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 8/26/15) None received 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 carriers to make substantial changes to the agreement without AB 1163 Page 5 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. 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 / 8/26/15 16:36:38 **** END ****