BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON HEALTH
                          Senator Ed Hernandez, O.D., Chair

          BILL NO:                    AB 248    
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          |AUTHOR:        |Roger Hernández                                |
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          |VERSION:       |June 10, 2015                                  |
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          |HEARING DATE:  |June 17, 2015  |               |               |
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          |CONSULTANT:    |Teri Boughton                                  |
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           SUBJECT  :  Health insurance:  minimum value:  large group market  
          policies

          SUMMARY  :  Prohibits non-grandfathered health plans or health insurers  
          that offer, amend, or renew a large group health plan contract  
          or health insurance policy from marketing, offering, amending,  
          or renewing a large group plan contract or health insurance  
          policy that provides a minimum value of less than 60%.  Requires  
          a life licensee who is authorized to transact accident and  
          health insurance, as described, that offers coverage of health  
          benefits to a large group purchaser to document to the Insurance  
          Commissioner that the health benefits provided to insureds  
          provides at least 60% minimum value and prohibits the licensee  
          from offering, selling or transacting coverage that does not  
          provide at least 60% minimum value.  
          
          Existing law:
          1)Enacts, in federal law, the Affordable Care Act (ACA) to,  
            among other things, impose a penalty on employers, with at  
            least 50 full-time employees, that do not offer qualifying  
            coverage or minimum value (which means the plan's share of the  
            total allowed costs of benefits provided under the plan is  
            less than 60% of such costs), if at least one full-time  
            employee qualifies for premium tax credits to purchase  
            insurance in an health benefit exchange.  The penalty is  
            $2,000 for each of full-time employee (with the first 30  
            employees exempted from the calculation). 

          
          2)Requires for employers with 50 or more employees who do offer  
            coverage but still have at least one employee who qualifies  
            for a premium tax credit (due to inadequacy or unaffordability  
            of the employer's benefit), to pay the lesser of $3,000 for  







          AB 248 (Roger Hernández)                          Page 2 of ?
          
          
            each employee receiving the credit or $2,000 for each of all  
            of their full-time employees (with the first 30 employees  
            exempted). 
          
          3)Applies the employer responsibility provisions described in 1)  
            and 2) above to firms with 100 or more full-time employees  
            starting in 2015 and employers with 50 or more full-time  
            employees starting in 2016.
          
          4)Requires effective January 1, 2014, that all individuals with  
            access to affordable coverage purchase minimum essential  
            coverage or pay a penalty of $95 or 1% of income (whichever is  
            greater) for 2014, $325 or 2% of income for 2015, $695 or 2.5%  
            of income (up to a cap of the premium for a Bronze plan) for  
            2016, and caps adjusted by increases in cost of living after  
            2016.
          
          5)Establishes exceptions to the individual responsibility  
            requirements described in 4) above for individuals not  
            lawfully present in the U.S., religious objectors,  
            incarcerated individuals,  taxpayers with income below the  
            filing threshold, members of Indian tribes, those granted a  
            hardship waiver and individuals who were not covered for less  
            than three months of the year.  
          
          6)Establishes as minimum essential coverage, health insurance  
            coverage provided by an employer, health insurance purchased  
            through an exchange, coverage provided under a  
            government-sponsored program (including Medicare, Medicaid,  
            and health care programs for veterans), health insurance  
            purchased directly from an insurance company, and other health  
            insurance coverage that is recognized by the Department of  
            Health & Human Services (HHS) as minimum essential coverage.
          
          7)Requires employers with over 50 employees to report to HHS  
            whether it offers minimum essential coverage to its employees  
            and their dependents.
          
          8)Defines grandfathered plans as coverage in place in 2010 when  
            the ACA was enacted.
          
          9)Provides, in state law, for the regulation of health plans by  
            the Department of Managed Health Care (DMHC) under the  
            Knox-Keene Act, including a requirement that health plans  
            cover basic health care services such as physician, inpatient  








          AB 248 (Roger Hernández)                          Page 3 of ?
          
          
            and ambulatory services.  
          
          10)Provides for the regulation of health insurers by the  
            California Department of Insurance (CDI) under the Insurance  
            Code.
          
          11)Requires non-grandfathered individual and small group health  
            plan and health insurance products to cover essential health  
            benefits (EHBs) which consists of ten federally mandated  
            benefit categories and additional state mandated benefits.
          
          12)Defines health benefit plan as any group or individual policy  
            of health insurance, and excludes from the definition  
            specified policies or certificates where the carrier issues a  
            statement to CDI that the policies or certificates are  
            supplemental health insurance and not a substitute for  
            coverage that provides EHBs.

          13)Requires the carrier to require that the insured person is  
            covered by an individual or group policy or contract that  
            arranges or provides medical, hospital, and surgical coverage  
            not designed to supplement other private or governmental  
            plans.

            
          14)Establishes California's Health Benefit Exchange (Covered  
            California) as an independent entity in state government not  
            affiliated with any state agency or department, governed by a  
            five member board.  Requires the Covered California board to  
            establish and use a competitive process to select  
            participating carriers and other contractors.  

          
          This bill:
          1)Prohibits a non-grandfathered health plan or health insurer  
            that offers, amends, or renews a large group health plan  
            contract or health insurance policy from marketing, offering,  
            amending, or renewing a large group plan contract or health  
            insurance policy that provides a minimum value of less than  
            60%.  

          2)Excludes from the prohibition in 1) above a health plan  
            offering a specialized health plan contract, or an insurer  
            issuing a specialized health insurance policy.  Excludes  
            limited wraparound coverage, as specified.  Excludes a  








          AB 248 (Roger Hernández)                          Page 4 of ?
          
          
            grandfathered health insurance policy that provides basic  
            health care services, as defined, without annual or lifetime  
            limits for any of the basic health care services.

          3)Requires a life licensee who is authorized to transact  
            accident and health insurance, as described, that offers  
            coverage of health benefits to a large group purchaser to  
            document to the Insurance Commissioner that the health  
            benefits provided to insureds provides at least 60% minimum  
            value and prohibits the licensee from offering, selling or  
            transacting coverage that does not provide at least 60%  
            minimum value.  States that health reimbursement accounts do  
            not constitute benefits provided to insureds.

          4)Finds and declares that an employee of a large employer who  
            accepts health coverage from his or her employer that is less  
            than 60% minimum value is barred by federal guidance from  
            obtaining federal tax credits for affordable health coverage  
            through Covered California.

          5)States legislative intent in enacting this act to ensure that  
            employees of large employers who are offered health coverage  
            by their employers are offered coverage that meets or exceeds  
            60% minimum value, the minimum standard for comprehensive  
            employer coverage under federal law. This requirement applies  
            if an employer purchases that health coverage from a health  
            plan or health insurer regulated by the State of California.


           FISCAL  
          EFFECT  :  According to the Assembly Appropriations Committee,  
          minor and absorbable costs to CDI and DMHC to verify plans and  
          policies comply with this requirement.  The large majority of  
          plans and policies already comply.


           PRIOR  
          VOTES  :  
          
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          |Assembly Floor:                     |51 - 27                     |
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          |Assembly Appropriations Committee:  |12 - 5                      |
          |------------------------------------+----------------------------|
          |Assembly Health Committee:          |12 - 3                      |








          AB 248 (Roger Hernández)                          Page 5 of ?
          
          
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          COMMENTS  :
          1)Author's statement.  According to the author, AB 248 creates a  
            consistent baseline for health insurance requirements in the  
            State of California. Large employers (50 full time employees  
            or more) health insurance, unlike individual and small  
            employer health insurance, is not required to provide EHBs.  
            This has created a federal loophole so that large employers  
            are not held to the same minimum benefits standards as small  
            employers and individuals.  The result has been some health  
            insurers selling limited benefit or "skinny" health plans,  
            such as prevention-only or indemnity insurance to large  
            employers, primarily those with low-wage workers. Some of  
            these so called skinny plans do not cover doctor visits,  
            hospital stays, emergency rooms, prescription drugs, x-rays,  
            hospice or other preventative care. This can leave workers  
            vulnerable to thousands of dollars in medical bills when they  
            get sick. We need to end this loophole that rewards bad  
            behavior. If our small business community is required to  
            provide comprehensive health insurance to its employees, large  
            employers have no excuse to not offer the same. AB 248  
            protects the spirit of the ACA, and everyone's access to  
            affordable and comprehensive health coverage.  

          2)Federal Health Reform.  On March 23, 2010, the federal  
            government enacted the ACA (Public Law 111-148), which was  
            further amended by the Health Care Education Reconciliation  
            Act (H.R. 4872).  The ACA, as modified by the U.S. Supreme  
            Court ruling, gives states the option to expand eligibility in  
            the Medicaid program to include adults without children, and  
            it contains other required program simplifications.  Regarding  
            the private health insurance market, the ACA primarily  
            restructures the individual and small group markets, setting  
            minimum standards for health coverage, providing financial  
            assistance to individuals with income below 400 % of the  
            federal poverty level (FPL), tax credits for small employers,  
            and the establishment of health benefit exchanges and  
            essential health benefits that are required to be offered by  
            qualified health plans (QHPs), which are plans participating  
            the small group and individual market through Exchanges.  QHPs  
            are required to offer coverage at one of four levels:  bronze,  
            silver, gold, or platinum and a catastrophic plan which can  
            only be offered by plans participating in the Exchange.   








          AB 248 (Roger Hernández)                          Page 6 of ?
          
          
            Levels are based on a specified share of full actuarial value  
            of the EHBs (see below). Catastrophic plans are also permitted  
            only in the individual market for young adults (under age 30)  
            and for those persons exempt from the individual mandate. Some  
            individuals with income under 400% FPL will receive  
            advanceable, refundable tax credits toward the purchase of an  
            Exchange plan.  The payment will go directly to the insurer  
            and will reduce the premium liability for that individual.   
            There are also cost sharing reductions for those who qualify.

          3)Actuarial Value Categories.  The ACA establishes four benefit  
            categories-bronze, silver, gold, and platinum-all of which  
            will cover the EHBs.  Policies cannot be sold in the  
            small-group and individual market or exchanges that do not  
            meet the actuarial standards for the benefit categories  
            established by law.  All carriers selling in the individual  
            and small group markets are at least required to offer silver  
            and gold plans under the federal law. 

               a.     The bronze package represents minimum creditable  
                 coverage with an actuarial value of 60% (i.e., covering  
                 60% of enrollees' medical costs) with out-of-pocket  
                 spending limited to that which is defined for health  
                 savings accounts (HSAs), or $6,450 for individual  
                 policies and $12,900 for family policies in 2015; 
               b.     The silver benefit package has an actuarial value of  
                 70% and the same out-of-pocket limits; 
               c.     The gold package has an actuarial value of 80% and  
                 the same out-of-pocket limits, and,
               d.     The platinum package covers 90% of costs with the  
                 same out-of-pocket limits. 
               e.     A catastrophic benefit package can be made available  
                 for adults younger than age 30, similar to HSA-eligible,  
                 high-deductible plans, with EHBs, preventive services  
                 excluded from the deductible as under current HSA law,  
                 three primary care visits, and cost-sharing to HSA  
                 out-of-pocket limits. People who are unable to find a  
                 plan with a premium that is 8% or less of their income  
                 will be able to purchase the young adult plan as well,  
                 regardless of age. 

          4)Employer Survey.  According to the 2014 California Employer  
            Health Benefits Survey, the percentage of employers offering  
            coverage continues to decline in California and many covered  
            workers are seeing reduced benefits and increased cost  








          AB 248 (Roger Hernández)                          Page 7 of ?
          
          
            sharing.  Eighty percent of covered California workers had an  
            HMO (which is more comprehensive coverage) option in 2014,  
            compared to only 31% of covered workers nationally, and  
            California workers were less likely to have a high deductible  
            plan.  Sixty-five percent of all California firms offered a  
            high deductible health plan in 2014 and 11% of them also  
            offered health reimbursement accounts, while 33% offered  
            health savings accounts.  Thirty percent of Californians were  
            enrolled in a partly or completely self-insured plan in 2014,  
            compared with 61% nationally.  The gap between the state and  
            national figures is associated with California's high HMO  
            enrollment, since HMOs are less likely than other plans to be  
            self-insured.
          
          5)Prior legislation.  AB 2088 (Hernandez, 2014) would have  
            required a health plan or insurer that offers, amends, or  
            renews a group plan contract or policy that does not provide a  
            minimum value of at least 60% to a large group to require that  
            the persons to be covered by the plan contract or policy are  
            covered by an individual or group plan contract or policy that  
            arranges or provides medical, hospital, and surgical coverage  
            not designed to supplement other private or governmental plans  
            and that provides at least 60% minimum value.  In his veto  
            message, the Governor writes, this bill seeks to prevent  
            substandard health care coverage from being sold in the  
            employer market by setting a minimum threshold for value.  
            While well-intentioned, to the extent this bill would outlaw  
            any "grandfathered plans" - those products that have been  
            continuously sold to an employer prior to the passage of the  
            Affordable Care Act - it may violate federal law.

          6)Support.  Health Access California writes that the rules for  
            large employers are different than the rules for small  
            businesses: small businesses can only purchase coverage that  
            is at least 60% actuarial value.  Large employers that offer  
            subminimum coverage to their employees and dependents avoid  
            the employer responsibility penalty and their employees are  
            not eligible for tax credits because they have  
            employer-sponsored coverage. Guidance issued by the Internal  
            Revenue Service means that if a large employer offers coverage  
            that "fails to provide minimum value" and the employee accepts  
            that subminimum coverage, the employer escapes the employer  
            penalty and the employee is not eligible for the premium tax  
            credit.  Health Access describes one product, called Freedom  
            Care that does not cover hospital, emergency or prescription  








          AB 248 (Roger Hernández)                          Page 8 of ?
          
          
            drug coverage.  Blue Shield of California writes that this  
            measure will protect working Californians from being offered  
            substandard health insurance coverage by ensuring that a  
            limited benefit plan can only be sold as supplemental to  
            comprehensive insurance.  Anthem believes these limited  
            benefit plans place their provider partners at much greater  
            risk of bad debt and also places consumers in a position where  
            they are more likely to not understand what their coverage  
            includes.  The California Professional Firefighters writes  
            that this bill protects workers from being offered on-the-job  
            coverage that is below the minimum value standards.  The  
            California School Employees Association makes sure that these  
            barebones plans will not be offered instead of comprehensive  
            health coverage and, if offered at all, they must be  
            supplemental to comprehensive coverage.

          7)Opposition.   The California Association of Health  
            Underwriters (CAHU), the Independent Insurance Agents and  
            Brokers of California (IIABCal), the National Association of  
            Insurance and Financial Advisors of California (NAIFA  
            California), and the California Association of Small Employer  
            Health Plans (CASEHP) write that this bill would make  
            providing health care even more expensive for large employers  
            by insisting the employer-plan hit 60% minimum value before  
            other products can be added.   This bill would negatively  
            impact employers with multi-state operations as they would  
            have to have a different health plan for one state versus all  
            49 other states, and that nothing in the ACA dictates just how  
            a large employer may construct their health benefit package in  
            order to reach the 60% minimum value.  There are a number of  
            health care products of varying types that can be placed  
            together to create a health care package that meets the  
            minimum value requirements of the ACA.  CAHU, NAIFA, IIABCal  
            and CASEHP believe this bill inappropriately attempts to stop  
            large employers from using legally permissible building blocks  
            of coverage because the first building block is not a 60%  
            minimum value plan.
          

           SUPPORT AND OPPOSITION  :
          Support:  Health Access California (sponsor)
                    American Federation of State, County and Municipal  
                    Employees, AFL-CIO
                    Anthem Blue Cross
                    Blue Shield of California








          AB 248 (Roger Hernández)                          Page 9 of ?
          
          
                    California Black Health Network
                    California Conference Board of the Amalgamated Transit  
                    Union
                    California Conference of Machinists
                    California Immigrant Policy Center
                    California Labor Federation
                    California Nurses Association
                    California Pan-Ethnic Health Network
                    California Professional Firefighters 
                    California School Employees Association 
                    California State Council of the Service Employees  
                    International Union
                    California Teachers Association
                    California Teamsters Public Affairs Council
                    Community Clinic Association of Los Angeles County
                    Consumers Union
                    Engineers & Scientists of California
                    International Longshore & Warehouse Union
                    LIUNA Local 777
                    LIUNA Local 792
                    Professional & Technical Engineers
                    UNITE-HERE, AFL-CIO
                    Utility Workers Union of America
                    Western Center on Law and Poverty
          
          Oppose:   California Association of Health Underwriters 
                    California Association of Small Employer Health Plans 
                    Independent Insurance Agents and Brokers of California  

                    National Association of Insurance and Financial  
               Advisors of California

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