BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1163|
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THIRD READING
Bill No: AB 1163
Author: Rodriguez (D)
Amended: 7/14/15 in Senate
Vote: 21
SENATE HEALTH COMMITTEE: 8-0, 7/8/15
AYES: Hernandez, Nguyen, Hall, Monning, Nielsen, Pan, Roth,
Wolk
NO VOTE RECORDED: Mitchell
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 75-0, 5/22/15 - See last page for vote
SUBJECT: Health care services plan and health insurers:
solicitors, agents and brokers: notice of contract
changes
SOURCE: California Association of Health Underwriters
Independent Insurance Agents and Brokers of
California
National Association of Insurance and Financial
Advisors of California
DIGEST: This bill 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 45 days of notice.
ANALYSIS:
Existing law:
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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
solicitors, agents and brokers by the California Department of
Insurance.
4)Defines a health insurance solicitor as person who presents or
advertises on behalf of a plan, where information regarding
the plan, services, and charges is disseminated for the
purposes of inducing persons to subscribe to, or enroll in, a
plan.
5)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.
6)Prohibits, with certain exceptions, a property and casualty
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 a solicitor, agent or
broker from becoming effective until the plan or insurer has
provided at least 45 days of written or electronic notice
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indicating the change to the contract.
2)Defines "material" as a provision in a contract affecting
commissions, bonuses, and incentives paid to the solicitor,
agent or broker, right of survivorship, indemnification of the
solicitor, agent or broker by the health plan or errors and
omissions coverage requirements for the solicitor, 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
solicitor, agent or broker, or a change required by state or
federal law.
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 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 solicitors, 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.
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Related Legislation
AB 1425 (Allen, 2015) prohibits a plan or insurer from entering
into a contract with a solicitor, or an agent or broker, that
varies the compensation paid to the solicitor, 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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
SUPPORT: (Verified8/19/15)
California Association of Health Underwriters (co-source)
Independent Insurance Agents and Brokers of California
(co-source)
National Association of Insurance and Financial Advisors of
California (co-source)
OPPOSITION: (Verified 8/19/15)
Association of California Life & Health Insurance Companies
California Association of Health Plans
ARGUMENTS IN 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
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carriers to make substantial changes to the agreement without
any notice at all. The sponsors state that agents understand
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.
ARGUMENTS IN 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.
ASSEMBLY FLOOR: 75-0, 5/22/15
AYES: Achadjian, Travis Allen, Baker, Bigelow, Bloom, Bonilla,
Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau,
Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly,
Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Wilk, Williams,
Wood, Atkins
NO VOTE RECORDED: Alejo, O'Donnell, Olsen, Waldron, Weber
Prepared by:Shannon Muir / HEALTH /
8/19/15 20:42:57
**** END ****
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