BILL ANALYSIS Ó SB 923 Page 1 Date of Hearing: June 21, 2016 ASSEMBLY COMMITTEE ON HEALTH Jim Wood, Chair SB 923 (Hernandez) - As Amended May 31, 2016 SENATE VOTE: 29-5 SUBJECT: Health care coverage: cost-sharing changes. SUMMARY: Prohibits health care service plans (health plans) and health insurance policies (health policies) from changing cost sharing requirements during a plan or policy year in the individual or small group markets. Specifically, this bill: 1)Applies to grandfathered and nongrandfathered health plan contracts and health policies in the individual or small group markets that are issued, amended, or renewed on or after January 1, 2017. 2)Prohibits health plans and health policies from changing cost designs during the plan or policy year. 3)Provides for an exception for changes when required by state or federal law. SB 923 Page 2 4)Defines cost sharing as any copayment, coinsurance, deductible, or any other form of cost sharing by the enrollee other than the premium or share of premium. 5)Defines plan and policy year as set forth in existing federal law. Defines plan and policy year for nongrandfathered health plan contracts and health insurance policies in the individual market as the calendar year. 6)Defines cost sharing design as the amount or proportion of cost sharing applied to a covered benefit. EXISTING LAW: 1)Establishes the Department of Managed Health Care to regulate health plans and the California Department of Insurance to regulate health insurers. 2)Establishes the federal Patient Protection and Affordable Care Act (ACA), which enacts various health care coverage market reforms. 3)Establishes the Exchange (now called Covered California) within state government, as an independent public entity not affiliated with an agency or department, and requires the Exchange 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 qualified health plans though the Exchange by qualified individuals and small employers. 4)Requires health plans, for certain contracts, to provide 60 SB 923 Page 3 days' notice to contract holders prior to the effective date of the contract renewal for any change in premium rate or coverage. 5)Prohibits a health plan or health insurer, with regard to group contracts, from changing the premium rates or applicable copayments, coinsurances, or deductibles for the length of the contract, except, when authorized or required in the contract, when the contract is a preliminary agreement subject to execution of a definitive agreement, or when the plan and contract-holder mutually agree in writing. 6)Defines rating period for the individual market as the calendar year for which premium rates are in effect, and for the nongrandfathered small group market as the period for which premium rates established by a plan are in effect and are no less than 12 months from the date of issuance or renewal of the plan contract. 7)Defines a plan year as a 12-month period of benefits coverage under a group health plan which may not be the same as the calendar year. Defines a policy year as a 12-month period for individual health insurance policies. FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs. COMMENTS: 1)PURPOSE OF THIS BILL. According to the author, the ACA provides many new consumer protections to make health insurance more affordable and available. These include protections on cost-sharing, such as actuarial value requirements and placing annual limits on out-of-pocket costs. One of the many individual market reforms California enacted while implementing the ACA, was a provision that prohibited SB 923 Page 4 plans and insurers from altering premiums during the plan year. This essential patient protection, while meaningful on its own, does not currently apply to cost sharing requirements across all markets. This bill will ensure health care consumers are actually provided what they were promised when signing up for coverage by prohibiting a health plan contract or health policy from changing any cost sharing requirements during the plan year. Numerous consumer protections passed by California over the last several years were designed to put an end to "bait and switch" tactics previously employed by health plans and insurers. The author concludes, this bill continues that tradition by advancing the basic tenet that consumers should get what they pay for. 2)BACKGROUND. The health insurance market is segmented into group and nongroup markets. In the group market there are companies that issue health insurance plans or policies to large employers or small employers, or both, and in the nongroup market plans or policies are issued to individual purchasers who buy insurance for themselves and/or their family members. Both small group and individual health plans or policies are available for purchase in health benefit exchanges (Covered California in this state) and outside health benefit exchanges. The laws that apply to specific market segments are not always the same. The ACA includes a number of provisions that reform the health insurance market. These reforms help put American consumers back in charge of their health coverage and care, ensuring they receive value for their premium dollars. The ACA creates a more level playing field by cracking down on unreasonable health insurance premiums and holding insurance companies accountable for unjustified premium increases. Most transformational are changes to the small group and individual insurance markets, such as mandating guaranteed issuance of coverage, eliminating pre-existing condition exclusions, and limiting factors upon which premium rates can be developed. The ACA requires carriers to provide essential health benefits (EHBs) with standardized tiers of cost-sharing. With SB 923 Page 5 standardized benefits, consumers can more accurately compare plans and policies because the benefits are the same for all plans offered in the Exchange marketplace. Additionally, standardizing benefits ensures that the selected health insurance plans define what consumers get and limit the consumer's out-of-pocket costs by type of service. Under the ACA, out-of-pocket limits for health plans are subject to the limit that currently applies to health savings account-qualified health plans. ACA regulations on grandfathered health plans or policies address how health plans or policies can retain a "grandfathered" exemption from certain ACA requirements. Grandfathered plans are health plans that were in existence on March 23, 2010, and haven't been changed in ways that substantially cut benefits or increase costs for plan holders. Some, but not all, of the ACA requirements apply to grandfathered plans or policies, and there are differences in requirements that apply to grandfathered large group, small group, and nongroup plans or policies. For both small group and individual group plans or policies, California law establishes either a 12 month or calendar year rating period meaning rates have to be based on a 12 month period. Prior to the ACA, California law already prohibited in group health contracts, plans, and policies which allowed changing the premium rates, copayments, coinsurances, or deductibles for the length of the contract, with certain exceptions (i.e. when the parties to the contract agree in writing). The ACA was passed because a health plan changed the premium rates after the open enrollment period closed. The ACA applies only to large group plans and policies and grandfathered small group plans and policies. According to an article in the Los Angeles Times, in October of 2015, a major health plan settled an $8.3 million lawsuit that was brought because in 2011 the company was altering deductible requirements mid-year. As part of the settlement, SB 923 Page 6 the plan assumed no wrong-doing and argued that neither state law nor their existing contracts prohibited this practice. There were 50,000 affected consumers including one individual who received a $19,000 award because the individual had paid particularly high out-of-pocket costs. Affected consumers stated that they felt their health plan was changing the rules in the middle of the game. This bill would apply to all individual market plans and policies as well as non-grandfathered small group plans and policies. 3)SUPPORT. Health Access California, sponsor of this bill, states that this bill requires health plans and insurers to keep cost sharing designs for a specific product in place during the entire rate year. Additionally, the sponsor explains that cost sharing design refers to what the copays or coinsurances are for a specific benefit. The American Federation of State, County and Municipal Employees, AFL-CIO, writes in support as this bill holds health care providers accountable for their services and patients. The National Association of Social Workers, California Chapter supports this bill because it will help consumers budget their health care expenditures and will allow consumers to understand their potential costs during the plan year. The California School Employees Association, AFL-CIO, states that this bill stops the unfair practice of the health plan increasing co-payments, or any other cost sharing requirements throughout the year. The National Multiple Sclerosis Society states that this bill serves as an important consumer protection cost measure essential to maintaining access to vital and often lifesaving treatment. The American Cancer Society Cancer Action Network states that this bill continues the tradition of numerous consumer protections designed to put an end to "bait and switch" tactics previously employed by health plans and insurers. 4)PREVIOUS LEGISLATION. a) SB 43 (Hernandez), Chapter 648, Statutes of 2015, updates existing law to reflect that the Kaiser Foundation SB 923 Page 7 Health Plan Small Group HMO 30 plan, as offered during the first quarter of 2014, is California's EHB benchmark for plan contracts and policies issued, amended, or renewed on or after January 1, 2017. b) AB 339 (Gordon), Chapter 619, Statutes of 2015, requires health plans and health insurers that provide coverage for outpatient prescription drugs to have formularies that do not discourage the enrollment of individuals with health conditions, and requires combination antiretrovirals drug treatment coverage of a single-tablet that is as effective as a multitablet regimen for treatment of Human Immunodeficiency Virus infection and Acquired Immune Deficiency Syndrome, as specified. AB 339 places in state law, federal requirements related to pharmacy and therapeutics committees, access to in-network retail pharmacies, standardized formulary requirements, formulary tier requirements similar to those required of health plans and insurers participating in Covered California, and copayment caps of $250 and $500 for a supply of up to 30 days for an individual prescription, as specified. c) SB 639 (Hernandez), Chapter 316, Statutes of 2013, codifies provisions of the ACA relating to out-of-pocket limits on cost-sharing. d) ABX1 2 (Pan), Chapter 1, Statutes of 2013-14 First Extraordinary Session and SBX1 2 (Hernandez), Chapter 2, Statutes of 2013-14 First Extraordinary Session, establish health insurance market reforms contained in the ACA specific to individual purchasers, such as prohibiting insurers from denying coverage based on preexisting conditions; and, make conforming changes to small employer health insurance laws resulting from final federal regulations. e) SB 961 (Hernandez) and AB 1461 (Monning) of 2012 were identical bills that would have reformed California's individual market similar to the provisions in SBX1 2. SB SB 923 Page 8 961 and AB 1461 were vetoed by Governor Brown who indicated that without the strong foundation that federal law provides, a state-level mandate on insurers alone could encourage healthy people to wait until they got sick or injured before purchasing coverage. This would lead to skyrocketing premiums, making coverage more unaffordable. f) AB 1083 (Monning), Chapter 854, Statutes of 2012, establishes reforms in the small group health insurance market to implement the ACA. g) SB 951 (Hernandez), Chapter 866, Statutes of 2012, and AB 1453 (Monning), Chapter 854, Statutes of 2012, designates the Kaiser Small Group HMO as California's benchmark plan to serve as the EHBs, as required by the ACA. h) SB 51 (Alquist), Chapter 644, Statutes of 2011, establishes enforcement authority in California law to implement provisions of the ACA related to medical loss ratio requirements on health plans and health insurers and enacted prohibitions on annual and lifetime benefits. i) AB 2244 (Feuer), Chapter 656, Statutes of 2010, requires guaranteed issue of health plan and health insurance products for children beginning in January 1, 2011. j) SB 900 (Alquist), Chapter 659, Statutes of 2010, and AB 1602 (Perez), Chapter 655, Statutes of 2010, established the California Health Benefit Exchange. aa) AB 2052 (Goldberg), Chapter 336, Statutes of 2002, prohibits a group health plan or health insurer from making any change in premium rates or cost sharing after acceptance of a contract or after the annual open enrollment period. SB 923 Page 9 REGISTERED SUPPORT / OPPOSITION: Support Health Access California (sponsor) American Cancer Society Cancer Action Network American Federation of State, County and Municipal Employees, AFL-CIO California Immigrant Policy Center California Labor Federation California Optometric Association California School Employees Association, AFL-CIO California State Council of the Service Employees International Union California Teachers Association CALPIRG SB 923 Page 10 Congress of California Seniors Consumers Union National Alliance on Mental Illness National Association of Social Workers - California Chapter National Health Law Program National Multiple Sclerosis Society- California Action Network Western Center on Law and Poverty Opposition None on file. Analysis Prepared by:Kristene Mapile / HEALTH / (916) 319-2097 SB 923 Page 11