BILL ANALYSIS Ó
AB 248
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Date of Hearing: April 7, 2015
ASSEMBLY COMMITTEE ON HEALTH
Bonta, Chair
AB
248 (Roger Hernández) - As Introduced February 9, 2015
SUBJECT: Health insurance: minimum value: large group market
policies.
SUMMARY: Prohibits a health care service plan or insurer
offering plans or policies in the large group market from
marketing, offering, amending or renewing a large group plan
contract that provides a minimum value of less than 60%.
Specifically, this bill:
1)Prohibits a health plan or insurer, except a specialized plan
or policy, from marketing, offering, amending, or renewing a
large group contract that provides a minimum value of less
than 60%. This means that no plan or insurer can offer a
large group contract where the plan or insurer's share of the
total cost of benefits is less than 60%.
2)Exempts limited wraparound coverage from this requirement.
3)Specifies that a health plan or insurer provides a minimum
value of at least 60% if it complies with specified federal
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requirements regarding employer-sponsored minimum essential
coverage (MEC), including affordability and minimum value
requirements.
4)Declares legislative intent that employees of large employers
who are offered health employer-sponsored coverage are offered
coverage that meets or exceeds 60% minimum value, which is the
minimum standard for comprehensive employer coverage under
federal law, and makes other findings and declarations.
EXISTING LAW:
1)Establishes the Knox-Keene Health Care Service Plan Act of
1975 (Knox-Keene Act) which provides for the licensure and
regulation of health care services plans by the Department of
Managed Health Care (DMHC) and provides for the regulation of
health insurers by the California Insurance Commissioner (IC).
2)Requires, under both federal and state law, that health plans
and insurers issuing health benefit plans in the individual
and small group market comply with specified requirements
regarding the offering, sale, and scope of coverage provided,
including requirements to cover 10 essential health benefits
(EHBs).
3)Excludes from the definition of a health benefit plan issued
by a health insurer, a policy or certificate of specified
disease or hospital confinement indemnity when that policy or
certificate is certified by the IC as supplemental health
insurance, and not as a substitute for EHBs, and the insurer
requires the person who would be covered to have other health
coverage that is not designed to serve as a supplement.
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4)Establishes, under the federal Patient Protection and
Affordable Care Act (ACA):
a) A penalty on employers with at least 50 full-time
employees that do not offer qualifying coverage, and have
at least one full-time employee that qualifies for premium
tax credits to purchase insurance through a health benefit
exchange (exchange); and,
b) A requirement that all individuals, with certain
exceptions, who have access to affordable coverage purchase
MEC or pay a penalty.
FISCAL EFFECT: This bill has not yet been analyzed by a fiscal
committee.
COMMENTS:
1)PURPOSE OF THIS BILL. According to the author, large
employers, unlike individual and small employers are not
required to provide EHBs to their workers, resulting in some
health insurers selling limited benefit health plans, such as
prevention-only or indemnity insurance to large employers,
primarily those with low-wage workers. The author states that
through a loophole in federal law, these large employers have
financial incentives to offer limited benefit plans, often
referred to as "skinny plans," to their employees, leaving
workers with substandard coverage and vulnerable if they get
sick. The author argues that this bill closes this federal
loophole by ensuring that a limited benefit plan can only be
sold as supplemental insurance. The author concludes by
stating that if our small business community is required to
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provide comprehensive insurance to its employees, large
employers have no excuse to not offer the same.
2)BACKGROUND.
a) Differences in large group coverage. Health coverage
for the large group market (50 or more employees) is
subject to different rules than individual and small group
coverage under the ACA. For example, the law requires
health plans and insurance policies offered in the
individual and small group markets to offer a comprehensive
package of benefits knows as EHBs, which include items and
services from at least the following 10 categories:
ambulatory patient services; emergency services;
hospitalization; maternity and newborn care; mental health
and substance use disorder services, including behavioral
health treatment; prescription drugs; rehabilitative and
habilitative services and devices; laboratory services;
preventive and wellness services and chronic disease
management; and, pediatric services, including oral and
vision care.
While coverage of EHBs is required for individual and small
group insurance, EHB requirements do not apply to health
plans or policies sold in the large group market. Thus,
plans and policies sold in the large group market do not
have to adhere to a floor for benefits covered.
Another difference between individual and small group markets
and the large group market lies with requirements for
actuarial value, which is the percentage of expected health
costs paid for by the plan or policy. Individual and small
group policies, except for those that are grandfathered,
are offered and sold based on actuarial value. Under the
ACA, health plans or policies cannot be sold in the
individual and small group market if they do not meet the
following actuarial values:
i) Bronze - 60% (represents minimum creditable
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coverage allowed under the law);
ii) Silver - 70%;
iii) Gold - 80%; and,
iv) Platinum - 90%.
Catastrophic benefit plans can be made available in the
individual market for adults younger than 30 years of age
and for those exempt from MEC requirements.
Plans and policies sold in the large group market do not
have to meet these actuarial value requirements. In the
large group market, plans and policies adhere to minimum
value. Under the ACA, for the purposes of employer and
individual responsibility requirements, employer-sponsored
coverage must have 60% minimum value. However, unlike the
individual and small group market, current law does not
prohibit plans or policies that have less than 60% minimum
value from being sold in the large group market.
b) MEC. The ACA contains provisions requiring individuals
and their family members to have qualifying health
coverage, known as MEC. Individuals who do not meet
requirements for MEC may be subject to a penalty when
filing their federal income tax return. Effective January
1, 2015, the penalty is the greater of $325 or 2% of
income.
The ACA provides certain exceptions to MEC requirements. For
example, an individual is exempt from requirements to
maintain MEC when the lowest-price coverage available would
cost more than 9.5% of household income, or if the
individual's employer-sponsored coverage does not meet 60%
minimum value.
A variety of types of health coverage qualify as MEC,
including employer-sponsored group health coverage,
individual health coverage purchased from a plan or insurer
or through an exchange, and coverage under
government-sponsored programs such as Medicare and
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Medicaid. Certain types of coverage that provide limited
benefits do not quality as MEC, including stand-alone
dental and vision plans, worker's compensation insurance,
and Medicaid coverage only for specific services or
conditions, such as family planning services, or coverage
only for emergency services.
Under the ACA, an individual who purchases coverage through
the California Health Benefit Exchange (now Called Covered
California) may be eligible to receive a premium tax
credit, unless they are eligible for other MEC, including
coverage under an employer-sponsored plan that is
affordable and provides minimum value. This means that if
an individual's employer offers coverage that meets MEC
requirements, the individual may not obtain premium tax
credits through Covered California.
Recent federal guidance, reviewed and updated by the issued
by the Internal Revenue Service on March 27, 2015, states
that individuals who enroll an employer-sponsored may not
be eligible for the premium tax credit even if the plan is
unaffordable or fails to provide minimum value. As such,
an individual who accepts employer-sponsored coverage that
does not meet 60% minimum value may not be eligible for
premium tax credits through Covered California.
c) Employer responsibility requirements. The ACA also
imposes a penalty on employers, with at least 50<1>
full-time employees, which do not offer qualifying
coverage, meaning coverage that meets 60% minimum value,
and which have at least one full-time employee who
qualifies for premium tax credits to purchase insurance
through an exchange. The penalty is $2,000 for each
--------------------------
<1> Employer responsibility requirements are apply to employers
with 100 or more full-time employees starting in 2015 and
employers with 50 or more full-time employees starting in 2016.
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full-time employee (excluding the first 30 employees<2>).
Additionally, the ACA imposes penalties on large employers
that do offer coverage, but that offer coverage that does
not meet 60% minimum value or that is not affordable to
employees. In this scenario, the penalty is set at the
lesser of $3,000 for each employee receiving a premium tax
credit through an exchange, or $2,000 for each of their
full-time employees (again, excluding the first 30
employees).
3)SUPPORT. According to Health Access California (HAC), the
sponsor of this bill, states that large employers that offer
subminimum coverage to their employees and dependents avoid
employer responsibility penalties, and render their employees
ineligible for tax credits for coverage through Covered
California because they have employer-sponsored coverage. HAC
cites specified products that do not meet 60% minimum value,
and asserts that employees with such minimal benefits are at
risk of bankruptcy in the event that they become ill or must
obtain emergency care. HAC concludes by stating that this
bill closes a loophole left by federal guidance, and protects
consumers by assuring that employer coverage sold in
California meets the minimum standard of 60% minimum value.
The California Labor Federation (CLF) states that "skinny" plans
may be attractive to employers that want to evade the employer
responsibility requirement of the ACA. CLF states that if an
employer is deemed to have offered coverage, even if it is
substandard, they pay the lesser of two federal penalties,
which could save the employer a considerable amount of money.
CLF states that workers who accept substandard coverage are
put at risk, because by accepting the coverage, they are
barred from receiving subsidized coverage through Covered
California. CLF cites recent actions by large employers to
offer employees plans that do not cover doctors' visits,
---------------------------
<2> For the 2015 plan year, the penalty is $2,000 for each
full-time employee minus the first 80 employees. For plan years
beginning in 2016, 30 employees will be excluded from the
penalty calculation.
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hospital stays, emergency care, or prescription drugs, and
states that this bill will protect workers by prohibiting
plans and insurers from selling substandard coverage in the
large group market just as they are prohibited from doing in
the small and individual markets.
4)OPPOSITION. Opponents state that this bill would
unnecessarily bar employers from combining health care
insurance products to create a health benefit package for
their workers unless the core plan meets at least 60% minimum
value requirements. Opponents argue that nothing in the ACA
dictates just how a large employer may construct their health
care benefits package in order to reach 60% minimum value, and
that this bill inappropriately attempts to stop large
employers from using legally permissible building blocks of
coverage when the first building block is not a 60% minimum
value plan. Opponents state that providing health care is
expensive, that this bill will make providing health care even
more expensive for large employers, California employers with
multi-state operations would have to have a different set of
plans her than in other states that they operate. Opponents
conclude by stating that policymakers should not put up
unnecessary barriers to large employers doing their best to
provide affordable care to their employees, and that taking
ACA-permitted tools away from California employers is not the
right path towards ensuring affordable employee health care
coverage.
5)PREVIOUS LEGISLATION.
a) AB 2088 (Roger Hernández) of 2014 would have required a
health plan or insurer that sell a large group plan
contract or policy providing minimum value of less than 60%
to require that the persons to be covered are also covered
by an individual or group plan or policy that is not
supplemental coverage; that provides medical, hospital, and
surgical coverage; and that provides at least 60% minimum
value. AB 2088 was vetoed. In his veto message, the
Governor stated that, while well-intentioned, AB 2088 may
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violate federal law to the extent that it would outlaw any
grandfathered plans that have been continuously sold to an
employer prior to the passage of the ACA.
b) AB 880 (Gomez) of 2013 would have required a large
employer to pay to the Employment Development Department an
employer responsibility penalty for each covered employee
enrolled in Medi-Cal based on the average cost of
employee-only coverage provided by large employers to their
employees. AB 880 failed passage by the Assembly
Appropriations Committee.
c) SB 2 X1 (Ed Hernandez), Chapter 2, Statutes of 2013-14
First Extraordinary Session, applies the individual
insurance market reforms of the ACA to health plans
regulated by DMHC and updates the small group market laws
for health plans to be consistent with final federal
regulations.
d) AB 2 X1 (Pan), Chapter 1, Statutes of 2013-14 First
Extraordinary Session, establishes health insurance market
reforms contained in the ACA specific to individual
purchasers, such as prohibiting insurers from denying
coverage based on pre-existing conditions and makes
conforming changes to small employer health insurance laws
resulting from final federal regulations.
e) AB 1083 (Monning), Chapter 852, Statutes of 2012,
reforms California's small group health insurance laws to
enact the ACA. Eliminates pre-existing condition
requirements and establishes premium rating factors based
only on age, family size, and geographic regions, except
for grandfathered plans. New guaranteed issue provisions
and the rating provisions are tied to those provisions in
the ACA. Should guaranteed issue and rating factors be
repealed in the ACA, California's existing guaranteed issue
and rating law pre-ACA would become operative.
f) SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB
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1602 (John A. Pérez), Chapter 655, Statutes of 2010,
establishes Covered California.
6)TECHNICAL AMENDMENTS. This bill attempts to define a health
plan or insurance policy that provides a minimum value of at
least 60% via a cross-reference to Section 36(B)(c)(2)(C) of
the federal Internal Revenue Code which provides a definition
for minimum value. However, the federal code section
cross-referenced also contains other provisions relating to
employer-sponsored MEC, and this bill in its current draft may
not provide for the clearest link to a definition for 60%
minimum value. As such, the committee may wish to consider
technical amendments to clarify this definition.
REGISTERED SUPPORT / OPPOSITION:
Support
Health Access California (sponsor)
American Federation of State, County, and Municipal Employees,
AFL-CIO
CA Conference Board of the Amalgamated Transit Union
CA Conference of Machinists
California Communities United Institute
California Labor Federation
California Pan-Ethnic Network
California Primary Care Association
California School Employees Association
California State Council of the Service Employees International
Union
California Teamsters
Consumers Union
Engineers & Scientists of California
International Longshore & Warehouse Union
Professional and Technical Engineers
SEIU California
Unite-Here, AFL-CIO
Utility Workers Union of America
Western Center on Law and Poverty
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Several individuals
Opposition
California Association of Health Underwriters
Independent Insurance Agents and Brokers of California
National Association of Insurance and Financial Advisors of
California
California Association of Small Employer Health Plans
Analysis Prepared
by: Kelly Green / HEALTH / (916) 319-2097