BILL ANALYSIS
AB 745
Page 1
Date of Hearing: May 5, 2009
ASSEMBLY COMMITTEE ON HEALTH
Dave Jones, Chair
AB 745 (Coto) - As Introduced: February 26, 2009
SUBJECT : Self-funded dental benefit plans: administrators.
SUMMARY : Requires the third party administrator (TPA) of a
self-funded dental benefit plan to include a disclosure in the
explanation of benefits (EOB) document and benefit claim forms
which provides the contact information for the federal
Department of Labor (DOL), which regulates self-funded plans, in
the event the consumer has a payment dispute with the plan.
Specifically, this bill :
1)Directs the TPA of a self-funded dental benefit plan to
include the following disclosure in the EOB document and in
forms sent to claimants in response to claims for benefits:
"This dental plan is self-funded and subject to
compliance with the federal Employee Retirement
Income Security Act (ERISA). As such, it is not
subject to consumer protection provisions of state
law governing health care coverage for dental care.
Any questions, appeals, or disputes arising from the
payment of a submitted claim should be directed to
the entity providing the coverage, or to the U.S.
DOL, Office of Participant Assistance."
2)Specifies that this bill only applies to a TPA for a
self-funded dental benefit plan.
3)Makes a legislative finding that regulating TPAs pursuant to
this bill constitutes a regulation of insurance and is saved
from preemption under ERISA.
EXISTING FEDERAL LAW :
1)Establishes ERISA which sets minimum standards for the
regulation of any private-sector plan, created when an
employer or union compensates employees in the form of
pensions and other benefits, including employer-sponsored
health coverage.
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2)Provides, under ERISA, for the formation of self-funded plans
and multiple employer welfare arrangements, as alternatives to
health insurance programs, health maintenance organizations,
and preferred provider organizations.
3)Requires, under ERISA, a TPA to automatically provide to an
ERISA-regulated plan participant the summary plan description
which gives information about the benefits available under the
plan, the rights of participants and beneficiaries in the
plan, how benefits are obtained, and the process for appealing
denied benefits.
4)Specifies, through ERISA's preemption clause, that ERISA
explicitly supersedes state laws that relate to
ERISA-regulated plans.
EXISTING STATE LAW:
1)Provides for the regulation of health insurers by the
California Department of Insurance (CDI) and health plans by
the Department of Managed Health Care (DMHC).
2)Defines "administrator" as any person who collects any charge
or premium from, or who adjusts or settles claims on,
residents of this state in connection with life or health
insurance coverage other than an employer on behalf of its
employees or the employees of one or more subsidiary or
affiliated corporations of that employer; a union on behalf of
its members; an insurance company which is either licensed in
this state or acting as an insurer, as specified; or, prepaid
hospital or health care service plan, among others.
3)Prohibits an administrator from acting as such without a
written agreement between the administrator and the insurer,
as specified.
4)Requires, pursuant to the written agreement in 2) above, the
payment to the administrator of any premiums or charges for
insurance by, or on behalf of, the insured to be deemed to
have been received by the insurer and prohibits the payment of
return premiums or claims by the insurer to the administrator
from being deemed payment to the insured or claimant until
such payments are received by the insured or claimant.
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5)Requires the administrator to maintain adequate books and
records of all transactions between it, and insurers and
insured persons, as specified. Requires the Insurance
Commissioner to have access to the books and records for the
purpose of examination, audit, and inspection.
6)Requires, where the services of an administrator are utilized,
the administrator to provide a written notice approved by the
insurer, to insured individuals, advising them of the identity
of and relationship among the administrator, the policyholder
or enrollee, and the insurer.
7)Directs an administrator who collects funds to identify and
state separately in writing to the person paying to the
administrator any charge or premium for insurance coverage the
amount of any such charge or premium specified by the insurer
for such insurance coverage.
8)Requires, in regulation, dental insurance policies regulated
by CDI and dental-only specialized health plans regulated by
DMHC to disclose in their evidence of coverage the address and
telephone number designated by the policy or plan to which
complaints from members are to be directed and a description
of the policy or plan's grievance procedure.
FISCAL EFFECT : None
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, current law
requires dental benefit plans regulated by CDI or DMHC to
provide certain notices to consumers, including a notice that
specifies the "800" telephone number and address of the
regulator responsible for handling consumer complaints.
However, the author points out that self-funded
employer-sponsored benefit plans are regulated by ERISA, which
generally preempts state law and instead provides its own
requirements. According to the author, one notable exception
to ERISA preemption allows states to enforce laws that
regulate the business of insurance, including TPAs, which, the
author asserts, are maintained by most self-funded dental
plans. The author states that this bill is designed to
regulate the business of insurance by requiring insurance
entities, such as TPAs, to disclose to consumers in
ERISA-covered plans information regarding how to contact the
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federal DOL, the regulatory agency that oversees these plans,
relative to possible payment disputes.
2)ERISA AND SELF-FUNDED PLANS . ERISA is a federal law that sets
minimum standards for most pension and group health plans
(group benefit plans) voluntarily established by employers and
employee organizations. ERISA requires plans to provide
participants with important information about plan features
and funding; provides fiduciary responsibilities for those who
manage and control plan assets; requires plans to establish a
grievance and appeals process for participants to get benefits
from their plans; and, gives participants the right to sue for
benefits and breaches of fiduciary duty.
ERISA's treatment of health plans is both complicated and
confusing. ERISA has been interpreted as dividing health
plans into two groups regulated differently under the law: a)
individuals who are covered by self-insured plans for which
the employer, rather than an insurer, assumes the risk for
paying for covered services; and, b) individuals who are
covered by purchased insurance. ERISA also distinguishes
between the regulation of health plans and the business of
insurance, for purposes of determining federal and state
regulatory authority. As these distinctions are not clear
cut, ERISA has been the subject of many court cases.
Generally, ERISA permits states to regulate the business of
insurance, including instances in which an ERISA plan
contracts with a state licensed insurer to provide health care
to the employees. ERISA generally preempts states from
regulating health benefits provided by a self-insured ERISA
plan. ERISA self-insured plans are subject to regulation and
oversight by the federal DOL. Consequently, state insurance
departments have no authority to investigate consumer
complaints that involve self-funded ERISA. ERISA governs
approximately 2.5 million health benefit plans sponsored by
private employers nationwide.
In self-funded plans, also known as self-insured plans, the
employer maintains enough money to cover employee medical
charges, and then hires a TPA, often an insurance company, to
administer the program. Self-funded plans are not
underwritten by either an insurance company or a health plan.
Coverage is provided for a group and is financed by the
self-insured entity. For example, a large employer or union
may find it economically advantageous to pay the cost for
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medical services for its employees subject to the terms and
conditions of the plan rather than purchase either a group
insurance policy or a group health plan. When an employer
self-funds the plan, it is generally not subject to state laws
and regulations so state mandated benefits or prompt payment
requirements do not apply. In circumstances in which an
insurance company acts as a TPA to process claims for an
employer self-funded plan, the insurance company is also
exempt from state laws and regulations.
3)REGULATION OF TPAs . According to CDI, it is common for
self-insured plans to turn over the administration of the
health plans to a TPA. The TPA handles all administrative
tasks including claims processing and payments. Often the
employer will contract with an insurance company to act as a
TPA for all health care claims. In these circumstances, the
insurer is not subject to state laws and regulations. CDI
indicates that this bill would apply to both TPAs that are
required by CDI to obtain a license to administer dental
benefits for a self-funded employer and a health insurer who
is functioning in an administrative services only (ASO)
capacity. Health insurers with the ASO designation and who
hold certificates of authority to transact health insurance
are not required to have a separate TPA license to act as a
TPA.
4)DOL OFFICE OF PARTICIPANT ASSISTANCE . According to DOL's Web
site, the Office of Participant Assistance (OPA) was created
to educate participants, beneficiaries, and plan sponsors
about their rights and obligations under employee benefit
laws, and to assist individuals in obtaining retirement and
health benefits that have been improperly denied. OPA
currently employs 108 Benefits Advisors located throughout the
U.S. in 15 field offices. In 2008, benefits advisors closed
158,526 cases of participant inquiries or complaints, and
recovered over $139 million in benefits for participants that
had been improperly denied through an informal negotiation
process with the employer. Benefits advisors inform the
employer about their responsibilities under the law and
facilitate resolution of the complaint without formal
investigation or litigation.
Benefits advisors also respond to compliance related inquiries
directly from employers, plan sponsors, and providers. Last
year they handled 16,452 such inquiries. Benefit advisors
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play a key role in DOL's overall enforcement program. When an
advisor receives a complaint from a participant indicating a
fiduciary breach by the employer or a problem that impacts all
or several participants in the plan, the advisor makes a
referral to the enforcement staff for possible investigation.
Referrals from benefits advisors in 2008 resulted in 871
enforcement cases being opened and monetary results from
referred cases totaled $99.7 million. Often when situations
require investigation and litigation to resolve, participants
are left in limbo for months or years before a final
resolution of the case is settled. DOL has implemented a
policy to keep participants informed about the status of their
complaint both before and after it has been referred for
enforcement.
5)SUPPORT . The sponsor of this bill, the California Dental
Association (CDA) writes in support that ERISA-regulated plans
are not required to disclose that they are so regulated, and
therefore typically do not include a notification and contact
number of the federal agency which regulates them, thereby
making it difficult for either a patient or provider to know
where to pursue a possible payment dispute with a self-funded
dental plan. CDA asserts that this bill is a reasonable
measure to address the lack of adequate information provided
to patients who are in self-funded plans.
6)OPPOSITION . The Association of California Life and Health
Insurance Companies (ACLHIC) opposes this bill because it is
concerned that this bill sets a dangerous precedent by
expanding CDI's authority over TPAs that are not a contract of
insurance. ACLHIC also objects to requiring the disclosure in
this bill to be provided in the EOBs because they usually
contain a standard format and imposing changes that make them
state-specific is a very burdensome and costly requirement.
ACHLIC contends that most EOBs include information that meets
ERISA requirements and adding the lengthy disclosure required
in this bill will only confuse the consumer.
7)AUTHOR'S AMENDMENTS . The author intends to offer amendments
in committee to require the TPA to provide the phone number
for the nearest OPA field office in the disclosure.
8)POLICY QUESTION . Should the disclosure requirements in this
bill apply to all self-funded plans, not just dental?
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REGISTERED SUPPORT / OPPOSITION :
Support
California Dental Association (sponsor)
Opposition
Association of California Life and Health Insurance Companies
Analysis Prepared by : Cassie Rafanan / HEALTH / (916)
319-2097