BILL ANALYSIS                                                                                                                                                                                                    






                             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  




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            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,  




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                    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,




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                  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  




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            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




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                       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  :




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          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





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