BILL ANALYSIS Ó
SB 1446
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Date of Hearing: June 10, 2014
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
SB 1446 (DeSaulnier) - As Amended: May 27, 2014
SENATE VOTE : 35-0
SUBJECT : Health care coverage: small employer market.
SUMMARY : Allows small employer health plan contracts and
insurance policies that do not comply with specified reforms
under the federal Patient Protection and Affordable Care Act
(ACA) to be renewed and continue to be in force through 2015.
Contains an urgency clause to ensure that the provisions of this
bill go into immediate effect upon enactment. Specifically,
this bill :
1)Allows a non-grandfathered small employer health care service
plan contract or health benefit plan (a small employer health
insurance policy that meets specified criteria) in effect on
December 31, 2013, and still in effect as of the effective
date of this bill, to be renewed until January 1, 2015, and
continue to be in force until December 31, 2015, subject to
applicable state and federal law.
2)Exempts small employer health plan contracts and insurance
policies that are renewed under this bill from the following
provisions:
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 essential health benefits
(EHBs);
f) Maximum limitations on out-of-pocket expenses and
deductibles; and,
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g) Requirements for coverage to be categorized based on
levels of coverage determined by a product's actuarial
value.
3)Requires small employer health plan contracts and insurance
policies renewed under this bill to be amended by January 1,
2016, to comply with the ACA reforms.
4)Requires a small employer health plan or insurer that offers
renewal under this bill to provide notice to the group
contract holder regarding the option to renew coverage using a
specified federal notice.
a) Requires that notice to include the following additional
notice for health plans regulated by the Department of
Managed Health Care (DMHC):
"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. A new health
care service plan contract may be more affordable and/or
offer more comprehensive benefits. New plans may also have
limits on deductibles and out-of-pocket costs, while your
existing plan may have no such limits.
"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. Covered California, the state's new health
insurance marketplace, offers small employers health
insurance from a number of companies through its Small
Business Health Options Program (SHOP). Federal tax
credits are available through the SHOP to those small
employers that qualify. Talk to Covered California
(1-877-453-9198), your plan representative, or your
insurance agent to discuss your options."
b) Requires a similar notice, with "health benefit plan"
substituted for "health care service plan contract," for
health benefit plans regulated by the California Department
of Insurance (CDI).
c) Requires the notice to include the premium, cost
sharing, and benefits associated with the plan's standard
benefit designs for the plan's products offered through the
SHOP.
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5)Requires a health plan or insurer that offers renewal under
this bill to offer renewal under this bill to all employers
whose contract with that health plan or insurer was in effect
on December 31, 2013.
6)Requires a health plan or insurance policy that is offered for
renewal under this bill to continue to be subject to previous
risk rating rules for the small group market, which limit risk
adjustment factors to not more than 110% and not less than 90%
and apply consistent employee risk rates with respect to all
small employers. Requires a health plan or insurance policy
offered for renewal under this bill to continue to be subject
to all other requirements on non-grandfathered small employer
plans insurance policies.
EXISTING LAW :
1)Establishes DMHC to regulate health plans and CDI to regulate
health insurers.
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.
3)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
benefit plans in this state, whether offered as a health plan
contract or health insurance policy. This requirement applies
separately for individual market products and small group
products.
4)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.
5)Requires individual and small group health plans and insurance
policies issued, amended, or renewed, on or after January 1,
2014, to cover essential health benefits (EHBs) as specified
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in state and federal law. Establishes as California's EHBs
the Kaiser Small Group Health Maintenance Organization (HMO)
plan along with 10 ACA mandated benefits
6)Requires, on or after January 1, 2015, non-grandfathered
health plan contracts or health insurance policies in the
individual and small group markets to provide for a limit on
annual out-of-pocket expenses for all covered benefits that
meet the definition of EHBs, as specified.
7)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.
8)Defines levels of coverage for the non-grandfathered small
group market as Bronze, Silver, Gold, and Platinum, based on a
product's actuarial value, as specified.
9)Establishes premium rate rules for small employer health plan
and insurance contracts including, effective July 1, 1996,
that 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.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS :
1)PURPOSE OF THIS BILL . In November 2013, President Obama
announced a federal policy giving health plans and insurers in
the individual and group market the option to offer renewals
to people in non-ACA compliant plans. According to the author
of this bill, state law is not consistent with this transition
policy, which can lead to consumer confusion and policyholders
asking why they aren't allowed to keep their existing health
insurance coverage which their employees are happy with when
the President announced that they may do so. The author
asserts that a significant percentage of small business owners
will choose to move to ACA compliant products by the end of
2014, but this bill allows those small employers who wish to
avail themselves of President Obama's transition policy to do
so.
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2)BACKGROUND . The ACA made major reforms to the small group and
individual health insurance markets, such as mandating
guaranteed issuance of coverage, eliminating pre-existing
condition exclusions, limiting factors upon which premium
rates can be developed, and creating state or federal health
benefit exchanges where individuals and small businesses can
buy coverage. These reforms are effective for all plans
issued or renewed on or after January 1, 2014.
California has also enacted legislation to incorporate most of
the federal insurance market reforms into state law, including
a requirement that in both the individual and small group
markets, coverage must be compliant with ACA reforms,
including premium limits and use of a single risk pool for
determining rates. Unlike the individual market, California
has had guaranteed issue and renewability in the small group
market since 1992.
In November 2013, the Centers for Medicare and Medicaid Services
(CMS) issued a letter to states outlining a transitional
policy for non-grandfathered coverage in the small group and
individual health insurance markets. CMS announced that
health plans and insurers may choose to continue coverage that
would otherwise be cancelled, and affected individuals and
small businesses may choose to re-enroll in such coverage.
CMS further stated that this coverage would not be considered
out of compliance with certain ACA reforms, including sections
relating to: fair health insurance premiums; guaranteed
availability and renewability of coverage; and
comprehensiveness of health insurance coverage. CMS indicated
that it would consider the impact of this transitional policy
in assessing whether to extend it beyond the specified
timeframe.
In March 2014, CMS indicated it would extend the transitional
policy for two years, to policy years beginning on or before
October 1, 2016, in the small group and individual markets.
Under the CMS transitional policy, plans could be renewed and
remain in effect until through September 30, 2017; this bill
opts to create a shorter transitional policy that only allows
noncompliant plans to be in effect through 2015.
In California, many small employers carried out early renewals
of their coverage at the end of 2013. Because the ACA reforms
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apply to contracts issued or renewed on or after January 1,
2014, these early renewals allowed these employers to keep
their current, noncompliant plans or policies until late 2014.
This bill will allow these early-renewing employers to renew
this coverage again, whereas employers whose plan years end
prior to the enactment of this bill, should it be enacted,
will not have the option of renewal and will therefore be
unable to obtain an ACA-noncompliant plan.
3)SUPPORT . CDI, the sponsor of this bill, writes that plans
subject to the 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 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: a)
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; b) Implementing the transitional policy preserves
coverage options because the ACA does not require small
employers to purchase coverage for their employees; c) The
transitional policy would have little impact on the SHOP
because it is a small part of the small group insurance
market; and d) 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.
Supporters of this bill, which include the California Chamber
of Commerce and the California Association of Health
Underwriters, write that the extended transitional period will
give small employers more time to prepare to bear the costs
associated with fully ACA compliant plans, minimizing the
potentially negative impacts this new burden could have on the
continuing economic recovery. Health Net estimates that, in
the absence of this bill, about 500,000 people would see rate
increases over 20%, and as many as 50,000 people could see
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premium increases of 70% or more. Health Net also points out
that, under this bill, employers would not be required to keep
their noncompliant plans: they would have the choice to
purchase a SHOP plan or a plan outside the SHOP that includes
the ACA protections.
4)RELATED LEGISLATION .
a) AB 2 X1 (Pan), Chapter 1, Statutes of 2013-14 First
Extraordinary Session, and SB 2 X1 (Ed Hernandez), Chapter
2, 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. The bills
also update the small group market laws for health plans to
be consistent with final federal regulations.
b) AB 1507 (Logue) would have authorized health plans and
insurers to renew individual and small group health benefit
plans in effect October 1, 2013, as specified, and required
such coverage to be treated as "grandfathered" coverage,
exempt from specified provisions of the ACA. AB 1507 was
never heard in this Committee.
c) AB 2433 (Mansoor) would have required, to the extent
permitted by the ACA, an individual whose health benefit
plan was cancelled between December 1, 2013, and March 31,
2014, to be deemed to face hardship, making them eligible
to purchase individual catastrophic coverage. AB 2433
failed passage in this Committee.
d) SB 639 (Ed Hernandez), Chapter 316, Statutes of 2013,
codifies provisions of the ACA relating to out-of-pocket
maximums on cost-sharing, health plan and insurer actuarial
value coverage levels and catastrophic coverage
requirements, requirements on health insurers for coverage
of out-of-network emergency services, and frequency of
setting the index rate for establishment of premiums.
e) SB 959 (Ed Hernandez) 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 for all CDI- and DMHC-regulated
products. SB 959 is set to be heard in this Committee June
17.
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5)PREVIOUS LEGISLATION .
a) AB 1083 (Monning), Chapter 852, Statutes of 2012, amends
California's small group health insurance laws to enact the
relevant ACA provisions, such as eliminating pre-existing
condition requirements and establishing premium rating
factors based only on age, family size, and geographic
regions. AB 1083 permits a waiting period of no longer
than 60 days; requires an affiliation period under a health
plan contract to run concurrently with any waiting period
under that contract, not to exceed 60 days; and, allows a
waiting period for plan years on or after January 1, 2014
to be applied as a condition of employment if applied
equally to all full-time employees, consistent with ACA and
any rules, regulations, or guidance issued consistent with
that law.
b) SB 951 (Ed Hernandez), Chapter 866, Statutes of 2012,
and AB 1453 (Monning), Chapter 854, Statutes of 2012,
establish California's EHB benchmark requirements.
REGISTERED SUPPORT / OPPOSITION :
Support
California Department of Insurance (Sponsor)
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 Manufacturers and Technology Association
California Restaurant Association
California Small Business Association
Coalition for Business Healthcare Choices
Delta Dental
Health Net
Independent Insurance Agents and Brokers of California
National Association of Insurance and Financial Advisors,
California
National Federation of Independent Businesses
San Jose Silicon Valley Chamber of Commerce
Simi Valley Chamber of Commerce
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Small Business California
Opposition
None on file.
Analysis Prepared by : Ben Russell / HEALTH / (916) 319-2097