BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 546
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|AUTHOR: |Leno |
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|VERSION: |February 26, 2015 |
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|HEARING DATE: |April 15, 2015 | | |
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|CONSULTANT: |Teri Boughton |
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SUBJECT : Health care coverage: rate review
SUMMARY :1. Establishes a rate approval process for large group health
insurance products prior to the implementation of any rate
change that equals or exceeds certain triggers, or at the
request of a large group purchaser. Establishes a rate review
process of a health plan's or insurer's entire aggregated
large group market products and requires the Department of
Managed Health Care and the California Department of Insurance
to conduct a public meeting regarding large group rate changes
for each plan or insurer that offers coverage in the large
group market on or before November 1, 2016 and annually
thereafter.
Existing law:
1.Requires health plans and health insurers for the large group
market, to file with the Department of Managed Health Care
(DMHC) and the California Department of Insurance (CDI), at
least 60 days prior to implementing any rate change, specified
rate information related to unreasonable rate increases,
including all information that is required by the Affordable
Care Act (ACA). These provisions have never been implemented.
2.Requires a health plan or insurer annually to provide
deidentified claims data at no charge to a large group
purchaser upon request, if the purchaser is able to
demonstrate its ability to comply with state and federal
privacy laws and is either an employer with enrollment of
greater than 1,000 covered lives (at least 500 of which are
enrolled with the health plan or insurer) or a multiemployer
trust with enrollment of greater than 500 lives (at least 250
of which are enrolled with the health plan or insurer).
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Allows a health plan or insurer to provide the claims data in
an aggregated form as necessary to comply with state and
federal privacy laws.
3.Requires a health plan or insurer, as an alternative to
providing claims data under 2) above, to provide:
deidentified aggregated data sufficient for the purchaser to
compare costs of similar services from other health plans or
insurers; and deidentified aggregated patient level data that
includes demographics and encounter data, including data used
to experience rate the group, as specified. Requires the
health plan or insurer to obtain a formal determination from a
qualified statistician that the claims or shared data do not
provide a reasonable basis from which to identify an
individual.
4.Prohibits change in premium rates or changes in coverage in
the group market unless the plan or insurer has delivered in
writing a notice indicating the change or changes at least 60
days prior to the effective date.
5.Requires individual and small group health plan contract and
insurance policy rate information to be filed with DMHC or CDI
concurrent with required notices explaining reasons for
denials, increases in premium rates, and the plan's average
rate increase by plan year, segment type, and product type.
6.Requires plans and policies for individual and small group
health care contracts to be filed with regulators at least 60
days prior to implementing any rate change, including
disclosures such as average rate increase initially requested,
average rate increase, and effective date of rate increase.
Authorizes a plan or insurer to provide aggregated additional
data that demonstrates, or reasonably estimates, year-to-year
cost increases in specific benefit categories in major
geographic regions, as specified.
This bill:
1.Requires health plans and insurers for the large group market
to file required rate information for rate changes aggregated
for the entire large group market on or before October 1,
2016, and on or before October 1, annually thereafter.
2.Deletes some existing large group rate filing requirements and
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adds the following as part of the aggregated filing:
a. Any factors affecting the rate, and the
actuarial basis for those factors, including:
i. Geographic region;
ii. Age, including age rating factors;
iii. Occupation;
iv. Industry;
v. Health status, including health
status factors considered;
vi. Employee, employee and dependents,
including a description of the family composition
used;
vii. Enrollee share of premiums;
viii. Enrollee cost sharing;
ix. Covered benefits in addition to
basic health care services, as specified; and,
x. Any other factors that affect the
rate that are not otherwise specified.
b. The plan's or insurer's overall annual medical
trend factor assumptions by aggregate benefit
category, as specified, or actual trend experience for
the prior contract year by aggregate benefit category,
for a plan with exclusive contracts with no more than
two medical groups, as specified.
c. The amount of the projected trend attributable
to the use of services, price inflation, or fees and
risk for annual plan contract rends by aggregate
benefit category, as specified, or the amount of its
actual trend experience for the prior contract year by
aggregate benefit category, as specified, for a plan
with exclusive contracts with no more than two medical
groups, as specified.
d. A comparison of cost claims.
e. Any changes in cost sharing over the prior
year associated with the submitted rate filing.
f. Any changes in benefits over the prior year
associated with the submitted rate filing.
g. Any cost containment and quality improvement
efforts since the plans' last rate filing for the same
category of health benefit plan.
3.Requires large group product rate filings 60 days prior to
implementing any rate change that is:
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a. Equal to or greater than the average rate
increase for individual market products approved by
Covered California;
b. Equal to or greater than the average rate
increase approved by CalPERS for the subsequent
calendar year;
c. Causes the large group purchaser to incur the
excise tax; or,
d. Requested by the large group purchaser.
4.Requires the rate filing in 3) immediately above concurrent
with a required written notice prior to premium rate changes
or changes in coverage as required under existing law, except
in the case where a large group purchaser has requested the
filing, in which case the filing may occur at any time after
receipt of the required written notice and prior to the rate
taking effect.
5.Requires plans and insurers to disclose specified information
for each rate filing in 3) immediately above such as company
name, product type, segment type, and any factors affecting
the rate, and the actuarial basis for the factor, similar to
the requirements applicable to the aggregate rate filings as
described in 2) immediately above.
6.Requires 17 additional disclosures including total earned
premiums in each plan contract form, total incurred claims in
each plan contract form, overall annual medical trend factor
assumptions in each rate filing by aggregate benefit category,
as specified, and projected trend attributable to the use of
services, as specified, and any cost containment and quality
improvement efforts since the plan's last rate filing for the
same category of plan. Permits the reporting of actual trend
experience for the prior contract year by aggregate benefit
category, for a plan with exclusive contracts with no more
than two medical groups, as specified.
7.Requires the DMHC Director or CDI Commissioner to make a
decision to modify or deny a rate change that is unreasonable,
inadequate, or otherwise in violation of this bill or federal
law prior to the implementation of the rate change by the plan
or insurer.
8.Requires a plan to submit any other information required under
the ACA, and any other information required pursuant to any
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regulation adopted by DMHC or CDI to comply with this bill.
9.Requires DMHC and CDI to conduct a public meeting regarding
large group rate changes for each plan or insurer that offers
coverage in the large group market on or before November 1,
2016 and annually thereafter.
FISCAL
EFFECT : This bill has not been analyzed by a fiscal committee.
COMMENTS :
1.Author's statement. According to the author, the rising cost
of health care is a major concern for large purchasers in
California, and the lack of transparency in pricing for the
large group market has contributed to uncontrolled cost
increases for large employers and union trusts. According to
the 2014 California Employer Health Benefits Survey, health
premiums in California rose by 185 percent since 2002, more
than five times the state's overall inflation rate. In
addition, one in four California employers reported that they
reduced benefits or increased employee cost sharing in the
last year because of the rising cost of health care.
SB 1163 (Leno), Chapter 661, Statutes of 2010, requires health
plans and insurers to provide regulators and consumers with
critical data and information documenting the true drivers of
premium increases in the individual and small group markets.
Since its enactment in 2011, SB 1163 has saved California
consumers over $300 million. However, the same protections
have not been implemented for large employers and their
employees. SB 546 extends the transparency and reporting from
SB 1163 to the large group market and triggers prior approval
by a regulator for increases that hit a certain threshold to
protect employers and workers from unjustified rate increases.
2.Rate review in California. Under the ACA and SB 1163, carriers
must submit detailed data and actuarial justification for
small group and individual market rate increases at least 60
days in advance of increasing their customers' rates. The
carriers also must submit an analysis performed by an
independent actuary who is not employed by a plan or insurer.
For large group filings, SB 1163 also requires health plans
and insurers to submit all information required by the ACA and
any additional information adopted through regulation
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necessary to comply with the bill. However, the rate review
provisions in the ACA have not been applied to the large group
market and DMHC and CDI have not adopted regulations to
establish rate review for the large group market in
California. Though regulators do not have the authority to
modify or reject rate changes, rate review has increased
transparency on rate increases in the individual and small
group market.
3.Proposition 45. On November 4, 2014, California voters
considered the Insurance Rate Public Justification and
Accountability Act (Proposition 45), which would have required
health insurance rate changes in the small group and
individual market to be approved by the CDI Commissioner
before taking effect. Among other things, Proposition 45 would
have required a sworn statement by health insurers as to
accuracy of information submitted to the CDI Commissioner to
justify rate changes and provided for public notice,
disclosure and hearing on health insurance rate changes, as
well as subsequent judicial review. Proposition 45 was based
on Proposition 103 (approved by voters in 1988), which
prohibits rates for certain types of insurance, including
automobile and homeowner's insurance, from being excessive,
inadequate, or unfairly discriminatory. The CDI Commissioner
must approve proposed rates before such rates take effect and
may hold public hearings on proposed rates. A consumer or a
consumer representative can challenge proposed rates and
request hearings. Hearings must be granted when proposed rate
changes exceed certain percentages. Proposition 45 failed
passage with 41.1 percent of California voters voting in
support and 58.9 percent voting in opposition.
4.Employer Sponsored Coverage Premium Increases. According to
the Kaiser Family Foundation/Health Research and Education
Trust 2014 Employer Health Benefits Survey average annual
premiums for employer-sponsored family health coverage reached
$16,834 in 2014, up three percent from 2013. Premiums
increased more slowly over the past five years than the
preceding five years and well below the annual double-digit
increases recorded in the late 1990s and early 2000s.
Cumulative health insurance premiums from 1999 to 2014 have
increased 191 percent compared to a 212 percent increase in
workers' contribution to premiums, a 54 percent increase in
workers' earnings, and a 43 percent increase in overall
inflation during this same period of time. According to the
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National Business Group on Health, projected health costs were
expected to rise 6.8 percent in 2015 but after accounting for
likely changes in benefit design, a net growth rate of health
benefit costs was expected to be 4.8 percent.
5.ACA and Large Groups. Not all of the ACA health insurance
reforms apply to issuers in the large group market. According
to a 2014 Congressional Research Report on private market
reforms some key provisions of the ACA impacting the fully
insured large group market include: guaranteed issue,
nondiscrimination based on health status, extension of
dependent coverage, prohibition of discrimination based on
salary, waiting period limitation, guaranteed renewability,
prohibition on rescissions, no cost-sharing for preventive
health services, coverage of preexisting health conditions,
limits for annual out-of-pocket spending, prohibition on life
time and annual limits, summary of benefits and coverage, and
medical loss ratio. Grandfathered plans (plans in place on
the day the ACA was enacted that have undergone minimal
changes overtime) are exempt from about half of these reforms.
Large employers are required under the ACA to issue notices
about the new insurance market place, and starting in 2015,
large employers not offering affordable coverage (or coverage
that does not meet minimum value) may be required to pay an
assessment if at least one of their full-time employees
(average of at least 30 hours per week) receives a premium tax
credit to purchase coverage in an exchange. There are also
reporting requirements on employers with 50 or more full-time
employees regarding health coverage offered and tax and
withholding requirements which may apply.
6.Excise Tax. According to a 2013 Health Affairs Robert Wood
Johnson Foundation Health Policy Brief a 40 percent excise tax
will be assessed, beginning in 2018, on the cost of coverage
for health plans that exceed a certain annual limit ($10,200
for individual coverage and $27,500 for family coverage)
subject to adjustment based on cost increases in the Federal
Employees Health Benefits Program. Health insurance issuers
and sponsors of self-funded group health plans must pay the
tax of 40 percent of any dollar amount beyond the caps that is
considered "excess" spending. The premium includes both the
portion paid by the employer and the employee contribution.
The excise tax is also referred to as the "Cadillac" tax. In
a report commissioned by the National Education Association
(NEA), Milliman indicates that there are several quantifiable
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elements of premium determination, including plan members'
geographical location, the industry in which they work, their
age and gender, and the number of people in the health
insurance group in which they participate, that can increase
premiums in addition to the level of benefits. While the ACA,
which established the Cadillac tax to target high benefit
plans and help fund components of the ACA, attempted to
address the impact of age and gender, Milliman found that age
and gender remain as factors that impact the excise tax. NEA
points out that a gold-level plan in San Francisco would be 37
percent higher than the exact same plan's premium if it were
in Huntington, West Virginia.
7.CalPERS Rate Negotiation Process. CalPERS is the largest
health plan purchaser in California, the 2nd largest in the
nation. In 2013, the CalPERS health program spent $7.51
billion to cover 1.4 million active and retired members and
their dependents. From 2003 to 2015 basic health plan rate
increases overall have been reduced from a 24.1 percent
increase in 2003 to a 3.3 percent increase in 2015, which
includes rate increase reductions from 25.9 percent to 3.9
percent for HMOs, from 19.9 percent to 0.6 percent for PPOs,
and from 20.8 percent to 5.6 percent for Association plans.
Beginning every January, CalPERS requests its participating
health plans prepare utilization assumptions and develop
premium rate proposals for the following calendar year.
Proposals are based on two years of actual data and one year
of projected data. CalPERS staff develops independent rate
forecasts based on underlying factors and trends identified
from the data, and engages an independent consultant to
develop additional rate projections. CalPERS then compares
its rate projections to the preliminary rates submitted by the
health plans. Through a negotiation period between January
and June, rates are refined and typically decreased based on
these comparisons and more recent experiential claims data.
Premium rates are approved at the June meeting of the CalPERS
board. The average rate increase for plan year 2014 was 3.03
percent and for 2015 was 3.85 percent.
8.Covered California Rates. Average weighted statewide rate
increase for Covered California plans was 4.2 percent from
2014 to 2015.
9.Related legislation. SB 26 (Hernandez), requires the Secretary
of Health and Human Services to, no later than January 1,
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2017, use a competitive process to contract with one or more
private, independent, nonprofit organizations in order to
establish the California Health Care Cost and Quality
Database. This bill is scheduled for a hearing in the Senate
Health Committee on April 22, 2015.
10.Prior legislation.
a. SB 1182 (Leno), Chapter 577, Statutes of 2014,
requires health plans and insurers to share specified
data with purchasers that have 1,000 or more enrollees,
insureds or that are multiemployer trusts.
b. SB 746 (Leno), of 2013, would have established new
data reporting requirements on all health plans and
insurers applicable to products sold in the large group
market and would have established new specific data
reporting requirements related to annual medical trend
factors by service category, as well as claims data or
deidentified patient-level data, as specified, for a
health plan that exclusively contracts with no more than
two medical groups in the state to provide or arrange for
professional medical services for the enrollees of the
plan (referring to Kaiser Permanente). SB 746 was vetoed
by the Governor. In his veto message, the Governor
stated:
This bill would require all health plans and
insurers to disclose every year broad data relating
to services used by large employer groups,
including aggregate rate increases by benefit
category. The bill also requires that one health
plan additionally provide anonymous claims data or
patient level data upon request and without charge
to large purchasers.
I support efforts to make health care costs more
transparent, and my administration is moving
forward to establish transparency programs that
will cover all health plans and systems.
I urge all parties to work together in this effort.
If these voluntary efforts fail, I will seriously
consider stronger actions.
c. SB 1163 (Leno), Chapter 661, Statutes of 2010,
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requires carriers to submit detailed data and actuarial
justification for small group and individual market rate
increases at least 60 days in advance of increasing their
customers' rates.
d. AB 52 (Feuer), of 2010, would have prohibited
health plans and health insurers from implementing a
rate for a new product or instituting a rate change
unless it submits an application to DMHC or CDI that is
approved. The director of DMHC and the Insurance
Commissioner would have the authority approve, deny, or
modify any proposed rate or rate change. The bill was
never taken up for a vote on the Senate Floor.
e. AB 2578 (Jones), of 2010, would have required
health plans and insurers to file a complete rate
application with DMHC and CDI for a rate increase that
would have become effective on or after January 1, 2012,
and would have prohibited a health plan or health
insurer premium rate (defined to include premiums,
co-payments, coinsurance obligations, deductibles, and
other charges) from being approved or remaining in
effect that is excessive, inadequate, unfairly
discriminatory, or otherwise in violation of the
provisions of the bill. AB 2578 failed passage on the
Senate Floor.
11.Support. The California Labor Federation cosponsors this
bill to protect large employers and workers from unjustified
increases in the cost of their health benefits. In 2018, the
ACA imposes a tax of 40 percent on plans over a certain
threshold and in the first year alone, the excise tax is
anticipated to hit 17 percent of the U.S. businesses, and 38
percent of large employers. Purchasers in California will be
particularly hard hit because the tax is based on national
costs and California premiums are now five percent to 15
percent more than the national average. Increasing costs
affect all employment-based plans; joint Labor-management
trusts will not pass along the new costs to our members
without first exhausting all other possible alternatives.
Union trustees are more vigilant about costs and finding
alternative strategies to protect member benefits while
keeping health care affordable. UNITE HERE, also a cosponsor,
indicates real progress has been made to help them manage
costs but it is not enough. This bill would for the first
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time explain how rates are established and trended forward in
the large purchaser market. The insurance market rules which
apply to the individual and small employer markets do not
apply to large purchasers. Also, this bill would impose prior
approval of rates to encourage rate increases in the large
purchaser market that are more in line with CalPERS and the
individual and small employer markets. This bill builds on
the existing rate review infrastructure established under SB
1163 and is within the ACA framework unlike Proposition 45.
CALPIRG writes in support that an April 2014 analysis by the
CALPIRG Education Fund discovered the transparency and outside
rate review process applied in the individual and small group
process resulted in savings of $349 million but 923,237
Californians were subject to unreasonable rate hikes, which
would have resulted in significantly more savings for
consumers. Health Access California writes that this bill
will help consumers and purchasers understand how rates are
established and trended forward in the large group market,
factors used in setting rate and rate increases.
12.Opposition. The California Association of Health Plans
(CAHP) writes in opposition that rate regulation does nothing
to lower health care costs and that the rate regulations
provisions may result in less customization and choice for
employers, interfere with important timelines to ensure
employee benefit packages are available during open
enrollment, and infringe government intervention into employer
benefit packages driving more employers into self-insurance
unregulated by the state. CAHP argues that this bill would
increase administrative, legal and state costs compounding
affordability problems and DMHC would need a sizeable number
of additional staff and resources to complete the overwhelming
influx of new work in a timely fashion. CAHP adds that they
removed their opposition to SB 1182 last year and see no
compelling reason to now require large group rating
information to state regulators.
America's Health Insurance Plans (AHIP) writes that this bill
fails to offer any solution to address the problem of rising
health care costs that threaten the affordability of health
care coverage in California. AHIP points out that large group
rates are actively negotiated with the large group purchaser
and filing them 60 days in advance is nearly impossible
because rates are often adjusted during the negotiating
process to reflect benefit, network, or other changes that may
be discussed with the large group purchaser throughout the
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process. The California Chamber of Commerce labels this bill
a job killer and writes that this bill creates unnecessary
uncertainty for large employers with adequate bargaining
strength, and interferes with their ability to negotiate
health benefits on behalf of, and in some cases with, their
employees. The California Chamber of Commerce is concerned
about rising health care costs but feels rate regulation is
not the solution to controlling these costs or ensuring the
affordability of health care for Californians.
13.Amendments. The author requests the committee approve the
following amendments:
Page 5, lines 9-22 and page 10, lines19-31 applicable to
insurance policies
(a) (1) For large group health care service plan contracts,
concurrent with the notice required under Section 1374.21, all
health plans shall file with the department at least 60 days
prior to implementing any rate change all required rate
information for any product with a rate change if any of the
following apply:
(A) The rate change is equal to or greater than the average
rate increase for individual market products approved by the
California Health Benefits Exchange for the calendar year for
the majority of the months for which the rate is proposed to
be in effect.
(B) The rate change is equal to or greater than the average
rate increase approved by the CalPERS board for the subsequent
calendar year for the majority of the months for which the
rate is proposed to be in effect .
(C) The rate change would cause the health plan for the large
group purchaser to incur the excise tax for any part of the
period the rate increase is proposed to be in effect .
(D) A rate increase meets or exceeds the applicable threshold
in (A) or (B) if the average increase for all enrollees
weighted by premium volume meets or exceeds the applicable
threshold.
(D) At the request of the large group purchaser.
Page 7, lines 26-29 and pages 12, lines 37-39 and 13, lines
1-2 applicable to insurance policies
(e) For rate filings subject to this section, the director
shall make a decision to modify or deny a rate change that is
unreasonable, inadequate, or otherwise in violation of this
article or federal law prior to the implementation of the rate
SB 546 (Leno) Page 13 of ?
change by the plan. Upon receiving complete information from
the plan consistent with this section, the department shall
within sixty days complete its review and finalize its
decision to modify, deny or approve a rate change subject to
this section.
SUPPORT AND OPPOSITION :
Support:
California Labor Federation (sponsor)
UNITE HERE (sponsor)
American Federation of State, County, and Municipal Employees,
AFL-CIO
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Federation of Teachers
California Nurses Association
California Pan-Ethnic Health Network
California Professional Firefighters
California Retired Teachers Association
California School Employees Association
California Teamsters Public Affairs Council
CALPIRG
Campaign for a Healthy California
Communications Workers of America, District 9, AFL-CIO
Engineers and Scientists of California, IFPTE Local 20, AFL-CIO
Gray Panthers of San Francisco
Health Access California
International Longshore and Warehouse Union
LIUNA Local 777
LIUNA Local 792
Professional and Technical Engineers, IFPTE Local 21, AFL-CIO
Utility Workers Union of America
Oppose:
Aetna
America's Health Insurance Plans
Anthem Blue Cross
Association of California Life and Health Insurance Plans
Blue Shield of California
California Association of Health Plans
California Association of Health Underwriters
California Chamber of Commerce
California Hospital Association
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Health Net
Kaiser Permanente
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