided in the Medi-Cal program, the Healthy Families Program, the Access for Infants and Mothers Program, or Medicare supplement coverage, to the extent consistent with the Affordable Care Act (ACA). 4. Defines affiliation period as a period under the terms of a health plan contract that must expire before health care services under the contract become effective. 5. Defines waiting period as 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. 6. Authorizes a health benefit plan for group coverage (including small employers) to apply a waiting period of up to 60 days as a condition of employment if applied equally to all eligible employees and dependents and if consistent with the ACA. 7. Prohibits a waiting or affiliation period from being based on a pre-existing condition of an employee or dependent, the health status of an employee or dependent, or any other factor, as specified. 8. Allows the health plan not to provide health care services during a waiting or affiliation period and prohibits a premium from being charged. 9. Subjects a late enrollee to a waiting period not to exceed 60 days for health plans regulated by DMHC and a period of 12 months for policies regulated by CDI. 10.Establishes the following effective dates of coverage: CONTINUED SB 1034 Page 3 A. For individual coverage purchased during annual open enrollment through the Covered California, effective dates are consistent with federal regulations. B. For individual coverage purchased during annual open enrollment outside of Covered California, if payment is delivered or postmarked, whichever occurs later, by December 15, coverage is effective as of January 1, as specified. C. For small group coverage purchased through Covered California, coverage effective dates are consistent with those required under federal regulations. D. For small group coverage purchased outside Covered California, when a small employer's premium payment is delivered or postmarked within the first 15 days of the month, coverage is effective no later than the first day of the following month, as specified. 11.Under the ACA, prohibits a group health plan or a health insurance issuer offering group health insurance coverage from applying any waiting period that exceeds 90 days. This bill: 1. Declares legislative intent to: A. 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. Permit a health care service plan or health insurer offering group coverage to administer a waiting period imposed by a plan sponsor, as defined. 2. Prohibits a health benefit plan for group coverage from imposing any waiting or affiliation period. 3. Deletes references to waiting or affiliation period authorizations from existing law governing group health CONTINUED SB 1034 Page 4 insurance. Background The ACA and federal regulations . The ACA, enacted on March 23, 2010, and amended on March 30, 2010 reorganizes, amends, and adds to the Public Health Service Act (PHS Act) relating to group health plans and health insurance issuers in the group and individual markets. The term "group health plan" refers to an employee welfare benefit plan to the extent that the plan provides medical care to employees or their dependents directly through insurance, reimbursement, or otherwise, and it includes both insured and self-insured group health plans. "Health insurance issuer" refers to an insurance company, insurance service, or insurance organization (including an HMO) which is licensed to engage in the business of insurance in a state and is subject to state laws which regulate insurance, as specified. Prior to the ACA, federal regulations defined a waiting period to mean the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective. The ACA includes a provision which prohibits an otherwise eligible employee (or dependent) from being required to wait more than 90 days before coverage becomes effective. This "90-day limitation" applies to both grandfathered and non-grandfathered group health plans and group health insurance coverage for plan years beginning on or after January 1, 2014. Proposed regulations were issued in March of 2013. Final regulations effective March 26, 2014, apply to group health plans and group health insurance issuers for plan years beginning on or after January 1, 2015. The final regulations provide that a group health plan, and health insurance issuer offering group health insurance coverage, may not apply a waiting period that exceeds 90 days. The regulations clarify that plans or issuers are not required to have waiting periods and could have waiting periods shorter than 90 days. The final regulations also clarify that, if an individual enrolls as a late enrollee or under special enrollment circumstances, any period before the late or special enrollment is not a waiting period. The effective date of coverage for CONTINUED SB 1034 Page 5 special enrollees continues to be that set forth in other federal regulations governing special enrollment or guaranteed availability. The final regulations set forth rules governing the relationship between a plan's eligibility criteria and the 90-day waiting period limitation. Specifically, these final regulations provide that being otherwise eligible to enroll in a plan means having met the plan's substantive eligibility conditions (such as, for example, being in an eligible job classification, achieving job-related licensure requirements specified in the plan's terms, or satisfying a reasonable and bona fide employment-based orientation period). Under these final regulations, eligibility conditions that are based solely on time passing are permissible for no more than 90 days. Other conditions for eligibility under the terms of a group health plan (that is, those that are not based solely on the lapse of time) are generally permissible under the ACA and these final regulations, unless the condition is designed to avoid compliance with the 90-day waiting period limitation. Prior legislation AB 1083 (Monning, Chapter 852, Statutes of 2012), amends California's small group health insurance laws to enact the relevant ACA provisions, such as eliminating pre-existing condition requirements and establishing premium rating factors based only on age, family size, and geographic regions. AB 1083 permits a waiting period of no longer than 60 days, requires an affiliation period under a health plan contract to run concurrently with any waiting period under that contract, not to exceed 60 days, and allows a waiting period for plan years on or after January 1, 2014, to be applied as a condition of employment if applied equally to all full-time employees, consistent with ACA and any rules, regulations, or guidance issued consistent with that law. As noted in an August 17, 2011 bill analysis of an earlier version of AB 1083 which would have allowed a health plan or insurer to impose a waiting period of up to 90 days as a condition of employment, if applied equally to all full-time employees and if consistent with the ACA, CDI raised concerns that the provision would make employees wait unnecessarily longer for health insurance coverage. The following is from CDI's letter: CONTINUED SB 1034 Page 6 "California law currently allows an employer to set their own waiting period for a new employee to be eligible for health insurance coverage as long as the waiting period is consistent for all new employees. Once an employee is eligible and enrolled in coverage, California law allows an insurer to either have a 60-day waiting or affiliation period where the person is enrolled but no premium is paid and no services are provided or a 6-month pre-existing period during which no payments are provided for a pre-existing medical condition. AB 1083 would take California's current 60-day waiting or affiliation period and change it to 90 days; your bill's sponsor has stated to CDI staff that this is for purposes of federal ACA conformity. However, upon review of the current federal definition by CDI staff, the federal definition is very similar to California's current definition of 60-day waiting or affiliation period. Therefore, AB 1083 would unnecessarily make consumers wait an additional 30-day to receive "health insurance" coverage when federal and state laws currently allow that waiting period to be 60-days, not 90-days." Based on this information from CDI, then Assemblymember Monning revised the 90-day provision to 60 days. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes According to the Senate Appropriations Committee: Costs of about $120,000 in 2014-15, $70,000 in 2015-16, and about $30,000 per year thereafter by the DMHC to review compliance by health plans and take enforcement actions (Managed Care Fund). Minor costs to review health insurer filings to ensure compliance by CDI (Insurance Fund). SUPPORT : (Verified 4/30/14) American Federation of State, County and Municipal Employees, AFL-CIO Association of Life and Health Insurance Companies Bay Area Council CONTINUED SB 1034 Page 7 BayBio California Association of Health Underwriters California Chamber of Commerce California Farm Bureau Federation California Hospital Association California Manufacturers and Technology Association California Optometric Association Congress of California Seniors Health Access Independent Agents and Brokers of California Los Angeles Area Chamber of Commerce National Association of Insurance and Financial Advisors of California National Federation of Independent Business ARGUMENTS IN SUPPORT : Numerous supporters state that this bill eliminates confusion between the state and federal rules governing health care enrollment waiting periods. The supporters claim that inconsistencies between the state and federal laws have indirectly impacted employers and created confusion about whether health care can be treated like other benefits, which are often instated after 90 days of employment and believe this bill will allow employers to continue treating all employee benefits as a group, easing administration and compliance with the law. Supporters also state that clarification of the law will help multi-state employers by ensuring they have just one date to keep in mind when determining when a new hire or otherwise newly qualified employee must be enrolled in a health care plan. JL:d 4/30/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED