BILL NUMBER: AB 726 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 19, 1999
INTRODUCED BY Assembly Member Gallegos
FEBRUARY 24, 1999
An act to amend Sections 1357, 1357.09, and 1357.12 of, and to add
Section 1357.145 to, the Health and Safety Code, and to
amend Section 10700 of the Insurance Code, and to add and
repeal Section 17053.56 of the Revenue and Taxation Code,
relating to small employer health insurance.
LEGISLATIVE COUNSEL'S DIGEST
AB 726, as amended, Gallegos. Health insurance: small employers:
self-employed individuals.
Existing law provides for regulation of health care service plans
by the Commissioner of Corporations and for the regulation of
disability insurers by the Insurance Commissioner. Existing law
provides that a willful violation of the provisions relating to
health care service plans is a crime. Existing law imposes various
requirements on health care service plans and disability insurers
with respect to small employer health coverage, and defines "small
employer" for these purposes to mean any person or entity that
employs at least 2, but no more than 50, eligible employees, as
specified.
This bill would revise this definition to include any person or
entity that employs no more than 100 eligible employees, and would
also include self-employed persons, as defined, within the
definition.
Existing law provides for application of a risk adjustment factor,
as specified, to a plan's or insurer's standard employee risk rate
with respect to an eligible employee of a small employer in a
particular risk category, in order to compensate for any expected
deviations from standard cost of services.
This bill would modify the percentage amount of the risk
adjustment factor that may be applied to rates for eligible employees
of small employers. This bill would also establish new risk
adjustments factors to be applicable to small employers who are
self-employed persons.
This bill would also require the Department of Corporations, in
consultation with the Managed Risk Medical Insurance Board, to
develop and implement a standardized summary brochure and evidence of
coverage format by January 1, 2001, to be used by health care
service plans to meet certain disclosure requirements.
The Personal Income Tax Law authorizes various credits against the
tax imposed by that law.
This bill would express the intent of the Legislature to
authorize a credit against that tax for each taxable
year beginning on or after January 1, 1999, and before January 1,
2004, in an amount equal to 25% of the qualified expenses
, as defined, paid or incurred by a taxpayer
during the taxable year, to participate in a health care service plan
offered by an employer through a nonprofit purchasing coalition
if the federal government permits the credit .
Because a violation of the bill's requirements with respect to a
health care service plan would be a crime, this bill would impose a
state-mandated local program by expanding the definition of an
existing crime.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) Self-employed individuals and workers in small businesses
often face serious roadblocks towards obtaining health insurance
coverage due to insurance industry underwriting practices.
(b) In addition, health insurance is more expensive for
self-employed individuals and small businesses because they lack
effective bargaining power and suffer high administrative costs in
securing coverage.
(c) Eliminating discriminatory insurance marketing practices that
exclude self-employed individuals and small businesses from coverage
will increase the availability and affordability of health insurance
for these parties.
(d) In addition, insurance underwriting reforms will facilitate
the expansion of existing health insurance purchasing pools and the
development of new ones. That can help simplify and reduce the cost
of obtaining coverage, spread risk, and extend choice of health plans
to self-employed individuals and small businesses.
SEC. 2. Section 1357 of the Health and Safety Code is amended to
read:
1357. As used in this article:
(a) "Dependent" means the spouse or child of an eligible employee,
subject to applicable terms of the health care plan contract
covering the employee, and includes dependents of guaranteed
association members if the association elects to include dependents
under its health coverage at the same time it determines its
membership composition pursuant to subdivision (o).
(b) "Eligible employee" means either of the following:
(1) Any permanent employee who is actively engaged on a full-time
basis in the conduct of the business of the small employer with a
normal workweek of at least 30 hours, at the small employer's regular
places of business, who has met any statutorily authorized
applicable waiting period requirements. The term includes sole
proprietors or partners of a partnership, if they are actively
engaged on a full-time basis in the small employer's business and
included as employees under a health care plan contract of a small
employer, but does not include employees who work on a part-time,
temporary, or substitute basis. It includes any eligible employee as
defined in this paragraph who obtains coverage through a guaranteed
association. Employees of employers purchasing through a guaranteed
association shall be deemed to be eligible employees if they would
otherwise meet the definition except for the number of persons
employed by the employer. Permanent employees who work at least 20
hours but not more than 29 hours are deemed to be eligible employees
if all four of the following apply:
(A) They otherwise meet the definition of an eligible employee
except for the number of hours worked.
(B) The employer offers the employees health coverage under a
health benefit plan.
(C) All similarly situated individuals are offered coverage under
the health benefit plan.
(D) The employee must have worked at least 20 hours per normal
workweek for at least 50 percent of the weeks in the previous
calendar quarter. The health care service plan may request any
necessary information to document the hours and time period in
question, including, but not limited to, payroll records and employee
wage and tax filings.
(2) Any member of a guaranteed association as defined in
subdivision (o).
(c) "In force business" means an existing health benefit plan
contract issued by the plan to a small employer.
(d) "Late enrollee" means an eligible employee or dependent who
has declined enrollment in a health benefit plan offered by a small
employer at the time of the initial enrollment period provided under
the terms of the health benefit plan and who subsequently requests
enrollment in a health benefit plan of that small employer, provided
that the initial enrollment period shall be a period of at least 30
days. It also means any member of an association that is a
guaranteed association as well as any other person eligible to
purchase through the guaranteed association when that person has
failed to purchase coverage during the initial enrollment period
provided under the terms of the guaranteed association's plan
contract and who subsequently requests enrollment in the plan,
provided that the initial enrollment period shall be a period of at
least 30 days. However, an eligible employee, any other person
eligible for coverage through a guaranteed association pursuant to
subdivision (o), or dependent shall not be considered a late enrollee
if: (1) the individual meets all of the following: (A) he or she
was covered under another employer health benefit plan or no
share-of-cost Medi-Cal coverage at the time the individual was
eligible to enroll; (B) he or she certified at the time of the
initial enrollment that coverage under another employer health
benefit plan or no share-of-cost Medi-Cal coverage was the reason for
declining enrollment, provided that, if the individual was covered
under another employer health plan, the individual was given the
opportunity to make the certification required by this subdivision
and was notified that failure to do so could result in later
treatment as a late enrollee; (C) he or she has lost or will lose
coverage under another employer health benefit plan as a result of
termination of employment of the individual or of a person through
whom the individual was covered as a dependent, change in employment
status of the individual or of a person through whom the individual
was covered as a dependent, termination of the other plan's coverage,
cessation of an employer's contribution toward an employee or
dependent's coverage, death of the person through whom the individual
was covered as a dependent, legal separation, divorce, or loss of no
share-of-cost Medi-Cal coverage; and (D) he or she requests
enrollment within 30 days after termination of coverage or employer
contribution toward coverage provided under another employer health
benefit plan; (2) the employer offers multiple health benefit plans
and the employee elects a different plan during an open enrollment
period; (3) a court has ordered that coverage be provided for a
spouse or minor child under a covered employee's health benefit plan;
(4) (A) in the case of an eligible employee as defined in paragraph
(1) of subdivision (b), the plan cannot produce a written statement
from the employer stating that the individual or the person through
whom the individual was eligible to be covered as a dependent, prior
to declining coverage, was provided with, and signed, acknowledgment
of an explicit written notice in boldface type specifying that
failure to elect coverage during the initial enrollment period
permits the plan to impose, at the time of the individual's later
decision to elect coverage, an exclusion from coverage for a period
of 12 months as well as a six-month preexisting condition exclusion,
unless the individual meets the criteria specified in paragraph (1),
(2), or (3); (B) in the case of an association member who did not
purchase coverage through a guaranteed association, the plan cannot
produce a written statement from the association stating that the
association sent a written notice in boldface type to all potentially
eligible association members at their last known address prior to
the initial enrollment period informing members that failure to elect
coverage during the initial enrollment period permits the plan to
impose, at the time of the member's later decision to elect coverage,
an exclusion from coverage for a period of 12 months as well as a
six-month preexisting condition exclusion unless the member can
demonstrate that he or she meets the requirements of subparagraphs
(A), (C), and (D) of paragraph (1) or paragraph (2) or (3); or (C) in
the case of an employer or person who is not a member of an
association, was eligible to purchase coverage through a guaranteed
association, and did not do so, and would not be eligible to purchase
guaranteed coverage unless purchased through a guaranteed
association, the employer or person can demonstrate that he or she
meets the requirements of subparagraphs (A), (C), and (D) of
paragraph (1), or paragraph (2) or (3), or that he or she recently
had a change in status that would make him or her eligible and that
application for enrollment was made within 30 days of the change; (5)
the individual is an employee or dependent who meets the criteria
described in paragraph (1) and was under a COBRA continuation
provision and the coverage under that provision has been exhausted.
For purposes of this section, the definition of "COBRA" set forth in
subdivision (e) of Section 1373.621 shall apply; or (6) the
individual is a dependent of an enrolled eligible employee who has
lost or will lose his or her no share-of-cost Medi-Cal coverage and
requests enrollment within 30 days after notification of this loss of
coverage.
(e) "New business" means a health care service plan contract
issued to a small employer that is not the plan's in force business.
(f) "Preexisting condition provision" means a contract provision
that excludes coverage for charges or expenses incurred during a
specified period following the employee's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.
(g) "Creditable coverage" means:
(1) Any individual or group policy, contract, or program that is
written or administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans. The term includes
continuation or conversion coverage but does not include accident
only, credit, coverage for onsite medical clinics, disability income,
Medicare supplement, long-term care, dental, vision, coverage issued
as a supplement to liability insurance, insurance arising out of a
workers' compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
(2) The federal Medicare program pursuant to Title XVIII of the
Social Security Act.
(3) The medicaid program pursuant to Title XIX of the Social
Security Act.
(4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
(5) 10 U.S.C.A. Chapter 55 (commencing with Section 1071)
(Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS)).
(6) A medical care program of the Indian Health Service or of a
tribal organization.
(7) A state health benefits risk pool.
(8) A health plan offered under 5 U.S.C.A. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
(9) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the Public Health Service Act,
as amended by Public Law 104-191, the Health Insurance Portability
and Accountability Act of 1996.
(10) A health benefit plan under Section 5(e) of the Peace Corps
Act (22 U.S.C.A. Sec. 2504(e)).
(11) Any other creditable coverage as defined by subdivision (c)
of Section 2701 of Title XXVII of the federal Public Health Services
Act (42 U.S.C. Sec. 300gg(c)).
(h) "Rating period" means the period for which premium rates
established by a plan are in effect and shall be no less than six
months.
(i) "Risk adjusted employee risk rate" means the rate determined
for an eligible employee of a small employer in a particular risk
category after applying the risk adjustment factor.
(j) (1) "Risk adjustment factor" means the percentage adjustment
to be applied equally to each standard employee risk rate for a
particular small employer that is not a self-employed individual,
based upon any expected deviations from standard cost of services.
Effective July 1, 2000, this factor may not be more than 105 percent
or less than 95 percent.
(2) "Self-employed risk adjustment factor" means the percent
adjustment to be applied equally to each standard self-employed risk
rate for a particular self-employed individual, based upon any
expected deviations from standard cost of services. Effective July
1, 2000, this factor may not be more than 110 percent or less than 90
percent.
(k) "Risk category" means the following characteristics of an
eligible employee: age, geographic region, and family composition of
the employee, plus the health benefit plan selected by the small
employer.
(1) No more than the following age categories may be used in
determining premium rates:
Under 30
30-39
40-49
50-54
55-59
60-64
65 and over
However, for the 65 and over age category, separate premium rates
may be specified depending upon whether coverage under the plan
contract will be primary or secondary to benefits provided by the
federal Medicare program pursuant to Title XVIII of the federal
Social Security Act.
(2) Small employer health care service plans shall base rates to
small employers using no more than the following family size
categories:
(A) Single.
(B) Married couple.
(C) One adult and child or children.
(D) Married couple and child or children.
(3) (A) In determining rates for small employers, a plan that
operates statewide shall use no more than nine geographic regions in
the state, have no region smaller than an area in which the first
three digits of all its ZIP Codes are in common within a county, and
divide no county into more than two regions. Plans shall be deemed
to be operating statewide if their coverage area includes 90 percent
or more of the state's population. Geographic regions established
pursuant to this section shall, as a group, cover the entire state,
and the area encompassed in a geographic region shall be separate and
distinct from areas encompassed in other geographic regions.
Geographic regions may be noncontiguous.
(B) In determining rates for small employers, a plan that does not
operate statewide shall use no more than the number of geographic
regions in the state than is determined by the following formula:
the population, as determined in the last federal census, of all
counties that are included in their entirety in a plan's service area
divided by the total population of the state, as determined in the
last federal census, multiplied by nine. The resulting number shall
be rounded to the nearest whole integer. No region may be smaller
than an area in which the first three digits of all its ZIP Codes are
in common within a county and no county may be divided into more
than two regions. The area encompassed in a geographic region shall
be separate and distinct from areas encompassed in other geographic
regions. Geographic regions may be noncontiguous. No plan shall
have less than one geographic area.
Nothing in this section shall be construed to require a plan to
establish a new service area or to offer health coverage on a
statewide basis, outside of the plan's existing service area.
(l) "Small employer" means any of the following:
(1) Any person, firm, proprietary or nonprofit corporation,
partnership, public agency, or association that is actively engaged
in business or service, that, on at least 50 percent of its working
days during the preceding calendar quarter or preceding calendar
year, employed at least two, but no more than 100, eligible
employees, the majority of whom were employed within this state, that
was not formed primarily for purposes of buying health care service
plan contracts, and in which a bona fide employer-employee
relationship exists. In determining whether to apply the calendar
quarter or calendar year test, a health care service plan shall use
the test that ensures eligibility if only one test would establish
eligibility. However, for purposes of subdivisions (a), (b), and (c)
of Section 1357.03, the definition shall include employers with at
least three eligible employees until July 1, 1997, and two eligible
employees thereafter. In determining the number of eligible
employees, companies that are affiliated companies and that are
eligible to file a combined tax return for purposes of state taxation
shall be considered one employer. Subsequent to the issuance of a
health care service plan contract to a small employer pursuant to
this article, and for the purpose of determining eligibility, the
size of a small employer shall be determined annually. Except as
otherwise specifically provided in this article, provisions of this
article that apply to a small employer shall continue to apply until
the plan contract anniversary following the date the employer no
longer meets the requirements of this definition. It includes any
small employer as defined in this paragraph who purchases coverage
through a guaranteed association, and any employer purchasing
coverage for employees through a guaranteed association.
(2) Any self-employed person, meaning an individual or sole
proprietor who derives at least 75 percent of his or her income from
a trade or business through which the individual or sole proprietor
has attempted to earn taxable income and for which he or she has
filed the appropriate Internal Revenue Service Form 1040, Schedule C
or F, for the previous taxable year and documentation demonstrating
the person's status as a bona fide business to the extent that the
documentation is otherwise required in the jurisdiction in which the
person resides or works. Nothing in this section is intended to
permit a carrier to impose its own definition of a business or
exclude a self-employed individual who otherwise meets the
requirements of this article.
(3) Any guaranteed association, as defined in subdivision (n),
that purchases health coverage for members of the association.
(m) "Standard employee risk rate" means the rate applicable to an
eligible employee in a particular risk category in a small employer
group.
(n) "Guaranteed association" means a nonprofit organization
comprised of a group of individuals or employers who associate based
solely on participation in a specified profession or industry,
accepting for membership any individual or employer meeting its
membership criteria, and that (1) includes one or more small
employers as defined in paragraph (1) of subdivision (l), (2) does
not condition membership directly or indirectly on the health or
claims history of any person, (3) uses membership dues solely for and
in consideration of the membership and membership benefits, except
that the amount of the dues shall not depend on whether the member
applies for or purchases insurance offered to the association, (4) is
organized and maintained in good faith for purposes unrelated to
insurance, (5) has been in active existence on January 1, 1992, and
for at least five years prior to that date, (6) has included health
insurance as a membership benefit for at least five years prior to
January 1, 1992, (7) has a constitution and bylaws, or other
analogous governing documents that provide for election of the
governing board of the association by its members, (8) offers any
plan contract that is purchased to all individual members and
employer members in this state, (9) includes any member choosing to
enroll in the plan contracts offered to the association provided that
the member has agreed to make the required premium payments, and
(10) covers at least 1,000 persons with the health care service plan
with which it contracts. The requirement of 1,000 persons may be met
if component chapters of a statewide association contracting
separately with the same carrier cover at least 1,000 persons in the
aggregate.
This subdivision applies regardless of whether a contract issued
by a plan is with an association or a trust formed for, or sponsored
by, an association to administer benefits for association members.
For purposes of this subdivision, an association formed by a
merger of two or more associations after January 1, 1992, and
otherwise meeting the criteria of this subdivision shall be deemed to
have been in active existence on January 1, 1992, if its predecessor
organizations had been in active existence on January 1, 1992, and
for at least five years prior to that date and otherwise met the
criteria of this subdivision.
(o) "Members of a guaranteed association" means any individual or
employer meeting the association's membership criteria if that person
is a member of the association and chooses to purchase health
coverage through the association. At the association's discretion,
it also may include employees of association members, association
staff, retired members, retired employees of members, and surviving
spouses and dependents of deceased members. However, if an
association chooses to include these persons as members of the
guaranteed association, the association shall make that election in
advance of purchasing a plan contract. Health care service plans may
require an association to adhere to the membership composition it
selects for up to 12 months.
(p) "Affiliation period" means a period that, under the terms of
the health care service plan contract, must expire before health care
services under the contract become effective.
SEC. 3. Section 1357.09 of the Health and Safety Code is amended
to read:
1357.09. No plan shall be required to offer a health care service
plan contract or accept applications for such a contract pursuant to
this article in the case of any of the following:
(a) To a small employer, where the small employer is not
physically located in a plan's approved service areas, or where an
eligible employee and dependents who are to be covered by the plan
contract do not work or reside within a plan's approved service
areas.
(b) Within a specific service area or portion of a service area
where a plan reasonably anticipates and demonstrates to the
satisfaction of the commissioner that it will not have sufficient
health care delivery resources to assure that health care services
will be available and accessible to the eligible employee and
dependents of the employee because of its obligations to existing
enrollees.
(1) A plan that cannot offer a health care service plan contract
to small employers because it is lacking in sufficient health care
delivery resources within a service area or a portion of a service
area may not offer a contract in the area in which the plan is not
offering coverage to small employers to new employer groups with more
than 100 eligible employees until the plan notifies the commissioner
that it has the ability to deliver services to small employer
groups, and certifies to the commissioner that from the date of the
notice it will enroll all small employer groups requesting coverage
in that area from the plan unless the plan has met the requirements
of subdivision (d).
(2) Nothing in this article shall be construed to limit the
commissioner's authority to develop and implement a plan of
rehabilitation for a health care service plan whose financial
viability or organizational and administrative capacity have become
impaired.
(c) Offer coverage to a small employer or an eligible employee as
defined under paragraph (2) of subdivision (b) of Section 1357 which,
within 12 months of application for coverage, disenrolled from a
plan contract offered by the plan.
(d) The commissioner approves the plan's certification that the
number of eligible employees and dependents enrolled under contracts
issued during the current calendar year equals or exceeds (1) in the
case of a plan that administers any self-funded health coverage
arrangements in California, 10 percent of the total enrollment of the
plan in California as of December 31 of the preceding year, or (2)
in the case of a plan that does not administer any self-funded health
coverage arrangements in California, 8 percent of the total
enrollment of the plan in California as of December 31 of the
preceding year. If that certification is approved, the plan shall not
offer any health care service plan contract to any small employers
during the remainder of the current year.
(1) If a health care service plan treats an affiliate or
subsidiary as a separate carrier for the purpose of this article
because one health care service plan is qualified under the federal
Health Maintenance Organization Act and does not offer coverage to
small employers, while the affiliate or subsidiary offers a plan
contract that is not qualified under the federal Health Maintenance
Organization Act and offers plan contracts to small employers, the
health care service plan offering coverage to small employers shall
enroll new eligible employees and dependents, equal to the applicable
percentage of the total enrollment of both the health care service
plan qualified under the federal Health Maintenance Organization Act
and its affiliate or subsidiary.
(2) The certified statement filed pursuant to this subdivision
shall state the following:
(A) Whether the plan administers any self-funded health coverage
arrangements in California.
(B) The plan's total enrollment as of December 31 of the preceding
year.
(C) The number of eligible employees and dependents enrolled under
contracts issued to small employer groups during the current
calendar year.
The commissioner shall, within 45 days, approve or disapprove the
certified statement. If the certified statement is disapproved, the
plan shall continue to issue coverage as required by Section 1357.03
and be subject to disciplinary action as set forth in Article 7
(commencing with Section 1386).
(e) A health care service plan that, as of December 31 of the
prior year, had a total enrollment of fewer than 100,000 and 50
percent or more of the plan's total enrollment have premiums paid by
the Medi-Cal program.
(f) A social health maintenance organization, as described in
subdivision (a) of Section 2355 of the federal Deficit Reduction Act
of 1984 (Public Law 97-369), that, as of December 31 of the prior
year, had a total enrollment of fewer than 100,000 and has 50 percent
or more of the organization's total enrollment premiums paid by the
Medi-Cal program or Medicare programs, or by a combination of
Medi-Cal and Medicare. In no event shall this exemption be based
upon enrollment in Medicare supplement contracts, as described in
Article 3.5 (commencing with Section 1358).
SEC. 4. Section 1357.12 of the Health and Safety Code is
amended to read:
1357.12. Premiums for contracts offered or delivered by plans on
or after the effective date of this article shall be subject to the
following requirements:
(a) (1) The premium for new business shall be determined for an
eligible employee in a particular risk category after applying a risk
adjustment factor to the plan's standard employee risk rates.
Effective July 1, 2000, for a small employer that is not a
self-employed person, the risk adjusted employee risk rate may not be
more than 105 percent, or less than 95 percent, of the plan's
applicable standard employee risk rate. Effective July 1, 2000, for
a self-employed person, the risk adjusted risk rate may not be more
than 110 percent, or less than 90 percent, of the plan's applicable
standard employee risk rate.
(2) The premium charged a small employer for new business shall be
equal to the sum of the risk adjusted employee risk rates.
(3) The standard employee risk rates applied to a small employer
for new business shall be in effect for no less than six months.
(b) (1) The premium for in force business shall be determined for
an eligible employee in a particular risk category after applying a
risk adjustment factor to the plan's standard employee risk rates.
The risk adjusted employee risk rate may not be more than 120 percent
or less than 80 percent of the plan's applicable standard employee
risk rate until July 1, 1996. Effective July 1, 1996, this factor
may not be more than 110 percent or less than 90 percent. Effective
July 1, 2000, this factor may not be more than 105 percent or less
than 95 percent for a small employer that is not a self-employed
person. The factor effective July 1, 2000, shall apply to in force
business at the earlier of either the time of renewal or July 1,
2001. The factor for in force business for a small employer may not
increase by more than 10 percentage points from the risk adjustment
factor applied in the prior rating period. The risk adjustment factor
for a small employer may not be modified more frequently than every
12 months.
(2) The premium charged a small employer for in force business
shall be equal to the sum of the risk adjusted employee risk rates.
The standard employee risk rates shall be in effect for no less than
six months.
(3) For a contract that a plan has discontinued offering, the risk
adjustment factor applied to the standard employee risk rates for
the first rating period of the new contract that the small employer
elects to purchase shall be no greater than the risk adjustment
factor applied in the prior rating period to the discontinued
contract. However, the risk adjusted employee risk rate may not be
more than 120 percent or less than 80 percent of the plan's
applicable standard employee risk rate until July 1, 1996. Effective
July 1, 1996, this factor may not be more than 110 percent or less
than 90 percent. The factor effective July 1, 1996, shall apply to
in force business at the earlier of either the time of renewal or
July 1, 1997. The risk adjustment factor for a small employer may
not be modified more frequently than every 12 months.
(c) (1) For any small employer, a plan may, with the consent of
the small employer, establish composite employee and dependent rates
for either new business or renewal of in force business. The
composite rates shall be determined as the average of the risk
adjusted employee risk rates for the small employer, as determined in
accordance with the requirements of subdivisions (a) and (b). The
sum of the composite rates so determined shall be equal to the sum of
the risk adjusted employee risk rates for the small employer.
(2) The composite rates shall be used for all employees and
dependents covered throughout a rating period of no less than six
months nor more than 12 months, except that a plan may reserve the
right to redetermine the composite rates if the enrollment under the
contract changes by more than a specified percentage during the
rating period. Any redetermination of the composite rates shall be
based on the same risk adjusted employee risk rates used to determine
the initial composite rates for the rating period. If a plan
reserves the right to redetermine the rates and the enrollment
changes more than the specified percentage, the plan shall
redetermine the composite rates if the redetermined rates would
result in a lower premium for the small employer. A plan reserving
the right to redetermine the composite rates based upon a change in
enrollment shall use the same specified percentage to measure that
change with respect to all small employers electing composite rates.
SEC. 5. Section 1357.145 is added to the Health and Safety Code,
to read:
1357.145. By January 1, 2001, the department, in consultation
with the Managed Risk Medical Insurance Board, shall develop and
implement a standardized summary brochure and evidence of coverage
format to be used by plans and affiliated plans in order to meet the
disclosure requirements of Section 1357.14. The summary brochure and
evidence of coverage format developed by the department shall be
understandable by a lay person, and present information so that
differences in coverage or payment requirements among plans may be
easily discerned.
SEC. 6. Section 10700 of the Insurance Code is amended to read:
10700. As used in this chapter:
(a) "Agent or broker" means a person or entity licensed under
Chapter 5 (commencing with Section 1621) of Part 2 of Division 1.
(b) "Benefit plan design" means a specific health coverage product
issued by a carrier to small employers, to trustees of associations
that include small employers, or to individuals if the coverage is
offered through employment or sponsored by an employer. It includes
services covered and the levels of copayment and deductibles, and it
may include the professional providers who are to provide those
services and the sites where those services are to be provided. A
benefit plan design may also be an integrated system for the
financing and delivery of quality health care services which has
significant incentives for the covered individuals to use the system.
(c) "Board" means the Major Risk Medical Insurance Board.
(d) "Carrier" means any disability insurance company or any other
entity that writes, issues, or administers health benefit plans that
cover the employees of small employers, regardless of the situs of
the contract or master policyholder. For the purposes of Articles 3
(commencing with Section 10719) and 4 (commencing with Section
10730), "carrier" also includes health care service plans.
(e) "Dependent" means the spouse or child of an eligible employee,
subject to applicable terms of the health benefit plan covering the
employee, and includes dependents of guaranteed association members
if the association elects to include dependents under its health
coverage at the same time it determines its membership composition
pursuant to subdivision (z).
(f) "Eligible employee" means either of the following:
(1) Any permanent employee who is actively engaged on a full-time
basis in the conduct of the business of the small employer with a
normal workweek of at least 30 hours, in the small employer's regular
place of business, who has met any statutorily authorized applicable
waiting period requirements. The term includes sole proprietors or
partners of a partnership, if they are actively engaged on a
full-time basis in the small employer's business, and they are
included as employees under a health benefit plan of a small
employer, but does not include employees who work on a part-time,
temporary, or substitute basis. It includes any eligible employee as
defined in this paragraph who obtains coverage through a guaranteed
association. Employees of employers purchasing through a guaranteed
association shall be deemed to be eligible employees if they would
otherwise meet the definition except for the number of persons
employed by the employer. A permanent employee who works at least 20
hours but not more than 29 hours is deemed to be an eligible
employee if all four of the following apply:
(A) The employee otherwise meets the definition of an eligible
employee except for the number of hours worked.
(B) The employer offers the employee health coverage under a
health benefit plan.
(C) All similarly situated individuals are offered coverage under
the health benefit plan.
(D) The employee must have worked at least 20 hours per normal
workweek for at least 50 percent of the weeks in the previous
calendar quarter. The insurer may request any necessary information
to document the hours and time period in question, including, but not
limited to, payroll records and employee wage and tax filings.
(2) Any member of a guaranteed association as defined in
subdivision (z).
(g) "Enrollee" means an eligible employee or dependent who
receives health coverage through the program from a participating
carrier.
(h) "Financially impaired" means, for the purposes of this
chapter, a carrier that, on or after the effective date of this
chapter, is not insolvent and is either:
(1) Deemed by the commissioner to be potentially unable to fulfill
its contractual obligations.
(2) Placed under an order of rehabilitation or conservation by a
court of competent jurisdiction.
(i) "Fund" means the California Small Group Reinsurance Fund.
(j) "Health benefit plan" means a policy or contract written or
administered by a carrier that arranges or provides health care
benefits for the covered eligible employees of a small employer and
their dependents. The term does not include accident only, credit,
disability income, coverage of Medicare services pursuant to
contracts with the United States government, Medicare supplement,
long-term care insurance, dental, vision, coverage issued as a
supplement to liability insurance, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
(k) "In force business" means an existing health benefit plan
issued by the carrier to a small employer.
(l) "Late enrollee" means an eligible employee or dependent who
has declined health coverage under a health benefit plan offered by a
small employer at the time of the initial enrollment period provided
under the terms of the health benefit plan, and who subsequently
requests enrollment in a health benefit plan of that small employer,
provided that the initial enrollment period shall be a period of at
least 30 days. It also means any member of an association that is a
guaranteed association as well as any other person eligible to
purchase through the guaranteed association when that person has
failed to purchase coverage during the initial enrollment period
provided under the terms of the guaranteed association's health
benefit plan and who subsequently requests enrollment in the plan,
provided that the initial enrollment period shall be a period of at
least 30 days. However, an eligible employee, another person
eligible for coverage through a guaranteed association pursuant to
subdivision (z), or dependent shall not be considered a late enrollee
if: (1) the individual meets all of the following: (A) was covered
under another employer health benefit plan or no share-of-cost
Medi-Cal coverage at the time the individual was eligible to enroll;
(B) certified at the time of the initial enrollment that coverage
under another employer health benefit plan or no share-of-cost
Medi-Cal coverage was the reason for declining enrollment provided
that, if the individual was covered under another employer health
plan, the individual was given the opportunity to make the
certification required by this subdivision and was notified that
failure to do so could result in later treatment as a late enrollee;
(C) has lost or will lose coverage under another employer health
benefit plan as a result of termination of employment of the
individual or of a person through whom the individual was covered as
a dependent, change in employment status of the individual, or of a
person through whom the individual was covered as a dependent, the
termination of the other plan's coverage, cessation of an employer's
contribution toward an employee or dependent's coverage, death of the
person through whom the individual was covered as a dependent, legal
separation, divorce, or loss of no share-of-cost Medi-Cal coverage;
and (D) requests enrollment within 30 days after termination of
coverage or employer contribution toward coverage provided under
another employer health benefit plan; (2) the individual is employed
by an employer who offers multiple health benefit plans and the
individual elects a different plan during an open enrollment period;
(3) a court has ordered that coverage be provided for a spouse or
minor child under a covered employee's health benefit plan; (4) (A)
in the case of an eligible employee as defined in paragraph (1) of
subdivision (f), the carrier cannot produce a written statement from
the employer stating that the individual or the person through whom
an individual was eligible to be covered as a dependent, prior to
declining coverage, was provided with, and signed acknowledgment of,
an explicit written notice in boldface type specifying that failure
to elect coverage during the initial enrollment period permits the
carrier to impose, at the time of the individual's later decision to
elect coverage, an exclusion from coverage for a period of 12 months
as well as a six-month preexisting condition exclusion unless the
individual meets the criteria specified in paragraph (1), (2), or
(3); (B) in the case of an eligible employee who is a guaranteed
association member, the plan cannot produce a written statement from
the guaranteed association stating that the association sent a
written notice in boldface type to all potentially eligible
association members at their last known address prior to the initial
enrollment period informing members that failure to elect coverage
during the initial enrollment period permits the plan to impose, at
the time of the member's later decision to elect coverage, an
exclusion from coverage for a period of 12 months as well as a
six-month preexisting condition exclusion unless the member can
demonstrate that he or she meets the requirements of subparagraphs
(A), (C), and (D) of paragraph (1) or paragraph (2) or (3); or (C) in
the case of an employer or person who is not a member of an
association, was eligible to purchase coverage through a guaranteed
association, and did not do so, and would not be eligible to purchase
guaranteed coverage unless purchased through a guaranteed
association, the employer or person can demonstrate that he or she
meets the requirements of subparagraphs (A), (C), and (D) of
paragraph (1), or paragraph (2) or (3), or that he or she recently
had a change in status that would make him or her eligible and that
application for coverage was made within 30 days of the change; (5)
the individual is an employee or dependent who meets the criteria
described in paragraph (1) and was under a COBRA continuation
provision and the coverage under that provision has been exhausted.
For purposes of this section, the definition of "COBRA" set forth in
subdivision (e) of Section 1373.62 shall apply; or (6) the individual
is a dependent of an enrolled eligible employee who has lost or will
lose his or her no share-of-cost Medi-Cal coverage and requests
enrollment within 30 days after notification of this loss of
coverage.
(m) "New business" means a health benefit plan issued to a small
employer that is not the carrier's in force business.
(n) "Participating carrier" means a carrier that has entered into
a contract with the program to provide health benefits coverage under
this part.
(o) "Plan of operation" means the plan of operation of the fund,
including articles, bylaws and operating rules adopted by the fund
pursuant to Article 3 (commencing with Section 10719).
(p) "Program" means the Health Insurance Plan of California.
(q) "Preexisting condition provision" means a policy provision
that excludes coverage for charges or expenses incurred during a
specified period following the insured's effective date of coverage,
as to a condition for which medical advice, diagnosis, care, or
treatment was recommended or received during a specified period
immediately preceding the effective date of coverage.
(r) "Creditable coverage" means:
(1) Any individual or group policy, contract, or program, that is
written or administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer plan, or any
other entity, in this state or elsewhere, and that arranges or
provides medical, hospital, and surgical coverage not designed to
supplement other private or governmental plans. The term includes
continuation or conversion coverage but does not include accident
only, credit, coverage for onsite medical clinics, disability income,
Medicare supplement, long-term care, dental, vision, coverage issued
as a supplement to liability insurance, insurance arising out of a
workers' compensation or similar law, automobile medical payment
insurance, or insurance under which benefits are payable with or
without regard to fault and that is statutorily required to be
contained in any liability insurance policy or equivalent
self-insurance.
(2) The federal Medicare program pursuant to Title XVIII of the
Social Security Act.
(3) The medicaid program pursuant to Title XIX of the Social
Security Act.
(4) Any other publicly sponsored program, provided in this state
or elsewhere, of medical, hospital, and surgical care.
(5) 10 U.S.C.A. Chapter 55 (commencing with Section 1071)
(Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS)).
(6) A medical care program of the Indian Health Service or of a
tribal organization.
(7) A state health benefits risk pool.
(8) A health plan offered under 5 U.S.C.A. Chapter 89 (commencing
with Section 8901) (Federal Employees Health Benefits Program
(FEHBP)).
(9) A public health plan as defined in federal regulations
authorized by Section 2701(c)(1)(I) of the Public Health Service Act,
as amended by Public Law 104-191, the Health Insurance Portability
and Accountability Act of 1996.
(10) A health benefit plan under Section 5(e) of the Peace Corps
Act (22 U.S.C.A. Sec. 2504(e)).
(11) Any other creditable coverage as defined by subdivision (c)
of Section 2701 of Title XXVII of the federal Public Health Services
Act (42 U.S.C. Sec. 300gg(c)).
(s) "Rating period" means the period for which premium rates
established by a carrier are in effect and shall be no less than six
months.
(t) "Risk adjusted employee risk rate" means the rate determined
for an eligible employee of a small employer in a particular risk
category after applying the risk adjustment factor.
(u) (1) "Risk adjustment factor" means the percent adjustment to
be applied equally to each standard employee risk rate for a
particular small employer that is not a self-employed individual,
based upon any expected deviations from standard claims. Effective
July 1, 2000, this factor may not be more than 105 percent or less
than 95 percent.
(2) "Self-employed risk adjustment factor" means the percent
adjustment to be applied equally to each standard self-employed risk
rate for a particular self-employed individual, based upon any
expected deviations from standard cost of services. Effective July
1, 2000, this factor may not be more than 110 percent or less than 90
percent.
(v) "Risk category" means the following characteristics of an
eligible employee: age, geographic region, and family size of the
employee, plus the benefit plan design selected by the small
employer.
(1) No more than the following age categories may be used in
determining premium rates:
Under 30
30-39
40-49
50-54
55-59
60-64
65 and over
However, for the 65 and over age category, separate premium rates
may be specified depending upon whether coverage under the health
benefit plan will be primary or secondary to benefits provided by the
federal Medicare program pursuant to Title XVIII of the federal
Social Security Act.
(2) Small employer carriers shall base rates to small employers
using no more than the following family size categories:
(A) Single.
(B) Married couple.
(C) One adult and child or children.
(D) Married couple and child or children.
(3) (A) In determining rates for small employers, a carrier that
operates statewide shall use no more than nine geographic regions in
the state, have no region smaller than an area in which the first
three digits of all its ZIP Codes are in common within a county and
shall divide no county into more than two regions. Carriers shall be
deemed to be operating statewide if their coverage area includes 90
percent or more of the state's population. Geographic regions
established pursuant to this section shall, as a group, cover the
entire state, and the area encompassed in a geographic region shall
be separate and distinct from areas encompassed in other geographic
regions. Geographic regions may be noncontiguous.
(B) In determining rates for small employers, a carrier that does
not operate statewide shall use no more than the number of geographic
regions in the state than is determined by the following formula:
the population, as determined in the last federal census, of all
counties which are included in their entirety in a carrier's service
area divided by the total population of the state, as determined in
the last federal census, multiplied by nine. The resulting number
shall be rounded to the nearest whole integer. No region may be
smaller than an area in which the first three digits of all its ZIP
Codes are in common within a county and no county may be divided into
more than two regions. The area encompassed in a geographic region
shall be separate and distinct from areas encompassed in other
geographic regions. Geographic regions may be noncontiguous. No
carrier shall have less than one geographic area.
(w) "Small employer" means any of the following:
(1) Any person, proprietary or nonprofit firm, corporation,
partnership, public agency, or association that is actively engaged
in business or service that, on at least 50 percent of its working
days during the preceding calendar quarter, or preceding calendar
year, employed at least two, but not more than 100, eligible
employees, the majority of whom were employed within this state, that
was not formed primarily for purposes of buying health insurance and
in which a bona fide employer-employee relationship exists. In
determining whether to apply the calendar quarter or calendar year
test, the insurer shall use the test that ensures eligibility if only
one test would establish eligibility. In determining the number of
eligible employees, companies that are affiliated companies and that
are eligible to file a combined income tax return for purposes of
state taxation shall be considered one employer. Subsequent to the
issuance of a health benefit plan to a small employer pursuant to
this chapter, and for the purpose of determining eligibility, the
size of a small employer shall be determined annually. Except as
otherwise specifically provided, provisions of this chapter that
apply to a small employer shall continue to apply until the health
benefit plan anniversary following the date the employer no longer
meets the requirements of this definition. It includes any small
employer as defined in this paragraph who purchases coverage through
a guaranteed association, and any employer purchasing coverage for
employees through a guaranteed association.
(2) Any self-employed person, meaning an individual or sole
proprietor who derives at least 75 percent of his or her income from
a trade or business through which the individual or sole proprietor
has attempted to earn taxable income and for which he or she has
filed the appropriate Internal Revenue Service Form 1040, Schedule C
or F, for the previous taxable year and documentation demonstrating
the person's status as a bona fide business to the extent that the
documentation is otherwise required in the jurisdiction in which the
person resides or works. Nothing in this section is intended to
permit a carrier to impose its own definition of a business or
exclude a self-employed individual who otherwise meets the
requirements of this chapter.
(3) Any guaranteed association, as defined in subdivision (y),
that purchases health coverage for members of the association.
(x) "Standard employee risk rate" means the rate applicable to an
eligible employee in a particular risk category in a small employer
group.
(y) "Guaranteed association" means a nonprofit organization
comprised of a group of individuals or employers who associate based
solely on participation in a specified profession or industry,
accepting for membership any individual or employer meeting its
membership criteria which (1) includes one or more small employers as
defined in paragraph (1) of subdivision (w), (2) does not condition
membership directly or indirectly on the health or claims history of
any person, (3) uses membership dues solely for and in consideration
of the membership and membership benefits, except that the amount of
the dues shall not depend on whether the member applies for or
purchases insurance offered by the association, (4) is organized and
maintained in good faith for purposes unrelated to insurance, (5) has
been in active existence on January 1, 1992, and for at least five
years prior to that date, (6) has been offering health insurance to
its members for at least five years prior to January 1, 1992, (7) has
a constitution and bylaws, or other analogous governing documents
that provide for election of the governing board of the association
by its members, (8) offers any benefit plan design that is purchased
to all individual members and employer members in this state, (9)
includes any member choosing to enroll in the benefit plan design
offered to the association provided that the member has agreed to
make the required premium payments, and (10) covers at least 1,000
persons with the carrier with which it contracts. The requirement of
1,000 persons may be met if component chapters of a statewide
association contracting separately with the same carrier cover at
least 1,000 persons in the aggregate.
This
subdivision applies regardless of whether a master policy by an
admitted insurer is delivered directly to the association or a trust
formed for or sponsored by an association to administer benefits for
association members.
For purposes of this subdivision, an association formed by a
merger of two or more associations after January 1, 1992, and
otherwise meeting the criteria of this subdivision shall be deemed to
have been in active existence on January 1, 1992, if its predecessor
organizations had been in active existence on January 1, 1992, and
for at least five years prior to that date and otherwise met the
criteria of this subdivision.
(z) "Members of a guaranteed association" means any individual or
employer meeting the association's membership criteria if that person
is a member of the association and chooses to purchase health
coverage through the association. At the association's discretion,
it may also include employees of association members, association
staff, retired members, retired employees of members, and surviving
spouses and dependents of deceased members. However, if an
association chooses to include those persons as members of the
guaranteed association, the association must so elect in advance of
purchasing coverage from a plan. Health plans may require an
association to adhere to the membership composition it selects for up
to 12 months.
(aa) "Affiliation period" means a period that, under the terms of
the health benefit plan, must expire before health care services
under the plan become effective.
SEC. 7. 17053.56 is added to the Revenue and Taxation Code, to
read:
17053.56. (a) For each taxable year beginning on or after January
1, 1999, and before January 1, 2004, there shall be allowed as a
credit against the "net tax," as defined in Section 17039, an amount
equal to 25 percent of the qualified expenses paid or incurred by a
taxpayer during the taxable year to participate in a health care
service plan offered by an employer of the taxpayer through a
nonprofit purchasing coalition.
(b) For purposes of this section, "qualified expenses" means
amounts paid or incurred for any premium, deductible, copayment, or
other out-of-pocket cost to participate in a health care service plan
offered by an employer of the taxpayer through a nonprofit
purchasing coalition.
(c) The credit allowed by this section may be claimed only if the
federal government allows a tax credit for small employers that
provide health coverage for their employees through a nonprofit
purchasing coalition.
(d) The credit shall be in lieu of any deduction for the expenses
for which a credit is claimed pursuant to this section.
(e) In the case where the credit allowed by this section exceeds
the "net tax," the excess may be carried over to reduce the "net tax"
in the following year, and succeeding years if necessary, until the
credit is exhausted.
(f) This section shall remain in effect only until December 1,
2004, and as of that date is repealed. However, any unused credit
may continue to be carried forward, as provided in subdivision (e),
until the credit is exhausted.
SEC. 7. It is the intent of the Legislature to allow a credit
against the "net tax," as defined in Section 17039 of the Revenue and
Taxation Code, in an amount equal to 25 percent of the qualified
expenses paid or incurred by a taxpayer during the taxable year to
participate in a health care service plan offered by an employer of
the taxpayer through a nonprofit purchasing coalition. This credit
shall be allowed only if the federal government allows a tax credit
for small employers that provide health coverage for their employees
through a nonprofit purchasing coalition.
SEC. 8. No reimbursement is required by this act pursuant to
Section 6 of Article XIIIB of the California Constitution because the
only costs that may be incurred by a local agency or school district
will be incurred because this act creates a new crime or infraction,
eliminates a crime or infraction, or changes the penalty for a crime
or infraction, within the meaning of Section 17556 of the Government
Code, or changes the definition of a crime within the meaning of
Section 6 of Article XIIIB of the California Constitution.