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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