BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                       AB 1216|
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                                   THIRD READING 


          Bill No:  AB 1216
          Author:   Bonta (D) 
          Amended:  5/31/16 in Senate
          Vote:     21 

           SENATE HEALTH COMMITTEE:  9-0, 6/15/16
           AYES:  Hernandez, Nguyen, Hall, Mitchell, Monning, Nielsen,  
            Pan, Roth, Wolk

           SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

           ASSEMBLY FLOOR:  76-0, 5/26/15 (Consent) - See last page for  
            vote

           SUBJECT:   Limitations on cost sharing:  family coverage


          SOURCE:    AON Hewitt
          
          DIGEST:   This bill 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 do not have  
          family coverage has a deductible amount that is less than an  
          amount specified in federal Internal Revenue Service  
          regulations.

          ANALYSIS:  

          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.









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          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, as  
            specified, including out-of- network emergency care.

          3)Prohibits the limits described in 2) from exceeding the limit  
            on 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  
            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 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. 









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          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  
            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 and out-of pocket limits.  Deductibles are a fixed  
            dollar amount 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.  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 annual out-of-pocket maximum limit. 

          3)HDHP and HSA.  HDHPs are type of health coverage that  
            generally has lower premiums in exchange for higher  
            deductibles.  An HSA is a pre-tax savings account where money  
            is set aside by the consumer (employers can also contribute)  
            to pay for medical expenses and prescription drugs. The  
            federal government has specific rules for HDHP plans that are  
            paired with HSAs.  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.   








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            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. 

          4)Maximum out-of-pocket limits. 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, the Centers for Medicare and Medicaid  
            Services (CMS) indicates that a family HDHP cannot require an  
            individual in the family plan to exceed the annual limitation  
            on cost sharing for individual 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.  

          5)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  








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            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, under AB 1305. 

            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.








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          6)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.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes


          SUPPORT:  (Verified  8/5/16)


          AON Hewitt
          National Business Group on Health


          OPPOSITION:   (Verified8/5/16)


          Health Access California









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          ARGUMENTS IN 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.   


          ARGUMENTS IN OPPOSITION:  Health Access California was the  
          organizational sponsor of the prior measure, AB 1305 (Bonta) of  
          2015 and indicates that AB 1305 included a narrow exception for  
          HDHPs in order to allow them to be consistent with federal law  
          and as closely as possible achieve the goal of aligning  
          individual deductibles between self-only coverage and family  
          coverage.  AB 1216 changes AB 1305 for families with high  
          deductible health plans provided by large employers. Conforming  
          to federal law on HDHPs has been complicated by various  
          provisions of federal tax law. At the end of the day, AB 1216 as  
          amended would lower the actuarial value of coverage, creating  
          savings on premiums that the employer could pocket but reducing  
          the value of the coverage provided to families. Health Access  
          opposes this change to AB 1305 from a consumer perspective.
          
          ASSEMBLY FLOOR:  76-0, 5/26/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bonilla,  
            Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau,  
            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, Roger Hernández, Holden, Irwin, Jones,  
            Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,  
            Maienschein, Mayes, McCarty, Medina, Melendez, Mullin,  
            Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,  
            Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Atkins
          NO VOTE RECORDED:  Bloom, Chávez, Harper, Mathis

          Prepared by:Teri Boughton / HEALTH / (916) 651-4111
          8/15/16 9:38:22








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