BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 1182
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          Date of Hearing:   August 6, 2014

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                  Mike Gatto, Chair

                     SB 1182 (Leno) - As Amended:  June 30, 2014 

          Policy Committee:                             HealthVote:13-6

          Urgency:     No                   State Mandated Local Program:  
          Yes    Reimbursable:              No

           SUMMARY  

          This bill establishes numerous requirements on health plans and  
          insurers to provide data to regulators and their large-group  
          customers about premiums rates and cost drivers, as well as  
          actual paid claims.  Specifically, this bill:

          1)Requires health plans and insurers to submit a variety of  
            cost-related information to state regulators on any rate  
            increases in the large-group market of over five percent over  
            the prior year. 

          2)Authorizes regulators to review rates and related information  
            provided pursuant to (1), above. 

          3)Modifies information required to be filed for current rate  
            review processes in the small-group and individual markets. 

          4)Requires health plans and insurers to file aggregate data on  
            products in their large-group markets.

          5)Requires health plans and insurers, upon request, to share  
            specified data on individual claims with their large-group  
            customers at no charge.

           FISCAL EFFECT  

          1)One-time costs to DMHC of $250,000 to issue regulations, as  
            well as the following ongoing costs (all costs are Managed  
            Care Fund):

             a)   Costs likely in excess of $5 million to review required  
               rate increase information and aggregate data filings.








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             b)   Enforcement costs of $350,000 for the first two years,  
               and $100,000 ongoing, to address complaints and staff  
               trials regarding alleged violations.

          1)One-time costs to CDI of $250,000 to issue regulations, as  
            well as the following ongoing costs (all costs are Insurance  
            Fund):

             a)   Costs likely in excess of $1 million to review required  
               rate increase information and aggregate data filings.
             b)   Unknown, likely minor enforcement costs.

          3)Unknown, significant cost pressure to CalPERS for the  
            provision of health benefits, assuming costs of compliance are  
            passed on to large-group customers in the form of a general  
            increase in administrative costs. 

           COMMENTS  

           1)Purpose  .  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.  The author notes current law requires  
            health plans and insurers to justify premium increases for the  
            individual and small-group markets.  This bill is intended to  
            improve transparency in the large-group market.  

          2)Rate Review  .  The federal Patient Protection and Affordable  
            Care Act (ACA) requires the federal Secretary of Health and  
            Human Services (HHS), in conjunction with states, to establish  
            a process to review premium increases to determine whether  
            they are unreasonable.  Federal regulations require review of  
            rate increases in the individual and small-group markets  
            (currently 50 employees and under).  California authorized the  
            DMHC and CDI to review rates pursuant to federal requirements  
            through SB 1163 (Leno), Chapter 661, Statutes of 2010.   
            Individual and small-group rate increases have been submitted  
            and reviewed since 2011.

            Although current state law also authorizes state regulators to  
            review "unreasonable premium rate increases" in the  
            large-group market, neither the federal government nor state  
            regulators have defined "unreasonable" as it applies to this  
            market, and thus this code section is inoperative.  The  








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            federal government does not require review of large-group  
            rates.  Federal regulations listed a number of reasons for  
            exempting large-group rates, including that purchasers in this  
            market often have greater leverage than those in the  
            individual and small-group markets, and therefore may be  
            better able to avoid imposition of unreasonable rate  
            increases.   This bill would strike the word "unreasonable"  
            and instead require review of all proposed rate increases over  
            5% in the large-group market. 

          3)Disclosure of Data to Large-Group Purchasers  . Current state  
            law establishes some limited transparency requirements with  
            respect to health care pricing, such as standard charges for  
            hospital procedures, but does not dictate the type of  
            information health plans are required to provide their large  
            group customers.  Plans indicate this market is extremely  
            competitive, and that they provide data to their customers  
            upon request.  This data appears to generally be provided in a  
            high-level, aggregated manner. In some cases, other  
            information is provided to an employer, such as analysis of  
            specific, unusually expensive claims, or analysis of the most  
            costly chronic conditions.  This bill would require  
            individual-level data on each claim paid or encounter, as well  
            as related cost information, to be provided upon request by a  
            health plan to a large employer.  This detailed data would  
            likely require significant analytical capacity on the part of  
            a requesting employer in order to use the data effectively.  
            For example, health plans provide individual-level data on  
            claims and encounters paid for by CalPERS, the largest  
            large-group purchaser in the state, which feeds into a  
            sophisticated data warehouse administered by a CalPERS  
            contractor.  Union trusts supporting this bill state they  
            could use, and have requested, this detailed data, but are  
            stymied by health plans' refusal to provide it.

           4)Support  . Numerous labor unions, groups representing seniors,  
            and the California Department of Insurance (CDI) support this  
            bill. The California Labor Federation (Labor Fed), a  
            co-sponsor of this bill, believes this bill will help address  
            rising health care costs. The Labor Fed contends that in the  
            individual and small group market, rate review has increased  
            scrutiny and public attention to rate increases and has  
            resulted in $300 million in savings for consumers.  The Labor  
            Fed suggests that this bill's rate filing requirement could  
            similarly create savings in the large-group market.  Finally,  








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            the Labor Fed argues that this bill's requirement for health  
            plans to disclose claims data to large purchasers will help  
            those purchasers understand health care cost drivers,  
            institute cost savings programs, and bargain effectively with  
            health plans.   

            Health Access California, which sponsored SB 1163, states the  
            intention of that legislation was for rate review to apply in  
            the large group market, but, contrary to expectations when  
            that law was passed, the federal government has not defined  
            unreasonable rate increases.  

           5)Opposition  .  This bill is opposed by the Department of Finance  
            (DOF), health plans and insurers, agents and brokers, and the  
            California Chamber of Commerce (CalChamber).  CalChamber,  
            representing employers, is concerned this bill's rate review  
            process could actually make large-group plans more expensive,  
            and that rate review does nothing to control the underlying  
            cost drivers in health care, such as prices charged by  
            providers, utilization by enrollees, and new medical  
            technologies.

            The Association of California Life and Health Insurance  
            Companies argues it is critical to put all resources toward  
            implementing the ACA in a meaningful way rather than  
            implementing costly, unnecessary, and time-consuming new  
            requirements.  America's Health Insurance Plans (AHIP)  
            contends large group plans are very sophisticated in their  
            product designs, which are often tailored to the needs of the  
            large group purchaser.  The California Association of Health  
            Plans (CAHP) estimates that there are over 14,000 large-group  
            products that must be filed with DMHC if they were subject to  
            regulatory review, each of which would be subject to costly  
            independent actuarial certification.  California Association  
            of Health Underwriters, representing agents and brokers,  
            states health plans go to great lengths to provide as much  
            information as possible to purchasers in highly competitive  
            markets, and that the bill's extraordinary data demands are  
            not necessary.  Kaiser Permanente states while they appreciate  
            this bill does not target a single company as did SB 746  
            (Leno), they remain opposed to the unnecessary intervention in  
            contract negotiations between plans and large employers.   
             
             The DOF states provisions in this bill related to data  
            reporting and de-identified claims data are almost identical  








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            to the provisions in SB 746 (2013), a bill that was vetoed by  
            the Governor. In the veto message, the Governor indicated that  
            if voluntary efforts to make health care costs more  
            transparent failed, he would consider taking more serious  
            action. DOF states at this time there is no indication whether  
            voluntary efforts have failed to address the issue and whether  
            more serious action is necessary.  Further, DOF contends the  
            bill would require health plans to annually disclose  
            aggregate, product, and cost data but does not provide clear  
            direction as to what to do with the accumulated data; that it  
            is unclear as to whether this bill fully addresses privacy  
            concerns and discrimination that may arise from the release of  
            de-identified claims data reporting option; and that the bill  
            increases costs and creates additional workload at a time when  
            the DMHC is undergoing major and complex changes due to the  
            Affordable Care Act's implementation.

           6)Staff Comments . The format of the data required to be  
            disclosed to large-group purchasers, and a process for  
            resolving disputes, would likely need to be addressed through  
            DMHC/CDI regulation and guidance.  The datasets required to be  
            disclosed are large and could be complex, and it could require  
            technical expertise to establish standards and resolve  
            disputes related to data adequacy.   

            In addition, it is unclear how the regulators could enforce  
            the requirement that disclosure of data be made no charge to  
            the large-group purchaser.  Plans and insurers indicate that  
            developing patient-level data that comply with privacy  
            requirements will be costly for their systems.  Options for  
            recouping administrative costs are finite.  Any increased  
            administrative costs will be passed on to customers in some  
            manner.  If it cannot be charged to the large-group purchaser,  
            it could lead to a general increase in administrative costs.   
            In that case, all purchasers would subsidize the  
            administrative costs of costly data requests on the part of  
            the requesting purchasers, even if they did not request data.   
            Thus, it appears reasonable that large-group purchasers making  
            costly data requests pay the associated costs.  For example,  
            the costs of the infrastructure for delivering claims and  
            encounter data to CalPERS is included in rates paid to  
            CalPERS's contracted health plans. 

           Analysis Prepared by  :    Lisa Murawski / APPR. / (916) 319-2081 









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