BILL ANALYSIS                                                                                                                                                                                                    Ó



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

          BILL NO:                    AB 1163             
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          |AUTHOR:        |Rodriguez                                      |
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          |VERSION:       |May 12, 2015                                   |
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          |HEARING DATE:  |July 8, 2015   |               |               |
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          |CONSULTANT:    |Shannon Muir                                   |
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           SUBJECT  :  Health care services plan and health insurers: agents  
          and brokers: notice of contract changes.

           SUMMARY  : Prohibits a health care service plan (plan) or health insurer  
          (insurer) from making material changes to contracts with  
          insurance agents or brokers without providing at least 60 days  
          of notice.
          
          Existing law:
          1)Establishes the Knox-Keene Health Care Service Plan Act of  
            1975 (Knox-Keene), the body of law governing plans in the  
            state, and provides for the licensure and regulation of plans  
            by the Department of Managed Health Care (DMHC).

          2)Authorizes the Director of DMHC to suspend or revoke the  
            license of a plan, or assess administrative penalties if the  
            Director determines that the licensee has committed any acts  
            or omissions constituting grounds for disciplinary action;  
            provides that any person who violates provisions of Knox-Keene  
            is liable for a civil penalty of up to $2,500 for each  
            violation through a civil action; and, provides for other  
            enforcement procedures, including provisions relating to  
            criminal offenses.

          3)Provides for the regulation of insurers and health insurance  
            agents and brokers by the California Department of Insurance.

          4)Defines a health insurance agent as a "life licensee," which  
            is a person authorized to transact insurance coverage for  
            sickness, bodily injury, or accidental death and may include  
            benefits for disability income.   

          5)Prohibits, with certain exceptions, a property and casualty  







          AB 1163 (Rodriguez)                                Page 2 of ?
          
          
            insurer from terminating or amending a contract with an agent  
            or broker of property and casualty insurance that has been in  
            effect for at least one year, unless 120 days of advanced  
            written notice has been given by the insurer to the agent or  
            broker.  

          This bill:
          1)Prohibits a material change made by a plan or insurer to the  
            terms and conditions of a contract with an agent or broker  
            from becoming effective until the plan or insurer has provided  
            at least 60 days of written or electronic notice indicating  
            the change to the contract.

          2)Defines "material" as a provision in a contract affecting  
            commissions, bonuses, and incentives paid to the agent or  
            broker, right of survivorship, indemnification of the agent or  
            broker by the health plan or errors and omissions coverage  
            requirements for the agent or broker.

          3)Exempts from the notice requirement a change to the contract  
            that is mutually agreed upon by the plan or insurer and the  
            agent or broker, or a change required by state or federal law.
          4)Provides that violations of these provisions by a plan are  
            exempt from disciplinary and criminal offense provisions in  
            existing law.

           FISCAL  
          EFFECT  :  This bill is keyed non-fiscal.

           PRIOR  
          VOTES  :  
          
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          |Assembly Floor:                     |75 - 0                      |
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          |Assembly Health Committee:          |17 - 0                      |
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          COMMENTS  :
          1)Author's statement. According to the author, AB 1163 was  
            introduced in response to the recent action of a health insurance  
            carrier that made material changes to their agreement with  
            licensed health insurance agents with only 48 hours of notice  
            before the substantive changes took effect.  This action, combined  








          AB 1163 (Rodriguez)                                Page 3 of ?
          
          
            with other recent actions that changed agent agreements since the  
            advent of the Affordable Care Act, have made licensed agents aware  
            of agent vulnerability to health plan and carrier actions as they  
            seek to add or shed market share. AB 1163 levels the playing field  
            and provides for a fair and reasonable notice to licensed agents  
            when their contract is materially changed.
            
          2)Insurance agents and brokers. According to a report by Center  
            for Studying Health System Change entitled The Role of Health  
            Insurance Brokers, insurance brokers receive commissions from  
            health plans in exchange for selling insurance products. Plans  
            usually build commissions into the premium rates charged to  
            firms, regardless of whether a firm used a broker. Commissions  
            can vary significantly within a market, reflecting health  
            plans' differing business strategies and changes in market  
            conditions. Plans attempting to expand market share tend to  
            pay higher commission rates to encourage referrals. The  
            underwriting cycle also influences a plan's commission rates,  
            with plans paying higher rates during the phase of the cycle  
            when they are trying to attract new business and lower rates  
            during the following phase, when firms are seeking to restore  
            profitability.

          3)Related legislation. AB 1425 (Allen), would prohibit a plan or  
            insurer from entering into a contract with a solicitor, or an  
            agent or broker, that varies the compensation paid to the  
            agent or broker for the sale of a plan based on whether a  
            small employer implements a health reimbursement arrangement  
            to supplement the benefits of the plan. AB1425 failed passage  
            in the Assembly Committee on Health. 
          
          4)Support. California Association of Health Underwriters,  
            Independent Insurance Agents and Brokers Association of  
            California, and the National Association of Insurance and  
            Financial Advisors, the sponsors of this bill, state that not  
            only does this bill respond to recent actions by a health  
            insurance carrier that made material changes to a contract  
            with only 48 hours' notice, it also levels the playing field  
            and provides fair and reasonable notice to licensed agents  
            when their contract is substantially changed.  The sponsors  
            state that most contracts contain provisions that address how  
            and when notice of changes to the contract can be implemented,  
            however, many contracts contain separate clauses that allow  
            carriers to make substantial changes to the agreement without  
            any notice at all.  The sponsors state that agents understand  








          AB 1163 (Rodriguez)                                Page 4 of ?
          
          
            that business needs can sometimes drive a need for a material  
            change, and this bill ensures that a change desired by the  
            carrier can take effect as soon as proper notice is given.
            
          5)Opposition. The Association of California Life and Health  
            Insurance Companies (ACLHIC) and the California Association of  
            Health Plans (CAHP) oppose this bill, stating that it would  
            unnecessarily interfere with private party contracts and seeks  
            to offer a legislative remedy to an issue better handled  
            through the course of contractual negotiations and agreements.  
             ACLHIC and CAHP state that this bill usurps current contract  
            negotiation practices which already have self-imposed time  
            frames and notification agreements, and where violations are  
            treated as a breach of contract.  Opponents argues that a vast  
            majority of their member companies currently have a 30-day  
            notification agreement built into their existing contract  
            frameworks and deviation from that would result in significant  
            expense and confusion.  

           SUPPORT AND OPPOSITION  :
          Support:  California Association of Health Underwriters  
                    (sponsor)
                    Independent Insurance Agents and Brokers of California  
                    (sponsor)
                    National Association of Insurance and Financial  
                    Advisors of California (sponsor)

          Oppose:   Association of California Life & Health Insurance  
                    Companies
                    California Association of Health Plans
                    

                                          
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