BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 546| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 546 Author: Leno (D) Amended: 6/2/15 Vote: 21 SENATE HEALTH COMMITTEE: 5-2, 4/22/15 AYES: Hernandez, Mitchell, Monning, Pan, Wolk NOES: Nguyen, Nielsen NO VOTE RECORDED: Hall, Roth SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/28/15 AYES: Lara, Beall, Hill, Leyva, Mendoza NOES: Bates, Nielsen SUBJECT: Health care coverage: rate review SOURCE: California Labor Federation California Teamsters Public Affairs Council UNITE HERE DIGEST: This bill establishes a rate review process for a health plan's or insurer's 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 between November 1, 2016, and March 1, 2017, and annually thereafter. This bill establishes a rate review process for specific large group health insurance products prior to the implementation of any rate increase that is 150% greater than the average rate increase for the large group market enrollees covered in the aggregated filing or if the rate increase would trigger the excise tax. SB 546 Page 2 ANALYSIS: Existing law requires health plans and health insurers for their large group market products, 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. This bill: 1)Requires health plans and insurers to include in a notice required 60 days before contract renewal the amount that a rate change is greater than the average rate increase for individual market products approved by the California Health Benefit Exchange, the amount that a rate change is greater than the average rate increase approved by CalPERS, and whether the rate change would trigger the excise tax. 2)Requires health plans and insurers for their large group market products to file required rate information for rate changes aggregated for their entire large group market on or before October 1, 2016, and on or before October 1, annually thereafter. 3)Establishes large group rate filing requirements including that health plans and health insurers report the average rate increase for the large group market enrollees or insureds covered in the filing with the average rate weighted by the number of covered lives. 4)Requires large group product rate filings 60 days prior to implementing any rate increase that is: a) Greater than150% of the average rate increase determined in 3) above; or b) Causes the plan for the large group purchaser to incur the excise tax. SB 546 Page 3 5)Requires plans and insurers to disclose specified information for each rate filing required in 4) above similar to the requirements applicable to the aggregate rate filings and requires additional disclosures. 6)Requires a plan to submit any other information required under the ACA, and any other information required pursuant to any regulation adopted by DMHC or CDI to comply with this bill. 7)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 between November 1, 2016, and March 1, 2017, and annually thereafter between November 1 and March 1 of the subsequent year. Requires the public meeting to be scheduled based on the number of covered lives for each plan with the largest plan first, and the smallest last. 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% 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 SB 546 Page 4 protect employers and workers from unjustified rate increases. 2)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 and guaranteed renewability, no cost-sharing for preventive health services, coverage of preexisting health conditions, limits for annual out-of-pocket spending, and the prohibition on life time and annual limits. 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 full-time employee (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. According to a 2013 Health Affairs Robert Wood Johnson Foundation Health Policy Brief, a 40% 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% of any dollar amount beyond the cap that is considered "excess" spending. 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 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. SB 546 Page 5 FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes According to the Senate Appropriations Committee: 1)One-time costs of $575,000 to develop and adopt regulations by CDI (Insurance Fund). 2)Ongoing costs of $1.1 million per year to review rate filing information and conduct actuarial reviews of rate filing information by CDI (Insurance Fund). 3)Annual costs of $2.9 million in 2015-16 and $4.9 million per year thereafter to development of regulations, review plan filings, analyze actuarial information, conduct public hearings, and respond to requests for information from the public by the DMHC (Managed Care Fund). SUPPORT: (Verified5/28/15) California Labor Federation (co-source) California Teamsters Public Affairs Council (co-source) UNITE HERE (co-source) 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 Teachers Association 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 SB 546 Page 6 International Longshore and Warehouse Union Laborers' International Union of North America Local 777 Laborers' International Union of North America Local 792 Professional and Technical Engineers, IFPTE Local 21, AFL-CIO SEIU California Utility Workers Union of America OPPOSITION: (Verified5/28/15) 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 ARGUMENTS IN 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% on plans over a certain threshold and in the first year alone, the excise tax is SB 546 Page 7 anticipated to hit 17% of the U.S. businesses, and 38% of large employers. Purchasers in California will be particularly hard hit because the tax is based on national costs and California premiums are now 5% to 15% more than the national average. UNITE HERE, also a cosponsor, indicates real progress has been made to help manage costs but it is not enough. This bill will for the first 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. This bill builds on the existing rate review infrastructure established under SB 1163 and is within the ACA. 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. ARGUMENTS IN OPPOSITION: The California Association of Health Plans (CAHP) writes that this bill increases 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 (CalChamber) states this bill "[t]hreatens employers with higher premiums and interferes with their ability to negotiate with health plans by imposing unnecessary and burdensome new reporting requirements on health plans and insurers in the large group market. 'Job killer' tag removed due to April 30 amendments eliminating authorization for state regulators to veto or unilaterally alter large-group rate changes, but CalChamber remains opposed." SB 546 Page 8 Prepared by:Teri Boughton / HEALTH / 6/3/15 10:40:35 **** END ****