BILL ANALYSIS Ó
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THIRD READING
Bill No: SB 1446
Author: DeSaulnier (D)
Amended: 5/12/14
Vote: 27 - Urgency
SENATE HEALTH COMMITTEE : 9-0, 5/7/14
AYES: Hernandez, Morrell, Beall, De León, DeSaulnier, Evans,
Monning, Nielsen, Wolk
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Health care coverage: small employer market
SOURCE : Department of Insurance
DIGEST : This bill allows a small employer health plan
contract or a small employer health insurance policy in effect
on October 1, 2013, that does not qualify as a grandfathered
health plan under Affordable Care Act (ACA), to be renewed until
January 1, 2015, and to continue to be in force until December
31, 2015. This bill exempts those health plan contracts and
health insurance policies from various provisions of state law
that implement the ACA and requires the contracts and policies
to comply with those provisions by January 1, 2016, in order to
remain in force on and after that date. Requires these
provisions be implemented only to the extent permitted by the
ACA.
ANALYSIS :
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Existing law:
1.Regulates health plans through the Department of Managed
Health Care and health insurance policies through the
Department of Insurance (CDI). Health plans include Health
Maintenance Organizations (HMOs) and some Preferred Provider
Organizations (PPOs). Health insurance policies include PPOs,
but not HMOs.
2.Requires on or after October 1, 2013 a non-grandfathered plan
or insurer to fairly and affirmatively offer, market, and sell
all of the plan's small employer health plan contracts and
insurance policies for plan years on or after January 1, 2014
to all small employers in each service area in which the plan
provides or arranges for health care services. This is
referred to as "guarantee issue."
3.Prohibits a plan or insurer from rejecting an application from
a small employer for a small employer health plan contract or
insurance policy if certain conditions are met.
4.Requires health plans and health insurers to consider as a
single risk pool for rating purposes the claims experience of
all insureds and enrollees in all non-grandfathered health
insurance policies in this state, whether offered as a health
plan contract or health insurance policy, including those
insureds and enrollees who enroll in individual coverage
through Covered California and enrollees and insureds outside
of Covered California. This requirement applies separately
for individual market products and small group products.
5.Requires the premium rate for a small employer health plan or
insurance policy issued, amended, or renewed after January 1,
2014 to vary only by age, not more than three to one for like
individuals of different ages, as specified, geographic
region, as specified, and whether the contract or policy
covers an individual or family, as specified.
6.Requires individual and small group health plans and insurance
policies issued, amended, or renewed, on or after January 1,
2014, to cover at a minimum, essential health benefits (EHBs)
as specified in state and federal law.
7.Requires, on or after January 1, 2015, for non-grandfathered
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health plan contracts or health insurance policies in the
individual and small group markets to provide for a limit on
annual out-of-pocket (OOP) expenses for all covered benefits
that meet the definition of EHBs, including out-of-network
emergency care, as specified.
8.Requires the maximum OOP limit to apply to any copayment,
coinsurance, deductible and any other form of cost sharing for
all covered benefits that meet the definition of EHBs.
9.Requires the limit, described in (8) above, to result in a
total maximum OOP limit for all EHBs equal to the dollar
amounts in effect under the Internal Revenue Service, as
specified, as adjusted by the ACA, as specified.
10.Prohibits small employer health plan contracts and insurance
policies offered, sold, or renewed on or after January 1, 2014
from containing deductibles that exceed $2,000 for a single
individual and $4,000 for any other plan contract or policy.
11.Defines levels of coverage for the non-grandfathered small
group market as Bronze, Silver, Gold, Platinum, as specified.
12.Establishes premium rate rules for small employer health plan
and insurance contracts including, that effective July 1,
1996, the employee risk adjustment factor may not be more than
110% or less than 90%, and requires plans and insurers to
apply standard employee risk rates consistently with respect
to all small employers.
This bill:
1.Authorizes a small employer health care service plan or health
insurance policy in effect on October 1, 2013, including those
renewed by December 31, 2013, and still in effect as of the
effective date of this bill, that does not qualify as a
grandfathered health plan, or health insurance policy, to be
renewed until January 1, 2015, and continue to be in force
until after December 31, 2015, subject to applicable federal
law, and any other requirements imposed by this bill.
2.Requires a health plan and insurer to include the following
notice with the notice issued pursuant to (1) above:
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"New health care coverage options are available in California.
You currently have health care coverage that is not required
to comply with many new laws. For example, your current plan
might not include coverage for some of the benefits that must
be covered in the new health care products.
You have the option to remain with your current coverage for
one more year or switch to new coverage that complies with the
new laws. Talk to Covered California (1-800-300-1506), your
plan representative, or your insurance agent to discuss
options."
3.Authorizes a small employer health plan or health insurance
policy described in (1) above, to continue to be in force
after December 31, 2015, if the contract or plan is amended to
comply with all of the provisions, listed in (4) below, by
January 1, 2016, and if the contract or plan complies with all
other applicable provisions of law.
4.Requires, prior to renewing a small employer health plan
contract or health insurance policy pursuant to (1) above, the
health plan or health insurance policy to provide notice to
the group contract holder regarding the option to renew
coverage using a specified notice issued by the U.S.
Department of Health and Human Services, Centers for Medicare
and Medicaid Services (CMS) on March 5, 2014.
5.Requires, no later than January 1, 2016, a small employer
health plan contract or health insurance policy to be amended
to comply with the provisions, described in (4) above.
6.Defines a "small employer health benefit plan" as a group
health care service plan contract other than a specialized
health plan, issued to a small employer, as specified.
7.Defines a "health benefit plan" as a policy of health
insurance, as specified, for the covered eligible employees of
a small employer and their dependents. The term does not
include coverage of Medicare services pursuant to contracts
with the United States government or coverage that provides
excepted benefits, as specified.
8.Requires a small employer health plan contractor health
insurance policy, pursuant to (1) above, to be subject to
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risk-adjustment factors of not more than 110% and not less
than 90% and consistent employee risk rates with respect to
all small employers. Requires the small employer health plan
contract or health insurance policy to continue to be subject
to all other requirements on non-grandfathered small employer
plans and the Knox-Keene Act or laws applying to life and
disability insurance.
9.Exempts a small employer health plan contract or health
insurance policy, described in (1) above, from the following
provisions in existing California law:
A. Requirements to guarantee issue;
B. Prohibitions against rejecting applications;
C. Requirements for a single risk pool;
D. Rating limitations associated with age, family size, and
geographic regions;
E. Requirements to provide EHBs;
F. Maximum limitations on OOP expenses and deductibles; and
G. Definitions on levels of coverage and actuarial value.
1.Requires a health plan and insurer to include with the notices
issued pursuant to (1) and (2) above, the premium, cost
sharing, and benefits associated with the plan's standard
benefit designs approved consistent with existing law for the
geographic region of the small employer.
Background
Plan Cancellations Individual Market . On May 7, 2013, Covered
California adopted model contract requirements that require
participating plans, also known as QHPs, to terminate all of
their non--ACA-compliant policies effective December 31, 2013.
In compliance with this requirement, QHPs began sending out
cancellation letters to their enrollees and insureds in late
September 2013. However, the Commissioner of CDI did not
approve the termination of policies of two companies under CDI's
jurisdiction, indicating that the cancellations were not in
compliance with notice requirements of existing law. For people
insured by these companies, cancellation periods were extended
to allow for adequate notice. As such, these policy
cancellations were permitted in February and March of 2014. In
addition, two carriers chose to withdraw from the market. These
QHP contract requirements are specific to individual market
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health plan contracts and insurance policies, not small group
market contracts and policies.
On November 14, 2013, President Obama announced and CMS issued a
policy giving insurers the option to offer renewals to people in
non-ACA-compliant plans who were enrolled on October 1, 2013.
However, implementation was deferred to states and is subject to
state law.
In response to the November 2013 federal policy option to allow
for renewals of insurance coverage, Covered California's
governing board chose to maintain its policy to require the
cancellations for individual market QHPs (with the exception of
the two CDI-regulated carriers) for a number of reasons,
including that for the vast majority of Californians, ACA
coverage is better coverage. A special consumer assistance unit
was established to help consumers through this transition.
Key Issues . According to Covered California, there are 250,000
employers who now offer health coverage in today's small group
market. These numbers include employers with grandfathered
plans that were in place when the ACA was enacted. These
employer-sponsored plans cover about 2.2 million individuals.
Based on information provided by Covered California based on
aggregated information from multiple carriers, an estimate of
how the provisions of the ACA affect the small group market
rates, in general, is below. 20% of the employers in the total
small group market (employing 15% of the employees in the total
small group market) will see a reduction in rates on average of
10% upon transitioning to ACA-compliant coverage. Conversely,
20% of the small group businesses (employing 30% of the
employees in the small group market) will see an average rate
increase of 35-40%.
According to Covered California, approximately one-third of the
overall California small group market renews in the first half
of the year, and approximately 40 to 50% of the market renews in
November and December. Employers receive renewal rate
information approximately 75 days prior to their effective date.
Therefore notices for November renewals would start going out
in August.
It is important to keep in mind that some percentage of small
employers will already have converted to ACA-compliant coverage
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prior to enactment should this bill be enacted. According to
Covered California one-third of the market will have renewed by
the end of June 2014. Additionally, those in grandfathered
plans are already permitted to renew their non- ACA-compliant
coverage. As such, it is difficult to estimate how many
employers and employees would be affected by this bill. The
individual insurance carriers are in the best position to know
those numbers.
Small Business Health Options . The Small Business Health
Options Program (SHOP) facilitates the purchase of health
insurance for small-business owners. SHOP is a second
marketplace run by Covered California, separate from the one for
individuals. In 2015, Covered California will expand this
program to begin offering health plans to employers with one to
100 employees, for coverage beginning January 1, 2016. Plans
participating in the SHOP are: Blue Shield of California,
Chinese Community Health Plan, Health Net, Kaiser Permanente,
Sharp Health Plan and Western Health Advantage. These plans are
sold through licensed insurance agents trained and certified by
Covered California. SHOP is administered for Covered California
by Irvine-based Pinnacle Claims Management, Inc., which was
awarded the contract in April 2013. The only way for
small-business owners to access tax credits available through
the ACA is to purchase insurance through Covered California's
SHOP. The first phase of tax credits under the law goes through
tax year 2013 and provides businesses with fewer than 25
full-time-equivalent employees with a tax credit, provided the
employees make less than $50,000 a year. During this first
phase, qualifying employers can receive a tax credit of up to
35% of their contribution toward their employees' premium (25%
for non-profits). The maximum tax credit increases to 50% (35%
for non-profits) in 2014 and is available for a total of two
consecutive years. Generally, businesses with 10 or fewer
full-time-equivalent employees and wages averaging $25,000 or
less a year will qualify for the maximum credits. To qualify
for tax credits, employers must also pay at least 50% of
employee-only premium costs. Through March 31, 2014, 1,156
small businesses (representing about 4,900 employees and their
dependents) have enrolled for coverage. Enrollment in SHOP is
available year round.
Prior Legislation
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SB 639 (Hernandez, Chapter 316, Statutes of 2013) codifies
provisions of the ACA relating to OOP maximums on cost-sharing,
health plan and insurer actuarial value coverage levels and
catastrophic coverage requirements, and requirements on health
insurers for coverage of out-of-network emergency services.
Applies OOP limits to specialized products that offer EHBs and
permits carriers in the small group market to establish an index
rate no more frequently than each calendar quarter.
AB 1180 (Pan, Chapter 441, Statutes of 2013) makes inoperative
several provisions in existing law that implement the health
insurance laws of the federal Health Insurance Portability and
Accountability Act of 1996 and additional provisions that
provide former employees rights to convert their group health
insurance coverage to individual market coverage without medical
underwriting. Established notification requirements informing
individuals affected by AB 1180 of health insurance available in
2014.
SB X1 2 (Hernandez, Chapter 2, Statutes of 2013-14 First
Extraordinary Session), and AB X1 2 (Pan, Chapter 1, Statutes of
2013-14 First Extraordinary Session), conform California law to
the ACA as it relates to the ability to sell and purchase
individual health insurance by prohibiting pre-existing
condition exclusions, establishing modified community rating,
requiring the guaranteed issue and renewal of health insurance,
and ending the practice of carriers conditioning health
insurance on health status, medical condition, claims
experience, genetic information, or other factors. The bills
also update the small group market laws for health plans to be
consistent with final federal regulations.
AB 1083 (Monning, Chapter 852, Statutes of 2012) amended
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
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issued consistent with that law.
SB 951 (Hernandez, Chapter 866, Statutes of 2012), and AB 1453
(Monning, Chapter 854, Statutes of 2012) establish California's
EHBs benchmark requirements.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/19/14)
Department of Insurance (source)
Associated Builders and Contractors of California
Bay Area Council
Blue Shield of California
California Asian Pacific Chamber of Commerce
California Association of Health Underwriters
California Chamber of Commerce
California Manufacturer and Technology Association
California Restaurant Association
California Small Business Association
Coalition for Business Healthcare Choices
Health Net
Independent Agents and Brokers of California
National Association of Insurance and Financial Advisors -
California
National Federation of Independent Businesses
Small Business California
OPPOSITION : (Verified 5/19/14)
AFSCME, AFL-CIO
Consumers Union
Health Access
ARGUMENTS IN SUPPORT : CDI sponsors this bill to allow
pre-2014 non-grandfathered small group policies that were sold
or renewed in 2013 to be renewed through October 1, 2016. CDI
writes that plans subject to this transitional policy would
continue to be subject to existing small group law regarding
premiums, risk adjustment factors, and standard employee risk
rates; other provisions of existing law, including the
prohibition against the use of preexisting condition or waivered
condition provisions, the prohibition against establishing rules
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for eligibility based on health status-related factors, waiting
periods and disclosure requirements for solicitation, and sales
materials. According to CDI, the impact of the extension of
policies is different in the small group market than the
individual market for a number of reasons: (1) pre-existing
condition exclusions were not permitted in the small group
market prior to the ACA, and so the small group market is not
exposed to an influx of previously uncovered lives; (2)
implementing the transitional policy preserves coverage options
because the ACA does not require small employers to purchase
coverage for their employees; (3) the transitional policy would
have little impact on the SHOP because it is a small part of the
small group insurance market; and (4) the rate filings for the
2014 ACA compliant small group products indicate that the rate
changes associated with adding health benefits to comply with
the EHB benchmark are between 0 and 2.7% because small group
coverage already includes comprehensive benefits, in large part
due to the state mandates that were already in place.
ARGUMENTS IN OPPOSITION : Health Access California writes that
this bill would undo numerous consumer protections that assure
that covered employees of small businesses will have EHBs,
limits on OOP costs, protection against rescission, the ability
to shop for standardized plans based on apples to apples
comparisons and limits on deductibles. Consumers Union fears
this bill will create a climate for adverse selection against
Covered California.
AFSCME opposes this bill stating that bringing health care
policies into line with the ACA as soon as possible is the best
way to expand quality, affordable health care to all
Californians.
JL:e 5/20/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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