BILL ANALYSIS Ó SENATE COMMITTEE ON HEALTH Senator Ed Hernandez, O.D., Chair BILL NO: AB 1163 --------------------------------------------------------------- |AUTHOR: |Rodriguez | |---------------+-----------------------------------------------| |VERSION: |May 12, 2015 | --------------------------------------------------------------- --------------------------------------------------------------- |HEARING DATE: |July 8, 2015 | | | --------------------------------------------------------------- --------------------------------------------------------------- |CONSULTANT: |Shannon Muir | --------------------------------------------------------------- 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 : ----------------------------------------------------------------- |Assembly Floor: |75 - 0 | |------------------------------------+----------------------------| |Assembly Health Committee: |17 - 0 | | | | ----------------------------------------------------------------- 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 -- END --