BILL ANALYSIS Ó
AB 1305
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Date of Hearing: April 28, 2015
ASSEMBLY COMMITTEE ON HEALTH
Rob Bonta, Chair
AB 1305
(Bonta) - As Introduced February 27, 2015
SUBJECT: Limitations on cost sharing: family coverage.
SUMMARY: Requires family health plan contracts and insurance
policies to include a per-individual deductible and
out-of-pocket cost sharing limit that is no greater than the
amount for an individual plan or policy. Specifically, this
bill:
1)Requires, for family coverage, a limit on annual out-of-pocket
expenses for coverage of essential health benefits (EHBs) to
include a maximum out-of-pocket limit for each individual
covered by the plan that is less than or equal to the maximum
out-of-pocket limit for individual coverage.
2)Requires a health care service plan or health insurance policy
for family coverage that includes a deductible to include a
deductible for each individual covered by the plan that is
less than or equal to the deductible for individual coverage.
3)Requires a high deductible health plan to include a deductible
for each individual covered by the plan that is less than or
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equal to the higher of the amount set forth in federal law
(Add in amount here), or the deductible for individual
coverage under the plan contract.
EXISTING LAW:
1)Establishes the federal Patient Protection and Affordable Care
Act (ACA), which enacts various health care coverage market
reforms including annual limits on specified forms of cost
sharing, including deductibles, on all essential health
benefits for individual and group health insurance coverage.
2)Establishes the Knox-Keene Health Care Service Plan Act of
1975, which provides for the licensure and regulation of
health care service plans by the Department of Managed Health
Care.
3)Provides for the regulation of health insurers by the
California Department of Insurance.
4)Establishes, in state government, the California Health
Benefits Exchange (Exchange), referred to as Covered
California, as an independent public entity not affiliated
with an agency or department, and requires the Exchange to
compare and make available through selective contracting
health insurance for individual and small business purchasers
as authorized under the ACA.
5)Requires, under both federal and state law, that health plans
and insurers issuing health benefit plans in the individual
and small group market comply with specified requirements
regarding the offering, sale, and scope of coverage provided,
including requirements to cover the following 10 categories of
EHBs: ambulatory patient services; emergency services;
hospitalization; maternity and newborn care; mental health and
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substance use disorder services, including behavioral health
treatment; prescription drugs; rehabilitative and habilitative
services and devices; laboratory services; preventive and
wellness services and chronic disease management; and,
pediatric services, including oral and vision care.
6)Requires a non-grandfathered health care service plan (plan)
and health insurance policy (policy) in the individual or
small group market that is issued, amended, or renewed on or
after January 1, 2015, to provide for a limit on annual
out-of-pocket expenses for all EHBs, including out-of-network
emergency care. Non-grandfathered plans and policies must
comply with all ACA requirements.
7)Requires a non-grandfathered plan or policy in the large group
market that is issued, amended, or renewed on or after January
1, 2015, to provide for a limit on annual out-of-pocket
expenses for essential health benefits, including
out-of-network emergency care to the extent that the limit
does not conflict with federal law or guidance on
out-of-pocket maximums for non-grandfathered plans or policies
in the large group market.
8)Limits deductibles for plans and policies in the small group
market to $2,000 for an individual, and $4,000 for a family.
9)Specifies that the maximum out-of-pocket limit shall apply to
any copayment, coinsurance, deductible, and any other form of
cost sharing for all EHBs, shall not exceed limits set forth
in federal law and regulations, and shall result in a total
maximum out-of-pocket limit for all covered EHBs equal to the
dollar amounts prescribed by federal law.
FISCAL EFFECT: This bill has not yet been analyzed by a fiscal
committee.
COMMENTS:
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1)PURPOSE OF THIS BILL. According to the author, this bill
prohibits a health plan or insurer from imposing a higher
deductible and limit out-of-pocket costs on an individual
simply because the individual is a member of a family. The
author explains that health plans and insurance policies often
include a deductible amount, as well as limits on the amount
out-of-pocket costs a person or family may incur in a year.
The author states that some family plans and policies include
deductibles and out-of-pocket limits for individual in the
plan or policy, so when a family member gets sick, they only
have to reach the individual deductible or cost-sharing limit
in order for coverage to kick-in. However, the author states
other plans and insurers do not include these individual
deductibles and out-of-pocket costs limits within a family
plan or policy, which means that families with one member who
has more expensive health care needs would have to reach the
family limits before coverage kicks in. The author contends
that under this structure, families with one member with high
health care costs are forced to pay thousands of dollars in
out-of-pocket expenses simply because they are in a family.
The author states that this bill creates parity between what
consumers pay in individual and family plans by requiring
individual deductibles in family plans. The author asserts
that this bill is critical to ensure consumers are not
unfairly charged for doing what is right by getting family
coverage. The author concludes that this bill is consistent
with federal regulations regarding limits on out-of-pocket
cost sharing, and will make California a national leader in
terms of deductibles.
2)BACKGROUND.
a) Deductibles and other consumer out-of-pocket cost
sharing. Most health plans and insurers require enrollees
to pay a portion of the cost of care when they seek
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services, in addition to any premium that they must pay for
the plan. Plans and insurers generally have several forms
of cost sharing, including deductibles, which must be paid
by patients before the plan begins paying toward some or
most services, and copayments or coinsurance which must be
paid by patients at the time they receive services.
The ACA sets forth limits on the amount of out-of-pocket cost
sharing an individual or family pays for their health coverage.
This limit applies for costs related to deductibles,
coinsurance, copayments, or similar charges and any other
expenditure that is a qualified medical expense for EHBs. The
limit does not count premiums or out-of-network cost sharing, or
spending for non-essential health benefits. The federal maximum
out-of-pocket cost limit for 2015 is $6,600 for an individual
plan, and $13,200 for a family plan. Additionally, federal
regulations limit maximum out-of-pocket limits for high
deductible health plans (HDHPs) to $6450 per person in 2015.
In a family plan, deductibles and maximum out-of-pocket limits
may be structured in two ways. Some plans and policies impose
an aggregate deductible or out-of-pocket maximum in family
coverage. Under the aggregate structure, the total family
deductible must be paid out-of-pocket before health insurance
starts paying for health care services incurred by any family
member. Take, for example, a plan or policy that has a $1,500
deductible for individual coverage, and a $3,000 deductible for
a family coverage. Under this structure of aggregate
deductibles, an individual in the family who falls ill would
have to reach the $3,000 deductible before coverage would start,
even though that same individual would have a $1,500 deductible
if they had an individual plan.
In contrast, most family plans and policies, in addition to an
overall family deductible and out-of-pocket limit, embed lower
deductibles and out-of-pocket limits for each individual in the
family plan. Under this structure, one individual in the family
plan has to reach his or her own lower individual deductible or
out-of-pocket limit for coverage to commence, regardless of
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whether the larger family deductible is met. Using the same
example in the preceding paragraph, the individual in the family
who falls ill would only have to meet a $1,500 deductible before
his or her coverage kicks in. This bill would require plans and
policies to use this structure of embedded deductibles and
out-of-pocket limits.
b) Federal regulations. Current federal regulations set
policy with regard to maximum out-of-pocket costs for
individuals in a family plan. Specifically, on February
27, 2015, the U.S. Department of Health and Human Services
(HHS) issued a notice of final regulations regarding cost
sharing parameters, clarifying in a preamble that the
annual limit on cost-sharing for individual coverage
applies to all individuals regardless of whether the
individual is covered by an individual plan or a group
plan. HHS states that in both of these cases, an
individual's cost sharing for EHBs may never exceed the
individual cost sharing limits, and it is finalizing a
technical correction to existing regulations to implement
it. According to HHS, the clarification is an important
consumer protection considering that some consumers have
been confused by the applicability of the annual limitation
on cost sharing in group plans, and the annual limitation
on cost-sharing applies to all individuals regardless of
whether the individual is covered by an individual plan or
a group plan. These federal regulations do not apply to
deductibles.
c) Covered California standard benefit plan design. Each
year, the Exchange sets a standard benefit design that
plans and insurers must use when selling products through
Covered California. With standardized benefits, consumers
can more accurately compare plans and policies because the
benefits are the same for all plans offered in the Exchange
marketplace. Additionally, standardizing benefits ensures
that the selected health insurance plans define what
consumers get and limit the consumer's out-of-pocket costs
by type of service.
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The Exchange's standard benefit design for 2015, which was
adopted into regulations by the Exchange board, contained
provisions similar to those proposed in this bill.
Specifically, it required that, in a family plan, an individual
is responsible for only the individual deductible and the
individual out-of-pocket maximum amount. For HDHPs linked to a
health savings account (HSA), in a family plan, each individual
in the family must meet a deductible of $2,600, as required by
federal law, and each individual must meet individual
out-of-pocket maximum that is the same for individual coverage.
In January 2015, the Exchange released its proposed standard
benefit design for 2016, which included similar provisions.
Specifically, the proposed standard benefit design requires that
for all group plans and policies, including high deductible
health plans linked to health savings accounts, an individual's
payment toward a deductible is limited to the individual annual
deductible amount. Additionally, an individual's out-of-pocket
contribution is limited to the individual's annual out-of-pocket
maximum.
d) California Health Benefits Review Program (CHBRP)
analysis. CHBRP conducted an evidence-based assessment of
this bill which was published on April 22, 2015.
According to the analysis, over 97% of enrollees in plans or
policies subject to this bill are covered by plans and policies
that have no deductible, or already have an embedded deductible.
According to CHBRP, all plans and insurance policies offered
through Covered California have embedded deductibles and
out-of-pocket limits.
CHBRP found that HDHPs, which can be paired with tax-advantaged
HSAs or health reimbursement accounts would be the only products
affected by this bill. As such, this bill would affect the
insurance of approximately 2.1% (506,722) of the 24.6 million
Californians who have health insurance regulated by the state
that may be subject to any state health benefit mandate law.
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Under federal rules, deductibles for individual HDHP plans may
be no less than $1,300. Family HDHPs may not have deductibles
less than $2,600 whether paid for a single member of the family,
or by multiple members of the family. For this reason, CHBRP
found that, because the bill would require a per-individual
deductible of $1,300 embedded the family plan, it could put
family HDHPs out of compliance with federal regulations. As a
result families who have an HDHP would not be permitted to use
an HSA because the plan is not HSA-compliant.
In response to this issue, CHBRP assumed that plans and insurers
would either i) continue to offer HSA-compatible HDHPs for
individual enrollees with deductibles of $1,300 allowing
families to continue to purchase an HDHP, but without the HSA;
or, ii) raise the minimum deductible for both individuals and
families to $2,600, making the plans compliant with federal
rules and HSA-compatible.
CHBRP based its cost-estimate of the bill on the second
assumption that plans and insurers would raise the HDHP
deductible to $2,600 for both individuals and families, and
determined that this bill would decrease total net annual
expenditures by consumers of $37.7 million. The majority of
these savings (over $20 million) would come from reduced
premiums in the individual market. CHBRP estimated that
approximately $12 million of the savings would be due to a
reduction in cost-shares as individuals may reduce utilization
due to a higher deductible, and families benefitting from having
the embedded individual deductible in their plan.
3)SUPPORT. Health Access California (HAC), the sponsor of this
bill, states that this bill would assure that no Californian
has a deductible or out-of-pocket limit higher than the
individual deductible or out-of-pocket limit, respectively.
HAC states that one of the most important protections of the
ACA is the maximum out-of-pocket limit, which will save
Americans from medical bankruptcy. HAC asserts that this bill
will further protect Californians by assuring that no
individual with family coverage will have higher medical costs
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simply because they belong to a family. Other supporters
state that this bill removes the inequality between
individuals and families, by limiting deductibles and
out-of-pocket maximums to the individual limit when the
individual is a member of a family, will make sure that
individuals are not financially penalized because they get
sick and are in a family plan, and will prevent financial
insecurity and overwhelming debt for families when one family
member has significant health needs.
4)OPPOSITION. The California Chamber of Commerce (Chamber)
states that this bill will drive up premium costs for
employers and employees, that stricter caps on cost-sharing
requirements do not address overall health care affordability.
The Chamber states that this bill will have a
disproportionate impact on small-group premiums because small
group plans are subject to a deductible limit. The Chamber
argues that, due to the limitations on cost-sharing imposed by
this bill, all families would have to pay higher premiums, and
it makes little sense to help families afford their
out-of-pocket costs if it jeopardizes their ability to afford
coverage altogether. The Chamber concludes that the fact that
deductibles, cost-sharing, and premiums are prohibitively
expensive for some individuals and families reflects the
unsustainable costs of our health care system, and this
problem cannot be addressed by simply capping out-of-pocket
costs.
5)RELEVANT LEGISLATION. AB 339 (Gordon) requires a plan or
insurer to provide coverage for medically necessary
prescription drugs, including those for which there is no
therapeutic equivalent; establishes limits on cost-sharing for
covered outpatient prescription drugs; and, prohibits plans
and insurers from placing specified prescription medications
on the highest cost tiers of a drug formulary.
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6)PREVIOUS LEGISLATION.
a) SB 639 (Ed Hernandez), Chapter 316, Statutes of 2013,
codifies provisions of the ACA relating to out-of-pocket
limits on cost-sharing.
b) AB 1917 (Gordon) of 2014, similar to AB 339, would have
established limits on the copayment, coinsurance, or any
other form of cost-sharing for a covered outpatient
prescription drug for an individual prescription to a
specified proportion of the annual maximum out-of-pocket
limit with respect to an individual or group plan or
policy, as specified. This bill was ordered to the
inactive file at the request of the author.
c) AB 1453 (Monning), Chapter 854, Statutes of 2012, and SB
951 (Ed Hernandez), Chapter 854, Statutes of 2012,
establish California's EHBs.
d) AB 1602 (John A Pérez), Chapter 655, Statutes of 2010,
and SB 900 (Alquist), Chapter 659, Statutes of 2010,
establishes the Exchange and its powers and duties.
7)POLICY COMMENT. Federal cost-sharing limits for HDHPs set the
minimum deductibles at $1,300 for an individual and $2,600 for
a family. As such, family HDHPs must meet the minimum $2,600
deductible regardless of whether that amount is met by all
members of the family, or a single member of the family. This
bill would require a per-individual deductible to be embedded
within a family HDHP, meaning that an individual in a family
HDHP would only have to meet a $1,300 deductible, rather than
the federally-required $2,600, for coverage to kick in. As
stated in the CHBRP analysis, this could put family HDHPs out
of compliance with federal regulations, and potentially limit
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the ability of some to purchase an HDHP linked with an HSA.
Additionally, state law limits small group plans and policies
to a $2,000 individual deductible and a $4,000 family
deductible. As currently drafted, this bill would require a
family HDHP to include a per-individual deductible of $2,000.
If an HDHP adhered to federal rules, and kept the $2,600
minimum deductible, it would also be out of compliance with
state law governing the small group market.
In order to avoid potential non-compliance with federal HDHP
rules or state law regarding small group deductibles, the
author may wish to amend the bill to require HDHPs to include
a per-individual deductible that conforms to the federal
$2,600 minimum HDHP deductible.
REGISTERED SUPPORT / OPPOSITION:
Support
Health Access California (sponsor)
American Cancer Society Cancer Action Network
American Federation of State, County, and Municipal Employees,
AFL-CIO
California Black Health Network
California Chronic Care Coalition
California Labor Federation
California Pan-Ethnic Health Network
California Primary Care Association
California School Employees Association
California Teachers Association
CALPIRG
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Consumers Union
National Association of Social Workers, California Chapter
Western Center on Law and Poverty
Opposition
California Chamber of Commerce
Analysis Prepared by:Kelly Green / HEALTH / (916) 319-2097