BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 1305
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|AUTHOR: |Bonta |
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|VERSION: |June 25, 2015 |
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|HEARING DATE: |July 1, 2015 | | |
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|CONSULTANT: |Teri Boughton |
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SUBJECT : Limitations on cost sharing: family coverage.
SUMMARY : Requires maximum out-of-pocket limits and deductibles for
family health plan or health insurance coverage to include
maximum out-of-pocket limits and deductibles for each individual
to be less than or equal to the maximum out-of-pocket limit and
deductibles for individual coverage. Implements the individual
deductible requirement in the large group market on contracts
and policies issued, amended, or renewed on or after July 1,
2016.
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 insurance policies.
2)Requires non-grandfathered (established after enactment of the
federal Affordable Care Act (ACA) health plan contracts or
health insurance policies in the individual and small group
markets, a health plan contract or health insurance policy,
except a specialized health plan contract or specialized
health insurance policy, 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 covered benefits that meet the
definition of California essential health benefits (EHBs), as
specified, including out-of-network emergency care.
3)Identifies as California EHBs 10 federally mandated categories
of coverage, state mandated benefits, and benefits covered
under a state-selected benchmark plan.
4)Requires non-grandfathered health plan contracts or health
insurance policies in the large group market, a health plan
AB 1305 (Bonta) Page 2 of ?
contract or health insurance policy, except a specialized
health plan contract or health insurance policy, that is
issued, amended, or renewed on or after January 1, 2015, to
provide for a limit on annual out-of-pocket expenses for
covered benefits, including out-of-network emergency care, as
specified. Applies this limit only to EHBs, as specified, that
are covered under the plan or policy to the extent that this
provision does not conflict with federal law or guidance on
out-of-pocket maximums for non-grandfathered health plan
contracts or health insurance policies in the large group
market.
5)Prohibits the limits described in 2) and 4) above 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 under the
ACA.
6)Requires the limit described in subdivision 2) and 4) above to
result in a total maximum out-of-pocket limit for all covered
EHBs equal to the dollar amounts in effect under the IRC with
the dollar amounts adjusted as specified in the ACA.
7)Limits the deductible for a small employer health plan
contract offered, sold, or renewed on or after January 1,
2014, to $2,000 in the case of a plan contract covering a
single individual, and $4,000 in the case of any other plan
contract. Indexes these amounts consistent with a specified
section of the ACA and any federal rules or guidance pursuant
to that section.
8)Requires the limitation to be applied in a manner that does
not affect the actuarial value of any small employer health
plan contract, and for small group products at the bronze
level of coverage, authorizes DMHC and CDI to permit plans to
offer a higher deductible in order to meet the actuarial value
requirement of the bronze level.
This bill:
1)Requires, for family coverage, the limit on annual
out-of-pocket expenses described in existing law to include a
maximum out-of-pocket limit for each individual covered by the
AB 1305 (Bonta) Page 3 of ?
plan or policy that is less than or equal to the maximum
out-of-pocket limit for individual coverage under the plan
contract or policy.
2)Requires, except as provided in 3) below, if a health plan
contract or health insurance policy for family coverage
includes a deductible, the plan contract or policy to include
a deductible for each individual covered by the plan or policy
that is less than or equal to the deductible for individual
coverage under the plan contract or policy.
3)Requires, if a health plan contract or insurance policy for
family coverage includes a deductible and is a HDHP as defined
under the IRC, the plan contract or policy to include a
deductible for each individual covered by the plan or policy
that is equal to either the amount set forth in the IRC or the
deductible for individual coverage under the plan contract or
policy, whichever is greater.
4)Implements provisions 2) and 3) above in the large group
market on contracts and policies issued, amended, or renewed
on or after July 1, 2016.
5)Corrects a cross reference in existing law with regard to the
indexing of small employer health plan and policy deductible
amounts.
FISCAL
EFFECT : According to the Assembly Appropriations Committee, the
California Health Benefit Review Program (CHBRP) estimates:
1)No impact on publicly funded health insurance programs.
2)Reduced expenditures in the private market of tens of millions
of dollars, mostly in the form of reduced premium payments for
individually purchased insurance, based on individual
cost-sharing amounts going up to family cost-sharing amounts
for some consumers. However, CHBRP states this is likely an
overestimate due to data limitations. Any impact on
expenditures would depend on how product offerings and
consumer behavior changed to comply with this bill's
provisions.
AB 1305 (Bonta) Page 4 of ?
PRIOR
VOTES :
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|Assembly Floor: |78 - 0 |
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|Assembly Appropriations Committee: |17 - 0 |
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|Assembly Health Committee: |18 - 0 |
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COMMENTS :
1)Author's statement. According to the author, this bill
prohibits a health plan or insurer from imposing a higher
deductible and limit on out-of-pocket costs on an individual
simply because the individual is a member of a family. 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 individuals in the plan or policy, so
when a family member gets sick, he or she only has to reach
the individual deductible or cost-sharing limit in order for
coverage to kick-in. However, other plans and insurers do not
include these individual deductibles and out-of-pocket cost
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. 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
plan. This bill creates parity between what consumers pay in
individual and family plans by embedding individual
deductibles and out-of-pocket limits in family plans, and
ensures consumers are not unfairly charged for doing what is
right by getting family coverage.
2)Deductibles and Out of Pocket Max. According to the CHBRP,
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
AB 1305 (Bonta) Page 5 of ?
plan or insurer begins to pay, in part or in whole, for
covered health care services. A plan or policy can have more
than one deductible, for example, a general deductible that
applies to a specified set of covered medical benefits and
another deductible that applies to prescription drugs or
hospital admissions. 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 can include deductibles and
other forms of cost sharing. Annual out-of-pocket limits are
limits on the enrollee's cost-sharing obligations (defined as
copayments, coinsurance, and deductibles) in a one-year
period. Health care services that are not covered by the
health plan or insurer generally are not included in the
maximum; and, enrollees can be responsible for the full
charges associated with non-covered services.
3)ACA Limitations. The ACA limits cost-sharing incurred under a
health plan with respect to self-only coverage or coverage
other than self-only coverage (family coverage) 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 Internal Revenue Service (IRS) limits for Health Savings
Account (HSA) compatible HDHPs because the methods of indexing
the amounts for inflation used by each agency are different.
(See below for the IRS HDHP limits.) The ACA also established
limits on deductibles for small employer health plans in the
amount of $2,000 for self-only and $4,000 for family coverage,
adjusted annually as described. However, this provision was
repealed on April 1, 2014. The ACA requires plans to be
organized according actuarial values and these deductible
amounts made it challenging to structure plans into required
actuarial values.
4)IRS HDHP Limitations. The 2016 inflation adjusted 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 self-only 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
AB 1305 (Bonta) Page 6 of ?
an HDHP. The annual out-of-pocket expenses (deductibles,
co-payments, and other amounts, but not premiums) do not
exceed $6,550 for self-only coverage or $13,100 for family
coverage.
5)CMS Regulations. CMS has issued in the final 2016 Notice of
Benefit and Payment Parameters that a family HDHP cannot
require an individual in the family plan to exceed the annual
limitation on cost sharing for self-only coverage. In
addition, the annual limitation on cost sharing for self-only
coverage applies to all individual regardless of whether the
individual is covered by a self-only plan or is covered by a
plan that is other than self-only, catastrophic plans, and
qualified health plans that are required to comply with
reduced maximum annual limitation on cost sharing. These
regulations also give plans the option to count the cost
sharing for out-of-network services towards the annual
limitation on cost sharing. Subsequent frequently asked
questions explain how this 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.
6)Covered California. The 2016 Covered California standard
benefit design for qualified health plans participating in
California's exchange requires any and all cost-sharing
payments for in-network covered services to apply to the
out-of-pocket maximum. If a deductible applies to the
service, cost sharing payments for all in-network services
accumulate toward the deductible. In-network services include
services provided by an out-of-network provider that are
approved as in-network by the carrier. For covered
out-of-network services in a PPO plan, the standard benefit
designs do not determine cost sharing, deductible, or maximum
out-of pocket amounts. For all plans, including HDHPs linked
to HSA plans, in coverage other than self-only coverage, an
individual's payment toward a deductible, if required, is
limited to the individual annual deductible amount. In
coverage other than self-only, an individual's out of pocket
contribution is limited to the individual's annual out of
pocket maximum. For HDHPs linked to HSAs, in other than
self-only coverage, each individual in the family must meet
AB 1305 (Bonta) Page 7 of ?
the individual minimum deductible amount established by the
IRS for the applicable plan year.
7)CHBRP analysis. AB 1996 (Thomson, Chapter 795, Statutes of
2002) requests the University of California to assess
legislation proposing a mandated benefit or service and
prepare a written analysis with relevant data on the medical,
economic, and public health impacts of proposed health plan
and health insurance benefit mandate legislation. The
assessments were expanded to include legislation impacting
essential health benefits and health insurance benefit design,
cost sharing, premiums, and other health insurance topics.
CHBRP was created in response to AB 1996. According to CHBRP,
the effects of the amended AB 1305 on total expenditures could
play out in two opposing ways, depending on how health
insurance carriers respond to the bill:
a) Total Expenditures Could Increase: If health insurers
choose to offer self-only plans in which current
deductibles stay the same, as allowed by this bill, then
changes to per-person deductibles for family coverage would
result in more generous coverage. Enrollees with family
coverage would have to meet a lower deductible than
previously. This would result in an increase in overall
expenditures that would be spread through the entire
enrollee population with higher premiums. However,
enrollees with family coverage would experience a decrease
in out-of-pocket costs.
b) Total Expenditures Could Decrease: Health insurers may
choose to maintain the typical 1:2 ratio between the
per-person deductible and the family deductible, even
though AB 1305 allows HDHPs for single coverage to be
different than the per-person deductible within family
coverage. This result would mirror CHBRP's original
analysis, where total expenditures decreased by $37,754,000
or .028%. CHBRP indicates that 98% of enrollees subject to
this bill are covered by plans regulated by the Department
of Managed Health Care or California Department of
Insurance policies that have no deductible or embedded
deductible. CHBRP found that 506,722 (2%) enrollees had
health insurance with an aggregated deductible.
8)Illustration. A June 5, 2015 article by Julia Zuckerman JD
and Leslye Laderman, JD, LLM posted on the Society for Human
AB 1305 (Bonta) Page 8 of ?
Resource Management provides a helpful illustration of how a
plan's out-of-pocket limits apply to a family of four (mother,
father, son and daughter) with a family out-of-pocket maximum
of $13,000.
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| |Cost |Individual |Family|Family |Cost |
| |sharing|ACA | |ACA |sharing |
| | |out-of-pocke|liabil|out-of-po|limits |
| |claims |t max |ity |cket max |reached |
| | | |of | |and plan |
| | | |cost | |pays |
| | | |sharin| | |
| | | |g | | |
|--------+-------+------------+------+---------+---------|
|Mother |$10,000|$6,850 |$6,850|$13,000 |$3,150 |
| | | | | | |
|--------+-------+------------+------+---------+---------|
|Father |$3,000 |$6,850 |$3,000|$13,000 | |
| | | | | | |
|--------+-------+------------+------+---------+---------|
|Son |$3,000 |$6,850 |$3,000|$13,000 | |
| | | | | | |
|--------+-------+------------+------+---------+---------|
|Daughter|$3,000 |$6,850 |$150 |$13,000 |$2,850 |
| | | | | | |
|--------+-------+------------+------+---------+---------|
| |$19,000| |$13,00| | |
| | | |0 | | |
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9)Related legislation. AB 339 (Gordon), restricts outpatient
prescription drug cost-sharing amounts for a 30-day supply to
one-twenty-fourth of the annual out-of-pocket limit, requires
coverage for specified drugs under a variety of specified
circumstances, standardizes tiers for prescription drug
formularies, and restricts the ability of health plans and
insurers to institute cost-sharing and place drugs on certain
cost-sharing tiers, unless specified conditions are met. AB
339 has been scheduled for hearing in the Senate Health
Committee on June 8, 2015.
Prior legislation. SB 639 (Hernandez, Chapter 316, Statutes of
AB 1305 (Bonta) Page 9 of ?
2013), codifies provisions of the ACA relating to
out-of-pocket limits on cost-sharing.
AB 1917 (Gordon, 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 Senate Inactive File at the request of the
author.
AB 1453 (Monning, Chapter 854, Statutes of 2012) and SB 951
(Ed Hernandez, Chapter 854, Statutes of 2012), establish
California's EHBs.
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.
10)Support. Health Access California writes that this bill
assures that no Californian has a deductible or out of
pocket limit higher than the individual deductible or out of
pocket limit. The California School Employees Association
indicates that if one person in a family plan gets sick it is
unfair for the family to be exposed to the out-of-pocket
maximum of $13,300. For classified school employees who earn
modest incomes, the maximum out-of-pocket costs could equal
their entire salary. This bill would provide much needed
relief. According to the Western Center on Law and Poverty
this bill could save a family as much as $6,600 in
out-of-pocket costs, which is significant for a family with
someone facing a serious illness. The California Chapter of
the American College of Emergency Physicians believes this
bill is an important measure that will prohibit health plans
and health insurers from giving an enrollee a higher
deductible and out-of-pocket limit because the person has a
family insurance plan. The California Labor Federation
indicates that this solution will provide parity with those
enrolled in individual and family health care plans.
AB 1305 (Bonta) Page 10 of ?
SUPPORT AND OPPOSITION :
Support: Health Access California (sponsor)
American Cancer Society Cancer Action Network
American Federation of State, County, and Municipal
Employees
California Black Health Network
California Chapter of the American College of Emergency
Physicians
California Chapter of the National Association of
Social Workers
California Chronic Care Coalition
California Labor Federation
California Pan-Ethnic Health Network
California Primary Care Association
California School Employees Association
California Teachers Association
CALPIRG
Children Now
Children's Defense Fund California
Congress of California Seniors
Consumers Union
The Children's Partnership
Western Center on Law and Poverty
Oppose: None received
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