BILL ANALYSIS Ó SENATE COMMITTEE ON HEALTH Senator Ed Hernandez, O.D., Chair BILL NO: AB 248 --------------------------------------------------------------- |AUTHOR: |Roger Hernández | |---------------+-----------------------------------------------| |VERSION: |June 10, 2015 | --------------------------------------------------------------- --------------------------------------------------------------- |HEARING DATE: |June 17, 2015 | | | --------------------------------------------------------------- --------------------------------------------------------------- |CONSULTANT: |Teri Boughton | --------------------------------------------------------------- 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 : ----------------------------------------------------------------- |Assembly Floor: |51 - 27 | |------------------------------------+----------------------------| |Assembly Appropriations Committee: |12 - 5 | |------------------------------------+----------------------------| |Assembly Health Committee: |12 - 3 | AB 248 (Roger Hernández) Page 5 of ? | | | ----------------------------------------------------------------- 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 -- END --