BILL ANALYSIS                                                                                                                                                                                                    Ó






           ----------------------------------------------------------------- 
          |SENATE RULES COMMITTEE            |                       AB 1163|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |
           ----------------------------------------------------------------- 


                                   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:








                                                                    AB 1163  
                                                                    Page  2



          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  







                                                                    AB 1163  
                                                                    Page  3


            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. 







                                                                    AB 1163  
                                                                    Page  4



          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  







                                                                    AB 1163  
                                                                    Page  5


          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  ****








                                                                    AB 1163 
                                                                    Page  6