BILL ANALYSIS Ó SB 546 Page 1 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 SB 546 Page 2 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. SB 546 Page 3 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 SB 546 Page 4 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 SB 546 Page 5 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 SB 546 Page 6 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 SB 546 Page 7 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 SB 546 Page 8 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). SB 546 Page 9 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 SB 546 Page 10 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; SB 546 Page 11 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. SB 546 Page 12 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 SB 546 Page 13 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 SB 546 Page 14 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 SB 546 Page 15 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 SB 546 Page 16 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 SB 546 Page 17 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, SB 546 Page 18 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. SB 546 Page 19 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 SB 546 Page 20 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 SB 546 Page 21 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 SB 546 Page 22 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 SB 546 Page 23 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 SB 546 Page 24 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 SB 546 Page 25 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 SB 546 Page 26 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 SB 546 Page 27 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 SB 546 Page 28 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 SB 546 Page 29