BILL ANALYSIS Ó
SB 923
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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.
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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
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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
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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
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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,
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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
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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
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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.
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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
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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
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