BILL ANALYSIS
AB 163
Page 1
Date of Hearing: April 21, 2009
ASSEMBLY COMMITTEE ON HEALTH
Dave Jones, Chair
AB 163 (Emmerson) - As Amended: April 13, 2009
SUBJECT : Amino acid-based elemental formulas.
SUMMARY : Requires all health plans and health insurers to cover
the use of amino acid-based elemental formulas (AAEFs) for the
diagnosis and treatment of eosinophilic gastrointestinal
disorders (EGIDs), as specified. Specifically, this bill :
1)Requires all full-service health care service plan (health
plan) contracts and those health insurance policies that
provide coverage for hospital, medical, or surgical expenses,
to provide coverage for the use of AAEFs, regardless of the
delivery method, for the diagnosis and treatment of EGIDs,
when the prescribing physician has issued a written order
stating that the AAEF is medically necessary.
2)Exempts from the provisions of this bill specialized health
insurance, Medicare supplement insurance, CHAMPUS-supplement
insurance, or TRICARE-supplement insurance, or to hospital
indemnity, hospital-only, accident-only, or specified disease
insurance.
EXISTING LAW :
1)Requires health plan contracts and health insurance policies,
which provide coverage for hospital, medical, or surgical
expenses, to cover formula and special food products that are
part of a prescribed diet deemed to be necessary for the
treatment of phenylketonuria (PKU) under the terms and
conditions of the plan contract or policy. Exempts specified
health plan contracts and specified insurance products.
2)States that coverage of medically necessary formulas and
special foods for PKU is limited to the extent that their cost
exceeds the cost of a normal diet.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
COMMENTS :
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1)PURPOSE OF THIS BILL . According to the author, this bill is
needed to enable patients with EGIDs to have access to the
life-saving formulas they need, regardless of the way in which
the formula is consumed. Currently, insurers and health plans
cover the costs of elemental formulas when administered by a
gastric feeding tube, or G-tube, but not when consumed orally,
which costs considerably less. The formula costs about $1,200
per month when taken orally. This bill requires health plans
and health insurers to provide coverage for formulas
prescribed by a physician and deemed medically necessary,
regardless of the delivery method.
2)BACKGROUND . EGIDs occur when eosinophils, a type of white
blood cell, are found in above-normal amounts in various parts
of the body including the esophagus, stomach, and small and
large intestines. When the body wants to attack a substance,
such as an allergy-triggering food or airborne allergen,
eosinophils respond by moving to the area and releasing
toxins. Producing too many eosinophils can cause chronic
inflammation, resulting in tissue damage. Common symptoms
include difficulty swallowing, nausea and vomiting, failure to
thrive, malnutrition, abdominal or chest pain, and difficulty
sleeping. EGIDs are very rare conditions, affecting
approximately four of every 10,000 individuals.
3)AMINO ACID-BASED ELEMENTAL FORMULAS . Individuals with EGIDs
are unable to ingest food without suffering complications.
Elemental formulas are complete nutritional formulas designed
for people who have a dysfunctional or shortened
gastrointestinal tract and are unable to tolerate or absorb
whole foods or formulas composed of whole proteins, fats, and
carbohydrates. AAEFs are made from individual non-allergenic
amino acids unlike regular dairy milk or soy-based formulas
and foods that contain many complete proteins. Patients
typically take elemental formulas either orally or through a
feeding tube inserted into the stomach. According to a 2007
report by the American Gastroenterological Association
Institute, the use of an AAEF is currently the gold standard
of treatment for individuals suffering from EGIDs. The report
found that, in children specifically, the use of elemental
formulas has been shown to be extremely effective in 92%-98%
of patients.
4)CALIFORNIA HEALTH BENEFITS REVIEW PROGRAM . AB 1996 (Thomson),
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Chapter 795, Statutes of 2002, requests the University of
California to assess legislation proposing a mandated benefit
or service, and prepare a written analysis with relevant data
on the public health, medical, and economic impact of proposed
health plan and health insurance benefit mandate legislation.
CHBRP was created in response to AB 1996. SB 1704 (Kuehl),
Chapter 684, Statutes of 2006, extends the sunset on the CHBRP
process. In its analysis of AB 163, CHBRP reported:
a) Medical Effectiveness . Very few limited studies exist on
the effectiveness of AAEFs for EGIDs. The few studies
reviewed by CHBRP covered two specific disorders affecting
inflammation of the esophagus and one or more areas of the
gastrointestinal tract caused by the infiltration of
eosinophils in response to environmental and food
allergens. In addition to medication, there are two
treatment options involving dietary modification: consuming
AAEFs and eliminating trigger foods from a patient's diet.
The evidence reviewed suggests that elemental formulas
improve certain clinical symptoms associated with the food
allergic response to EGIDs, including diarrhea, vomiting,
poor weight gain, food refusal, and abdominal pain.
However, results from studies comparing the use of
elemental formulas to an elimination diet are ambiguous.
b) Utilization, Cost, and Coverage Impacts . CHBRP reports
that, currently, AAEFs administered by a feeding tube are
99% covered by the private and public insurance market.
About 35% of the privately and publicly insured population,
roughly 7.5 million people, are covered for AAEFs taken
orally but coverage varies by market segment. The private
insurance market makes coverage available to about 25% of
enrollees. AAEFs taken orally are not a covered benefit
for enrollees in the California Public Employees'
Retirement System (CalPERS). In the publicly insured
market segment, coverage varies from 0% for CalPERS
enrollees to 100% for enrollees in Medi-Cal and children in
the California Children's Services (CCS) program. Of the
insured populations with coverage subject to this bill,
CHBRP estimates that four per 10,000 individuals, for a
total of 8,500, have EGIDs. Of these 8,500 individuals
with EGIDs, 615 persons who currently do not have coverage
for formula administered by a feeding tube or orally would
gain coverage as a result of this bill. CHBRP maintains
that the utilization rates for AAEFs for persons with EGIDs
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are estimated to remain unchanged as a result of this bill
for the following reasons:
i) Expert clinical opinion suggests that enrollees are
currently using formula consistent with medically
necessary treatment;
ii) Experts also suggest that anyone receiving formula
via feeding tube would keep such a tube in place, even if
oral formula was to be covered, primarily because of poor
patient compliance with oral formula due to its
unpalatability. Therefore, CHBRP assumes there would be
no shift in formula ingestion routes;
iii) While financial difficulties due to the cost of
these formulas may slightly reduce the amount of oral
formula used for those currently lacking coverage,
decreased demand because of restrictions in insurance
coverage cannot be quantified due to lack of data;
iv) Any potential increase in utilization would be
offset by issues such as the poor taste and
unpalatability of these products; and,
v) Baseline utilization levels are based on the upper
bound estimates of formula use per individual, due to
lack of data on exact utilization levels.
CHBRP also notes that this bill does not preclude health
plans and health insurers from imposing cost-sharing
requirements or conducting utilization or medical necessity
reviews for this benefit.
According to CHBRP, the 615 public and private enrollees
who currently lack coverage for AAEFs pay $13,900 in
out-of-pocket costs each year. Those $13,900 expenditures
would be shifted to premiums by health plans and health
insurers as a result of this bill. However, these 615
enrollees would incur an additional $722,000 in copayments
for the newly covered benefit. Total expenditures as a
result of this bill are estimated to increase by .002%, or
$1.4 million, each year, solely due to the additional
administrative costs associated with providing coverage for
people who do not currently have coverage for oral AAEFs.
Total premiums for private employers are estimated to
increase by 0.01%, or $6.3 million. Total employer premium
expenditures for CalPERS are estimated to increase by
$478,000, or $0.06 per member per month. Premiums paid by
employees in group insurance, including CalPERS, would
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increase by 0.01%, or $1.7 million. Total premiums for
those with individually purchased insurance are estimated
to increase by $716,000 or $0.04 per member per month in
the Department of Managed Health Care regulated market and
$0.012 per member per month in the California Department of
Insurance regulated market.
c) Public Health Impact . CHBRP indicates that the primary
health outcome associated with use of AAEFs is a decrease
in symptoms, such as dysphasia, pain, and vomiting, related
to EGIDs. This bill would not result in an increase in
utilization of AAEFs for EGIDs but it would increase
coverage for this benefit and therefore decrease
out-of-pocket expenditures for 615 people. While these 615
individuals are not expected to incur any improved health
outcomes due to this bill, it is likely that this bill
would reduce the financial hardship associated with these
conditions, given that the average estimated cost of AAEFs
is $13,900 per year. Furthermore, since this bill is not
anticipated to affect utilization rates of AAEFs, it is not
expected to have a measurable effect on gender, racial, or
ethnic disparities in health nor is it expected to reduce
premature death or the economic costs associated with these
disorders.
5)OTHER STATES . CHBRP reports that Arizona, Illinois, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, New York,
and Rhode Island have enacted legislation to provide coverage
for AAEFs for severe food allergies, food protein intolerance,
and EGIDs.
6)PREVIOUS LEGISLATION .
a) AB 2174 (Laird) of 2008, which was substantially similar
to this bill, would have required all full-service health
plan contracts and those health insurance policies that
provide coverage for hospital, medical, or surgical
expenses, to provide coverage for the use of AAEFs for the
diagnosis and treatment of specified disorders, when the
prescribing physician has issued a written order stating
that the formula is medically necessary. AB 2174 was held
in the Senate Appropriations Committee.
b) AB 2012 (Emmerson), Chapter 756, Statutes of 2006,
requires health plans and health insurers to set benefit
levels for orthotic and prosthetic devices at no less than
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the annual and lifetime benefit maximums applicable to
basic health care services, and limits out-of-pocket
amounts for these items.
7)SUPPORT . The sponsor of this bill, the American Partnership
for Eosinophilic Disorders (EDs), asserts that AAEFs are often
a life-sustaining, sole source of nutrition for many patients
suffering from severe food allergies, EDs, and other medical
conditions. The sponsor contends that this bill is needed to
correct the inequity in health coverage when a patient is
covered for AAEFs if the formula is tube-fed but denied the
same coverage if it is consumed orally. The Campaign Urging
Research for EDs writes in support that patients diagnosed
with EDs need these formulas to survive. The International
Eosinophil Society states that amino acid formulas are often
the only treatment that leads to significant disease remission
and improved quality of life for affected patients. The Food
Allergy and Anaphylaxis Network maintains that this bill will
allow parents to afford what is essentially the sole source of
their child's survival by keeping their child symptom-free.
Finally, the California Medical Association believes that
covering the oral formula is not only more cost effective, it
also simplifies a patient's life, particularly in children
where these rare diseases are diagnosed more often.
8)OPPOSITION . Health plans, health insurers, and business
groups generally object to new benefit mandates because, while
they sympathize with the intent to meet a need, mandates
increase the already high cost of health care for everyone and
eliminate the flexibility that employers would otherwise have
to choose benefits that best address the needs of their
employees, which, taken together, may lead individuals and
employers to drop coverage.
REGISTERED SUPPORT / OPPOSITION :
Support
American Partnership for Eosinophilic Disorders (sponsor)
California Medical Association
Campaign Urging Research for Eosinophilic Disorders
International Eosinophil Society
The Food Allergy & Anaphylaxis Network
Former Assemblyman John Laird
Several individuals
Opposition
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Association of California Life and Health Insurance Companies
California Association of Health Plans
California Chamber of Commerce
National Federation of Independent Business
Analysis Prepared by : Cassie Rafanan / HEALTH / (916)
319-2097