BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1216| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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. AB 1216 Page 2 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. AB 1216 Page 3 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. AB 1216 Page 4 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 AB 1216 Page 5 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. AB 1216 Page 6 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 AB 1216 Page 7 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 AB 1216 Page 8 **** END ****