BILL ANALYSIS Ó
SB 908
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Date of Hearing: June 21, 2016
ASSEMBLY COMMITTEE ON HEALTH
Jim Wood, Chair
SB
908 (Hernandez) - As Amended May 31, 2016
SENATE VOTE: 24-12
SUBJECT: Health care coverage: premium rate change: notice:
other health coverage.
SUMMARY: Requires health care service plans (health plans) or
health insurers to provide notice to contractholders or
policyholders of unreasonable or unjustified rate
determinations. Requires health plans or health insurers to
offer the option of coverage of no less than 60 days in order
for the contractholder or policyholder to obtain other coverage.
Specifically, this bill:
Small Group Market
1)Requires, for the small group market, the health plan or
health insurer to notify the contractholder or policyholder of
an unreasonable or not justified group rate determination by
the Department of Managed Health Care (DMHC) or California
Department of Insurance (CDI) and to offer the contractholder
or policyholder coverage of no less than 60 days to obtain
other coverage, including coverage from another health plan or
health insurer.
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2)Requires this notice to state the following in 14-point type:
"The Department of Managed Health Care has determined that the
rate for this product is not reasonable or not justified. All
health coverage offered to employers like you is reviewed to
determine whether the rates are reasonable and justified. For
the next 60 days from the date of this notice you have the
option to obtain other coverage from this health plan or
another health plan. For small business purchasers, you may
contact Covered California at www.coveredca.com for help in
obtaining coverage."
3)Allows the health plan or health insurer to include in the
notice to the contractholder or policyholder the Internet
Website address at which the health plan's or health insurer's
final justification for implementing an increase has been
determined unreasonable. Requires the notice to also be
provided to the solicitor for the contractholder or
policyholder to assist the purchaser in finding other
coverage.
Individual Market
4)Requires, for the individual market, the health plan or health
insurer to notify the contractholder or policyholder of an
unreasonable or not justified group rate determination by the
DMHC or CDI and, if the open enrollment period has closed for
the applicable rate year or there are fewer than 60 days
remaining in the open enrollment period for the applicable
rate year, to offer the contractholder or policyholder
coverage of no less than 60 days to obtain other coverage,
including coverage from another health plan or health insurer.
Requires the prior rate to remain in effect to allow the
purchaser the opportunity to obtain other coverage during the
60-day period.
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5)Requires this notice, if prior to the open enrollment period
for the applicable rate year, to state the following in
14-point type:
"The Department of Managed Health Care has determined that the
rate for this product is not reasonable or not justified. All
health coverage offered to individuals like you is reviewed to
determine whether the rates are reasonable and justified. Open
enrollment is from [insert day of month and year] to [insert
day of month and year]. During that time, you have the option
to obtain other coverage from this health plan or another
health plan. You may also contact Covered California at
www.coveredca.com for help in obtaining coverage. Many
Californians are eligible for financial assistance from
Covered California to help pay for coverage."
6)Requires this notice, if less than 60 days is remaining in the
open enrollment period for the applicable rate year or after
the open enrollment period has closed for the applicable rate
year, to state the following in 14-point type:
"The Department of Managed Health Care has determined that the
rate for this product is not reasonable or not justified. All
health coverage offered to individuals like you is reviewed to
determine whether the rates are reasonable and justified. For
the next 60 days from the date of this notice you have the
option to obtain other coverage from this health plan or
another health plan. During this 60-day period, the prior rate
shall remain in effect. You may also contact Covered
California at www.coveredca.com for help in obtaining
coverage. Many Californians are eligible for financial
assistance from Covered California to help pay for coverage."
7)Provides that the health plan or health insurer may include in
the notice to the contractholder or policyholder the Internet
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Website address at which the health plan's or health insurer's
final justification for implementing an increase has been
determined unreasonable. Requires the notice to also be
provided to the solicitor for the contractholder or
policyholder.
8)Makes other conforming, technical, nonsubstantive changes.
EXISTING LAW:
1)Establishes the DMHC to regulate health plans and the CDI to
regulate health insurers.
2)Requires health plans and health insurers, for the small group
and individual markets, to file with DMHC and CDI, at least 60
days prior to implementing any rate change, specified rate
information so that the DMHC and CDI can review the
information for unreasonable rate increases.
3)Requires DMHC and CDI to accept and post to their Internet
Websites any public comment on a rate increase submitted to
the DMHC and CDI during the 60 day period. Requires DMHC and
CDI to post on their Internet Websites any changes submitted
by the health plan or health insurer to the proposed rate
increase, including any documentation submitted by the health
plan or health insurer supporting those changes. Requires
DMHC and CDI to post on their Internet Websites any decision
that an unreasonable rate increase is not justified or that a
rate filing contains inaccurate information.
4)Requires DMHC and CDI to report to the Legislature at least
quarterly on all unreasonable rate filings.
5)Requires health plans, for certain contracts, to provide 60
days' notice to contractholders prior to the effective date of
the contract renewal for any change in premium rate or
coverage.
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6)Establishes the federal Patient Protection and Affordable Care
Act (ACA), which enacts various health care coverage market
reforms. Requires each state by January 1, 2014, to establish
an Exchange (Covered California in this state) that makes
qualified health plans (QHPs) available to qualified
individuals and qualified employers. Requires, if a state
does not establish an Exchange, the federal government to
administer the Exchange. Establishes requirements for the
Exchange and for QHPs participating in the Exchange, and
defines who is eligible to purchase coverage in the Exchange.
7)Establishes Covered California within state government, as an
independent public entity not affiliated with an agency or
department, and requires it to compare and make available
through selective contracting health insurance for individual
and small business purchasers as authorized under the ACA.
Specifies the powers and duties of the board governing the
Exchange, and requires the board to facilitate the purchase of
QHPs though the Exchange by qualified individuals and small
employers.
8)Requires, pursuant to federal Centers for Medicare and
Medicaid Services (CMS) regulations, if a health insurance
issuer implements a rate increase determined to be
unreasonable, with the later of 10 business days after the
implementation of such increase or the health insurance
issuer's receipt of final determination that a rate increase
is an unreasonable rate increase, the health insurance issuer
to submit a final justification and prominently post it on its
Internet Website in a form and in a manner prescribed by the
federal Secretary of the Department of Health and Human
Services for at least three years. CMS will also post the
issuer's final justification on the CMS Website for at least
three years.
FISCAL EFFECT: According to the Senate Appropriations
Committee: No significant enforcement costs are anticipated for
the DMHC and CDI. No significant costs are anticipated for
system changes at Covered California. The proposed amendments
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would delete the requirement for a new special enrollment period
in the small group market.
COMMENTS:
1)PURPOSE OF THIS BILL. According to the author, most health
plans and health insurers (carriers) do not receive
unreasonable rate determinations and many reduce or withdraw
their rates during the rate review process. However, some
carriers choose to move forward with unreasonable rates even
after the rate has been determined unreasonable by DMHC or
CDI. In those cases, the DMHC and CDI issue press releases to
let the public know about the unreasonable rate determination.
But no one tells the individual consumer or the small
business owner who purchased the coverage if the rate has been
found unreasonable or unjustified. This means consumers and
small business owners can be unwittingly locked into an
unreasonable rate because they are not aware that it is
unreasonable. This bill requires a health plan or insurer
whose rate has been determined unreasonable to share that
information with the purchasers of that product or policy and
allow those purchasers to shop around for more reasonably
priced coverage. The author states that in a world where
people are compelled to purchase health insurance, we must
empower consumers to make informed decisions about the
coverage they are choosing.
2)BACKGROUND. As of September 1, 2011, the ACA and rate review
regulation require review of rate increases of 10% or more. A
non-grandfathered health plan sold in the individual or small
group market that increases its rates by 10% or more is
subject to review to determine whether the increase is
unreasonable. Most states and territories have an effective
rate review program and will review rate increases submitted
by health insurance issuers in their states and territories.
CMS will review rate increases in the market(s) where states
do not have an effective rate review program. Additionally,
effective January 1, 2014, all health plans compliant with the
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rate monitoring and single risk pool requirements of the ACA
are required to submit all plans within the single risk pool.
According to CMS, Californians were saved from rate increases
totaling as high as 87% after a health insurer withdrew its
proposed increase after scrutiny by CDI.
a) Rate Review in California. Under the ACA and SB 1163
(Leno), Chapter 661, Statutes of 2010, carriers must submit
detailed data and actuarial justification for small group
and individual market rate increases at least 60 days in
advance of increasing their customers' rates. Rates must
be submitted to both the DMHC (or CDI) and their customers
at least 60 days in advance of the increase. CDI has
encouraged insurers to allow at least 120 days for CDI to
review rates. The carriers also must submit an analysis
performed by an independent actuary who is not employed by
a plan or insurer. The DMHC or CDI do not have the
authority to modify or reject rate changes.
b) Rate Development. For health plans participating in
Covered California, the rate negotiation process typically
begins in May of the year prior to the applicable rate
year. Preliminary rates are announced near the end of the
summer and final rates are published in the fall prior to
the open enrollment period. Covered California's open
enrollment for 2016 begins November 1, 2015 and ends
January 31, 2016. Small businesses are not subject to a
uniform open enrollment period. Coverage can be issued any
time during the year. In the small group market, carrier
contracts with the small business purchaser typically cover
a 12 month period and are guaranteed renewable but not
necessarily at the prior year's rate.
c) Rate Review Report. The California Public Interest
Research Group (CALPIRG) has published an analysis of
implementation of California's Health Insurance Rate
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Review: the First Five Years. The CALPIRG analysis
included posted rate filings that were scheduled to go into
effect between January 1, 2011 and January 1, 2016. The
CALPIRG report indicates that carriers have filed 565
proposed rate changes in the individual and small group
markets within that five years. Carriers have voluntarily
reduced or withdrawn 69 rate filings after beginning the
rate review process (12% of the total number of filings
posted). Between 2011 and 2016, DMHC and CDI estimate that
Californians have saved $417 million dollars as a result of
rate increases that were filed with the regulator and
subsequently reduced. Carriers pushed ahead with their
rate increases despite regulators declaring them
unreasonable at least 26 times. Over the last five years,
over one million Californians have been subject to rate
hikes that were declared unreasonable but still went into
effect. Many of the same companies have had multiple rate
hikes declared unreasonable.
3)SUPPORT. Health Access California, sponsor of this bill,
writes that this bill informs individual consumers and small
business owners if the rate for their product is unreasonable
or unjustified and gives them the opportunity to shop for
other coverage. The California State Council of the Service
Employees International Union writes that when California's
$123 billion health insurance industry is allowed to increase
rates without justification, it contributes to the problem of
spiraling health care costs, which cuts into wages and
benefits for California's workers. The American Cancer
Society Cancer Action Network states that currently there is
no requirement to share the DMHC or CDI's unreasonable
determination with purchasers who are unknowingly locked into
those unreasonable rates. With this bill's notification
requirements and allowing purchasers to shop for new coverage,
the affordability that the ACA intended is maintained. AARP
states that this bill provides additional protections to
health care consumers by providing them more time to shop for
a new policy when an insurance company raises rates.
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4)OPPOSE UNLESS AMENDED. The Association of California Life and
Health Insurance Companies (ACLHIC) states that the rate
notice should be clarified to include an explanation as to why
the insurer decided to go forward with that rate, as they are
currently allowed to do so under the federal guidelines.
Additionally, ACLHIC notes that the rate notice should be
provided at the time of renewal, and include a requirement
that the regulator perform a timely review of the proposed
rates.
5)OPPOSITION. The California Association of Health Plans (CAHP)
states that this bill will subject health plans to new
administrative burdens and inadvertently disrupt the health
insurance market with additional and overlapping enrollment
options and rate freezes. CAHP contends that the new notice
requirement is misleading because it could imply that the
consumer must switch to a new product. CAHP also states that
this bill will cause disruption and needless churn in the
market since consumers already review a rate notice at the
annual open enrollment period. Additionally, CAHP contends
that this bill results in unsound rate freezes in that health
plans are required to go back in time and change rates after
an unreasonable determination and after new contracts have
been negotiated with providers and after new benefit designs
have been adopted. Finally, CAHP states that this bill's new
special enrollment option will cause disruption and is
unnecessary since an individual rate cannot be changed within
a 12-month period and consumers, with notice of the rate
renewal can choose a new plan at the beginning of annual open
enrollment. The America's Health Insurance Plans (AHIP)
states that this bill is unnecessary as consumer disclosure is
already required under the ACA and on the insurer's Website.
Lastly, AHIP contends that the rate notice does not conform to
statutory criteria for review in that this bill should not
lead the consumer to believe that the rate is unjustified but
rather instead inform the consumer that the rate was
determined unreasonable. Kaiser Permanente writes that trying
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to create consumer protections after the plan is in "market"
is confusing and could result in individuals being uninsured,
or opting for a more expensive plan that does not suit their
needs.
6)PREVIOUS LEGISLATION.
a) SB 546 (Leno), Chapter 801, Statutes of 2015,
establishes weighted average rate increase disclosure
requirements for a health plan's or insurer's aggregated
large group market products and requires DMHC and CDI to
conduct a public meeting regarding large group rate
changes, as specified.
b) SB 1182 (Leno), Chapter 577, Statutes of 2014, requires
health plans and insurers to share specified data with
purchasers that have 1,000 or more enrollees, insureds or
that are multiemployer trusts.
c) 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. 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
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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.
d) 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.
REGISTERED SUPPORT / OPPOSITION:
Support
Health Access California (sponsor)
AARP
American Cancer Society Cancer Action Network
American Federation of State, County and Municipal Employees,
AFL-CIO
Asian Law Alliance
California Labor Federation, AFL-CIO
California Medical Association
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California Pan-Ethnic Health Network
California State Council of the Service Employees International
Union
California Teachers Association
CALPIRG
Congress of California Seniors
Coalition of California Welfare Rights Organizations
Consumers Union
Los Angeles Professional Peace Officers Association
National Association of Social Workers, California Chapter
Organization of SMUD Employees
San Diego County Court Employees Association
San Luis Obispo County Employees Association
SEIU California
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Western Center on Law and Poverty
Opposition
America's Health Insurance Plans
Association of California Life and Health Insurance Companies
Anthem
Blue Shield of California
California Association of Health Plans
Kaiser Permanente
Analysis Prepared by:Kristene Mapile / HEALTH / (916)
319-2097