BILL ANALYSIS Ó
SB 546
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Date of Hearing: July 7, 2015
ASSEMBLY COMMITTEE ON HEALTH
Rob Bonta, Chair
SB
546 (Leno) - As Amended June 2, 2015
SENATE VOTE: 23-16
SUBJECT: Health care coverage: rate review.
SUMMARY: Establishes a rate review process for increases to
large group rates that meet specified thresholds, and requires
the Department of Managed Health Care (DMHC) and the California
Department of Insurance (CDI) to determine whether such large
group rate increases are reasonable or unreasonable. Requires
health care service plans and health insurers (collectively
referred to as carriers) to file specified information regarding
rate changes aggregated for the entire large group market, and
DMHC and CDI to conduct a public meeting regarding aggregate
large group rate changes for each carrier that offers coverage
in the large group market. Specifically, this bill:
1)Requires large group carriers to include in a written notice
to purchasers of a change in premium rates or coverage the
following information:
a) The amount by which the rate change, as specified, is
greater than the average rate increase for individual
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market products approved by the California Health Benefits
Exchange (now Covered California) for the calendar year.
b) The amount by which the rate change, as specified, is
greater than the average rate increase approved by the
Board of Administration of the California Public Employees'
Retirement System (CalPERS) for the calendar year.
c) Whether the rate change would cause the carrier's plan
or policy to incur the excise tax.
2)Amends existing law requiring rate review for large group
carriers to provide for review of aggregate large group rates
for each plan or policy. Specifically:
a) Deletes existing requirements requiring carriers to file
with DMHC and CDI, respectively, large group plan and
policy contract rate information for unreasonable rate
increases.
b) Requires carriers to file with DMHC and CDI,
respectively, all required rate information for rate
changes aggregated for the entire large group market, on or
before October 1, 2016, and annually thereafter.
3)Requires DMHC and CDI, after reviewing the aggregate rate
change information filed by the carriers, to conduct a public
meeting, between November 1, 2016 and March 1, 2017, and
annually thereafter between those same months, regarding large
group rate changes for each carrier that offers coverage in
the large group market.
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4)Requires DMHC and CDI to schedule the public meetings
referenced in 3) above in an order based on the number of
covered lives for the carrier in the large group market, with
the largest carrier first, and the smallest carrier last.
5)Deletes some existing large group rate filing requirements,
and adds specified data to be disclosed by the carrier in its
large group aggregate rate filing, including:
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 cost sharing;
viii) Covered benefits in addition to basic health
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care services, as defined, and other mandated benefits;
and,
ix) Any other factors that affect the rate that are
not otherwise specified.
b) The plan or insurer's overall annual medical trend
factor assumptions in each rate filing for all benefits and
by aggregate benefit category, including hospital,
inpatient, hospital outpatient, physician services,
prescription drugs and other ancillary services,
laboratory, and radiology;
c) The amount of the projected trend attributable to the
use of services, price inflation, or fees and risk for
annual plan contract trends by aggregate benefit category,
such as hospital inpatient, hospital outpatient, physician
services, prescription drugs, laboratory, and radiology;
d) Specifies, with respect to the information required in
c) and d) above, that a plan that contracts with no more
than two medical groups in the state to provide or arrange
for medical services to enrollees (referring to Kaiser
Permanente) shall instead disclose the amount of its actual
trend experience for the prior contract year by aggregate
benefit category, using benefit categories that are the
same or similar to those used by other plans;
e) A comparison of claims cost and rate of changes over
time;
f) Changes in enrollee cost sharing and enrollee benefits
over the prior year associated with the submitted rate
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filing; and,
g) The average rate increase for the large group market
enrollees covered in the filing weighted by the number of
covered lives.
6)Requires carriers to file with DMHC and CDI required rate
information at least 60 days prior to implementing any rate
increase, and concurrent with the notice to large group
purchasers in 1) above, if either of the following apply:
a) The rate increase is greater than 150% of the carrier's
average large group rate increase; or,
b) The rate increase would cause the plan or policy to
incur the excise tax, as specified.
7)Requires carriers to disclose specified information for each
rate filing in 6) above, including:
a) Basic information about the plan or insurer and the
product for which the filing is being made such as, company
name, number of plan contract forms covered by the filing,
product type (e.g., preferred provider organization or
health maintenance organization), whether the products are
open or closed, and enrollment in each plan contract and
rating form;
b) Information regarding the basis for the rate
development, including geographic region, age, occupation,
industry, health status, employees, dependents, enrollee
cost sharing, and covered benefits in addition to basic
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health services, as defined; and,
c) Information about the basis of the rate change,
including annual rate, total earned premiums in each plan
contract, total incurred claims in each plan contract,
average rate increase initially requested, average rate of
increase, effective date of increase, number of subscribers
or enrollees affected by each rate filing, overall annual
medical trend, projected trend attributable to specified
factors, a comparison of claims cost and rate of changes
over time, changes in administrative costs, and cost
containment and quality improvement efforts since the
plan's last rate filing for the same category.
8)Requires DMHC and CDI to, within 60 days after receiving
complete information from the plan or insurer, complete its
review and finalize a decision as to whether the rate is
reasonable or unreasonable.
9)Authorizes DMHC and CDI to require carriers to submit rate
filings to the National Association of Insurance
Commissioner's System for Electronic Rate and Form Filing,
deeming such filings as filed with the departments; and,
requires carriers to submit any other information as required
by the Patient Protection and Affordable Care Act (ACA) or
pursuant to any regulation adopted by DMHC and CDI.
EXISTING LAW:
1)Establishes the Knox-Keene Health Care Service Plan Act of
1975, the body of law governing plans in the state, and
provides for the licensure and regulation of plans by DMHC.
2)Provides for the regulation of health insurers, and health
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insurance agents and brokers, by CDI.
3)Prohibits a change in premium rates or coverage stated in a
group plan or policy contract from becoming effective unless
the plan has delivered written notice to purchasers indicating
the change at least 60 days prior to the contract renewal
effective date.
4)Requires health plans and health insurers for the large group
market to file with DMHC and 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 ACA. These provisions
have never been implemented.
5)Requires plans and insurers to provide, on an annual basis,
de-identified 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).
6)Requires a health plan or insurer as an alternative to
providing claims data pursuant to 2) above, to provide:
a) De-identified aggregated data sufficient for the
purchaser to compare costs of similar services from other
plans or insurers; and,
b) De-identified aggregated patient level data that
includes demographics and encounter data, including data
used to experience rate the group, as specified.
7)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
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identify an individual.
8)Requires individual and small group health plan contracts to
be filed with regulators at least 60 days prior to
implementing any rate change, including disclosures such as
average rate increases initially requested, average rate
increases, and effective date of the 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.
FISCAL EFFECT: According to the Senate Appropriations
Committee, this bill, as amended April 30, 2015, would result
in:
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 develop regulations, review plan filings,
analyze actuarial information, conduct public hearings, and
respond to requests for information from the public by DMHC
(Managed Care Fund).
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COMMENTS:
1)PURPOSE OF THIS BILL. 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. The author
states that in 2018, the ACA imposes a tax of 40% on plans
with costs over a certain threshold, and purchasers in
California will be particularly hit hard because the tax is
based on national costs and California premiums are now 5% to
15% higher than the national average. In order to preserve
employer sponsored insurance, more needs to be done to contain
costs. The author cites SB 1163 (Leno), Chapter 661, Statutes
of 2010, which requires 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. The author states that
the same protections have not been implemented for large
employers and their employees, and this bill will extend the
transparency and reporting requirements from SB 1163 to the
large group market.
2)BACKGROUND.
a) Rate Review in the individual and small group markets.
As a cost-control measure, the ACA established a process
for the identification, disclosure, justification, and
annual review of unreasonable premium increases for health
insurance coverage in the individual and small group
markets, beginning with the 2010 plan year. Federal
regulations provide that carriers in individual and small
group markets must report specified rate increase
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information, and that rate increases of 10% or more are
subject to review by state regulators or the federal
government for states that do not have the resources or
authority to review rates. Federal regulations allow the
10% threshold to be replaced by state-specific thresholds
that reflect the insurance and health care costs trends in
each state.
According to an October 2012 report by the Kaiser Family
Foundation, 44 states (including California) and the
District of Columbia have rate review programs that have
been deemed by the federal Department of Health and Human
Services to be effective in at least one insurance market,
meaning they have authority to determine the reasonableness
of a rate increase, they have a transparent process for
making the information publically available and they allow
public comment on the proposed rate change.
California's rate review process is established by SB 1163,
and requires carriers to submit to DMHC or CDI, specified
rate information at least 60 days in prior to implementing
any rate change. Some of the significant information plans
and insurers must submit in their rate filings, includes,
but is not limited to:
i) Annual rate and average rate of the increase;
ii) Number of people affected by the filing;
iii) Total earned premiums and incurred claims;
iv) Overall annual medical trend factor assumptions by
annual benefit category;
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v) Amount of the projected trend attributable to the
use of services, price inflation, or fees and risk for
contract trends by annual benefit category;
vi) A comparison of claims cost and rate of changes
over time; and,
vii) Any changes in enrollee cost-sharing associate with
the filing. Additionally, the current rate review process
requires that the rate filing be actuarially sound and
requires a certification by an independent actuary or
actuarial firm that the rate increase is reasonable and
that the justification for the increase is based on
accurate and sound actuarial assumptions and
methodologies.
Although DMHC and CDI may determine a rate is unreasonable,
neither has the authority to approve or disapprove of the rate.
However, during the rate review process, and in response to
potential or actual findings that a proposed rate is not
reasonable, some carriers reduce the rate. For example,
according to a quarterly report to the Legislature by DMHC,
between October 1, 2014 and December 31, 2014, DMHC reviewed six
premium rate filings, and determined one rate filing was
unreasonable. The carrier initially required a 12-month rate
increase average 15.2%. After review by, and discussions with
DMHC, the carrier agreed to lower the rate to 12.9% resulting in
a total savings of approximately $35 million. In the previous
quarter, after review and discussion with DMHC, another carrier
agreed to reduce its proposed rate from 9.9% to 2.7%, resulting
in over $8.6 million. CDI also demonstrates rate reductions by
carriers following its rate review and determination. Both DMHC
and CDI post their findings on their respective websites.
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An April 2014 review of California's rate review process in the
first three years conducted by the California Public Interest
Research Group (CALPIRG) found that: Health insurance carriers
have filed 369 proposed rate changes in the individual and small
group markets. As a result of objections raised in the rate
review process, carriers have voluntarily reduced or withdrawn
44 rate hikes. At least 14 times, health insurance carriers
have moved forward with rate increases that regulators found
unreasonable. Rate review has saved California consumers and
small businesses $349 million in health insurance premiums since
2011, according to estimates by state regulators. An estimated
1.3 million Californians benefited from reduced or withdrawn
rate increases on average in each of the first three full years
of rate review. An estimated 923,237 Californians have been
subject to rate hikes that were declared unreasonable but still
went into effect.
b) Rate review in the large group market. For large group
contracts, SB 1163 requires carriers to file with DMHC or
CDI, at least 60 days prior to implementing any rate
change, all required information for unreasonable rate
increases. Carriers are also required to submit all
information required by the ACA, and to disclose specified
aggregate data related to such rate filings. However, the
rate review provisions in the ACA have not been applied to
the large group market as the federal government has not
issued regulations specifying what constitutes an
unreasonable rate increase in the large group market.
Further, DMHC and CDI have not adopted regulations to
establish rate review for the large group market in
California. As such, large group rate review has not been
implemented in California.
c) Claims data. In order to increase transparency with
regard to rate increases for large purchasers, state law
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requires carriers to provide at no charge, upon request,
specified de-identified claims data or equivalent cost
information to any large group purchaser that is an
employer-sponsored plan with more than 1,000 covered lives
or a multiemployer trust, and that demonstrates its ability
to comply with applicable privacy laws. If claims data is
not available, carriers are required to provide
de-identified aggregated data sufficient for the purchaser
to compare costs of similar services from other carriers,
and de-identified aggregated patient level data that
includes demographics and encounter data, including data
used to rate the group based on claims experience.
d) Excise Tax. 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), as specified. Health insurance issuers
and sponsors of self-funded group health plans must pay the
tax of 40% 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 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
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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% higher than
the exact same plan's premium if it were in Huntington,
West Virginia.
e) 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% increase in 2003 to a 3.3% increase in 2015, which
includes rate increase reductions from 25.9% to 3.9% for
HMOs, from 19.9% to 0.6% for PPOs, and from 20.8% to 5.6%
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% and for
2015 was 3.85%.
f) Covered California Rates. According to Covered
California, the state's health benefits exchange, its role
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as an active purchaser brings in low rate increases while
maintaining high quality. Covered California negotiates
with carriers to keep rate increases to a minimum. The
average weighted statewide rate increase for Covered
California plans was 4.2% from 2014 to 2015.
g) Health care costs. For many years, health spending
growth has outpaced inflation. The United States spends a
larger share of its gross domestic product (GDP) on health
care than any other major industrialized country.
Expenditures on health care represent 17% of the nation's
GDP. In 1960, health care expenditures accounted for about
5% of the GDP. By 2019, the federal Centers for Medicare
and Medicaid Services project health care expenditures will
account for 19% of GDP.
As costs have risen, health care coverage has become less
affordable. According to the 2014 California Employer
Health Benefits Survey published by the California
HealthCare Foundation, health coverage premiums in
California have risen 185% since 2002, more than five times
the state's inflation rate. The survey also indicated that
one in four California employers reported that they reduced
benefits or increased employee cost sharing in the last
year due to rising health care costs.
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 3% from 2013.
Premiums increased more slowly over the past five years
than the preceding five years and well below annual
double-digit increase recorded in the late 1990s and early
2000s. Cumulative health insurance premiums from 1999 to
2014 have increased 191% compared to a 212% increase in
workers' contribution to premiums, a 54% increase in
workers' earnings, and a 43% inflation during this same
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period of time.
According to the National Business Group on Health, projected
health costs were expected to rise 6.8% 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%.
h) 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% of California voters voting in support
and 58.9% voting in opposition.
3)SUPPORT. This bill is sponsored by the California Labor
Federation (CLF), California Teamsters Public Affairs
Organization, and UNITE HERE, and is supported by labor
organizations and consumer advocates. Sponsors and supporters
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argue that health insurance premiums for employer-sponsored
coverage in California climbed 180% between 2002 and 2014,
outpacing a 33% rise in overall inflation. The individual and
small group markets in California have benefited from rate
review which has reduced their costs by hundreds of millions
of dollars. However, large group purchasers do not know what
factors are used in establishing rates in the large group
market or developing rate increases, and large group rates
continue to rise. Supporters assert that, whereas large group
purchasers previously obtained lower prices due the massive
numbers of covered lives, they are now seeing higher rates to
make up for reduced costs in the individual and small group
due to rate review in those markets.
Supporters argue that getting more information on rate setting
in this market is the next logical step in controlling and
reducing health care costs. Supporters state that this bill
will help consumers and large purchasers understand how rates
are established and trended forward in the large group market
by collecting information about large group rates on an
aggregate basis. Further, by requiring rate filings for rate
increase that meet certain triggers, this bill will give the
same benefit of rate review to large purchasers as those in
the small and individual markets, and provide tools to ensure
that health plan premiums are reasonable and justified. CLF
adds that this bill is urgently needed because of the looming
excise tax which will increase pressure on large purchasers to
contain costs to stay under the taxation thresholds.
4)SUPPORT IF AMENDED. CalPERS would support this bill if
amended to exempt CalPERS from its rate review provisions.
CalPERS states that the provisions of this bill could be
viewed as promoting additional transparency and
accountability, and rate increases proposed by the plans that
provide products to CalPERS could be subject to review.
However, the review would take place after the time the
CalPERS Board has negotiated and adopted rates. As such,
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CalPERS states that a determination as to whether rates are
reasonable or unreasonable would not be helpful to CalPERS
rate setting process, nor would the timing allow for any
adjustments without interrupting the open enrollment process.
5)OPPOSITION. Carriers state that this bill creates a new and
expensive regulatory structure on large group health plan
rate, and mandates health plans to submit thousands of large
group plans and policies to DMHC and CDI for rate review.
They argue that large purchasers are able to choose among
plans and benefit designs that meet their needs and price
points, and that this bill unnecessarily authorizes the state
to judge agreed upon rates as unreasonable. Further, large
group rates are actively negotiated with large group
purchasers, and filing rates 60 days prior is nearly
impossible, because rates are often adjusted during the
negotiating process to reflect benefit, network, or other
changes. Carriers state that they agreed to legislation last
year requiring carriers to provide claims data to large
purchasers in order to aid them in their negotiations with
plans, and there is no reason to now require large group rates
to be subject to rate review or require plans to send
voluminous amounts of large group rating information to state
regulators. Carriers contend that the volume of large filings
would be overwhelming; that this bill will drive up state
costs and premiums by expanding DMHC and CDI workload; that
the burden and expense of this proposal may drive more large
employers to self-insure; and, that the bill does nothing to
address underlying causes of increasing health care costs.
Carriers state that this bill would require a public hearing
for each aggregate rate filing, even though such filings do
not warrant such extreme oversight, and that requirements for
aggregate filings will yield no value in the large group
market given that each large group is unique in its rates and
benefits making an aggregate-level comparison meaningless.
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The California Chamber of Commerce and other business and
commerce organizations state that expanding rate review to the
large group is not necessary, and will impose unnecessary
administrative burdens on carriers that will ultimately be
paid by large employers through higher premiums. Further, the
bill's usefulness in controlling premiums is limited,
particularly in the large group market where employers have
significant bargaining strength and the ability to design
their benefit offerings to control premium costs and
cost-sharing by employees.
6)RELATED LEGISLATION.
a) SB 26 (Ed Hernandez), requires the Secretary 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. SB
26 was held in the Senate Appropriations Committee.
b) SB 1027 (Gatto) requires a plan or insurer to disclose
to consumers information regarding the contracted rate for
a procedure or a full course of treatment between the plan
or insurer and a provider. SB 1027 is a two-year bill in
the Assembly Health Committee.
7)PREVIOUS LEGISLATION.
a) SB 1182 (Leno), Chapter 577, Statutes of 2014, requires
health plans and insurers to share de-identified claims
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
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would have established new specific data reporting
requirements related to annual medical trend factors by
service category, as well as claims data or de-identified
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,
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.
Requires rate filings, in the case of large group
contracts for unreasonable rate increases as defined
in the ACA, prior to implementing any such rate
change.
d) AB 52 (Feuer), of 2010, would have prohibited health
plans and health insurers from implementing a rate for a
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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. AB 52 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.
f) SB 425 (Ortiz), of 2006, would have required carriers to
obtain prior approval for a rate increase, defined in a
similar manner to rates under AB 1218 of 2009. SB 425 did
not have a hearing, at the author's request, and died in
the Senate Health Committee.
g) SB 26 (Figueroa), of 2004, would have required carriers
to obtain prior approval of rate increases from DMHC and
CDI, as specified, and would have potentially required
significant refunds of premiums previously collected. SB
26 died in the Senate Insurance Committee.
8)POLICY COMMENTS. By increasing transparency with regard to
the way carriers devise large group rates, and by requiring
active rate review by regulators, this bill aims to help large
group purchasers more effectively bargain with carriers and to
contain costs in the large group market. Similar reviews in
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the individual and small group markets appear to have achieved
their intended goals of increasing transparency and reducing
rates. However, given the differences between the large group
market and individual and small group markets with respect to
the number and variety of large group products and how those
products are negotiated and purchased, the committee should
consider the following potential issues.
a) Volume of large group rates subject to review is
unknown. In 2014, DMHC reviewed 38 rate individual and
small group rate filings, and CDI reviewed 41 filings in
those same markets. It is unknown how many large group
rate reviews DMHC and CDI would have to perform under this
bill, but it is estimated by some that the number could
reach well into thousands. To add context, Aetna reports
that it would be required to file over 1,700 large group
rates for review under this bill. CAHP, based on feedback
from a limited number of plans, states that the rate review
trigger of 150% of the carrier's average large group rate
increase would result in 3200 filings to the state, and it
is unknown how many filings would be required under the
excise tax trigger considering the excise tax will not go
into effect until 2018. At the time of the writing of this
analysis, committee staff did not have formal estimates
from CDI or DMHC of the number of filings that would be
reviewed.
9)Bill would require numerous public meetings, and may not offer
sufficient time for regulators to review the largest plans.
This bill would require DMHC and CDI to hold a public meeting
to review aggregate large group filings for each large group
carrier on an annual basis between the months of November and
March. Under this bill, CDI could be required to hold up to
25 public meetings, and DMHC may be required to hold
approximately 20 meetings. It is possible that the regulators
could consolidate more than one meeting into a day. The
author and sponsors assert that these meetings will offer the
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public an opportunity to better understand how large group
rates are devised, as well a chance to provide input and
feedback in an open forum about the tangible impacts of large
group rates and rate increases.
Additionally, the bill would require CDI and DMHC to schedule
the public meetings based on the number of covered lives with
the largest plan first and the smallest plan last. Under
these scheduling requirements, the regulators would have the
least amount of time to review and set a public meeting on the
largest aggregate large group filings. The author may wish to
amend the bill to provide more flexibility to the departments
in scheduling the public meetings in order to allow more time
if needed for review of the larger aggregate rate filings.
10)Timing of rate review determinations is unclear. Unlike
rates in the individual and small group markets, rates for
large group products are subject to negotiation between
carriers and purchasers. Existing law requires carriers to
provide a purchaser with 60 days of notice of any change to a
rate. Under this bill, the carrier would be required to
simultaneously file the same rate change with its respective
regulator if the change resulted in a rate increase that met
the specified triggers in the bill. It is unclear if the
purchaser and the carrier may negotiate during the 60-day
period after the filing was submitted. If so, the rate could
change before the regulator completes its review, rendering
the regulator's review to a rate that may not be used. If the
carrier and the purchaser finalize the contract prior to the
completion of the rate review, it is unclear whether or not
the purchaser could use the findings of the regulator to its
advantage as intended.
To address similar timing issues with respect to rate review in
the individual and small group markets, CDI implemented
voluntary guidelines for insurers to submit individual and
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small group rate filings 120 days in advance of a rate change,
in order to allow sufficient time for the rate review to have
an impact on policyholders.
REGISTERED SUPPORT / OPPOSITION:
Support
California Labor Federation (cosponsor)
California Teamsters Public Affairs Council (cosponsor)
UNITE HERE (cosponsor)
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
CALPIRG
California Nurses Association
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California Pan-Ethnic Health Network
California Professional Firefighters
California Retired Teachers Association
California School Employees Association
California Teachers Association
Communications Workers of America, District 9, ALF-CIO
Engineers and Scientists of California, IFPTE Local 20, AFL-CIO
Fairmont Hotel San Jose
Federated Indians of Graton Rancheria
Health Access California
International Longshore and Warehouse Union
LIUNA Local 777
LIUNA Local 792
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Northern California District Council - International Longshore
and Warehouse Union
Northern California International Longshore and Warehouse Union
Pensioners Association
Oasis West Realty
Professional and Technical Engineers, IFPTE Local 21, AFL-CIO
Retired Public Employees Association
SEIU California
State Building and Construction Trades Council of California
United Auburn Indian Community
United Nurses Associations of California/Union of Health Care
Professionals
Utility Workers Union of America
Opposition
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Aetna
America's Health Insurance Plans
Association of California Life and Health Insurance Companies
Blue Shield of California
California Association of Health Plans
California Association of Health Underwriters
California Chamber of Commerce
Culver City Chamber of Commerce
Family Business Association
Fresno Chamber of Commerce
Fullerton Chamber of Commerce
Health Net
Kaiser Permanente
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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
Torrance Chamber of Commerce
Analysis Prepared by:Kelly Green / HEALTH / (916)
319-2097
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