BILL ANALYSIS Ó SB 503 Page 1 Date of Hearing: July 14, 2015 ASSEMBLY COMMITTEE ON HEALTH Rob Bonta, Chair SB 503 (Ed Hernandez) - As Amended May 5, 2015 SENATE VOTE: 40-0 SUBJECT: Cal-COBRA: disclosures. SUMMARY: Deletes an obsolete notice included in disclosures of employee options to continue group coverage under the California Continuation Benefits Replacement Act (Cal-COBRA), and replaces it with a notice providing information about obtaining other health coverage, including Medi-Cal or Covered California. Specifically, this bill: 1)Requires every evidence of coverage provided for group benefit plans issued, amended, or renewed on or after July 1, 2016 to include the following notice with regard to disclosures about the ability of covered employees of group benefit plans to continue coverage: "In addition to your coverage continuation options, you may be eligible for the following: a) Coverage through the state health insurance marketplace, also known as Covered California. By enrolling through Covered California, you may qualify for lower monthly SB 503 Page 2 premiums and lower out-of-pocket costs. Your family members may also qualify for coverage through Covered California. b) Coverage through Medi-Cal. Depending on your income, you may qualify for low or no-cost coverage though Medi-Cal. Your family members may also qualify for Medi-Cal. c) Coverage through an insured spouse. If your spouse has coverage that extends to family members, you may be able to be added on that benefit plan. Be aware that there is a deadline to enroll in Covered California, although you can apply for Medi-Cal at any time. To find out more about how to apply for Covered California and Medi-Cal, visit the Covered California Internet Web site at http://www.coveredca.com." 2)Requires a group contract between a group benefit plan and an employer that is issued, amended, or renewed on or after July 1, 2016, to require the employer to give the notice in 1) above to a qualified beneficiary. 3)Deletes the following obsolete warning from the disclosure: "Please examine your options carefully before declining this coverage. You should be aware that companies selling individual health insurance typically require a review of your medical history that could result in a higher premium or you could be denied coverage entirely." 4)Reinstates the warning in 3) above if the Patient Protection and Affordable Care Act (ACA) requirement to have health insurance is repealed or amended to no longer apply to the individual market 12 months after the date of that repeal or amendment. 5)Makes technical conforming changes to update cross references SB 503 Page 3 brought about by the provisions of the bill. EXISTING LAW: 1)Establishes, under federal law, the Consolidated Omnibus Budget Reconciliation Act (COBRA), which applies to employers and group health plans that cover 20 or more employees, and allows employees leaving group coverage to keep their group health plan. 2)Establishes Cal-COBRA, similar to COBRA, which applies to employers and group health plans that cover two to 19 employees. 3)Establishes the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act), the body of law governing health care service plans, and establishes the Department of Managed Health Care (DMHC) to regulate health plans. 4)Establishes the California Department of Insurance (CDI) to regulate health insurers. 5)Establishes the California Health Benefits Exchange (now Covered California) to compare and make available through selective contracting with carriers, insurance for individual and small group purchasers. 6)Requires carriers to provide a disclosure form to covered employees of group benefit plans, and for the form to disclose to the employee the ability to continue coverage, and that additional information regarding eligibility for this coverage may be found in the plan's evidence of coverage. 7)Requires every disclosure for a group benefit plan to include the following notice: "Please examine your options carefully before declining this coverage. You should be aware that the companies selling individual health insurance typically require a review of your SB 503 Page 4 medical history that could result in a higher premium or you could be denied coverage entirely." FISCAL EFFECT: According to the Senate Appropriations Committee, this bill will result in: 1)One-time costs of $20,000 for CDI to review required notices for health insurers (Insurance Fund). 2)Minor costs for DMHC to review required notices for health plans (Managed Care Fund). 3)Unknown costs for additional enrollment in Medi-Cal (General Fund and federal funds). The new notice required under the bill would provide consumers with information about their opportunity to receive health care coverage through Covered California or Medi-Cal if they decline to continue their employer-sponsored coverage. Giving consumers information about the availability of Medi-Cal coverage may encourage some consumers to opt to apply for Medi-Cal rather than purchasing continuation coverage from their current insurer or health plan. The extent to which this will occur is unknown and may be small given the significant public awareness of access to coverage through Covered California and Medi-Cal following the implementation of the ACA and the imposition of an individual mandate to have health care coverage. However, even a very small overall increase in Medi-Cal enrollment would have a significant fiscal impact, since the cost to provide coverage to an adult in Medi-Cal ranges from about $1,200 per year to $6,000 per year (General Fund and federal funds). COMMENTS: SB 503 Page 5 1)PURPOSE OF THIS BILL. According to the author, this bill is necessary to relieve employers of the requirement to issue a notice that is no longer relevant with the health insurance market reforms brought about by the ACA. The author states that, more helpful to individuals moving off group health insurance coverage is information about options for health coverage through Medi-Cal and Covered California. This bill replaces an obsolete notification with a notification that informs these individuals about options for individual coverage that are available today and where more assistance can be obtained. The author concludes by stating that this bill restores the notice if the individual mandate is repealed. 2)BACKGROUND. a) COBRA and Cal-COBRA. COBRA is a federal law that applies to employers and group health plans that cover 20 or more employees. COBRA gives workers and their families who lose their health benefits upon specified qualifying events such as voluntary or involuntary job loss, reduction in work hours, transition between jobs, death, divorce, and other life events, the right to choose to continue group health benefits provided by their group health plan for at least 18 months and up to 36 months. Cal-COBRA is a state law that is similar to the federal COBRA. Cal-COBRA applies to employers and group health plans that cover two to 19 employees, and allows employees to keep their group plan for up to 36 months. Additionally, an employee who qualifies for no more than 18 months of coverage under COBRA may use Cal-COBRA for an additional 18 months of coverage up to a total of 36 months. SB 503 Page 6 Employees who choose to keep their group coverage under COBRA or Cal-COBRA are responsible for paying the total premium, including the employer's share, as well as administrative fees. Under COBRA, employees pay 102% of the premium, and 110% of the total premium under Cal-COBRA. According to the federal Department of Labor, employees should consider all options they may have to get other health coverage before deciding to use COBRA as there may be more affordable or more generous coverage options through other group health plan coverage (such as a spouse's plan), the health insurance marketplaces (such as Covered California), or Medicaid. b) ACA. The ACA makes statutory changes affecting the regulation of and payment for certain types of private health insurance. As of 2014, individuals are required to maintain health insurance or pay a penalty, with exceptions for financial hardship (if health insurance premiums exceed 8% of household adjusted gross income), religion, incarceration, and immigration status. i) Several insurance market reforms are also required, such as prohibitions against health insurers imposing pre-existing health condition exclusions. These reforms impose new requirements on states related to the allocation of insurance risk, prohibit insurers from basing eligibility for coverage on health status-related factors, allow the offering of premium discounts or rewards based on enrollee participation in wellness programs, impose nondiscrimination requirements, require insurers to offer coverage on a guaranteed issue and renewal basis, and determine premiums based on adjusted community rating (age, family, geography, and tobacco use). ii) Additionally, states have been permitted to establish health benefit exchanges where individuals with SB 503 Page 7 income below 400% of the federal poverty level can qualify for credits toward their premium costs and subsidies toward their cost-sharing for insurance purchased through an exchange. Covered California is California's state-based exchange. Further, until the implementation of the ACA, Medi-Cal eligibility was limited to low-income families with children, seniors and persons with disabilities, and pregnant women. The ACA expanded eligibility to additional low-income populations, including childless adults. The state conformed to the federal ACA changes expanding Medi-Cal coverage to these populations. c) Tie Back. AB X1 2 (Pan), Chapter 1, Statutes of 2013 and SB X1 2 (Ed Hernandez), Chapter 2, Statutes of 2013, together implement ACA health insurance reforms in California in the individual market, and include tie back provisions requested by the Brown Administration and health insurers. These ACA tie back provisions make inoperative in state law some ACA provisions 12 months after the repeal of the federal requirement that individuals have health insurance, including prohibitions on coverage determinations based on pre-existing conditions, and eligibility rules based on health status and other factors, and reinstate provisions of law that were protective of consumers prior to the ACA, should that occur. 3)SUPPORT. Supporters state that this bill repeals a notice required by state law that is no longer applicable now that California has adopted the insurance market rules under the ACA, and the bill's provisions requiring notice of the availability of Medi-Cal and Covered California will make employees losing their employer coverage aware of potentially more affordable coverage options. 4)PREVIOUS LEGISLATION. SB 503 Page 8 a) AB 1180 (Pan), Chapter 441, Statutes of 2013, makes inoperative, because of the ACA, several provisions in existing law that implement state health insurance laws of the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) and additional provisions that provide former employees rights to convert their group health insurance coverage to individual market coverage without medical underwriting. Establishes notification requirements informing individuals affected by AB 1180 of health insurance available in 2014. b) AB X1 2 (Pan) and SB X1 2 (Ed Hernandez), establish health insurance market reforms contained in the ACA specific to individual purchasers, such as prohibiting insurers from denying coverage based on pre-existing conditions; and make conforming changes to small employer health insurance laws resulting from final federal regulations. c) SB 961 (Ed Hernandez) and AB 1461 (Monning) of 2012 were identical bills that would have reformed California's individual market similar to the provisions in SB X1 2. SB 961 and AB 1461 were vetoed by Governor Brown. d) AB 1083 (Monning), Chapter 854, Statutes of 2012, establishes reforms in the small group health insurance market to implement the ACA. e) AB 2244 (Feuer), Chapter 656, Statutes of 2010, requires guaranteed issue of health plan and health insurance products for children beginning in January 1, 2011. f) SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB 1602 (Perez), Chapter 655, Statutes of 2010, establish SB 503 Page 9 Covered California. 5)SUGGESTED AMENDMENT. The tie back language in this bill applies solely to the disclosure made to employees by carriers. It does not apply to the notice provided to employees by their employers. Thus, if the ACA's individual mandate is repealed, the employer's notice to employees would not include language making them aware that carriers selling individual coverage could impose higher premiums or deny coverage based on medical history. For consistency, and to better ensure employees are informed of their coverage options in the case they lose coverage through their employer, the author may wish to amend the bill to require both the carrier and employer disclosures to include the same language regarding coverage options if the ACA's individual mandate is repealed. REGISTERED SUPPORT / OPPOSITION: Support Health Access California Western Center on Law and Poverty Opposition None on file. SB 503 Page 10 Analysis Prepared by:Kelly Green / HEALTH / (916) 319-2097