BILL ANALYSIS Ó
SB 546
Page 1
Date of Hearing: August 19, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
SB 546
(Leno) - As Amended June 2, 2015
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Urgency: No State Mandated Local Program: YesReimbursable:
No
SUMMARY:
This bill requires additional data collection and review of
health insurance rates in the large-group market (generally
comprised of purchasers who are large employers or
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multi-employer trusts). Specifically, this bill:
1)Establishes a rate review process for increases to large-group
rates that meet specified thresholds (a rate greater than 150%
of the aggregate increase for all that plan's rates, or a rate
that will subject the product to a federal excise tax). It
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.
2)Modifies aggregated information plans and insurers must file
regarding rate changes in the large-group market.
3)Requires DMHC and CDI to conduct a public meeting between
November and March each year, regarding aggregate rate changes
for each carrier that offers coverage in the large-group
market.
4)Stipulates requirements for specified notices to large-group
purchasers about rate increases.
FISCAL EFFECT:
$3.7 million annually to DMHC (Managed Care Fund), and $900,000
to CDI (Insurance Fund), to assess rate filing requests, and to
ensure compliance. First-year costs are projected to be slightly
lower than this because of the half-year of implementation in
fiscal year 2015-16, and 2016-17 costs are slightly higher due
to one-time activities such as issuance of regulations.
COMMENTS:
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1)Purpose. 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. In order to preserve
employer-sponsored insurance, the author contends, 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) Federal Health Insurance Excise Tax. The Patient
Protection and Affordable Care Act (ACA) established a 40%
excise tax 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).
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. The policy rationale of the tax
is to discourage too-rich benefit plans that insulate
workers from the high cost of care and encourage the
overuse of care. Opponents of the tax, including plans and
insurers, employers, and labor, have maintained the tax
unfairly burdens lower-income union workers who have
sometimes chosen to bargain for richer health benefits in
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lieu of higher wages.
b) Rate Review in the individual and small group markets.
Federal regulations provide that carriers in individual and
small group markets must report specified rate increase
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. California's rate review process
is established by SB 1163 (Leno), Chapter 661, Statutes of
2010, and requires carriers to submit to DMHC or CDI,
specified rate information at least 60 days prior to
implementing any rate change. 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.
3)Support. This bill is supported by numerous labor unions and
is sponsored by the California Labor Federation (Cal Fed),
California Teamsters Public Affairs Council, and UNITE HERE.
Supporters note the urgency of containing rising costs in the
large-group market, and the importance of ensuring plans and
insurers are not passing on excessive costs to their
large-group customers, who, unlike the small-group and
individual markets, do not have the benefit of rate review.
They state that this bill will help consumers and large
purchasers understand how rates are established in the
large-group market. Cal Fed adds 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)Opposition. Health plans and insurers, and business groups
such as the California Chamber of Commerce, oppose this bill.
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Plans and insurers contend the volume of 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. Business
groups question the effectiveness of this bill in reducing
health care costs and the administrative burden imposed by the
proposed requirements.
5)Prior Legislation. Numerous attempts to implement rate review
in the large-group market are noted below:
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. Previous
versions of SB 1182 contained provisions similar to that in
this bill.
b) SB 746 (Leno), of 2013, established new data reporting
requirements on all health plans and insurers applicable to
products sold in the large-group market and 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, 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
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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."
Although some stakeholder discusssion and planning
efforts have taekn place, the administration has not
proposed sucha a transparency program.
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, required rate review and
approval for proposed rates 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,
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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.
6)Comments. One of the thresholds for is a rate increase that
is greater than 150% of the average aggregate rate increase
for a single plan. This may not be the optimal definition of
a threshold to meet the stated goals. First, the timing
associated with related filing requirements may be
problematic. The average aggregate rate increase, which is an
average over all product lines, is required to be reported by
Oct. 1 of a given year. However, the plan is also supposed to
submit a filing for any rate increases that meets one of the
thresholds, at least 60 days prior to the proposed rate
increase. If a large-group client has an open enrollment
period that begins October 1, for example, a rate filing that
meets the "150% of average" threshold must be submitted to the
department for review by August 1. It may be impossible for
a plan to know which proposed rate increases meet the "150% of
average" threshold in July, when they would need to prepare a
rate filing for DMHC by August 1.
Also, if there was a low-growth year followed by a high-growth
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year, most proposed rate increases could meet the threshold.
On the other hand, if there was a high-growth year overall
followed by a low-growth year, very few may meet the threshold
and even outliers not meet it.
In addition, if a single health plan charges rates that are
high across the board, they may not be reviewed, as the "150%"
threshold is only met by comparison to the aggregate for that
plan. For example, if the average aggregate for Blue Shield
was 12%, only rate increases above 18% would be reviewed. On
the other hand, if another plan's average was 4%, then rate
increases above 6% would be subject to review. If the goal is
to review rates that are unreasonably high, this bill may not
accomplish this.
Although the timing issues could likely be clarified by
regulation, it may be simpler to identify a standard
threshold, such as 150% of an annual medical consumer price
index projection for a given year.
Analysis Prepared by:Lisa Murawski / APPR. / (916)
319-2081