BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 1216
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|AUTHOR: |Bonta |
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|VERSION: |May 31, 2016 |
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|HEARING DATE: |June 15, 2016 | | |
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|CONSULTANT: |Teri Boughton |
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SUBJECT : Limitations on cost sharing: family coverage.
SUMMARY : Exempts high deductible health plans (HDHP) sold in the large
group health insurance market from a requirement to have
individual family member deductibles if the corresponding HDHP
product sold to individuals who are not in family coverage has a
deductible amount that is less than an amount specified in
federal Internal Revenue Service regulations.
Existing law:
1)Establishes the Department of Managed Health Care (DMHC) to
regulate health plans and the California Department of
Insurance (CDI) to regulate health insurers.
2)Requires non-grandfathered health plan contracts or health
insurance policies (established after enactment of the federal
Patient Protection and Affordable Care Act or ACA) in the
individual and group market to provide for a limit on annual
out-of-pocket expenses for all covered benefits that meet the
definition of California essential health benefits (EHBs), as
specified, including out-of-network emergency care.
3)Prohibits the limits described in 2) from exceeding the limit
on high deductible health plans (HDHPs), as defined in the
federal Internal Revenue Code (IRC) adjusted annually, as
described in the ACA, as specified, and any subsequent rules,
regulations, or guidance issued pursuant to the ACA.
4)Prohibits coverage purchased for a family that has a maximum
out-of-pocket limit for each individual covered by the plan or
policy from having an individual limit that is greater than
the maximum out-of-pocket limit for the same coverage
AB 1216 (Bonta) Page 2 of ?
purchased for an individual.
5)Prohibits coverage purchased for a family that includes a
deductible from having a deductible for an individual member
of the family that is greater than the deductible for an
individual with the same coverage purchased for an individual.
Implements this provision on January 1, 2017 for products
sold in the large group market.
6)Requires HDHP products that include a deductible for each
individual covered by the plan or policy to limit the
deductible to an amount that is equal to either the amount set
forth in federal IRC regulations, as specified, or the
deductible amount for individual coverage under the plan
contract or policy, whichever is greater. Implements this
provision on January 1, 2017 for products sold in the large
group market.
This bill:
1)Revises an exemption in existing law for HDHP products sold in
the large group market so an individual family member
deductible is only required when the deductible for an
individual is equal to or greater than the amount set forth
in federal IRC regulations, as specified.
FISCAL
EFFECT : This bill has not been analyzed by a fiscal committee.
COMMENTS :
1)Author's statement. According to the author, in 2015, the
Legislature passed and the Governor signed AB 1305 (Bonta, Chapter
641, Statutes of 2015), which limited the amount of deductibles
and out-of-pocket maximums for certain types of policies offered
in California. As in other situations, the Legislature chose to go
beyond the requirements of the ACA in order to further protect
California consumers. Unfortunately, AB 1305 creates an unintended
consequence whereby certain insurance policies will now require
individuals to pay a higher deductible in order for the plan to be
Health Savings Account (HSA) qualified under the Internal Revenue
AB 1216 (Bonta) Page 3 of ?
Service (IRS) rules and conform to AB 1305. This bill would fix
that problem by eliminating the implication that these large group
HDHPs are subject to the same rules as the small group and
individual products AB 1305 originally addressed.
2)Deductibles. Deductibles are a fixed dollar amount (lump sum
for one or more services) an enrollee is required to pay
out-of-pocket within a given time period (e.g., a year) before
the health plan or insurer begins to pay, in part or in whole,
for covered health care services. Deductibles can range from
$200 for an outpatient pharmacy benefit to $2,500 or more for
a family medical benefit. Not all plans and policies have
deductibles. The 2016 inflation adjusted deductible amounts
for HSA compatible HDHPs as determined under the IRC are as
follows: for calendar year 2016, an HDHP is defined as a
health plan with an annual deductible that is not less than
$1,300 for individual coverage or $2,600 for family coverage.
However, according to IRS Publication 969, if either the
deductible for the family as a whole or the deductible for an
individual family member is less than the minimum annual
deductible for family coverage, the plan does not qualify as
an HDHP.
3)Maximum out-of-pocket limits. Annual out-of-pocket maximums
cap an enrollee's or insured's financial exposure by requiring
health care expenses above the out-of-pocket maximum to be
fully covered by insurance without cost-sharing. Deductibles
and other forms of cost sharing, such as copayments and
coinsurance are collected up to the limit. Health care
services that are not covered by the health plan or insurer
generally are not included in the out-of-pocket maximum. The
ACA limits cost-sharing incurred under a health plan with
respect to individual (self-only coverage) or family coverage
(includes spouses and individuals with children) for a plan
year beginning in 2014 from exceeding the dollar amounts in
effect under the IRC definition of a HDHP adjusted annually as
described. These limits are $6,850 for an individual and
$13,700 for family for 2016. They are slightly higher than the
IRS limits for HSA compatible HDHPs because the methods of
indexing the amounts for inflation used by each agency are
different. Those limits for 2016 are $6,550 for individual
coverage and $13,100 for family coverage. In the final 2016
Notice of Benefit and Payment Parameters, CMS indicates that a
family HDHP cannot require an individual in the family plan to
exceed the annual limitation on cost sharing for individual
AB 1216 (Bonta) Page 4 of ?
coverage. In addition the annual limitation on cost sharing
for individual coverage applies to all individuals regardless
of whether the individual is covered by an individual plan or
family plan. These regulations also give plans the option to
count the cost sharing for out-of-network services towards the
annual limitation on cost sharing.
CMS issued frequently asked questions that explain how the
annual limit requirement interacts with HDHP deductibles. CMS
indicates that as long as a plan with a family deductible of
$10,000 applies a maximum annual limitation on cost-sharing of
$6,850 (for 2016) to each individual in the plan, even if the
family $10,000 deductible has not yet been satisfied, there
would not be a conflict with IRS rules on HDHPs.
4)AB 1305 explanation. AB 1305 requires family coverage to have
a maximum out-of-pocket limit for an individual in the family
that is the same as coverage purchased by an individual not in
family coverage. For example, if the maximum out-of-pocket
limit for individual coverage is $3,425, the maximum
out-of-pocket limit for an individual with family coverage has
to be $3,425. The deductible limits in AB 1305 work the same
way. A health plan or insurer with a family coverage product
cannot require a deductible for an individual in the family
that is higher than the deductible for an individual with the
same coverage that is not in a family. For example, if the
maximum individual coverage deductible is $1,500, an
individual with family coverage cannot have a deductible
higher than $1,500, even though the family deductible could be
higher. However, under federal IRS rules, HDHP products have
minimum limits on their deductible amounts. For 2016, the
limit is not less than $1,300 for self-only coverage and not
less than $2,600 for family coverage. For an individual in
family coverage, the federal IRS rules also limit the
deductible amount to $2,600. Because of these federal IRS
rules, AB 1305 allows for HDHPs, the individual family member
deductible amount to be either the federal IRS limit or the
individual deductible limit, whichever is greater. So this
means if the individual coverage limit is $1,500, for family
coverage, the individual limit is $2,600 (to maintain HDHP
compliance). If the individual limit is $3,000, then the
individual family limit is $3,000 (Since $3,000 is above the
IRS limit it is permissible). Implementation of the deductible
provisions for large group products has been delayed until
January 1, 2017, per AB 1305.
AB 1216 (Bonta) Page 5 of ?
The advantage from a consumer perspective of AB 1305 is that
individuals with family coverage would be more likely to hit
their individual maximum deductible and out-of-pocket limits
than they would if those deductibles and out-of-pocket limits
were based on the entire family. For example (prior to the
enactment of AB 1305), an individual with family coverage
would have an out-of-pocket limit and deductible based on the
entire family's covered health care expenses. By tying the
maximum deductible and out-of-pocket limit for each individual
in a family to the same coverage for an individual in a
(non-family) individual product, the maximum deductible and
out-of-pocket limit would be lower. Such a policy would likely
have a higher premium, but a lower deductible and a lower
limit on out-of-pocket expenses would limit the financial
exposure of individual family members who need high-cost
medical care.
5)AB 1305 implementation. On November 13, 2015 the DMHC
indicated to plans that the director has authority to exempt
individual and group health care service contracts from
compliance with AB 1305 upon a showing by the plan that
compliance by January 1, 2016 would be disruptive for
enrollees and would cause unexpected cost share increases or
health care service contract withdrawals. A total of seven
plans requested exemptions: Aetna, Blue Cross, Blue Shield,
Kaiser, Sutter Health Plan, United Health Care, and Western
Health Advantage. DMHC granted all of the plans' requests.
These exemptions related to the provisions of AB 1305 dealing
with out-of-pocket maximums, not the deductible requirements.
DMHC approved exemptions based on two problems. First, AB
1305 did not allow an IRS adjustment to the out-of-pocket
maximum for HDHPs, and second, AB 1305 delayed implementation
for the large group for the deductible requirement to January
1, 2017 but not for implementation of the out-of-pocket
maximum requirement. As such DMHC approved exemptions to
plans that demonstrated that compliance in January 1, 2016
would have caused disruption for consumers by creating
unexpected cost increases or late product withdrawals. CDI
did not exempt any insurance policies from compliance with AB
1305.
6)Impact of AB 1216. The chart explains how some popular HDHP
products available in the large group market pre AB 1305 would
have to change in order to comply with AB 1305. The chart
AB 1216 (Bonta) Page 6 of ?
also explains how this bill would change AB 1305 in order to
maintain these types of products in the market in 2017. Note:
Because there was no delay of implementation in the small
group market, carriers with similar products have already
changed their products to comply with AB 1305.
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| |An |IRS |AB 1305 - Ties |AB 1216 - Allows |
| |Example|HDHP |the per |the per |
| | of |Deductib|individual family |individual member |
| |Pre AB |le |member deductible |deductible to be |
| |1305 |Rules |to the amount of |equal to or |
| |Product|(2016) |the individual |greater than |
| | | |coverage |individual |
| | | |deductible amount |deductible |
| | | |(with an | |
| | | |exception for | |
| | | |HDHPs) | |
|--------+-------+--------+------------------+------------------|
|Individu|$1,500 |Not | $1,500 |$1,500 |
|al (not | |less | | |
|in a | |than | | |
|family) | |$1,300 | | |
|Coverage| | | | |
| | | | | |
|Deductib| | | | |
|le | | | | |
|Amount | | | | |
|--------+-------+--------+------------------+------------------|
|Family |None |Not |Not less than IRS |None |
|Coverage| |less |HDHP rules |AB 1216 would |
| | |than |($2,600 for 2016) |permit no |
|Individu| |$2,600, |or deductible |individual family |
|al | |if any |amount for |deductible below |
|Family | | |individual (not |$2,600. However, |
|Member | | |in family) |if the individual |
|Deductib| | |coverage, |(not in a family) |
|le | | |whichever is |deductible is at |
|Amount | | |greater |or above $2,600 |
| | | |In this example |then there would |
| | | |since the |be an individual |
| | | |individual |family member |
| | | |deductible is |deductible |
| | | |below $2,600 it |required that is |
| | | |would not be |the same amount |
AB 1216 (Bonta) Page 7 of ?
| | | |allowed for an |as the individual |
| | | |individual family |(not in a family) |
| | | |member |deductible amount |
| | | |deductible. In | |
| | | |an HDHP the | |
| | | |deductible amount | |
| | | |for individual | |
| | | |members of a | |
| | | |family is $2,600 | |
|--------+-------+--------+------------------+------------------|
|Family |$3,000 |Not |$3,000 |$3,000 |
|Coverage| |less | | |
| Family | |than | | |
|Deductib| |$2,600 | | |
|le | | | | |
|Amount | | | | |
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7)Covered California Standard Benefit Designs. For 2016,
standardized plan designs at Covered California state that for
family coverage if an individual deductible is required it is
limited to the individual annual deductible amount. For HDHPs
linked to HSAs for family coverage, an individual's payment
toward a deductible, if required, must be the higher of the
specified deductible amount for individual coverage or $2,600.
In family coverage, an individual's out-of-pocket
contribution is limited to the individual's annual
out-of-pocket maximum. For 2015, family deductibles and
out-of-pocket maximums were equal to two times the individual
values. Except for the deductibles in HDHPs linked to HSAs, in
a family plan, an individual is responsible only for the
individual deductible and the individual out-of-pocket maximum
amount. For HDHPs linked to HSAs, in a family plan, each
individual in the family must meet a deductible of $2,600
until the family as a whole meets the family deductible.
8)Prior legislation. AB 1305 (Bonta, Chapter 641, Statutes of
2015) prohibits, for family coverage, any individual within a
family to have a maximum-out-of-pocket limit or deductible
that is more than the maximum-out-of-pocket limit or
deductible limit for individual coverage under the health plan
contract.
SB 639 (Hernandez, Chapter 316, Statutes of 2013) codifies
provisions of the Patient Protection and Affordable Care Act
AB 1216 (Bonta) Page 8 of ?
(ACA) relating to out-of-pocket maximums on cost-sharing,
health plan and insurer actuarial value coverage levels and
catastrophic coverage requirements, and requirements on health
insurers for coverage of out-of-network emergency services.
Applies out-of-pocket limits to specialized products that
offer essential health benefits and permits carriers in the
small group market to establish an index rate no more
frequently than each calendar quarter.
9)Support. AON Hewitt writes that an anomaly in AB 1305 would
inadvertently result in some purchasers of large group health
insurance products paying more in deductibles than they were
for the same coverage prior to the enactment of AB 1305. AON
believes that in order for the plan to be HSA qualified under
the IRS rules and conform to AB 1305, the plan would have to
significantly increase the individual deductible.
10)Policy Comment. The sponsors of this bill read AB 1305 to
require all individual deductibles in HDHP plans to be
increased to the IRS minimum standard. However, AB 1305 does
not require this. As indicated above, Covered California does
not interpret the bill in this way. Covered California's
standard plan design with respect to HDHPs requires the IRS
minimum only for an individual in family coverage. Committee
staff has confirmed this reading of AB 1305 with CDI and DMHC
representatives. This bill could be amended to clarify the
law, if necessary. At present, this bill goes farther than a
clarification of this issue and instead creates an exemption
for some products and not others.
SUPPORT AND OPPOSITION :
Support: AON Hewitt (sponsor)
Oppose: None received
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