BILL ANALYSIS Ó SENATE COMMITTEE ON HEALTH Senator Ed Hernandez, O.D., Chair BILL NO: SB 546 --------------------------------------------------------------- |AUTHOR: |Leno | |---------------+-----------------------------------------------| |VERSION: |February 26, 2015 | --------------------------------------------------------------- --------------------------------------------------------------- |HEARING DATE: |April 22, 2015 | | | --------------------------------------------------------------- --------------------------------------------------------------- |CONSULTANT: |Teri Boughton | --------------------------------------------------------------- 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). SB 546 (Leno) Page 2 of ? 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 SB 546 (Leno) Page 3 of ? 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: SB 546 (Leno) Page 4 of ? 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 SB 546 (Leno) Page 5 of ? 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 SB 546 (Leno) Page 6 of ? 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 SB 546 (Leno) Page 7 of ? 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 SB 546 (Leno) Page 8 of ? several quantifiable 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 second 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 SB 546 (Leno) Page 9 of ? of Health and Human Services to, no later than January 1, 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. 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. 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. SB 546 (Leno) Page 10 of ? SB 1163 (Leno), Chapter 661, Statutes of 2010, 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. 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. 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 time explain how rates are established and trended forward in the large purchaser market. The insurance market rules which SB 546 (Leno) Page 11 of ? 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 process. The California Chamber of Commerce labels this bill a job killer and writes that this bill creates unnecessary SB 546 (Leno) Page 12 of ? 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. Volume of Reviews. It is unclear how many rate reviews the triggering mechanisms in this bill would generate. At present, Covered California and CalPERS most recently negotiated rates averaged approximately 3 to 4 percent. According to the California HealthCare Foundation's California Employer Health Benefits Survey for 2014, among California firms that offered the same health plan or plans in 2013-2014, the average family coverage premium increase was 6 percent. For California firms that changed plans or had workers who switched plans, the average family premium increase was 1.7 percent. The committee may wish to consider alternative triggering mechanisms to focus the rate review requirements on those premium rates that are above average. 14. Amendments. The author requests the committee approve amendments to delete subdivision (e) on pages 7 and 12 related to requirements on the regulators to make decisions to modify or deny rate changes that are unreasonable, inadequate, or otherwise in violation of this bill or federal law prior to the implementation of the rate changes. The author also requests amendments to expand notification requirements on plans and insurers with regard to the amount by which rates would exceed specified triggers. 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 SB 546 (Leno) Page 13 of ? California Retired Teachers Association California School Employees Association California Teachers 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 Culver City Chamber of Commerce Family Business Association Fresno Chamber of Commerce Fullerton Chamber of Commerce Health Net Kaiser Permanente Orange County Business Council Rancho Cordova Chamber of Commerce Redondo Beach Chamber of Commerce and Visitors Bureau San Jose Silicon Valley Chamber Santa Maria Valley Chamber of Commerce Visitor and Convention Bureau Simi Valley Chamber of Commerce South Bay Association of Chambers of Commerce Southwest California Legislative Council -- END -- SB 546 (Leno) Page 14 of ?