BILL ANALYSIS Ó SENATE COMMITTEE ON HEALTH Senator Ed Hernandez, O.D., Chair BILL NO: SB 1182 AUTHOR: Leno AMENDED: April 10, 2014 HEARING DATE: April 24, 2014 CONSULTANT: Boughton SUBJECT : Health care coverage: rate review. SUMMARY : Requires health plans and insurers to submit to regulators for rate review any large group plan contract or policy rate increases that exceed five percent of the prior year's rate. Establishes new data reporting requirements on all health plans and insurers applicable to products sold in the large group market and establishes new deidentified claims data reporting requirements to be provided to purchasers, if requested, at no cost, if the purchaser can demonstrate its ability to comply with state and federal privacy laws, and is either an employer with an enrollment of greater than 1,000 covered lives or multiemployer trust. Existing law: 1.Requires individual and small group health plan contract and insurance policy rate information to be filed with Department of Managed Health Care (DMHC) or Department of Insurance (CDI) concurrent with required notices explaining reasons for denials, increases in premium rates, and the plan's average rate increase by plan year, segment type, and product type. 2.Requires plans and policies for individual and small group health care contracts to be filed with regulators at least 60 days prior to implementing any rate change, including disclosures such as average rate increase initially requested, average rate increase, and effective date of rate increase. Authorizes a plan or insurer to provide aggregated additional data that demonstrates, or reasonably estimates, year-to-year cost increases in specific benefit categories in major geographic regions, defined by regulators, but not more than nine regions. 3.Requires plan filings to include certification by an independent actuary or actuarial firm that the rate increase is reasonable or unreasonable; if unreasonable, that the Continued--- SB 1182 | Page 2 justification for the increase is based on accurate and sound actuarial assumptions and methodologies. 4.Requires rate increase information to be made public 60 days prior to implementation, including justification for any unreasonable rate increases including all information and supporting documentation as to why the rate change is justified. 5.Requires the regulators to accept and post to their Internet Web sites any public comment on a rate increase submitted to each department during the 60-day period prior to implementation, as specified. 6.Requires, if DMHC or CDI find that an unreasonable rate increase is not justified or that a rate filing contains inaccurate information, DMHC or CDI to post their findings on their Internet Web sites. 7.Establishes the following provisions related to disclosure requirements for a health plan that exclusively contracts with no more than two medical groups in the state to provide or arrange for professional medical services for the enrollees of the plan: a. With regard to the plan's overall annual medical trend factor to disclose the amount of its actual trend experience for the prior contract year by aggregate benefit category, using benefit categories that are, to the maximum extent possible, the same or similar to those used by other plans; and, b. With regard to the amount of the projected trend attributable to the use of services, price inflation, or fees and risk for annual plan contract trends by aggregate benefit category, such as hospital inpatient, hospital outpatient, physician services, etc., to instead disclose the amount of its actual trend experience for the prior contract year by aggregate benefit category, using benefit categories that are, to the maximum extent possible, the same or similar to those used by other plans. 8.For the large group market, requires health plans and health insurers to file with the DMHC and CDI, at least 60 days prior to implementing any rate change, all required rate information for unreasonable rate increases. Requires all information SB 1182 | Page 3 that is required by the Affordable Care Act (ACA), and any other information required pursuant to state regulations to be submitted. Requires disclosure of the following aggregate data for all rate filings submitted: a. Number and percentage of rate filings reviewed by the following: i. Plan year; ii. Segment type; iii. Product type; iv. Number of subscribers; and, v. Number of covered lives affected. b. The plan's average rate increase by the following categories: i. Plan year; ii. Segment type; and, iii. Product type. 9.Prohibits a health plan from releasing any information to an employer that would directly or indirectly indicate to the employer that an employee is receiving or has received services from a health care provider covered by the plan unless authorized to do so by the employee. Prohibits an insurer that has, pursuant to an agreement, assumed the responsibility to pay compensation, as specified, from being considered an employer. States that nothing in this provision prohibits a health plan from releasing relevant information for the purposes of fraud prevention, as specified. 10.Establishes under federal law, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), which among various provisions, mandates industry-wide standards for health care information on electronic billing and other processes; and requires the protection and confidential handling of protected health information. 11.Establishes under state law, the Confidentiality of Medical Information Act which governs the disclosure of medical information by health care providers, Knox-Keene regulated plans, health care clearinghouses and employers. This bill: 1.Requires health plans and insurers to submit information to regulators to review the rates of any large group plan contract or policy 60 days prior to implementing rate SB 1182 | Page 4 increases that exceed five percent of the prior year's rate. 2.Requires annual disclosures of information specified in existing law related to the number and percentage of rate filings and adds to the categories associated with the plan's average rate increase disclosure, benefit category and number of covered lives affected. Changes "plan" year to "policy" year in the Insurance Code. States that nothing in this bill prohibits a health plan or insurer from releasing relevant information, as described, for the purposes set forth in existing law related to rate review. 3.Requires a health plan or health insurer, subject to 1) above, to disclose for each rate filing that exceeds five percent of the prior year's rate for that group the following: a. Company name and contact information; b. Number of plan contract forms covered by the filing; c. Plan contract form numbers covered by the filing; d. Product type, such as preferred provider organization or health maintenance organization; e. Segment type; f. Type of plan involved, such as for profit or not for profit; g. Whether the products are opened or closed; h. Enrollment in each plan contract and rating form; i. Enrollee months in each plan contract form; j. Annual rate; aa. Total earned premiums in each plan contract form; bb. Total incurred claims in each plan contract form; cc. Average rate increase initially requested; dd. Review category: initial filing for new product, filing for existing product, or resubmission; ee. Average rate of increase; ff. Effective date of rate increase; gg. Number of subscribers or enrollees affected by each plan contract form; hh. The plan's overall annual medical trend factor assumptions in each rate filing for all benefits and by aggregate benefit category, including hospital inpatient, hospital outpatient, physician services, SB 1182 | Page 5 prescription drugs and other ancillary services, laboratory and radiology. Authorizes a plan to provide aggregated additional data that demonstrates or reasonably estimates year-to-year cost increases in specific benefit categories in major geographic regions of the state; Limits geographic regions to nine, and requires them to be defined by DMHC and CDI. Requires a health plan that exclusively contracts with no more than two medical groups to disclose the amount of its actual trend experience for the prior contract year by aggregate benefit category, as specified; ii. The amount of the projected trend attributable to the use of services, prices inflation, or fees and risk for annual plan contract by aggregate benefit category, as specified. Requires a plan that exclusively contracts with no more than two medical groups, as specified, to disclose the amount of its actual trend experience for the prior contract year by aggregate services category, as specified; jj. A comparison of claims cost and rate of changes over time; aaa. Any changes in enrollee cost-sharing over the prior year associated with the submitted rate filing; bbb. Any changes in enrollee benefits over the prior year associated with the submitted rate filing; ccc. A certification of actuarially sound filing, as described; ddd. Any changes of administrative cost; and, eee. Any other information required for rate review under the ACA. 4.Requires, except as provided in 5) below, annual disclosure of the following aggregate data for all products sold in the large group market: a. Plan/policy year; b. Segment type; c. Product type; d. Number of subscribers; e. Number of covered lives affected; f. The plan's average rate increase by the following: i. Plan/policy year; ii. Segment type; SB 1182 | Page 6 iii. Product type; iv. Benefit category, as specified; and, v. Trend attributable to cost and trend attributable to utilization by benefit category. 5.Requires a health plan or insurer that is unable to provide information on rate increases by benefit categories, as specified, or information on trend attributable to cost and utilization by benefit category pursuant to 4) to annually disclose all of the following aggregate data for its large group contracts or policies: a. The plan's or insurer's overall aggregate data demonstrating or reasonably estimating year-to-year cost increases in the aggregate for large group rates by major service category. Requires the plan or insurer to distinguish between the increase ascribed to the cost of services provided for those assumptions and that include the following categories: i. Hospital inpatient; ii. Outpatient visits; iii. Outpatient surgical or other procedures; iv. Professional medical; v. Mental health; vi. Substance abuse; vii. Skilled nursing facility, if covered; viii. Prescription drugs; ix. Other ancillary services; x. Laboratory; and, xi. Radiology or imaging; b. Authorizes a plan or insurer to provide aggregated additional data that demonstrate, or reasonably estimate, year-to-year cost increases in each of the specific service categories specified in a) for each of the major geographic regions in the state; c. The amount of projected trend attributable to use of services by service and disease category, capital investment, and community benefit expenditures, excluding bad debt and valued at cost; and, SB 1182 | Page 7 d. The amount and proportion of costs attributed to contracting medical groups that would not have been attributable as medical losses if incurred by the plan or health insurer rather than the medical group. 6.Requires a health plan or insurer annually to provide claims data at no charge to a large group purchaser if the large group purchaser requests the information. Requires the plan or insurer to provide claims data that a qualified statistician has determined are deidentified so that the claims data do not identify or do not provide a reasonable basis from which to identify an individual. 7.Makes the information provided under 6) through 10) not subject to public availability, as specified. 8.Requires, if claims data are not available, at no charge to the purchaser, all of the following: a. Deidentified data sufficient for the large group purchaser to calculate the cost of obtaining similar services from other health plans or health insurers and evaluate cost-effectiveness by service and disease category; b. Deindentified patient-level data of demographics, prescribing, encounters, inpatient services, outpatient services, and any other data as may be required of the health plan or insurer to comply with risk adjustment, reinsurance, or risk corridors pursuant to the ACA; and, c. Deidentified patient-level data used to experience rate the large group, including diagnostic and procedure coding and costs assigned to each service. 9.Requires the health plan or insurer to obtain a formal determination from a qualified statistician that the data provided pursuant to 6) through 8) have been deidentified so that the data do not identify or do not provide a reasonable basis from which to identify an individual. Requires the statistician to certify the formal determination in writing and to, upon request, provide the protocol used for deidentification to the regulators. 10.Requires data provided pursuant to 6) through 8) to only be SB 1182 | Page 8 provided to a large group purchaser that is able to demonstrate its ability to comply with state and federal privacy laws, and is either an employer with enrollment of greater than 1,000 covered lives or a multiemployer trust. FISCAL EFFECT : This bill has not been analyzed by a fiscal committee. COMMENTS : 1.Author's statement. According to the author, the rising cost of health care is a major concern for employers in California, and the lack of transparency in pricing for the large group market has contributed to uncontrolled cost increases for large employers and union trusts. According to the 2014 California Employer Health Benefits Survey, health premiums in California rose by 185 percent since 2002, more than five times the state's overall inflation rate. In addition, one in four California employers reported that they reduced benefits or increased employee cost sharing in the last year because of the rising cost of health care. The ACA requires state regulators to collect detailed information regarding premium increases and to make this information publicly available. SB 1163 (Leno), Chapter 661, Statutes of 2010 requires health plans and insurers to provide regulators and consumers with critical data and information documenting the true drivers of premium increases. Since its enactment in 2011, SB 1163 has saved California consumers in the individual and small group markets over $300 million. SB 1182 furthers our transparency efforts and protects large employers and their employees and dependents from unjustifiable rate increases through transparency and helps them to better understand why health premiums are increasing each year. 2.Employer Health Benefits. Key findings from the California HealthCare Foundation, California Employer Health Benefits Survey indicate the proportion of California employers offering coverage has declined significantly over the last decade, from 69 percent in 2000 to 61 percent in 2013. Coverage is offered to employees at a higher rate at larger firms, firms with higher wages, and firms with some union workers. California workers paid an average of 22 percent of the total premium for single coverage and 33 percent for family coverage in 2013, significantly higher shares than in the previous year. California's HMO premiums have been higher than the national average since 2010 - a change from the SB 1182 | Page 9 previous decade. Nearly one-third of covered workers in small firms had a deductible of $1,000 or more for single coverage in 2013, up from just seven percent in 2006. In large firms, only nine percent had a deductible of $1,000 or more. One in four California firms reported that they reduced benefits or increased cost sharing in the last year. California employers viewed consumer directed health plans, disease management, and changes in care delivery and payment as the most effective at controlling health care costs. 3.Rate review in California. SB 1163 (Leno) requires carriers to submit detailed data and actuarial justification for small group and individual market rate increases at least 60 days in advance of increasing their customers' rates. The carriers also must submit an analysis performed by an independent actuary who is not employed by a plan or insurer. For large group filings, SB 1163 requires health plans to submit all information required by ACA and any additional information adopted through regulation by DMHC necessary to comply with the bill. The rate review provisions in ACA have not been applied to the large group market and DMHC and CDI have not adopted regulations to establish rate review for the large group market in California. Though regulators do not have the authority to modify or reject rate changes, rate review has increased transparency on rate increases in the individual and small group market. 4.Related legislation. SB 959 (Hernandez) would prohibit a change in premium rate or coverage for an individual plan contract or policy unless the plan or insurer delivers a written notice of the change at least 15 days prior to the start of the annual enrollment period applicable to the contract or 60 days prior to the effective date of renewal, whichever occurs earlier in the calendar year. Makes several corrections and clarifications to provisions of law governing individual and small group health insurance, including clarifying that health plans and insurers have a single risk pool for enrollees and insureds. SB 959 is currently scheduled to be heard in Senate Appropriations Committee on April 28th. SB 1340 (Hernandez) would make a number of technical and clarifying changes to existing law prohibiting contracts between health plans or insurers and hospitals restricting the ability of the health plan/insurer from furnishing information concerning the cost range of procedures at the hospital or SB 1182 | Page 10 facility or the quality of services performed by the hospital or facility to subscribers or enrollees. Includes self-funded health coverage arrangement administered by the health plan or other persons entitled to access services through a network established by the health care service plan in the prohibition of a contract gag clause. Requires health plans and insurers to give a provider or supplier an advance opportunity of 30 days (rather than at least 20 days) to review the methodology and data developed and compiled by the health plan or insurer. SB 1340 is currently pending on the Senate Floor. SB 1322 (Hernandez) would require the Governor to convene the California Health Care Quality Improvement and Cost Containment Commission to research and recommend appropriate and timely strategies for promoting high-quality care and containing health care costs. Requires the commission to be composed of 13 members who are knowledgeable about the health care system and health care spending. Requires the commission to, on or before July 1, 2015, or within six months of the convening of the commission, whichever occurs later, issue a report to the Legislature and the Governor making recommendations for health care quality improvement and cost containment. SB 1322 is currently scheduled to be heard in this committee on April 24th. 5.Prior legislation. SB 746 (Leno) would have established new data reporting requirements on all health plans applicable to products sold in the large group market and establishes new specific data reporting requirements related to annual medical trend factors by service category, as well as claims data or deidentified patient-level data, as specified, for a health care service plan (health plan) that exclusively contracts with no more than two medical groups in the state to provide or arrange for professional medical services for the enrollees of the plan (referring to Kaiser Permanente). SB 746 was vetoed by the Governor. In his veto message, the Governor stated: This bill would require all health plans and insurers to disclose every year broad data relating to services used by large employer groups, including aggregate rate increases by benefit category. The bill also requires that one health plan additionally provide SB 1182 | Page 11 anonymous claims data or patient level data upon request and without charge to large purchasers. I support efforts to make health care costs more transparent, and my administration is moving forward to establish transparency programs that will cover all health plans and systems. I urge all parties to work together in this effort. If these voluntary efforts fail, I will seriously consider stronger actions. 6.Support. The California Labor Federation believes this bill will help the public understand premium increases. Employers are increasingly shifting the burden of health coverage to workers and workers are forced to forego wage increases as health care eats up more of employers' and workers' budgets. The ACA implements some cost containment measures and gives states to implement more. SB 1163 was intended to require Kaiser Permanente to provide detail on changes in costs by benefits. Kaiser has failed to comply, even though it provides some of this data to selected large purchasers and for out-of-network emergency services. The San Diego Electrical Health and Welfare Trust indicates that the large group provisions of SB 1163 have yet to be implemented due to a lack of definition of "unreasonable rate increase." This bill will afford large group purchasers with access to the same detailed information to substantiate the basis for increased health premiums, and it will help identify whether health plans or HMOs may be subsidizing their individual and small group experience by way of charging large purchasers premium rates loaded with experience from other markets. The Teamsters writes that some of their trust funds spend more per hour on health benefits than the San Francisco minimum wage. The California School Employees Association believes this bill will help large group purchasers understand what is driving increases and develop strategies to address it. 7.Opposition. The America's Health Insurance Plans (AHIP) writes that this bill fails to offer any solution to address the problem of rising health care costs that threaten the SB 1182 | Page 12 affordability of health care coverage in California. AHIP states that the large group market is extremely competitive and the U.S. Department of Health and Human Services determined that regulatory review was unnecessary at this time. AHIP adds that the data described in this bill is not developed and would require extensive administrative tracking. Kaiser writes that this bill inserts the Legislature into private and voluntary contractual discussions between two entities by mandating what information one party must provide to the other. Kaiser indicates that they provide robust information to their large group purchasers during renewal and during the contract year and are working hard to expand the amount of information provided. Kaiser is also concerned about revealing patient level medical information to employers. Kaiser believes it is unclear what the information will be used for and doesn't require employee consent. Kaiser writes that this bill requires large group rate information to be filed at DMHC without specifying the purpose of such a filing and how that information will be used. The California Chamber of Commerce believes this bill creates uncertainty and delays for employers by creating an unworkable rate review process. Anthem Blue Cross argues that this bill creates an added substantial compliance burden for plans and state regulators. Anthem Blue Cross already provides a significant amount of information to its large group purchasers and the utilization of health services. This bill could potentially require thousands of new filings to be done with regulators. 8.Policy Comment. Existing law prohibits a health plan from releasing any information to an employer that would directly or indirectly indicate to the employer that an employee is receiving or has received services from a health care provider covered by the plan unless authorized by the employee. This bill would make it clear that information provided under the rate review statute, including amendments regarding deidentified claims data, proposed by this bill, would not be prohibited from release under the law. Even in a group with over 1,000 it seems that one could easily identify an employee with a rare condition. Protection of employee health information from employers is an important antidiscrimination safeguard which should not be jeopardized. The author and sponsor have tried to address this concern by requiring the data to be certified as deidentified by a qualified statistician prior to the release of such information. SUPPORT AND OPPOSITION : SB 1182 | Page 13 Support: California Labor Federation (sponsor) San Diego Electrical Health & Welfare Trust (co-sponsor) American Federation of State, County and Municipal Employees, AFL-CIO California Conference of Board of the Amalgamated Transit Union California Conference of Machinists California Nurses Association California School Employees Association California Teachers Association California Teamster Public Affairs Council Congress of California Seniors Engineers & Scientists of California, IFPTE Local 20, AFL-CIO International Longshore and Warehouse Union Professional & Technical Engineers, IFPTE Local 21, AFL-CIO State Building and Construction Trades Council UNITE-HERE AFL-CIO Utility Workers Union of America, Local 132 Oppose: Association of California Life and Health Insurance Companies America's Health Insurance Plans Anthem Blue Cross California Association of Health Plans California Association of Health Underwriters California Chamber of Commerce Kaiser Permanente -- END --